UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
|
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2004
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-14958
NATIONAL GRID TRANSCO PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
1-3 Strand, London WC2N 5EH, England
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
Ordinary Shares of 10 pence each | The New York Stock Exchange* |
American Depositary Shares, each representing five
Ordinary Shares of 10 pence each |
The New York Stock Exchange |
* Not for trading, but only in connection with the registration of American Depositary Shares representing Ordinary Shares pursuant to the requirements of the
Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares of 10 pence each | 3,076,903,379 | ||||
Special Rights Redeemable Preference Share of £1 | 1 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:
Yes
No
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17
Item
18
Cautionary Statement
This Annual Report on Form 20-F contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because these forward-looking statements are subject to assumptions, risks and uncertainties, actual future results may differ materially from those expressed in or implied by such statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid Transcos ability to control or estimate precisely, such as delays in obtaining or adverse conditions contained in regulatory approvals; competition and industry restructuring; changes in economic conditions; currency fluctuations; changes in interest and tax rates; changes in energy market prices; changes in historical weather patterns; changes in laws; regulations or regulatory policies; developments in legal or public policy doctrines; technological developments; the failure to retain key management; the availability of new acquisition opportunities; or the timing and success of future acquisition opportunities. Other factors that could cause actual results to differ materially from those described in this document include the ability to continue to integrate the US and UK businesses acquired by or merged with the Group or to realise expected synergies from such integrations, the failure to achieve reductions in costs or to achieve operational efficiencies, unseasonable weather impacting on demand for electricity and gas, the behaviour of UK electricity market participants on system balancing, the timing of amendments in prices to shippers in the UK gas market, the performance of National Grid Transcos pension schemes and the regulatory treatment of pension costs, the impact of any potential separation and disposal by National Grid Transco of any of its UK gas distribution networks and any adverse consequences arising from outages on or otherwise affecting energy networks owned and/or operated by National Grid Transco. For a more detailed description of these assumptions, risks and uncertainties, together with any other risk factors, please see Items 3 and 5 of this report (and in particular Risk factors under Item 3). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. National Grid Transco does not undertake any obligation to revise these forward-looking statements to reflect events or circumstances after the date of this report.
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
The information set forth under the headings Summary Group Financial Information on page 129, Ordinary dividends on page 38, Exchange Rates on page 134 and Risk factors on pages 55 to 57 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 4. Information on the Company
The information set forth under the headings Incorporation on page 68, Financial Review on pages 36 to 51, Operating Review on pages 25 to 35, Introduction on pages 21 to 24, Note 30 Group undertakings and joint ventures on page 105, Glossary of Terms on page 130 and Definitions on page 131 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. | |
Company Agent | |
The Companys agent in the US is Lawrence J. Reilly, Senior Vice President and General Counsel, National Grid USA, 25 Research Drive, Westborough, MA 01582. | |
Property, plants and equipment | |
United Kingdom |
National Grid Transcos Corporate Centre operates principally from offices at 1-3 Strand, London (leasehold) and 130 Jermyn Street, London (leasehold). |
UK gas distribution . The gas network in Britain comprises approximately 170,000 miles of distribution pipelines and approximately 4,200 miles of high pressure national transmission pipelines. Agreements with landowners or occupiers are only required for those pipes that cross private land. These agreements largely comprise perpetual easements in England and Wales and deeds of servitude in Scotland. Any land issues impacting on normal agricultural activity local to pipelines and their associated easement or servitude are covered by national agreements with the National Farmers Union, the Country Land and Business Association of England and Wales and the Scottish Landowners Association. | |
Through Transco plc, we own the freeholds of the substantial majority of the operational sites where there are larger operational plant and gas storage facilities used in our UK Gas Distribution business. The vast majority of office buildings, depots and stores used by UK Gas Distribution are leased from another Group company, SecondSite Property. | |
