Trustee Banks Restructuring Act 1988 Consolidated Financial Statements for the Year Ended 31 March 1996 Trust Directory for the Year Ended 31 March 1996 Trust Particulars: The Trust Bank Canterbury Community Trust Inc. was incorporated as a charitable trust in accordance with the provisions of the Trustee Banks Restructuring Act 1988. The purpose of the community trust is to provide charitable, cultural, philanthropic and recreational benefits to the community. Date of Trust Deed: 30 May 1988. Settlor: Minister of Finance. Trustees: I. D. Howell (Chairperson), V. S. Buck, J. C. Bedwell, B. P. Duncan, Sir Hamish Hay (retired 31 May 1995), P. H. Malone, J. M. McKendry, J. L. Palmer, R. H. Scott, F. J. Smith, H. C. Sutton (retired 31 May 1995), R. J. Todd, M. W. Wisheart and N. A. Allan (appointed 1 June 1995). Chief Executive Designate: R. L. E. Austin. Executive Director: K. M. Loughlin. Donations Officer: P. D. Stewart. Administrative Assistant: L. E. Riddler. Accountants: KPMG, P.O. Box 274, Christchurch (M. J. Hadlee). Auditors: Deloitte Touche Tohmatsu, P.O. Box 248, Christchurch (I. G. Rowley). Investment Fund Manager: Armstrong Jones (NZ) Limited. Custodial Trustee: State Street Limited. Bankers: Trust Bank New Zealand Limited. Solicitors: Buddle Findlay, P.O. Box 322, Christchurch (C. H. Levin). Trustees' Report for the Year Ended 31 March 1996 Objectives of the Trust and Charitable Company Subsidiary: To provide charitable, cultural, philanthropic and recreational benefits to the communities of Canterbury, Marlborough and Nelson. Policies and Structure of the Trust and Charitable Company Subsidiary: These organisations are structured to include community representatives from all three regions of the bank it represents. Their policies are to manage and distribute their income to the community they serve. Activities of the Trust: During the period under review the trust and its charitable subsidiary have provided financial assistance to a wide range of community groups in Canterbury, Marlborough and Nelson. In addition to responding to applications for assistance these organisations have initiated several new projects of benefit to community groups. Trustees' Remuneration: During the period the trustees of the trust received $82,800 (1995 $81,736) in trustee's fees. Review of Results and Financial Position: The total distribution from the trust and charitable company was $12.9 million (1995 $6.7 million) by way of donations to community groups during the last 12 months. Signed on behalf of the board of trustees: Chairperson: I. D. HOWELL. Trustee: R. J. TODD. Date: 28 May 1996. Consolidated Statement of Financial Performance for the Year Ended 31 March 1996 1996 1995 Note $ $ Revenue Dividend 12,600,000 7,725,000 Interest 659,150 1,139,900 Investment income 2,492,827 819,559 Total revenue 15,751,977 9,684,459 Less expenses Advertising, public relations, distribution and travelling costs 216,028 111,569 Audit fees 7,750 5,550 CTIL administration and support costs 57,973 48,117 Custodial and investment management fees 123,988 51,109 Depreciation and loss on sale 22,684 14,126 Premises 35,794 32,729 Salaries and professional fees 244,763 153,252 Trustees fees 82,800 81,736 Write off of debit balance in revaluation reserve4 14,740 7,899 Total expenses 806,520 506,087 Net income before taxation 14,945,457 9,178,372 Less taxation12 40,892 Net income before retentions and distributions 14,904,565 9,178,372 Less retentions Future donation reserve 927,932 386,265 Capital base reserve 500,000 372,935 1,427,932 759,200 Available for distribution 13,476,633 8,419,172 Donations approved3 4,217,578 3,543,650 Special project donations approved3 8,684,870 3,156,244 Less donations refunded (31,303) (38,601) Total distributed/approved 12,871,145 6,661,293 Net surplus transferred to trust funds $605,488 $1,757,879 Transferred to: Accumulated income4 605,488 1,757,879 $605,488 $1,757,879 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 Equity for the Year Ended 31 March 1996 1996 1995 Note $ $ Total equity at beginning of year 253,968,718 300,736,492 Net surplus for the year 605,488 1,757,879 Increase in future donation reserve4 927,932 386,265 Increase in