PROVINCE OF NEWFOUNDLAND PUBLIC ACCOUNTS VOLUME II CONSOLIDATED REVENUE FUND FINANCIAL STATEMENTS AND LABRADOR

Transcription

1 PROVINCE OF NEWFOUNDLAND AND LABRADOR PUBLIC ACCOUNTS VOLUME II CONSOLIDATED REVENUE FUND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

2 This Page Intentionally Left Blank.

3 Province of Newfoundland and Labrador Public Accounts Volume II Consolidated Revenue Fund Financial Statements For The Year Ended 31 March 2007 PRINTED UNDER AUTHORITY OF THE HOUSE OF ASSEMBLY

4 This Page Intentionally Left Blank.

5 i Table of Contents Page No. INTRODUCTION 1 STATEMENT OF RESPONSIBILITY 7 AUDITOR'S REPORT 9 STATEMENTS: Statement of Financial Position Statement of Change in Net Debt Statement of Operations Statement of Change in Accumulated Deficit Statement of Cash Flows Notes the Financial Statements SCHEDULES: Accounts and Taxes Receivable - Schedule A Loans, Advances and Mortgages Receivable - Schedule B Investments - Schedule C Tangible Capital Assets - Schedule D Other Liabilities - Schedule E Debenture and Other Debt - Schedule F Guaranteed Debt - Schedule G Losses, Uncollectible Accounts and Other Amounts Written Off - Schedule H Trust Accounts - Schedule I Reconciliation of Budgetary Contribution (Requirement) Accrual - Schedule J... 51

6 ii This Page Intentionally Left Blank.

7 1 INTRODUCTION The Financial Administration Act requires that all revenues over which the Legislature has power of appropriation shall form one Consolidated Revenue Fund. The financial statements of the Consolidated Revenue Fund of the Province of Newfoundland and Labrador are presented through the publication of the Public Accounts, Volume II. These statements are prepared on the accrual basis of accounting in accordance with the Public Secr Accounting Standards of the Canadian Institute of Chartered Accountants, and as outlined in the significant accounting policies of the Province. They are prepared by the Comptroller General of Finance and are audited by the Audir General, who presents an annual report the House of Assembly on the results of his audit. Budget figures, where available, are provided on several Statements for comparison purposes. The Public Accounts for the year ended 31 March 2007 also includes one other volume, Volume I - Consolidated Summary Financial Statements. It presents the summary financial statements which consolidate the financial statements of the Consolidated Revenue Fund with the financial statements of various Crown Corporations, Boards and Authorities, as approved by Treasury Board, which are controlled by the Government of Newfoundland and Labrador. A Report on the Program Expenditures and Revenues of the Consolidated Revenue Fund is released separately and shows the actual expenditures and revenues on a modified cash basis compared the amended estimates for the fiscal year ended 31 March Also, a reproduction of the available financial statements of the Crown Corporations, Board and Agencies is released separately. The Report on the Program Expenditures and Revenues of the Consolidated Revenue Fund and the Financial Statements of the Crown Corporations, Board and Agencies are available on the internet website noted below once released. The Public Accounts of the Province are tabled in the House of Assembly in accordance with Section 60 of the Financial Administration Act. Internet Address The Public Accounts are available on the Internet at:

8 2 This Page Intentionally Left Blank.

9 PUBLIC ACCOUNTS Revenue Total revenue was $5.01 billion in which consisted of federal revenues of $1.62 billion and provincial revenues of $3.39 billion. Revenue by Source - 31 March 2007 Related - Provincial 4% Other - Provincial Tax 7% Offshore Royalties 8% Gasoline Tax 3% Corporate Income Tax 7% Federal - Equalization 14% Related - Federal 2% Federal - Health & Social Transfers 10% Atlantic Accord (2005) 4% Other - Provincial - Non -Tax 7% Sales Tax 14% Atlantic Accord (1985) 2% Personal Income Tax 18%

10 4 PUBLIC ACCOUNTS Expenses Total expenses were $4.96 billion in Grants and subsidies of $2.61 billion and debt expenses of $0.71 billion represented approximately 67% of this amount. Expenses by Category - 31 March 2007 Purchased Services 4% Retirement Costs 3% Professional Services 6% Other 5% Allowances & Assistance 7% Grants & Subsidies 53% Salaries & Employee Benefits 8% Debt Expenses 14%

11 PUBLIC ACCOUNTS Financial Position Net Debt of $11.41 billion consisted of $12.47 billion in liabilities less $1.06 billion in financial assets. Accumulated Deficit of $10.26 billion consisted of $11.41 billion in Net Debt less $1.15 billion in nonfinancial assets. Statement of Financial Position - 31 March Liabilities Net Debt Accumulated Deficit Billions Financial Assets 1.06 Non-Financial Assets

12 6 This Page Intentionally Left Blank.