UK electricity and gas transmission . In England and Wales, the Group, through Transco, owns the freehold of the majority of all sites associated with its UK Transmission business. The remainder are held on long-term leaseholds. In Scotland the majority are owned outright through a disposition purchase. The remainder are owned through a feudal disposition where purchase was subject to various rights retained by the previous owner, for example mineral or forestry rights. In addition, Transco has three Commercial Lettings, at St Fergus to Shell and Mobil, and at Theddlethorpe to ConocoPhillips. | |
Agreements with landowners or occupiers are required for the overhead lines and underground cables which make up our electricity network in England and Wales. The majority of agreements are in the form of terminable wayleaves. The remainder are in the form of perpetual easements under which rights have been granted in perpetuity in return for a lump sum payment. The sites at which we have electricity substations are split between freehold and leasehold. Of the leasehold sites, the large majority are substations located on the premises of generators and are held on long-term leases for nominal rental payments. Of the remaining sites, most are held as ground rents (market price payable for land only) from the respective landlords, who include electricity distribution companies. | |
The Group, through National Grid Company, also owns the freehold of its control centre in Berkshire and the learning and development centre at Eakring in Nottinghamshire. It has major offices in Warwick (leasehold) and Leeds (freehold). | |
United States |
The National Grid USA companies own in fee the office buildings that comprise their principal business premises in Westborough and Northborough, Massachusetts and in Syracuse, Albany and Buffalo, New York. Substantially all of the Groups US properties and franchises are subject to the liens of mortgage indentures and deeds of trust under which mortgage bonds have been issued. At present, environmental issues are not preventing the companies from utilising any material operating assets in the course of their business. | |
US electricity transmission . The Groups US Transmission systems are comprised of approximately 14,000 circuit miles of transmission and sub-transmission lines located within right-of-way corridors that traverse both public and private property. Statutory authority, legislative charters and municipal franchise grants generally provide the National Grid USA companies with the rights required to locate transmission and sub-transmission facilities within and across public ways. Right-of-way corridors that cross privately owned land have generally been acquired in fee ownership (freehold) or pursuant to grants of perpetual easements. Transmission and sub-transmission substation facilities are principally located on properties that are owned in fee. | |
US electricity distribution and US gas distribution . The Groups US distribution systems are comprised of approximately 62,000 circuit miles of electric distribution lines located on rights-of-way in New England and New York, and approximately 8,000 miles of gas distribution pipelines located on rights-of-way in New York. Statutory authority, legislative charters and municipal franchise grants generally provide the National Grid USA companies with the rights required to locate distribution facilities within and across public ways. Right-of-way corridors that cross privately owned land have principally been acquired in fee ownership or pursuant to grants of perpetual easements. Electric distribution substations and gas distribution regulator stations are principally located on properties owned in fee. |
Item 5. Operating and Financial Review and Prospects
The information set forth under the headings Introduction on pages 21 to 24, Operating Review on pages 25 to 35, Financial Review on pages 36 to 51 and Research and development on page 68 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 6. Directors, Senior Management and Employees
The information set forth under the headings Board of Directors on pages 18 and 19, Directors Remuneration Report on pages 58 to 67, Note 7 Pensions and post-retirement benefits on pages 82 to 85, Corporate Governance and Risk Factors on pages 52 to 57 , Note 5 Payroll costs and employees on page 81 and Note 23 Share capital on pages 97 to 99 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 7. Major Shareholders and Related Party Transactions
Major shareholders |
As at 11 June 2004, National Grid Transco had been notified of beneficial interests in 3% or more of its issued share capital by the following companies: | |
% of issued
share capital |
Number of
ordinary shares |
||||||||
|
|
|
|
||||||
The Capital Group Companies, Inc. | 9.97 | 308,024,616 | |||||||
Legal and General Investment Management Ltd | 3.6 | 111,143,102 | |||||||
Barclays plc | 3.1 | 95,005,274 | |||||||
Franklin Resources, Inc. | 3.0 | 93,240,377 | |||||||
The percentages and numbers of ordinary shares set forth above are as of the date of notification by the respective company. The Capital Group Companies, Inc. holding was first disclosed to National Grid Group plc as 3.0% in July 2001. From this point it steadily increased to 8.0% in January 2002, at which point the holding was diluted following the issuance of shares in relation to the acquisition of Niagara Mohawk. From a restated holding of 7.3% in February 2002 the holding again steadily increased to 10.0% in October 2002, when the holding was again diluted following the issuance of shares in respect of the merger with Lattice Group plc. The holding then increased steadily from 5.7% to 10.0%, and in June 2004 was reduced to the level disclosed above. | |
