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Share Name | Share Symbol | Market | Type |
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Orecap Invest Corp | TSXV:OCI | TSX Venture | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.065 | 0.06 | 0.065 | 0 | 01:00:00 |
Renasant Financial Partners Ltd. ("Renasant" or the "Corporation")(TSX:REN) today reported audited financial results for the year ended March 31, 2008 and the sale of the technology equipment trading business. Renasant is pleased to report that as part of its strategic process, the Corporation has completed the sale of its equipment trading business to a special purpose entity owned equally by the management group and an affiliate of a major shareholder of the Corporation. The transaction was reflective of net book value and closed in June 2008. As a result of the decision to sell the trading business in the year, the trading activities have been characterized as a discontinued business in the 2008 financial statements with retroactive application for Fiscal 2007. Net Income in Fiscal 2008 was $1.2 million or $0.14 per share as compared with $1.6 million or $0.19 per share in the prior year. Net income from continuing operations was $343,000 or $0.04 per share in the year essentially the same as that earned in Fiscal 2007 although the composition was substantially different. Investment income at $6.4 million in the year was approximately 5% greater than last year's value but on a much smaller average portfolio. The appreciation in the value of the Embedded Derivatives contained in Convertible Debentures accounts for this difference. General and Administrative Expenses were almost 50% lower this year at $2.2 million, a function of a much smaller infrastructure and lower salary costs. The Foreign Currency Translation Expense was also lower in the year by approximately $400,000 due to changing currency profiles and the magnitude of funds repatriated in the year. The final component of the difference was the current year charge for contingency matters of $3.0 million with no comparative value in the previous year. Total assets increased to $34.4 million in Fiscal 2008 from $31.5 million in Fiscal 2007 reflecting cash increases primarily associated with changes in working capital. The Corporation's net book value is $24.6 million up from $23.9 million in Fiscal 2007. On a per share basis, shareholder's equity approximates $2.86 at year-end. During Fiscal 2008, the Corporation purchased 83,962 of its outstanding Common Shares at an aggregate cost of $173,000 pursuant to its Normal Course Issuer Bid Program. This compares to 175,000 shares costing $1.9 million in Fiscal 2007. In Fiscal 2009, Renasant will continue to be focused on resolving its litigation and tax contestation matters while generating investment income from its cash balances. RENASANT FINANCIAL PARTNERS LTD CONSOLIDATED BALANCE SHEETS (in thousands of dollars) March 31, 2008 2007 --------- --------- ASSETS Cash and cash equivalents $ 15,209 $ 2,824 Bridge loan investments (Note 4) 9,839 15,858 Loans to officers (Note 3) - 2,081 Receivables 212 300 Income taxes recoverable 3,201 2,605 Capital assets (Note 5) 376 328 Discontinued trading assets (Note 3) 5,570 7,541 --------- --------- $ 34,407 $ 31,537 --------- --------- --------- --------- LIABILITIES Accounts payable and accrued charges $ 6,958 $ 3,807 Future income tax liabilities (Note 8) 976 1,531 Discontinued trading liabilities (Note 3) 1,830 2,286 --------- --------- 9,764 7,624 --------- --------- Contingencies and commitments (Note 9) SHAREHOLDERS' EQUITY Share capital (Note 6) 20,870 21,078 Accumulated other comprehensive loss (983) (675) Retained earnings 4,756 3,510 --------- --------- 24,643 23,913 --------- --------- $ 34,407 $ 31,537 --------- --------- --------- --------- APPROVED BY THE BOARD Director Director RENASANT FINANCIAL PARTNERS LTD CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands of dollars except per share data) Year ended March 31 2008 2007 --------- -------- INVESTMENT INCOME $ 6,408 $ 6,075 --------- -------- GENERAL AND ADMINISTRATIVE EXPENSES 2,192 4,550 FOREIGN CURRENCY TRANSLATION EXPENSE 598 989 CHARGE FOR CONTINGENCIES (NOTE 9) 3,000 - --------- -------- INCOME FROM CONTINUING OPERATIONS 618 536 PROVISION FOR INCOME TAXES (NOTE 8) 275 200 --------- -------- NET INCOME FROM CONTINUING OPERATIONS 343 336 --------- -------- NET INCOME FROM DISCONTINUED OPERATIONS (NOTE 3) Leasing Business - 157 Trading Business 868 1,141 --------- -------- NET INCOME FROM DISCONTINUED OPERATIONS 868 1,298 --------- -------- NET INCOME $ 1,211 $ 1,634 --------- -------- OTHER COMPREHENSIVE (LOSS) INCOME Unrealized foreign currency translation (loss) gain of self sustaining foreign operations (904) 69 Unrealized loss on available for sale, net of financial assets, tax of $nil (2) - --------- -------- TOTAL COMPREHENSIVE INCOME $ 305 $ 1,703 --------- -------- --------- -------- EARNINGS PER COMMON SHARE - BASIC AND DILUTED Continuing operations $ 0.04 $ 0.04 Discontinued operations 0.10 0.15 --------- -------- $ 0.14 $ 0.19 --------- -------- --------- -------- RENASANT FINANCIAL PARTNERS LTD CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND ACCUMULATED OTHER COMPREHENSIVE LOSS (in thousands of dollars) Year ended March 31 2008 2007 ------------------ RETAINED EARNINGS Balance, beginning of year $ 3,510 $ 64,410 Net income for the year 1,211 1,634 Dividends - (61,583) Discount (premium) on cancellation of shares 35 (951) ------------------ Balance, end of year $ 4,756 $ 3,510 ACCUMULATED OTHER COMPREHENSIVE LOSS Balance, beginning of year $ (675) $ (1,733) Translation of net assets in self sustaining foreign operations (904) 69 Foreign currency loss realized on reduction of net investment in self-sustaining foreign operations 598 989 Available for sale securities (2) - ------------------ Balance, end of year $ (983) $ (675) ------------------ RENASANT FINANCIAL PARTNERS LTD CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) Year ended March 31 2008 2007 ------------------- NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES: OPERATING Net income from continuing operations $ 343 $ 336 Items not affecting cash Amortization of capital assets 78 - Unrealized fair value increment on bridge loan investments (4,454) - Interest accrued and other items related to marketable securities - (1,316) Future income tax (recovery) provision (181) 127 Net decrease (increase) in receivables, accounts payable and accrued charges 1,377 (10,805) ------------------- (2,837) (11,658) ------------------- FINANCING Repurchase of shares (173) (1,875) Reduction of capital (26,000) Dividends paid - (61,583) ------------------- (173) (89,458) ------------------- INVESTING Reduction (increase) of bridge loan investments, net 10,471 (2,188) Reduction of marketable securities, net - 86,475 Reduction in loans to officers 2,081 - Additions to capital assets (126) (328) ------------------- 12,426 83,959 ------------------- EFFECT OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (286) 99 ------------------- NET CASH INFLOW (OUTFLOW) FROM CONTINUING OPERATIONS 9,130 (17,058) ------------------- DISCONTINUED OPERATIONS Leasing Operating cash flows - (21,554) Reduction of debt - (12,350) Disposal of leases - 39,461 ------------------- - 5,557 ------------------- Trading Operating cash flows 3,263 1,306 Addition to capital assets (8) (18) ------------------- 3,255 1,288 ------------------- NET CASH INFLOW FROM DISCONTINUED OPERATIONS 3,255 6,845 ------------------- NET CASH INFLOW (OUTFLOW) 12,385 (10,213) Cash and cash equivalents, beginning of year 2,824 13,037 ------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,209 $ 2,824 ------------------- ------------------- REPRESENTED BY: Cash $ 14,043 $ 18 Cash equivalents 1,166 2,806 ------------------- $ 15,209 $ 2,824 ------------------- ------------------- MARCH 31, 2008 AND 2007, (ALL DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT FOR STOCK OPTION EXERCISE PRICE DATA) 1. NATURE OF OPERATIONS Renasant Financial Partners Ltd. (the "Corporation") is an independent financial services provider undertaking investments in both public and private enterprises. The Corporation is also engaged in the wholesale trading of computer assets. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The Corporation's significant accounting policies are summarized as follows: a) Consolidation The financial statements include the accounts of the Corporation and its wholly-owned operating subsidiaries: Renasant Financial Services Inc., MFP Technology Services Inc., both U.S. corporations, and MFP Technology Services (UK) Ltd. b) Measurement uncertainty The preparation of the consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and during the reported period. In particular, there is considerable management judgment involved in estimating the Corporation's liability arising from its potential exposure to certain income tax and litigation matters (Note 9). c) Accounting for discontinued businesses As discussed in Note 3, the Corporation discontinued its lease business in 2006 with the sale of the majority of the lease portfolio. In 2008, the Corporation commenced negotiations with the management group of the trading business concerning the sale of this division which ultimately resulted in the sale of the business after year-end. d) Bridge loan investments Bridge loans The bridge loans represent funds advanced on relatively short-term, mezzanine loans. Bridge loans are recorded at amortized cost. Interest income is recognized on an accrual basis. Fees associated with loans are amortized to income over the remaining term. Loans are classified as impaired when, in management's opinion, there is no longer any reasonable assurance of the timely collection of principal or interest. When a loan is identified as