13 Government of Newfoundland and Labrador Department of Finance 25 Ocber 2007 STATEMENT OF RESPONSIBILITY Responsibility for the integrity, objectivity and fair presentation of the summary financial statements of the Consolidated Revenue Fund rests with the Government. As required under Section 59 of the Financial Administration Act, these summary financial statements are prepared by the Comptroller General of Finance in accordance with the applicable legislation and in accordance with the accounting policies as disclosed in Note 1 these summary financial statements. Additionally, information has been provided by various government departments as required by Section 20 of the Financial Administration Act. The Government is responsible for maintaining a system of internal accounting and administrative controls in order provide reasonable assurance that transactions are properly authorized, assets are safeguarded and financial records are properly maintained. The summary financial statements in this volume include a Statement of Financial Position, a Statement of Change in Net Debt, a Statement of Operations, a Statement of Change in Accumulated Deficit, a Statement of Cash Flows and notes. Other schedules and notes that are included also form an integral part of these statements. Pursuant Section 11 of the Audir General Act, the Audir General of Newfoundland and Labrador provides an independent opinion on the summary financial statements. THOMAS W. MARSHALL, Q.C. Minister of Finance and President of Treasury Board RONALD A. WILLIAMS, C.A. Comptroller General of Finance

14 8 This Page Intentionally Left Blank.

15 OFFICE OF THE AUDITOR GENERAL St. John's, Newfoundland and Labrador AUDITOR'S REPORT To the House of Assembly Province of Newfoundland and Labrador In accordance with Section 11 of the Audir General Act, I have audited the statement of financial position of the Consolidated Revenue Fund of the Province of Newfoundland and Labrador as at 31 March 2007 and the statements of change in net debt, operations, change in accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of Government and have been prepared as outlined in Section 59 of the Financial Administration Act. My responsibility is express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I plan and perform an audit obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Government, as well as evaluating the overall financial statement presentation. In my opinion, these financial statements present fairly, in all material respects, the financial position of the Consolidated Revenue Fund as at 31 March 2007 and the results of its operations, the change in its net debt and its cash flows for the year then ended in accordance with the accounting policies disclosed in Note 1 the financial statements applied on a basis consistent with that of the preceding year. These financial statements have been prepared solely present the activities of the Consolidated Revenue Fund for the year ended 31 March However, significant financial activities of the Province occur outside of the Consolidated Revenue Fund. These activities, gether with those of the Consolidated Revenue Fund, are included in the consolidated summary financial statements of the Province and it is for this reason that those financial statements provide a more comprehensive accounting of the Province s financial position and the results of its operations, the change in its net debt and its cash flows. A separate Audir's Report is provided on the consolidated summary financial statements. JOHN L. NOSEWORTHY, CA Audir General St. John s, Newfoundland and Labrador 25 Ocber 2007

16 10 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Statement of Financial Position As at 31 March 2007 with comparative figures for 2006 Actuals 2007 Actuals 2006 ($000) ($000) FINANCIAL ASSETS Temporary investments at cost - notes 2, , ,021 Government of Canada - claims in process - note ,684 49,818 Sch. A Accounts and taxes receivable , ,370 Less: Allowance for doubtful accounts... 86,867 91, , ,842 Sch. B Loans, advances and mortgages receivable , ,593 Less: Allowance for doubtful accounts... 75,434 73,394 30,264 40,199 Sch. C Investments at cost... 88,799 87,289 Less: Allowance for investment writedowns... 9,000 6,440 79,799 80,849 Total Financial Assets... 1,054,510 1,214,729 LIABILITIES Sch. E Other liabilities... 1,494,351 1,545,429 Deferred revenue - note ,572,971 1,740,528 Sch. F Debenture and other debt... 6,960,945 6,686,681 Less: Sinking fund assets - note , ,080 Plus: Unamortized unrealized foreign exchange gains (losses) - note 6 127, ,677 6,141,998 5,966,278 Group health and life insurance retirement benefits - note ,351,597 1,222,162 Unfunded pension liability - note ,907,730 2,182,414 Total Liabilities... 12,468,647 12,656,811 NET DEBT... 11,414,137 11,442,082 NON-FINANCIAL ASSETS Sch. D Tangible capital assets... 1,132,889 1,115,041 Prepaid expenses... 3,011 4,696 Invenries of supplies... 15,857 15,281 Total Non-Financial Assets... 1,151,757 1,135,018 ACCUMULATED DEFICIT... 10,262,380 10,307,064 The reporting entity pertaining this financial statement is the Consolidated Revenue Fund of the Province of Newfoundland and Labrador. The accompanying notes and supporting schedules form an integral part of the financial statements.

17 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Statement of Change in Net Debt For the year ended 31 March 2007 with comparative figures for 2006 Actuals 2007 Original Estimates 2007 (Note 18) Actuals 2006 ($000) ($000) ($000) NET DEBT - beginning of period... 11,442,082 11,431,282 11,683,556 Surplus (Deficit) for the period - note ,684 (52,547) 287,889 Changes in tangible capital assets Acquisition of tangible capital assets , , ,461 Net book value of tangible capital asset disposals... (660) - (718) Amortization of tangible capital assets... (87,384) (85,534) (87,794) Increase (Decrease) in net book value of tangible capital assets 17,848 52,687 42,949 Changes in other non-financial assets Acquisition of prepaid expenses (net of usage)... (1,685) 1,298 Acquisition of invenries of supplies (net of usage) ,168 Increase (Decrease) in other non-financial assets... (1,109) 3,466 Increase (Decrease) in net debt... (27,945) 105,234 (241,474) NET DEBT - end of period... 11,414,137 11,536,516 11,442,082 The reporting entity pertaining this financial statement is the Consolidated Revenue Fund of the Province of Newfoundland and Labrador. The accompanying notes and supporting schedules form an integral part of the financial statements.