All ordinary shares have the same voting rights. The only other class of share in the Company is the Special Share (one special rights non-voting redeemable preference share of £1) which is no longer in issue, having been redeemed on 5 May 2004. | |
The information set forth under the headings Analysis of shareholdings on page 134, Related party transactions on page 49 and Note 28 Related party transactions on page 102 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 8. Financial Information
The information set forth under the headings Balance Sheets on page 75, Group Profit and Loss Account on page 74, Group Cash Flow Statement on page 76, Notes to the Accounts on pages 77 to 128 and Dividend policy on page 38 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 9. The Offer and Listing
The information set forth under the headings Market prices on page 134 and Trading markets for ordinary shares on page 134 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 10. Additional Information
Memorandum and Articles of Association | |
The following description is a summary of the material terms of National Grid Transcos Memorandum and Articles of Association (the Articles). The following description is a summary only and is qualified in its entirety by reference to the Articles, which are listed as an exhibit to this report. | |
General: |
National Grid Transco is incorporated under the name National Grid Transco plc and is registered in England and Wales with registered number 4031152. The Companys objects are set forth in the fourth clause of its Memorandum of Association and cover a wide range of activities, including the following: |
| carrying on the business of a holding company; |
| employing the funds of the Company to develop and expand its business; and |
| carrying on any other activity supplemental to the foregoing or capable of enhancing the Companys profitability. | ||
The Memorandum of Association grants National Grid Transco a broad range of corporate powers to effect these objectives. | |
Directors: |
Under the Articles, a Director must disclose any personal interest in a contract and may not vote in respect of that contract, subject to certain limited exceptions. | |
The compensation awarded to the Executive Directors is decided by the Remuneration Committee (see details on pages 53 and 54 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1), which consists entirely of Non-executive Directors. The fees of the Non-executive Directors are determined by the Executive Directors with the guidance of the Chairman and after taking appropriate external advice. | |
The Directors are empowered to exercise all the powers of National Grid Transco to borrow money, subject to the limitation that the aggregate principal amount outstanding of all borrowings shall not exceed an amount equal to four times National Grid Transcos share capital and aggregate reserves, calculated in the manner described in the Articles, unless sanctioned by an ordinary resolution of the Companys shareholders. | |
There is no specific requirement for a director to retire when he/she reaches the age of 70. However, upon appointment or retirement by rotation, the age of a person aged 70 or over must be declared in the notice convening the relevant shareholder meeting, or in any document accompanying the notice. | |
A Director is not required to hold shares of National Grid Transco in order to qualify as a Director. | |
Special Share: |
The Special Share is a redeemable non-voting preference share of £1. Its ownership is restricted to certain persons who must be ministers of the Crown (eg a Secretary of State or another person acting on behalf of the Crown) (the Special Shareholder). In summary, the rights of the Special Shareholder ensure that it can control certain actions carried out by the Company in respect of (i) itself; (ii) National Grid Company (as the holder of the Transmission Licence); and (iii) Transco, as well as prohibiting changes to various provisions in the Companys Articles including a provision which sets out certain limitations on the number of voting shares in the Company which a person can hold. | |
However, on 5 May 2004, the Special Shareholder exercised its right of redemption, following which the Special Share was redeemed for its par value of £1. Resolutions will be tabled at the Annual General Meeting to amend the Articles to remove references to the Special Share, those provisions which are no longer appropriate for inclusion in the Companys Articles in view of the redemption of the Special Share (including the control on certain actions and limitation on shareholdings provisions), and to cancel the Special Share from being comprised within the Companys authorised share capital. | |
Rights, preferences and restrictions: |
National Grid Transco may not pay any dividend otherwise than out of profits available for distribution under the Companies Act and the other applicable provisions of English law. In addition, as a public company, National Grid Transco may make a distribution only if and to the extent that, at the time of the distribution, the amount of its net assets is not less than the aggregate of its called-up share capital and undistributable reserves (as defined in the Companies Act). Subject to the foregoing, National Grid Transco may, by ordinary resolution, declare dividends in accordance with the respective rights of the shareholders but not exceeding the amount recommended by the Board of Directors. The Board of Directors may pay interim dividends if the Board of Directors considers that National Grid Transcos financial position justifies the payment. | |