impaired, the accrual of interest is discontinued. Loans are held at amortized cost less any allowance for impairment. Convertible debentures Convertible debentures are recorded at amortized cost. The equity conversion feature is an embedded derivative and is valued separately from the host debt contract. Changes in the fair value of the embedded derivative are recognized in investment income. Common shares Common shares are classified as available for sale and are recorded at fair market value as evidenced by quoted market prices. Prior to ultimate disposal, fair value adjustments are reflected in other comprehensive income. e) Cash and cash equivalents Cash equivalents comprise only highly liquid investments with investment grade credits having maturities at the date of purchase that are less than 90 days. f) Inventory Inventory is valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis. The allowance for obsolescence is based on management estimates of loss giving consideration to inventory aging and market conditions. g) Capital assets Capital assets are recorded at cost less accumulated amortization. Amortization is recorded on a basis that reflects the estimated useful lives of the capital assets not to exceed 5 years. h) Foreign exchange Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses are translated at the weighted average rate for the year. The Corporation's subsidiaries in the United States and Europe are considered self-sustaining. Cumulative gains or losses arising from the translation of the assets and liabilities of these operations are recorded through other comprehensive income. i) Equipment trading Equipment trading revenue is derived from the wholesale trading of computer equipment. Revenue is recognized when pervasive evidence of an arrangement exists and the revenues are considered fixed and determinable and collectibility is reasonably assured. j) Intangible assets Intangible assets are amortized over their expected useful lives and are included in capital assets. k) Income per share The Corporation uses the treasury stock method to calculate diluted income per share. This method assumes that proceeds which could be obtained upon exercise of in-the-money options would be used to purchase common shares at the average market price during the period. l) Allowance for doubtful accounts The allowance is determined based on management's identification and evaluation of problem accounts, estimated probable losses that exist on the remaining receivable balance, and other factors including the composition and quality of the receivables, and changes in economic conditions. m) Stock-based compensation The Corporation accounts for stock options using the fair value method. Under the fair value method, compensation expense for stock options is measured at fair value at the grant date using an option pricing model and recognized over the vesting period. No compensation is recorded for options issued prior to April 1, 2002. n) Guarantees The Corporation has adopted the requirements of CICA AcG-14 - "Disclosure of Guarantees", which requires additional disclosure about a guarantor's obligations under certain guarantees in the financial statements, without regard to whether the Corporation is likely to have to make any payments under these guarantees. AcG-14 defines a guarantee as a contract that contingently requires the guarantor to make payments to a guaranteed party based on: (a) changes in the underlying economic characteristics that are related to an asset, liability or equity security of the guaranteed party; (b) failure of another party to perform under an obligating agreement; or (c) failure of a third party to pay its indebtedness when due. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES On April 1, 2007, the Corporation adopted three new accounting standards; Section 1530, Comprehensive Income, Section 3855, Financial Instruments - Recognition and Measurement and Section 3865, Hedges. Section 1530 introduces comprehensive income which is comprised of Net Income and Other Comprehensive Income and represents changes in Shareholders' equity during a period arising from transactions and other events with non-owner sources. Other comprehensive income ("OCI") includes unrealized gains or losses in assets classified as available-for-sale, unrealized foreign currency translation amounts net of hedging arising from self-sustaining foreign operations, and changes in the effective portion of cash flow hedging instruments. The Corporation's consolidated financial statements include a Consolidated Statement of Comprehensive Income while the cumulative amount, Accumulated Other Comprehensive Income ("AOCI"), has been presented as a new category of Shareholder's equity in the Consolidated Balance Sheets. Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. It requires that financial assets and financial liabilities, including derivatives, be recognized on the balance sheet when the Corporation becomes party to the provisions of the financial instrument or non-financial derivative contract. All financial instruments should be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available for-sale, loans and receivables or other liabilities. Other significant accounting implications arising on adoption of Section 3855 include the use of the effective interest method for the amortization of any transaction costs or fees, premiums or discounts earned or incurred for financial instruments measured at amortized cost. Section 3865 specifies criteria under which hedge accounting can be applied. Section 3861, Financial Instruments - Disclosure and Presentation of financial instruments establishes standards for presentation of financial instruments and non-financial derivatives and identifies the information that should be disclosed about them. FUTURE ACCOUNTING CHANGES Capital disclosures In December 2006, the Canadian Institute of Chartered Accountants ("CICA") issued Section 1535, Capital Disclosures. This Section established standards for disclosing information about an entity's capital and how it is managed. This Section is effective for fiscal periods beginning on or after October 1, 2007. The new standard relates to disclosure only and will not impact the Corporation's financial results. Financial instruments - disclosure and presentation In December 2006, the CICA issued Section 3862, Financial Instruments - Disclosure, and Section 3863, Financial Instruments - Presentation. These Sections are effective for fiscal periods beginning on or after October 1, 2007. These Sections replace existing Section 3861, Financial Instruments - Disclosure and Presentation. Disclosure standards are enhanced and expanded to complement the changes in accounting policy adopted in accordance with Section 3855, Financial Instruments - Recognitions and Measurement. International financial reporting standards In 2005, the Accounting Standards Board of Canada ("AcSB") announced that accounting standards in Canada are to converge with International Financial Reporting Standards ("IFRS"). In May 2007, the CICA published an updated version of its "Implementating Plan for Incorporation International Financial Reporting Standards into Canadian GAAP". This plan includes an outline of the key decisions that the CICA will need to make as it implements the Strategic Plan for publicly accountable enterprises that will converge Canadian generally accepted accounting standards with IFRS by January 1, 2011. This plan was confirmed on February 13, 2008. While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in accounting policy which must be addressed. The Corporation is currently assessing the future impact of these new standards on its consolidated financial statements. 3. DISCONTINUED BUSINESSES a) Leasing On March 8, 2006, the Corporation completed the asset sale of its leasing business together with a substantial portion of its lease portfolio to ICON Capital Corporation ("ICON") an arms-length third party. During Fiscal 2007, the Corporation completed further sale transactions with ICON involving approximately $29 million of leases. Effective March 31, 2007, the Corporation liquidated the remaining investment in its lease portfolio to a partnership owned by two officers of the Corporation. The transaction involved approximately $3.5 million of financing contracts and the assumption of certain related liabilities. The cash portion was initially financed by the Corporation and is shown as Loans from Officers in the balance sheet at March 31, 2007. The loan was repaid in Fiscal 2008. As at March 31, 2008, no discontinued leasing assets or discontinued leasing liabilities were reflected in the statements. The following outlines the revenues, income before taxes and net income for the discontinued leasing business: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Revenues $ - $ 1,297 Income before tax - 554 Gain on sales of discontinued leases: - Consideration - cash - 9,789 - non-cash - ---------------------------------------------------------------------------- - 9,789 - liabilities assumed - 22,922 ---------------------------------------------------------------------------- - 32,711 Assets sold 32,997 ---------------------------------------------------------------------------- Loss on sale - (286) Costs and expenses - 17 ---------------------------------------------------------------------------- Net loss on sale - (303) Total income from discontinued leasing business before income taxes - 251 Income taxes - 94 ---------------------------------------------------------------------------- Net income from discontinued leasing business $ - $ 157 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- b) Trading The Corporation made a strategic decision in Fiscal 2008 to explore avenues to sell the trading business which resulted in exclusive negotiations with the