18 12 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Statement of Operations For the year ended 31 March 2007 with comparative figures for 2006 Actuals 2007 Original Estimates 2007 (Note 18) Actuals 2006 ($000) ($000) ($000) REVENUE Provincial Tax Revenue Sales , , ,872 Personal income , , ,189 Gasoline , , ,226 Corporate income , , ,962 Other , , ,826 Non-Tax Revenue Offshore royalties , , ,533 Investment income , , ,079 Fees and fines , , ,803 Related revenue , , ,914 Government of Canada Equalization , , ,959 Atlantic Accord (2005) , , ,300 Atlantic Accord (1985) , Health and social transfers , , ,568 Other... 1,708 1,708 1,708 Related revenue , ,792 86,185 Total Revenue... 5,007,774 5,092,780 5,173,124 EXPENSE Salaries , , ,951 Employee benefits... 20,814 42,013 56,013 Retirement costs , , ,424 Transportation and communications... 40,009 43,801 35,345 Supplies... 84,323 79,245 70,283 Professional services , , ,107 Purchased services , , ,801 Property, furnishings and equipment... 17,473 26,813 48,115 Allowances and assistance , , ,056 Grants and subsidies... 2,613,854 2,698,015 2,439,532 Debt expenses , , ,946 Amortization (tangible capital assets)... 87,384 85,534 87,794 Bad debt expenses... 11,955 3,305 3,868 Total Expense... 4,963,090 5,145,327 4,885,235 ANNUAL SURPLUS (DEFICIT) - note ,684 (52,547) 287,889 The reporting entity pertaining this financial statement is the Consolidated Revenue Fund of the Province of Newfoundland and Labrador. See accompanying notes the financial statements.

19 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Statement of Change in Accumulated Deficit For the year ended 31 March 2007 with comparative figures for 2006 Actuals 2007 Original Estimates 2007 (Note 18) Actuals 2006 ($000) ($000) ($000) ACCUMULATED DEFICIT - beginning of period... 10,307,064 10,594,953 Surplus (Deficit) for the period - note ,684 (52,547) 287,889 ACCUMULATED DEFICIT - end of period... 10,262,380 10,307,064 The reporting entity pertaining this financial statement is the Consolidated Revenue Fund of the Province of Newfoundland and Labrador. The accompanying notes and supporting schedules form an integral part of the financial statements.

20 14 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Statement of Cash Flows For the year ended 31 March 2007 with comparative figures for 2006 Funds provided from (applied ): Actuals 2007 Actuals 2006 ($000) ($000) OPERATIONS Annual surplus (deficit)... 44, ,889 Add (Deduct) non-cash items: Amortization of foreign exchange gains/losses... (10,906) (8,433) Amortization of tangible capital assets... 87,384 87,794 April writebacks... (6,531) 68,040 Contributed tangible capital assets... - (49,304) Deferred revenue... (167,557) 1,732,170 Other... (152,650) (89,009) Retirement costs , ,855 Sinking funds... (57,948) (53,066) Valuation allowances... 11,156 (1,735) Net cash provided from (applied ) operating transactions... 47,383 2,395,201 CAPITAL Acquisitions... (105,892) (82,157) Disposals Net cash provided from (applied ) capital transactions... (105,691) (82,103) FINANCING Debt issued ,000 - Debt retirement... (59,659) (126,583) Equalization loan... (37,840) - Retirement of pension liabilities... (445,000) (2,099,222) Sinking fund contributions... (45,100) (45,100) Special purpose funds/contracrs' holdback funds... 4,373 (2,267) Treasury bills purchased... 1,955,541 1,961,293 Treasury bills redeemed... (1,956,200) (1,962,694) Net cash provided from (applied ) financing transactions... (233,885) (2,274,573) INVESTING Loan advances and investments... (1,568) (1,050) Loan repayments Net cash provided from (applied ) investing transactions... (1,095) (908) Net cash provided (applied)... (293,288) 37,617 Cash and temporary investments - beginning of period , ,960 CASH AND TEMPORARY INVESTMENTS - end of period - note , ,577 The reporting entity pertaining this financial statement is the Consolidated Revenue Fund of the Province of Newfoundland and Labrador. See other accompanying notes the financial statements.