Except insofar as the rights attaching to any share otherwise provide, all dividends will be apportioned and paid proportionately to the amounts paid up (otherwise than in advance of calls) on the shares. | |
All dividends or other sums payable unclaimed for one year after having been declared may be invested or otherwise made use of by the Board of Directors for the benefit of National Grid Transco until claimed. Any dividend or interest unclaimed for 12 years from the date when it was declared or became due for payment will be forfeited and revert to National Grid Transco. | |
Subject to any rights or restrictions attached to any shares and to any other provisions of the Articles, at any general meeting on a show of hands every shareholder who is present in person will have one vote and on a poll every shareholder will have one vote for every share which he holds. On a poll, shareholders may cast votes either personally or by proxy and a proxy need not be a shareholder. Under the Articles all special and extraordinary resolutions must be decided on a poll. | |
Directors must stand for reappointment at the first Annual General Meeting following their appointment to the Board. Each Director must stand for reappointment at least every three years and each year one-third of the Board will stand for reappointment. | |
In a winding-up, a liquidator may, with the sanction of a special resolution of National Grid Transco and any other sanction required by applicable provisions of English law, (a) divide among the shareholders the whole or any part of National Grid Transcos assets (whether the assets are of the same kind or not) and may for this purpose value any assets and determine how the division should be carried out as between different shareholders or different classes of shareholders or otherwise as the resolution may provide, or (b) vest the whole or any part of the assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the sanction of a special resolution, determines, but in neither case will a shareholder be compelled to accept assets upon which there is a liability. | |
Variation of Rights: |
Subject to applicable provisions of English law and the rights attached to any specific class of shares, the rights attached to any class of shares of National Grid Transco may be varied with the written consent of the holders of three-fourths in nominal value of the issued shares of that class, or with the sanction of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class. | |
General Meetings: |
Annual General Meetings must be convened upon advance written notice of 21 clear days. An Extraordinary General Meeting must be convened upon advance written notice of 21 clear days for the passing of a special resolution and 14 clear days for any other resolution. The notice must specify the nature of the business to be transacted. The notice must also specify the place, the day and the time of the meeting. | |
Rights of Non-Residents: |
There are no restrictions under National Grid Transcos Memorandum and Articles of Association that would limit the rights of persons not resident in the UK, as such, to vote ordinary shares. | |
Disclosure of interests: |
A shareholder may lose the right to vote his shares if he or any other person appearing to be interested in those shares fails to comply within a prescribed period of time with a request by National Grid Transco under the Companies Act to give the required information with respect to past or present ownership or interests in those shares. In the case of holders of more than 0.25% in nominal amount of any class of the share capital of National Grid Transco, in addition to disenfranchisement, the sanctions that may be applied by National Grid Transco include withholding of the right to receive payment of dividends and other monies payable on shares, and restrictions on transfers of the shares. | |
The Companies Act provides that a person (including a company and other legal entities) that acquires an interest of 3% or more in any class of shares constituting an English public companys relevant share capital (ie National Grid Transcos issued share capital carrying the right to vote in all circumstances at a general meeting of National Grid Transco) is required to notify the company of its interest within two business days following the day on which the obligation arises. After the 3% level is exceeded, similar notifications must be made in respect of increases or decreases of 1% or more. | |
For purposes of the notification obligation, the interest of a person in shares means any kind of interest in shares including interests in any shares (a) in which a spouse, or child or stepchild under the age of 18 is interested, (b) in which a corporate body is interested and either (i) that corporate body or its directors generally act in accordance with that persons directions or instructions or (ii) that person controls one-third or more of the voting power of that corporate body or (c) in which another party is interested and the person and that other party are parties to a concert party agreement. A concert party agreement is one which provides for one or more parties to acquire interests in shares of a particular company and imposes obligations or restrictions on any one of the parties as to the use, retention or disposal of such interests acquired under the agreement, and any interest in the companys shares is in fact acquired by any of the parties under the agreement. Some of the interests (eg those held by certain investment fund managers) may be disregarded for the purposes of calculating the 3% threshold, but the obligations of disclosure will still apply where those interests exceed 10% or more of any class of the companys relevant share capital and to increases or decreases of 1% or more thereafter. | |