management group of the trading business. In June 2008, all requirements to complete the sale of the trading business to a special purpose LLC owned jointly by a significant shareholder of the Corporation and the trading management group were finalized. The business parameters involved selling the operating assets, essentially inventory and receivables, at fair value which approximates net book value, and assuming the accounts payable and accrued liabilities. As at March 31, the discontinued trading business comprised the following: ---------------------------------------------------------------------------- Discontinued Trading Assets: 2008 2007 ---------------------------------------------------------------------------- Receivables $ 3,316 $ 4,860 Inventory 2,207 2,535 Capital assets 47 146 ---------------------------------------------------------------------------- $ 5,570 $ 7,541 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Discontinued Trading Liabilities: ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Accounts payable and accrued liabilities $ 1,830 $ 2,286 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The following outlines the revenues, income before taxes and net income of the discontinued trading business: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Revenues $ 29,165 $ 35,581 Income before tax 1,400 1,548 Income taxes 532 407 ---------------------------------------------------------------------------- Net Income from Discontinued Trading Business $ 868 $ 1,141 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 4. BRIDGE LOAN INVESTMENTS The bridge loan investments comprise: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Bridge loans $ 1,958 $ 15,858 Convertible debentures 4,382 - Common shares 3,499 - ---------------------------------------------------------------------------- $ 9,839 $ 15,858 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Bridge loans represent funds advanced on relatively short term, mezzanine loans. The loans are secured through charges on the underlying assets. The fair value of these loans is assumed to approximate their carrying value as they generally involve variable rates that reprice frequently. The Corporation has no loans currently classified as impaired (March 31, 2007 - $3,845). No allowance for impairment was taken in respect of these loans during Fiscal 2007 as management anticipated full collection of principal and interest. The Corporation is committed to invest a further $1,500 (2007 - $4,000) in bridge lending depending on customer activity. The convertible debenture embedded derivatives are recorded at their fair market value based on the quoted market price with changes in market value reflected in income. The debenture value approximates carrying value given variable rates which re-price frequently. The common shares investment is recorded at fair market value based on the quoted market value with changes in value reflected in other comprehensive income. In Fiscal 2008, the Corporation recognized $4,452 in investment income related to the embedded derivatives on bridge loan investments. 5. CAPITAL ASSETS ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Cost $ 829 $ 703 Accumulated amortization (453) (375) ---------------------------------------------------------------------------- $ 376 $ 328 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Amortization charges recorded in the statements of income with respect to capital assets amounted to $78 (2007 - nil). Current year additions relate primarily to the costs of a new computer system. 6. SHARE CAPITAL The Corporation is authorized to issue: Common Shares An unlimited number of common shares. Preferred Shares An unlimited number of Class A cumulative, redeemable, convertible and voting preferred shares; An unlimited number of Class B non-voting, preferred shares, issuable in series; and An unlimited number of Class C redeemable, retractable and non-voting preferred shares. ---------------------------------------------------------------------------- ISSUED COMMON SHARES Number of Shares Amount ---------------------------------------------------------------------------- Balance as at March 31, 2006 8,846,260 $ 48,002 Issued 20,000 30 Purchased for cancellation (175,000) (954) Reduction of capital (26,000) ---------------------------------------------------------------------------- Balance as at March 31, 2007 8,691,260 21,078 Issued - - Purchased for cancellation (83,962) (208) ---------------------------------------------------------------------------- Balance as at March 31, 2008 8,607,298 $ 20,870 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- a) Earnings per common share data ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Weighted average number of common shares 8,643,880 8,737,718 Diluted number of common shares 8,643,880 8,737,718 ---------------------------------------------------------------------------- b) Changes