21 PUBLIC ACCOUNTS PROVINCE OF NEWFOUNDLAND AND LABRADOR Notes the Financial Statements For the year ended 31 March Summary of Significant Accounting Policies (a) The Reporting Entity The Reporting Entity includes the accounts and financial activities of the Consolidated Revenue Fund. Pursuant the Financial Administration Act of the Province all public monies are accounted for through the Fund. (b) Basis of Accounting (i) Method These financial statements are prepared on the accrual basis of accounting, revenues being recorded when earned and expenses being recorded when liabilities are incurred, with exceptions made in accordance with the applicable significant accounting policies. (ii) Revenues Revenues from the Government of Canada under the federal-provincial fiscal arrangements, health and social transfers and tax collection agreements are based on regular entitlements received for the current year and adjusted against future years' revenues when known. Other revenues are recorded on an accrual basis. (iii) Expenses Expenses are recorded on an accrual basis. Retirement related costs are determined as the cost of benefits and interest on the liabilities accrued, as well as amortization of experience gains and losses. (iv) Assets Temporary investments are recorded at cost or market value, whichever is lower. Government of Canada - claims in process are recorded as a receivable based on claims outstanding at 31 March and relate mainly cost-shared agreements. Invenries of supplies are comprised of items which are held for consumption that will be used by the Province in the course of its operations. Accounts and taxes receivable are recorded for all amounts due for work performed and goods or services supplied. Valuation allowances are provided when collection is considered doubtful. Loans, advances and mortgages receivable are recorded at cost. Valuation allowances are recorded reflect assets at the lower of cost or net recoverable value. Loans made by the Province that are expected be recovered from future appropriations are accounted for as expenses by providing valuation allowances. Interest revenue on loans receivable is recognized when earned and ceases when collection is not reasonably assured. Investments are recorded at cost and are written down when there is a loss in value that is other than a temporary decline. Tangible capital assets held by the Province are recorded at cost or estimated cost less accumulated amortization. Unrealized foreign exchange gains or losses are deferred and amortized on a straight line basis over the remaining term of the debt.

22 16 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) (v) Liabilities Other liabilities are recorded for all amounts due for work performed, goods or services received or for charges incurred in accordance with the terms of a contract. Deferred revenue represents amounts received but not earned. Debenture and other debt, except treasury bills, are recorded at face value. Treasury bills are recorded at net proceeds. The Province records foreign-denominated debt in Canadian dollars translated at the exchange rate on the transaction date which is considered be the issue date; except for the proceeds of hedged transactions which are recorded at the rate as established by the terms of that hedge. Foreign-denominated sinking fund assets are also recorded in Canadian dollars and transactions are translated at the exchange rate used in recording the related debt. At 31 March, foreign debt and sinking funds are adjusted reflect the exchange rate in effect on that date. (vi) Government Transfers Government transfers are recognized by the Province as revenues or expenses in the period during which both the payment is authorized and any eligibility criteria are met. (vii) Loan Guarantees The Province has guaranteed the repayment of principal and interest on certain debentures and bank loans on behalf of Crown corporations, municipalities, private secr companies and certain individuals. A provision for losses on these guarantees is established when it is determined that a loss is likely. (c) Generally Accepted Accounting Principles The accounting policies followed in the preparation of these financial statements have been applied consistent with generally accepted accounting principles for senior governments as established by the Public Secr Accounting Board of the Canadian Institute of Chartered Accountants. 2. Cash and Temporary Investments Cash and temporary investments consist of: 31 March 2007 ($mil) 31 March 2006 ($mil) Temporary investments - note Bank overdraft (included in Other liabilities)... (12.9) (3.4) Total Temporary investments consist of investments with financial institutions. As at 31 March 2007, these investments are on call or have maturity dates ranging from 02 April April 2007 at interest rates which vary from 4.25% 4.28%.

23 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Government of Canada - Claims in Process Consists of: 31 March 2007 ($mil) 31 March 2006 ($mil) Claims receivable at 31 March not received in April Receipts in April Total Deferred Revenue The deferred revenue talling $1,573.0 million consists primarily of $1,458.5 million relating the Atlantic Accord (2005), which represents the unearned balance of the $2.0 billion advance payment received in In addition, the deferred revenue balance consists of $51.7 million relating Federal Government funding for various health care initiatives, $44.9 million relating Federal initiatives in support of post-secondary education, public transit and affordable housing, and $16.4 million related gas tax initiatives. The remaining $1.5 million balance is related other miscellaneous programs. These amounts will be recognized as revenue in the periods in which the revenue recognition criteria have been met. 5. Sinking Fund The value of the sinking funds as recorded in the Newfoundland and Labrador Government Sinking Fund financial statements is reflected in these financial statements. The Sinking Fund Assets consist of: 31 March 2007 ($mil) 31 March 2006 ($mil) Investments at cost Amortization of bond discount Investments at amortized cost Cash and receivables less accounts payable Net Sinking Fund Assets - translated at 31 March The net sinking fund assets balance of million Canadian dollars as at 31 March 2007 includes million U.S. dollars translated million Canadian dollars in accordance with current practice. The net sinking fund assets balance of million Canadian dollars as at 31 March 2006 includes million U.S. dollars translated million Canadian dollars in accordance with current practice. The Province does not anticipate conversion of the U.S. dollars Canadian dollars as the U.S. funds will be used retire U.S. debt.