In addition, section 212 of the Companies Act provides that a public company may send a written notice to a person whom the company knows or has reasonable cause to believe to be, or to have been at any time during the three years immediately preceding the date on which the notice is issued, interested in shares constituting the companys relevant share capital. The notice may require that person to state whether he has an interest in the shares, and in case that person holds or had held an interest in those shares, to give additional information relating to that interest and any other interest in the shares of which that person is aware. | |
Where a company serves notice under the provisions described above on a person who is or was interested in shares of the company and that person fails to give the company any information required by the notice within the time specified in the notice, the company may apply to an English court for an order directing that the shares in question be subject to restrictions prohibiting, among other things, any transfer of those shares, the taking up of rights in respect of those shares and, other than in a liquidation, payments in respect of those shares. | |
A person who fails to fulfil the obligations imposed by those provisions of the Companies Act described above is subject to criminal penalties. | |
Material contracts | |
Save for the contracts described below, no contracts (other than contracts entered into in the ordinary course of business) have been entered into by the Group within the two years immediately preceding the date of this document which are, or may be material; or which contain any provision under which any member of the Group has any obligation or entitlement which is material to the Group at the date of this document. | |
(a) Credit agreement dated 18 November 2003 between National Grid Transco plc; HSBC Bank plc (the facility agent); HSBC USA (the swingline agent); and certain banks and financial institutions (the banks) which provides a $1.485 billion 364-day multi-currency revolving credit facility with 12-month term-out option. | |
(b) Offering circular issued by NGG Finance plc on 20 August 2001 summarising the trust deeds, subscription agreements and paying agency agreements relating to the 1,250,000,000 5.25% guaranteed bonds due 2006 and the 750,000,000 6.125% guaranteed bonds due 2011 issued by NGG Finance plc and guaranteed by National Grid Transco. | |
Exchange controls |
There are currently no UK laws, decrees or regulations that restrict the export or import of capital, including, but not limited to, foreign exchange control restrictions, or that affect the remittance of dividends, interest or other payments to non-UK resident holders of ordinary shares except as otherwise set out in Taxation below and except in respect of the governments of and/or certain citizens, residents or bodies of certain countries (described in applicable Bank of England Notices or European Union Council Regulations in force as at the date of this document). |
Taxation |
The following summary describes the principal US Federal income and UK tax consequences to beneficial owners of ADSs or ordinary shares who are residents of the United States. The summary is not a complete analysis or listing of all the possible tax consequences of ownership and does not discuss special tax rules that may be applicable to certain classes of investors including banks, insurance companies, securities dealers, investors with a functional currency other than the US dollar and any corporation which alone, or together with one or more corporations which are treated as associated for the purposes of the US/UK taxation convention relating to income and capital gains (the Income Tax Convention), directly or indirectly controls 10% or more of the voting share capital of National Grid Transco. The statements regarding US Federal tax laws set out below are based (i) on the US Internal Revenue Code of 1986, as amended (the Code) and regulations issued thereunder, all of which are subject to change, possibly with retroactive effect and (ii) in part on representation of The Bank of New York as depositary (the Depositary) and assume that each obligation provided for in or otherwise contemplated by the deposit agreement entered into by and among National Grid Transco, the Depositary and the registered holders of ADRs pursuant to which ADRs have been issued dated as of 21 November 1995 and amended and restated as of 31 January 2002 (the Deposit Agreement) and any related agreement will be performed in accordance with its terms. The statements regarding UK tax set out below are based on what is understood to be the practice of the UK Inland Revenue as at such date and are subject to any change therein (including any change having retroactive effect). Beneficial owners of ADSs who are residents or citizens of the United States will be treated as the owners of the underlying ordinary shares for the purposes of the Code. | |
The US and UK signed a new convention for the avoidance of double taxation with respect to income and capital gains on 24 July 2001 (the New Treaty). The New Treaty entered into force following the exchange of instruments of ratification on 31 March 2003 and is effective for withholding taxes beginning 1 May 2003. This summary notes the changes to the treatment of distributions and disposals as a result of the entry into force of the New Treaty, which affects distributions and disposals in National Grid Transco's taxable year 31 March 2004. | |