in the year The Corporation issued 20,000 common shares in 2007 as a result of stock options being exercised. The Corporation purchased 83,962 (2007 - 175,000) common shares for cancellation for cash consideration of $173 (2007 - $1,905) under the normal course issuer bid program. The resulting excess of stated capital over the purchase price of $35 has been added to retained earnings. In 2007, the purchase price was in excess of the stated capital, resulting in a reduction in retained earnings of $951. c) Distributions There were no distributions in the current year. Last year, the Corporation declared a dividend of $0.10 per common share for shareholders of record on June 30, 2006 (dividend paid on July 14, 2006). A special dividend of $7.00 per common share was paid to the shareholders of record as of August 31, 2006 (dividend paid on September 15, 2006). Pursuant to shareholder approval granting the Board of Directors authority to reduce the Corporation's stated capital, the Corporation returned $26 million (approximately $3.00 per share) to shareholders as a capital reduction with a record date of March 22, 2007, (paid on March 30, 2007). 7. STOCK OPTION PLAN The Corporation operates a stock option plan, pursuant to which it can currently reserve up to 860,750 common shares for issuance to employees and directors of the Corporation, at the discretion of the Board of Directors. The option vesting period is set at the discretion of the Board of Directors at inception. Options are exercisable for a period not exceeding 7 years from the grant date. Since inception of the plan, the Corporation has issued 784,500 options of which nil are outstanding as at March 31, 2008. A summary of the status of the Corporation's stock option plan as of March 31, 2008 and 2007 and changes during the years ending on those dates is presented below: 2008 2007 ---------------------------------------------------------------------------- Weighted- Weighted- average average Exercise Exercise Options Price Options Price ---------------------------------------------------------------------------- Outstanding, beginning of year - - 55,000 13.01 Granted - - - - Exercised - - (20,000) 1.50 Forfeited - - (35,000) 13.88 ---------------------------------------------------------------------------- Outstanding, end of year - - - - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Options exercisable, end of year - - - - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The price of the exercised options was adjusted to reflect the capital distributions during the year. 8. INCOME TAXES The components of the income tax provision (recovery) charged to operations are as follows: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Current $ 830 $ 195 Future (555) 5 ---------------------------------------------------------------------------- $ 275 $ 200 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- The following table reconciles tax expense calculated at statutory rates with the actual income tax expense: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Income tax provision at combined federal and provincial statutory rates of 35.5% (2006 - 36.12%) $ 219 $ 193 Changes resulting from: Other items 56 7 ---------------------------------------------------------------------------- $ 275 $ 200 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Significant components of the Corporation's future income tax liabilities and assets are as follows: ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Future income tax liabilities: Difference in tax and accounting basis of assets $ 976 $ 2,821 Future income tax assets: Net operating losses available for carry forward - 1,290 ---------------------------------------------------------------------------- Future income tax liabilities $ 976 $ 1,531 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 9. CONTINGENCIES AND COMMITMENTS a) Litigation matters No settlements occurred during this year. No new material litigation matters were commenced against the Corporation in the year. Ongoing litigation involves: In July of 2004, the Corporation received a third party claim from the Province of Nova Scotia in relation to the lease financing of a $23 million emergency service system which commenced in 1999 and was directly assigned by the Corporation to a third party financial intermediary with the Province's explicit acknowledgement. The financial institution commenced an action against the Province when it short paid its rental obligation starting in 2004. The claim against the Corporation seeks rectification and/or damages of an unspecified value based on alleged misrepresentations of the contract's inherent lease rate. The Corporation believes the contracts represent valid and binding agreements that are complete on their face and reflect normal commercial terms with reasonable financing costs. A mediation in the first quarter of Fiscal 2007 proved