24 18 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) 6. Unamortized Unrealized Foreign Exchange Gains and Losses Foreign currency debt and sinking funds are translated Canadian dollars at the exchange rate at 31 March See Schedule F - Debenture and Other Debt. Details of the effect of these translations at year end are outlined in the table below. The net amortization expense is $10.9 million which represents a credit adjustment (31 March $8.4 million-credit adjustment). 31 March 2007 ($mil) 31 March 2006 ($mil) Unrealized foreign exchange gain (loss): Debt Sinking funds... (24.1) (18.4) Net Total accumulated amortization Net unamortized unrealized foreign exchange gain (loss) Provision for Guaranteed Debt The provision for possible losses on guaranteed debt (see note 12(a)) is nil (31 March $0.02 million). See Schedule E - Other Liabilities. 8. Retirement Benefits - Group Health and Life Insurance All retired employees of the Government of Newfoundland and Labrador who are receiving a pension from the Public Service Pension Plan, Uniformed Services Pension Plan, Members of the House of Assembly Pension Plan or the Provincial Court Judges Pension Plan are eligible participate in the group insurance program sponsored by Government. All retired teachers who are receiving a pension from the Teachers Pension Plan are eligible for coverage under the group insurance program sponsored by the Newfoundland and Labrador Teachers Association (NLTA) and cost shared by Government. These programs provide both group health and group life benefits enrolled retirees. Under Government s program, the Province contributes 50% wards group health and group life premiums for both employees and retirees. Government also contributes 50% wards group health and group life premiums for both teachers and retirees insured under the programs sponsored by the NLTA, subject the maximum rates under Government s program. As at 31 March 2007, the plans provided benefits 16,288 retirees. Actuarial Valuations The actuarial valuation which was prepared by the Province's actuaries (valuation date of 31 March 2006) was based on a number of assumptions about future events including an interest rate of 4.67%, CPI of 3.0%, as well as other assumptions such as health care cost trends, wage and salary increases, termination rates, plan participation rates, utilization rates and mortality. The assumptions used reflect the Province's best estimates of expected long-term rates and short-term forecasts.

25 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) Group Health and Life Insurance Retirement Benefits Liability Details of the group health and life insurance retirement benefits liability are outlined in the table below: Estimated Accrued Benefit Obligation Unamortized Experience abclosses abcdef2007 Net Liability 2007 Net Liability 2006 Change Plan ($mil) ($mil) ($mil) ($mil) ($mil) Group health retirement benefits 1,479.0 (199.7) 1, , Group life insurance retirement benefits ,551.0 (199.4) 1, , There are no fund assets associated with these plans. Group Health and Life Insurance Retirement Benefits Expense In these statements, group health and life insurance retirement benefits costs have been determined as the cost of benefits accrued during the period. Interest on the liability has been accrued for the same period. The change in the liability for the current period is comprised of the following amounts: Province s Share of Current Period Costs Interest Expense on the Liability Province s Current Period Contributions Current Period Amortization of Experience Changes Plan Amendments Change Plan ($mil) ($mil) ($mil) ($mil) ($mil) ($mil) Group health retirement benefits (20.1) Group life insurance retirement benefits (2.9) (0.1) (23.0) Interest expense related the group health and life insurance retirement benefits liability is included with interest as debt expenses in the financial statements. Interest related group health and life insurance retirement benefits for 31 March 2006 amounted $69.4 million. Experience Gains or Losses Experience gains or losses are amortized over the estimated average remaining service life of active participants. The amortization amount is included with retirement costs in the financial statements commencing in the year subsequent the year in which the experience gain or loss arose. Plan Amendment The group health and life insurance plans were amended reflect the effect of the recent benefit improvements in the NLTA and the Public Service post-retirement programs. As a result of these amendments, the net liability for group insurance retirement benefits increased by $35.7 million. There were no actuarial gains or losses recognized as a result of these amendments.

26 20 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) 9. Retirement Benefits - Pensions Defined Benefits The Government of Newfoundland and Labrador guarantees defined benefit pension plans for substantially all of its full time employees, and those of its Agencies, Boards and Commissions and for members of its Legislature. The plans are - the Public Service Pension Plan, Teachers' Pension Plan, Uniformed Services Pension Plan, the Members of the House of Assembly Pension Plan, and the Provincial Court Judges Pension Plan. Combined, the plans have 32,878 participants. The Plans provide for pensions based on employees' length of service and highest average earnings. Employees contribute a defined percentage of their salary, and the employer generally matches this amount. As at 31 March 2007, the plans provided benefits 21,022 pensioners. Inflation protection is not extended pensioners of the Uniformed Services Pension Plan or the Members of the House of Assembly Pension Plan nor pensioners of the Teachers Pension Plan who retired prior 01 September In 1980, the Province of Newfoundland and Labrador Pooled Pension Fund was established by the Pensions Funding Act, with the Minister of Finance as Trustee. This Fund administers all financial activity of these five plans, including the collection of all contributions and the payment of pensions and the investment of funds. The Consolidated Revenue Fund guarantees any deficiency in the event assets of a plan are insufficient meet benefit payments or administration costs. Contribution and Benefit Formulae Public Service Pension Plan Employee contributions are 8.6% of pensionable salary, less a formulated amount representing contributions the Canada Pension Plan (CPP). A pension benefit is available based on the number of years of pensionable service times 2% of the employee's best five years average salary, reduced by a formulated amount representing CPP pension benefits for each year since During plan legislation was enacted consistent with the two components of the Plan. The Registered component will continue be administered within the Province of Newfoundland and Labrador Pooled Pension Fund and will provide benefits based on limits set out in the federal Income Tax Act. The Supplementary component will be administered in the accounts of the Consolidated Revenue Fund and will provide for the remainder of benefits under the Plan. Teachers' Pension Plan Employee contributions are 9.35% of pensionable salary. A pension benefit is available based on the number of years of pensionable service prior 1 January 1991 times 1/45th of the employee's best five years average salary, plus 2% of the employee's best five years average salary times years of pensionable service after that date, reduced by a formulated amount representing CPP pension benefits for each year since The CPP reduction only applies pensioners who retired after 31 August During plan legislation was enacted consistent with the two components of the Plan. The Registered component will continue be administered within the Province of Newfoundland and Labrador Pooled Pension Fund and will provide benefits based on limits set out in the federal Income Tax Act. The Supplementary component will be administered in the accounts of the Consolidated Revenue Fund and will provide for the remainder of benefits under the Plan. Uniformed Services Pension Plan Employee contributions are 8.5% of pensionable salary, less a formulated amount representing contributions the CPP. A pension benefit is available based on the number of years pensionable service times 2% of the employee's best three years average salary, reduced by a formulated amount representing CPP pension benefits since Grandfathered members have higher service accrual pensions in recognition of their higher contributions.