capital base reserve4 500,000 372,935 Revaluation of investments4 69,600,000 (49,284,853) Total equity at end of year $325,602,138 $253,968,718 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 1996 1996 1995 Note $ $ Trust funds 4 Capital fund 72,698,521 72,698,521 Accumulated income 2,363,367 1,757,879 Future donation reserve 5,176,546 4,248,614 Capital base reserve 872,935 372,935 Revaluation reserve 244,490,769 174,890,769 Total trust funds $325,602,138 $253,968,718 Represented by: Current assets Trust Bank New Zealand Limited Current account 71,180 109,070 On call account 1,367,780 Term deposits 6,533,175 3,835,613 Accrued interest 143,915 123,995 Taxation refund due12 40,056 Goods and services tax 11,276 Current portion of investments 634,976 309,330 8,802,358 4,378,008 Investments 2 Government securities 593,006 902,570 Local authorities securities 539,917 551,975 Trust Bank New Zealand Limited shares 296,400,000 226,800,000 Community loans 543,625 587,969 Armstrong Jones (NZ) Limited managed funds 23,147,761 21,819,559 Investment property6 192,539 321,416,848 250,662,073 Less current portion (634,976) (309,330) 320,781,872 250,352,743 Fixed assets7 100,865 97,191 Total assets 329,685,095 254,827,942 Current liabilities Accounts payable 92,425 39,048 Accrued charges 28,310 24,000 Committed special project donations 3,682,522 462,176 Committed donations 159,700 19,000 Committed community loans 120,000 315,000 Total liabilities 4,082,957 859,224 Net assets $325,602,138 $253,968,718 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 1996 1996 1995 $ $ Cash was provided by (used for): Operations 5 Dividend from Trust Bank New Zealand Limited 12,600,000 7,725,000 Income from investments 642,887 1,105,364 Refund from disaster relief fund 38,601 Payments to suppliers and employees (658,517) (388,869) Payments to trustees (102,389) (81,736) Payments of taxation (77,721) Payments of goods and services tax (5,776) Donations to the community (9,510,104) (7,076,591) 2,888,380 1,321,769 Investing Sale of Government securities 300,000 104,000 Sale of local authorities securities 540,000 Sale of Armstrong Jones Investment 1,164,625 Term deposit (2,697,562) 19,341,336 Purchase of Armstrong Jones Investment (21,000,000) Purchase of investment property (148,539) Community loans (150,656) (58,545) Purchase of fixed assets (54,858) (97,447) Sale of fixed assets 28,500 (1,558,490) (1,170,656) Increase in cash 1,329,890 151,133 Cash at beginning of year 109,070 (42,043) Cash at end of year $1,438,960 $109,070 Represented by: Trust Bank New Zealand Limited Current Account 71,180 109,070 Trust Bank New Zealand Limited On Call Account 1,367,780 $1,438,960 $109,070 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 1996 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 6-36% c.p. Motor vehicles 18-21.6% 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 to the statement of financial performance. Differences between the book value and sale proceeds of investments realised are also 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 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, 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 There have been no changes in accounting policies. All policies have been applied on bases consistent with those used in the previous year. 2. Investments Face Value$ 1996 Market Value$ Cost Price$ 1995 Market Value$ Government securities580,000 593,006 655,112 902,570 Local authorities securities540,000 539,917 584,230 551,975 Community loans543,625 543,625 543,625 587,969 Armstrong Jones (NZ) Limited managed funds23,147,761 21,748,145 21,819,559 24,824,309 23,531,112 23,862,073 No. Trust Bank New Zealand Limited2 000 4,940 865 3,780 Trust Bank New Zealand Limited (via Community Trust Nominees Limited)119 998 000 296,395,060 51,908,365 226,796,220 120 000 000 296,400,000 51,909,230 226,800,000 $321,224,309 $75,440,342 $250,662,073 The Trust Bank New Zealand Limited shares are valued at the market price of $2.47 on 31 March 1996. During the month of March the value of the shares increased by $.48 per share. This increase was primarily due to market speculation that the shares held by Community Trust Nominees