unsuccessful. Discoveries are in process and negotiations between the parties occurred in the fourth quarter with limited success. All parties have agreed to a second mediation effort in the near future. In October of 2004, the Corporation received a third party claim from the former CFO of the City of Waterloo concerning the City's claim against him. Further, the City of Waterloo has also commenced litigation against several officers and employees of the Corporation who have rights of indemnity against the Corporation. A formal indemnification agreement was undertaken in the year. As the Corporation reached a settlement with the City in respect of these matters in early 2002, it has no understanding as to the rationale of these claims. The Corporation believes these actions to be without merit and will vigorously defend itself against this and similar claims. The issue was ruled upon in July of 2006 with the judge finding in favour of the Corporation indicating that the City could not effectively seek additional compensation over the settlement already obtained. The City decided to appeal the ruling. An appeal of the ruling found in favour of the City in October of 2007 based on procedural grounds rather than on the merits of the case. Discoveries are scheduled for the summer of 2008. The Corporation also believes it may have potential indemnification rights in respect of the original release. The Corporation established a liability for litigation matters representing the estimated costs to the Corporation of settling all remaining litigation in a reasonable manner applying principles consistent with those established in earlier settlements. In 2003, a special provision of $25 million was recorded which was increased in 2005 by $20 million to reflect current expectations. Historical settlements which have drawn down these values, have been consistent with this strategy , and within the financial parameters of the reserves. Significant risk exists that this methodology may not have similar applicability in the two remaining circumstances. In that context, the Corporation has increased its reserves in the year. Should the Corporation be unsuccessful in its defense or settlement of one or more of these legal actions, there could be a materially adverse effect on the Corporation's financial position, future operations and cash flows. The Corporation continues to defend certain other litigation arising in the normal course of business. Management is of the opinion that any resulting settlements with respect to these other matters would not have a material effect on the financial position of the Corporation. b) Income tax reassessments In March 2000, the Corporation received federal income tax reassessments covering the fiscal years ended March 31, 1994 and 1995 which disallow capital cost allowance and certain other deductions claimed by the Corporation with respect to a particular lease transaction. Provincial reassessments for the fiscal years in question have also been received, mirroring the federal position. The Corporation disagrees with these reassessments and has filed Notices of Objection where applicable. Both management and tax counsel believe that the Corporation's technical position is supportable. In April 2003, the Corporation received federal income tax reassessments covering the fiscal years 1996 and 1997 which disallow capital cost allowance and certain other deductions in respect of a second lease transaction based on similar facts and circumstances. Provincial reassessments mirroring the federal position have also been received. The Corporation disagrees with these reassessments and has filed Notices of Objection where applicable. Both management and tax counsel believe that the Corporation's technical position is similarly supportable in this transaction. There are no other lease transactions of a similar nature to those that have been reassessed. Taxes and interest with respect to the March 2000 reassessment approximate $9 million and $13 million, respectively. Pursuant to legislative requirements, the Corporation has paid $13 million pending the outcome of the Corporation's objection. With respect to the April 2003 reassessment, taxes and interest are estimated at $18 million and $9 million, respectively. The Corporation has paid $18 million pending the outcome of the Corporation's objection. As a result of a GAAR decision finding in favour of another taxpayer in a similar case, the transaction structure has been accepted. The remaining issues now deal with the valuation of software and the tax treatment of the difference between this value and the amount actually paid. Related capital tax matters must also be resolved. Valuation of similar type software has been made in other cases and should provide some indication of value. Following an unsuccessful attempt to negotiate a settlement with CRA, the original assessments were confirmed. The Corporation believes its case