27 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) Members of the House of Assembly Pension Plan Member contributions are 9% of pensionable salary, which includes salary as a Minister, if applicable. A pension benefit is available after serving as a Member in, at least, two General Assemblies and for, at least, five years. The benefit formula is based on years of service expressed as a percentage of the average pensionable salary for the best three years. The percentage varies being 5% for each of the first ten years, 4% for each of the next five years and 2.5% for each of the next two years of service as a Member. For members elected for the first time after 1 April 1998, the percentage is 5% for the first ten years and 2.5% for each of the next ten years. The accrued benefit is reduced by a formulated amount representing CPP pension benefits for each year since Ministers receive an additional pension amount calculated similarly, based on service and pensionable salary as a Minister. During the Members of the House of Assembly Retiring Allowances Act was enacted restructure the Members of the House of Assembly Pension Plan in two components based on limits set out in the federal Income Tax Act. The first, or Registered component, will continue be administered within the Province of Newfoundland and Labrador Pooled Pension Fund. The second, or the Supplementary Employee Retirement component, will be administered in the accounts of the Consolidated Revenue Fund. Provincial Court Judges Pension Plan Effective 01 April 2002 (pursuant the Provincial Court Judges Pension Plan Act enacted 08 June 2004) the Provincial Court Judges Pension Plan was established with then-existing judges being given the one-time option of transferring from the Public Service Pension Plan. All judges appointed subsequent 01 April 2002 are required join this Plan. Employee contributions are 9% of pensionable salary. A pension benefit is available based on the number of years pensionable service times 3.33% of the employee's annual salary. The Registered component of the Plan, administered within the Province of Newfoundland and Labrador Pooled Pension Fund, provides benefits based on limits set out in the federal Income Tax Act with the remainder of the benefit provided by the Supplementary component. The Supplementary component will be administered in the accounts of the Consolidated Revenue Fund. Actuarial Valuations The actuarial valuations which are prepared by the Province's actuaries were based on a number of assumptions about future events, such as interest rates, wage and salary increases, inflation rates and rates of employee turnover, disability and mortality. The assumptions used reflect the Province's best estimates of expected long-term rates and short-term forecasts. The expected interest and inflation rates follow: Expected Interest Rates The expected average interest rate for the Public Service Pension Plan is 7.5%. The expected rate for the Teachers' Pension Plan is 7.5% projected on a long term basis. The expected rate for the Uniformed Services Pension Plan is 7.5% projected on a long term basis. The expected rate for the Members of the House of Assembly Pension Plan is 7.5% for the Registered component and 4.66% for the Supplementary Employee Retirement component, projected on a long term basis. The expected rate for the Provincial Court Judges Pension Plan is 7.0% for the Registered component and 4.84% for the Supplementary Employee Retirement component, projected on a long term basis. Expected Inflation Rates The expected inflation rate for the Public Service Pension Plan is 3.0%. The expected rate for the Teachers' Pension Plan is 3.0%. The expected rate for the Uniformed Services Pension Plan is 3.0% projected on a long term basis. The expected rate for the Members of the House of Assembly Pension Plan is 3.0% projected on a long term basis. The expected rate for the Provincial Court Judges Pension Plan is 3.0%.

28 22 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) The latest actuarial valuations for the Province s pension plans, according the administrars of those plans, are dated as listed in the following table: Pension Plan Valuation Date Public Service 31 December 2006 Teachers' 31 August 2006 Uniformed Services 31 December 2005 Members of the House of Assembly 31 December 2006 Provincial Court Judges 31 December 2004 Actuarial extrapolations are provided for accounting purposes by the Province s actuaries based on the above dates, unless otherwise noted. Pension Liability Details of the pension liability are outlined in the table below. The estimated accrued benefit obligation and the value of the plan assets reported below have been extrapolated by the Province's actuaries 31 March The actual results of future valuations may result in variances from these extrapolations. Estimated Accrued Benefit Obligation Fund Assets Unamortized Experience Gains (Losses) abcdef2007 Net Unfunded Liability 2007 Net Unfunded Liability 2006 Change Pension Plan ($mil) ($mil) ($mil) ($mil) ($mil) ($mil) Public Service 4, ,072.6 (25.8) 1, ,755.6 (329.2) Teachers' 3, ,089.3 (69.1) Uniformed Services (15.6) Members of the House of Assembly (19.4) Provincial Court Judges Total $8,295.8 $6,258.7 ($129.4) $1,907.7 $2,182.4 ($274.7) Pension Fund Assets are valued at the market value at 31 December 2006 and projected year end. Special Payments Pursuant the applicable pensions legislation, the Province had agreed make special payments of $60 million annually in the Public Service Pension Plan as long as the plan remains unfunded, of which $45 million was paid during The agreement was amended during the year replace this annual funding as a result of the commitment of the Province make a one time tal contribution of $982 million the Public Service Pension Plan help address the unfunded liability. Of the additional $982 million contribution, $400 million was made as at 31 March 2007 with the remaining $582 million being paid by 30 June The annual payments of $20 million made the Uniformed Services Pension Plan over a five year period beginning in concluded as at 31 March Also, commencing in , the Province began making annual payments of $7.5 million the Members of the House of Assembly Pension Plan, however, these payments will only be allowable under the federal Income Tax Act the extent that they fully fund the Registered component of the Plan. There were no special payments made the Members of the House of Assembly Pension Plan in