For the purposes of this discussion, the term US Holder refers to a beneficial owner of ADSs or ordinary shares who is a resident of the United States for US Federal income tax purposes and, as to the description under Taxation of dividends and Taxation of capital gains below, is also a resident of the United States for the purposes of the 1975 Income Tax Convention (the Old Treaty). | |
Taxation of dividends: |
Under the terms of the Old Treaty, effective for withholding tax purposes through to 30 April 2003, dividends paid to US corporate shareholders controlling less than 10% of the voting capital of National Grid Transco and dividends paid to all US non-corporate shareholders were not subject to withholding taxes in the United Kingdom. The Old Treaty nominally allowed such US shareholders to claim the refundable tax credit for dividends which was available to UK shareholders for UK income tax purposes. The amount of such credit, however, was 10% of the sum of the dividend and the credit, reduced by 15% of the sum of the dividend and the credit, resulting in no net refundable credit for US shareholders. | |
Under the terms of the New Treaty, effective for withholding tax purposes beginning on 1 May 2003, the United Kingdom is allowed to impose a 15% withholding tax on dividends paid to US shareholders controlling less than 10% of the voting capital of National Grid Transco. The United Kingdom does not, however, currently impose a withholding tax on such dividends. If it were to impose such a tax, the treaty provides for an exemption from withholding taxes for dividends paid on shares held through a tax exempt pension fund, 401(k) plan, or similar pension scheme. The New Treaty eliminates the refundable tax credit provision found in the Old Treaty. To obtain benefits under the New Treaty, a US holder must otherwise satisfy the requirements of the limitations on benefits article of the New Treaty. | |
Dividends paid by National Grid Transco to US shareholders are subject to tax in the United States. Such dividends may qualify for the reduced tax rate of 15% if the US shareholder has held the National Grid Transco ADSs or ordinary shares for the requisite holding period. | |
Taxation of capital gains: |
Under the Old Treaty, a US Holder who was not resident or ordinarily resident for UK tax purposes in the UK was not liable for UK taxation on capital gains realized or accrued on the sale or other disposal of ADSs or ordinary shares unless the US Holder carried on a trade, profession or vocation in the UK through a branch or agency and such ADSs or ordinary shares were used, held or acquired for the purposes of such trade, profession or vocation or such branch or agency. A US Holder was, however, liable for US Federal income tax on gains on the sale of ADSs or ordinary shares to the same extent as on any other gains from sales of stock. Gain, if any, was generally US source. |
Under the Old Treaty, a US citizen who was resident or ordinarily resident in the UK, a US corporation which was resident in the UK by reason of its business being managed and controlled in the UK or a US citizen who, or a US corporation which, was trading or carrying on a profession or vocation in the UK through a branch or agency and used, held or acquired ADSs or ordinary shares for the purpose of such trade, profession or vocation or such branch or agency, was possibly liable for both UK and US tax on a capital gain recognized on the disposal of ADSs or ordinary shares. Such holder, however, was generally entitled to foreign tax credit, subject to certain limitations, against any US Federal tax liability for the amount of any UK tax (namely capital gains tax in the case of an individual and corporation tax on chargeable gains in the case of a corporation) which was paid in respect of such gain. | |
A US Holder who became resident in the UK after a period of temporary non-residence (of up to five years) following an earlier period of residence in the UK was also potentially liable to UK capital gains tax under the Old Treaty. | |
The taxation of capital gains remains broadly unchanged under the New Treaty. However, a US Holder must comply with the limitation on benefits article in the New Treaty in order to obtain treaty benefits. | |
UK stamp duty and stamp duty reserve tax (SDRT): |
Transfers of ordinary shares Generally speaking SDRT at the rate of 0.5% of the amount or value of the consideration paid is payable where an agreement to transfer ordinary shares is not completed by a duly stamped transfer to the transferee. Where an instrument of transfer is executed and duly stamped before the expiry of the period of six years beginning with such date, the SDRT liability will be cancelled, and any SDRT which has been paid will be refunded. SDRT is due whether or not the agreement or transfer of such chargeable securities is made or carried out in the UK and whether or not any party to that agreement or transfer is a UK resident. Purchases of ordinary shares completed by execution of a stock transfer form will generally give rise to a liability to UK stamp duty at the rate of 0.5% (rounded up to the nearest £5) of the actual consideration paid. Paperless transfers under the CREST paperless settlement system will generally be liable to SDRT at the rate of 0.5%, and not stamp duty. The transfer of ordinary shares where there is no change of beneficial ownership will generally attract fixed rate stamp duty of £5 per transfer. SDRT is generally the liability of the purchaser and UK stamp duty is usually paid by the purchaser or transferee. | |