has validity and has decided to appeal the decision to tax court. The appeal was filed after year-end. Management is actively monitoring this situation to ensure that the anticipated interest exposure arising from these matters is adequately provided for in the accounts and has increased its reserve accordingly. The ultimate outcome, however, could differ materially from the recorded amounts. To the extent that the final cost with respect to interest exceeds amounts currently provided for in the financial statements, the difference will be charged to income. c) Management Agreement In March of 2007, Renasant signed a management services agreement pursuant to which a wholly owned subsidiary of Morguard Corporation will render management and consulting services to the Corporation and its subsidiaries. The Chairman of the Board of Renasant, controls, through various subsidiaries, approximately 45% of the issued and outstanding common shares of Morguard Corporation. Accordingly, the Board of Directors of Renasant established a special committee of independent directors to consider and negotiate the terms of the Management Services Agreement. The management services agreement began April 1, 2007 and continues until terminated. Costs are expected to approximate $50,000 per month. Renasant may terminate the management services agreement at any time upon sixty days prior written notice to provider. d) Guarantees In the normal course of operations, the Corporation may execute agreements that provide for indemnification and guarantees to third parties in transactions such as sale of assets, sale of services, securitization agreements and funding agreements. Certain representations and warranties associated with the sale of the leasing business would constitute an indemnification. The maximum exposure to ICON is capped at $10 million. The Corporation has also agreed to indemnify its directors and certain of its officers and employees. The nature of many of the guarantee and indemnification undertakings precludes the possibility of making a reasonable estimate of the maximum potential amount the Corporation could be required to pay third parties as the agreements often do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Corporation has not made any significant payments nor do they expect to make any significant payments under such indemnification agreements. 10. SUPPLEMENTAL CASH FLOW DATA ---------------------------------------------------------------------------- 2008 2007 ---------------------------------------------------------------------------- Continuing Operations $ $ Cash paid during the year for: Interest - - Income taxes 1,350 2,788 Discontinued Operations Cash paid during the year for: Interest - 381 Income taxes - - 11. FINANCIAL INSTRUMENTS The following methods and assumptions were utilized to estimate the fair values of the Corporation's financial instruments: Financial instruments valued at carrying value Loans, receivables, accounts payable and accrued charges, and the discontinued trading assets and liabilities are considered current financial instruments and the carrying values approximate their fair values. The determination of fair value requires estimations utilizing present value techniques which can be significantly affected by interest rate assumptions. Furthermore, these fair value estimates are restricted to those assets and liabilities which have been categorized as financial instruments and do not reflect the comprehensive value of all of the Corporation's assets and liabilities. Due to the subjectivity of the estimation techniques and the nature of certain of the underlying contractual agreements, the fair values should not be interpreted as being realizable in an immediate settlement of the instruments. 12. RELATED PARTY TRANSACTIONS During the course of the year, the Corporation entered into transactions with related entities. These transactions are measured at the exchange amount. The Corporation has access to bridge loan investments (Note 4) through an entity under control of one of the shareholders of the Corporation. The Corporation also has entered into a management agreement with a related entity (see Note 9). Amounts due from related parties as at March 31, 2008 are $NIL (2007 - $2,081) - see Note 3. 13. COMPARATIVES Certain comparative figures related to the Discontinued Trading Business, have been reclassified to conform with current year's presentation. 14. SUBSEQUENT EVENT In June 2008, all requirements to complete the sale of the Trading Business were finalized. The net purchase price, with effect at April 1, 2008, was approximately $3,725 plus the assumption of $1,833 in liabilities. No material gain or loss will result from the sale. The cash purchase price was reduced by a holdback balance of $500 pending the completion of confirmatory due diligence over a 60 day period from closing.
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