29 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) Pension Expense In these statements, pension costs have been determined as the cost of benefits accrued during the period. Interest on the unfunded liability has been accrued for the same period. The change in the unfunded liability for the current period for each plan is comprised of the following amounts: Province s Share of Pension Benefits Earned for the Period Pension Interest Expense on the Unfunded Liability Province s Current Period Pension Contributions Current Period Amortization of Experience Changes Other Adjustments Unfunded Portion of Current Period Pension Change Pension Plan ($mil) ($mil) ($mil) ($mil) ($mil) ($mil) Public Service (3.0) (467.2) (329.2) Teachers' (32.9) Uniformed Services (1.9) Members of the House of Assembly (4.6) Provincial Court Judges (0.1) (0.1) Total $18.7 $171.5 ($506.7) $39.0 $2.8 ($274.7) Pension interest expense is included with interest as debt expenses in the financial statements. Pension interest expense for 31 March 2006 amounted $329.3 million. Experience Gains or Losses Experience gains or losses are amortized over the estimated average remaining service life of active contriburs. The amortization amount is included with retirement costs in the financial statements commencing in the year subsequent the year in which the experience gain or loss arose. Plan Amendment The Teachers Pension Plan was amended in December 2005 allow a teacher terminating employment with at least 5 years of pensionable service, but not entitled an immediate benefit, the option of choosing either a commuted value transfer or a deferred pension. Death benefits under the Plan were also amended provide commuted value payment options. As a result of these plan amendments the unfunded liability for the current year was increased by $2.8 million. There were no actuarial gains or losses recognized as a result of this amendment. Other Pension Plans The Government Money Purchase Pension Plan was established for employees whose employment status does not qualify them for participation in another of their employer's pension plans. This plan has approximately 25,350 participants. Employees contribute 5% of their salary the Plan and the Province generally matches this contribution. Each employee will receive an annuity at retirement, the value of which is determined by their accumulated contributions plus investment earnings. This Plan is administered by the London Life Insurance Company and at 31 March 2007 assets had a market value of $224.7 million (31 March $200.3 million). 10. Current and Capital Account The annual surplus of $44.7 million (31 March surplus of $287.9 million) is comprised of a surplus on the current account of $231.3 million (31 March surplus of $423.4 million) and a deficit on the capital account of $186.6 million (31 March deficit of $135.5 million). The classification of revenue and expenses between current account items and capital account items follow the classifications as per the Estimates for the purposes of categorizing the annual deficit.

30 24 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) 11. Amounts Capitalized Funds advanced Crown agencies may be in the form of investments in such agencies or as loans or advances. Payments and receipts related principal portions of these loans, advances and investments are capitalized on the Statement of Financial Position. Depending upon the relevant legislation and/or particular circumstances under which a Crown agency is established, the profits generated by their operations may be: (a) turned over the Province and recorded as revenue; (b) used repay loans and advances made the agency by the Province; or (c) retained by the agency. Amounts capitalized for 31 March 2007 amounted $3.1 million (31 March $13.7 million). See Schedule J - Reconciliation of Budgetary Contribution (Requirement) Accrual. 12. Contingent Liabilities (a) Guarantees Guarantees made by the Province as at 31 March 2007 amounted $1,916.4 million (31 March $2,083.5 million). In addition, the Province guaranteed the interest thereon. See Schedule G - Guaranteed Debt. (b) Legal Actions (i) There have been a number of statements of claim alleging negligence on the part of Government employees and agencies in not preventing abuse while these claimants were under Government care. (ii) A number of claims have been filed against the Province for alleged breaches of contracts and/or tenders as well as for general damages and personal claims pursuant action initiated by the Province. (c) Other (i) Registrar of the Supreme Court The Province of Newfoundland and Labrador guarantees all sums required discharge the balances of the Registrar of the Supreme Court as administrar, guardian, trustee, etc. (Judicature Act). (ii) Pensions a) Province of Newfoundland and Labrador Pooled Pension Fund Pursuant Section 9 of the Pensions Funding Act, the Consolidated Revenue Fund is liable for any deficiency in the Province of Newfoundland and Labrador Pooled Pension Fund covered by that Act. See note 9. b) Memorial University of Newfoundland Pension Fund Pursuant Section 6 of the Memorial University Pensions Act, if there is insufficient money in the Memorial University of Newfoundland Pension Fund provide for the payment of applicable expenditures as they fall due, the Consolidated Revenue Fund is liable for payment of an amount cover the deficiency. As at 31 March 2007, the Memorial University of Newfoundland Pension Plan had a net unfunded pension liability for funding purposes of $57.9 million. However, there currently exists sufficient money in the Fund for the payment of expenditures as they fall due. (iii) Trust Accounts Generally, the Province is contingently liable for any shortage that may occur for certain funds held in trust by the Province. Currently, all obligations held have an offsetting asset. See Schedule I - Trust Accounts.