Limited on behalf of the various Community Trusts were to be sold to a third party at an undisclosed price in the near future. Brief History During 1994 the trust transfered 119 998 000 Trust Bank New Zealand Limited shares to Community Trust Nominees Limited (CTN) which holds 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 has a share capital of $100 consisting of 100 $1 shares, and is wholly owned by CTIL. CTIL has a share capital of 100 000 1 cent shares of which the trust owns 35 539. At balance date the share capital of CTN and CTIL were unpaid. The investment property situated at 262 Oxford Terrace, Christchurch is shown in the statement of financial position at cost. As the investment property is in the early stages of development an independent valuation has not yet been performed. Therefore a net current value as required by SSAP-17 is 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 of income 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 1996 1995 Canterbury9,718,302 5,594,588 Nelson2,116,520 783,757 Marlborough1,067,626 321,549 Less donations refunded(31,303) (38,601) $12,871,145 $6,661,293 Future donation commitments$4,393,122 $525,000 Funds carried forward as accumulated income are available for the payment of donations in the 1996/1997 year. The Trust Bank Canterbury Community Trust distribution policy allows disposable income, being net trading surplus less an allowance for contingencies, to be distributed by way of donation. Donation funds unspent in the current year are provided for and carried forward 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 future disposable income. 4. Trust Funds 1996 1995 Capital fund$72,698,521 $72,698,521 Accumulated income Balance brought forward1,757,879 3,862,349 Transfer from statement of financial performance605,488 1,757,879 Less transfer to future donations reserve (3,862,349) $2,363,367 $1,757,879 Future donations reserve Balance brought forward4,248,614 Future donation reserve transfer current year927,932 386,265 Transfer from accumulated income 3,862,349 $5,176,546 $4,248,614 The future donation reserve has been 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 allows the trust to continue its charitable activities at least in the short term. 1996 1995 Capital base reserve Balance brought forward372,935 Capital base reserve transfer500,000 372,935 $872,935 $372,935 The capital base reserve is an allowance for the erosion of the value of the effective investment base of Canterbury Community Trust Charities Limited. For 1996 this was calculated based on inflation at 2.00% on a capital base of $25,000,000. 1996 1995 Revaluation reserve Balance brought forward174,890,769 224,175,622 Revaluation of securities(14,740) (92,752) Revaluation of shares69,600,000 (49,200,000) Transfer of debit balance14,740 7,899 $244,490,769 $174,890,769 The revaluation reserve measures the difference between the cost of Government and local authorities securities and Trust Bank New Zealand Limited shares and the market value as at 31 March 1996. The transfer of debit balance is in respect of Government and local authorities securities and is taken to the statement of financial performance. 5. Reconciliation of Net Surplus to Net Operating Cash Flow 1996 1995 Net surplus605,488 1,757,879 Adjustments for non cash items in net surplus Armstrong Jones investment income(2,492,827) (819,559) Depreciation16,311 13,570 Loss on realisation of local authorities securities6,882 10,142 Write off of debit balance in revaluation reserve14,740 7,899 (2,454,894) (787,948) Adjustments for changes in working capital Decrease (increase) in accrued interest(19,920) (45,756) Increase (decrease) in accrued charges4,310 24,000 Increase (decrease) in accounts payable53,377 (10,542) Increase (decrease) in donations payable3,361,046 (376,697) Increase (decrease) in taxation payable(40,056) Increase (decrease) in goods and services tax(5,776) 3,352,981 (408,995) Add back Loss on sale6,373 4,519 Future donation reserve transfer927,932 386,265 Capital base reserve transfer500,000 372,935 Deduct Gain on sale (2,886) Capital items included in working capital adjustments(49,000) Cash flow from operations$2,888,380 $1,321,769 6. Capital Commitments Payments made on the investment property as at 31 March 1996 consist of the deposit on the purchase of land at 262 Oxford Terrace, architectual and legal fees. Upon the signing of the purchase contract, the following represents the future estimated capital commitments relating to this project (G.S.T. inclusive): Cost Balance of purchase cost of land539,663 Stamp duty9,910 Architects fees73,935 Leasing commissions and promotions70,875 Progress payments on development: April 1996March 19973,150,000 $3,844,383 There are no other capital commitments (1995 nil). 