31 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) (iv) Canadian Saltfish Corporation On 17 July 1970, the Province entered in an agreement with the Government of Canada for the marketing of saltfish products by the Canadian Saltfish Corporation (the Corporation), pursuant the Saltfish Act. The Agreement provided that the Province is required pay the Government of Canada a proportional share of 50 per cent of the losses of the Corporation. This share is based on the tal value of annual sales of cured fish products applicable each participating province. On 19 February 1993, the Government of Canada requested that the Province compensate it for losses incurred 31 March The amount which the Government of Canada calculated as the Province's share of the losses was $21.6 million. The Corporation was dissolved with effect from 1 April 1995, so that resolution of the matter will be between the Government of Canada and the Province. However, the Province takes the position that for a number of reasons, including the fact that the Corporation engaged in activities beyond its mandate as determined by the Audir General of Canada and confirmed by the Department of Justice of Canada, it is not liable for the amount claimed. (v) Newfoundland and Labrador Student Loans Program Under the loan guarantee component of this Program, the Province has issued guarantees talling $0.1 million. Under the debt reduction component of the Program, the Province is contingently liable for possible grants talling $24.3 million and of this amount, $18.2 million has been recorded as a provision for likely amounts payable related student loans due the debt reduction program. See Schedule E - Other Liabilities. (vi) Environmental Responsibility As a result of delivering its stated programs and initiatives, there are a number of sites throughout the Province which are considered potentially contaminated sites. A liability will be accrued in the financial statements when it has been determined that the Province is liable for a site which has become contaminated and where a reasonable estimate of the remediation costs can be made. To date, $7.3 million has been recorded (see Schedule E - Other Liabilities). Where it is uncertain as whether an obligation exists for the Province remediate a contaminated site, then information on any such sites will be disclosed as contingent liabilities. As at 31 March 2007, while the Province is aware of a number of contaminated sites, the full extent of the remediation costs for these known sites is not readily determinable. Efforts are ongoing identify any other potentially contaminated sites which are owned by the Province and collect the information necessary assess the extent or likelihood of any environmental damage. These efforts may result in recognizing environmental liabilities or disclosing contingent liabilities due newly identified sites and/or changes in the assessments of currently known sites. 13. Contractual Obligations Contractual obligations outside organizations in respect of contracts entered in before 31 March 2007 amount $304.3 million of which $195.0 million is for capital projects, $44.1 million for information technology services, $19.9 million for lease payments, $17.0 million for ferry services, $14.5 million for forestry related projects, $8.8 million for other projects and $5.0 million for phone services. These contractual obligations will become liabilities and expenses of the Consolidated Revenue Fund when the terms of the contracts are met. Payments in respect of these contracts and agreements are subject the voting of supply by the Legislature.

32 26 PUBLIC ACCOUNTS NOTES TO THE FINANCIAL STATEMENTS (continued) 14. Cash Requirements The following summarizes the actual cash requirements, borrowings and utilization of the borrowings in excess of cash requirements for the year ended 31 March The tal borrowing requirements have been adjusted for the modifications the cash basis of accounting arrive at the cash requirement. Please refer the Report on the Program Expenditures and Revenues of the Consolidated Revenue Fund for the year ended 31 March 2007 for further information on the calculation of the Total Borrowing Requirements of $445.5 million noted below. 31 March 2007 ($000) Total Borrowing Requirements... (445,516) Add (Deduct): Treasury bill borrowing repayments... (1,956,200) Temporary investments 1 April ,021 Deferred revenue... (219,218) Writeback expenditure ,209 Writeback expenditure (132,987) Federal trust funds... 23,901 Writeback revenue (20,336) Writeback revenue ,613 Special purpose funds... 3,053 Contracrs holdback funds... 1,320 Prior year s expenditure cheques recovered Other adjustments Total Cash Requirements... (1,868,808) Borrowings: Treasury bill borrowings... 1,955,541 Debenture borrowings ,000 Increase (Decrease) in bank overdraft... 9,475 Total Borrowings... 2,315,016 Temporary Investments 31 March , Measurement Uncertainty Measurement uncertainty exists when it is reasonably possible that there could be a material variance between the recognized amount and another reasonably possible amount, as there is whenever estimates are used. Estimates are based on the best information available at the time of preparation of the financial statements and are adjusted annually reflect new information as it becomes available. Some examples of where measurement uncertainty exists are the accrual of retirement benefits, the amortization of foreign exchange gains or losses, the allowance for guaranteed debt and the accrual of self-insured workers compensation benefits. 16. Prior Year Adjustment An adjustment has been made the fiscal year reflect the true substance of the advances issued the Business Investment Corporation during that year. As a result of this adjustment, the loans receivable balance has decreased by $10.8 million while grants and subsidies expense increased by $10.8 million. As a result, both Net Debt and Accumulated Deficit have also increased by $10.8 million.