7. Fixed Assets Cost Accumulated Depreciation 1996 Book Value 1995 Book Value Plant and equipment53,038 15,810 37,228 44,548 Motor vehicles72,654 9,017 63,637 52,643 $125,692 $24,827 $100,865 $97,191 8. Contingent Liabilities There are no contingent liabilities (1995 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 been paid $262,125 (1995 $589,736) of interest from Trust Bank New Zealand Limited. At balance date the bank balances held at Trust Bank New Zealand Limited are $3,147,006 (1995 $5,865,236). 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 Ninety-one percent of the assets of the trust are represented by the investment in Trust Bank New Zealand Limited shares and term investments with Trust Bank New Zealand Limited. The trustees consider the risk of non-recovery of these investments at balance date to be within satisfactory guidelines. Currency Risk The Trust incurs currency risk as as a result of investment transactions entered into by Armstrong Jones (NZ) Limited/Managed Funds. The currency, giving rise to currency risk, in which the trust primarily deals is Australian Dollars. The trust hedges all the Armstrong Jones (NZ) Limited/Managed Funds investment 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 term deposits, Government and local authority securities, and various debt securities held with Armstrong Jones (NZ) Limited/Managed Funds. 12. Taxation 1996 1995 Net income before taxation as per statement of financial performance14,945,457 9,178,372 Add: Non deductible expenditure551,186 356,856 Imputation credits received6,205,970 3,804,851 Less: Non assessable income(2,770,364) (1,812,232) Assessable income for tax purposes18,932,249 11,527,847 Less: loss carry forward entitlement2,363 18,929,886 11,527,847 Taxation @33%6,246,862 3,804,189 Less: imputation credits received6,205,970 3,804,851 40,892 (662) Add: imputation credits transferred to loss carried forward 662 Taxation as per the statement of financial performance40,892 Less: Voluntary tax paid60,000 Resident withholding tax20,948 Taxation payable (refund) as per the statement of financial position$(40,056) $ 13. Events Subsequent to Balance Date On 19 April 1996, Westpac Banking Corporation offered a takeover bid to Community Trust Nominees Limited which the various community trusts agreed to accept. The offer transaction involves a fully imputed dividend and a fully imputed taxable bonus issue. The effective offer price in its various forms is $2.92 per share currently held. Therefore the market value of the shares held by Trust Bank Canterbury Community Trust Inc. as at 19 April 1996 is $350,400,000. Audit Report To the readers of the financial report of Trust Bank South Canterbury Community Trust Inc. we have audited the financial statements. The consolidated financial statements provides information about the past financial performance of the Trust Bank Canterbury Community Trust Inc. and its financial position as at 31 March 1996. This information is stated in accordance with the accounting policies included therein. The 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 1996 and of the results of 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 attached consolidated financial statements: complies with generally accepted accounting practice; give a true and fair view of the financial position of the trust as at 31 March 1996, and the results of its operations and cash flows for the year ended on that date. Our audit was completed on 15 May 1996 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 11, Canterbury Centre, 166 Cashel Mall (P.O. Box 13-744), Christchurch.