Transfer of ADSs No UK stamp duty will be payable on the acquisition or transfer of existing ADSs or beneficial ownership of ADSs, provided that any instrument of transfer or written agreement to transfer is executed outside the UK and remains at all times outside the UK. An agreement for the transfer of ADSs in the form of ADRs will not give rise to a liability for SDRT. On a transfer of ordinary shares from the London, England office of The Bank of New York as agent of the Depositary (the Custodian) to a holder of ADSs upon cancellation of the ADSs, only a fixed stamp duty fee of £5 per instrument of transfer will be payable. Any transfer for value of the underlying ordinary shares represented by ADSs may give rise to a liability on the transferee to UK stamp duty or SDRT. A charge to stamp duty or SDRT may arise on the issue or transfer of ordinary shares to the Depositary or the Custodian. The rate of stamp duty or SDRT will generally be 1.5% of either (i) in the case of an issue of ordinary shares, the issue price of the ordinary shares concerned, or (ii) in the case of a transfer of ordinary shares, the value of the consideration or, in some circumstances, the value of the ordinary shares concerned. The Depositary will generally be liable for the stamp duty or SDRT. In accordance with the terms of the Depositary Agreement, the Depositary will charge any tax payable by the Depositary or the Custodian (or their nominees) on the deposit of ordinary shares to the party to whom the ADSs are delivered against such deposits. If the stamp duty is not already a multiple of £5, the duty will be rounded up to the nearest multiple of £5. | |
US information reporting and backup withholding: |
A US resident Holder who holds ADSs may in certain circumstances be subject to information reporting to the IRS and possible US backup withholding at a rate of 30% with respect to dividends on ADSs and proceeds from the sale or other disposition of ADSs unless such holder furnishes a correct taxpayer identification number or is otherwise exempt. | |
UK inheritance tax: |
An individual who is domiciled in the US for the purposes of the convention between the US and the UK for the avoidance of double taxation with respect to estate and gift taxes (the Estate Tax Convention) and who is not a national of the UK for the purposes of the Estate Tax Convention will generally not be subject to UK inheritance tax in respect of the ADSs on the individuals death or on a gift of the ADSs during the individuals lifetime, unless the ADSs are part of the business property of a permanent establishment of the individual in the UK or pertain to a fixed base in the UK of an individual who performs independent personal services. Special rules apply to ADSs held in trust. In the exceptional case where the shares are subject both to UK inheritance tax and to US Federal gift or estate tax, the Estate Tax Convention generally provides for the tax paid in the UK to be credited against tax paid in the US. |
Documents on display |
The information set forth under the headings Documents on display on page 134 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The information set forth under the heading Treasury Policy on pages 43 to 46 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. |
Item 12. Description of Securities Other than Equity Securities
Not applicable. |
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
There has been no material default in the payment of principal, interest, a sinking or purchase fund installment or any other material default with respect to the indebtedness for or in respect of monies borrowed or raised by whatever means of the Company or any of its significant subsidiaries. There have been no arrears in the payment of dividends on, and no material delinquency with respect to, any class of preferred stock of any significant subsidiary of the Company. |
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable. |
Item 15. Controls and Procedures
The Company has carried out an evaluation under the supervision and with the participation of its management, including the Group Chief Executive and Group Finance Director, of the effectiveness of the design and operation of the Groups disclosure controls and procedures as of the end of the period covered by this report. Based upon and as of that evaluation, the Group Chief Executive and Group Finance Director concluded that the disclosure controls and procedures are effective in all material respects to ensure that the information required to be disclosed in the reports that National Grid Transco files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required. | |
During the period covered by this report, there were no changes in the Companys internal control over financial reporting that could materially affect internal control over financial reporting. |
Item 16. [Reserved]
Item 16A. Audit committee financial expert
The Board of Directors has determined that George Rose, chairman of the Companys Audit Committee, is an audit committee financial expert. A brief listing of Mr. Roses relevant experience is included as part of Item 6. |
Item 16B. Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code is available on the Companys website at www.ngtgroup.com/about/mn_corp_govern.html , where any amendments or waivers will also be posted. |
Item 16C. Principal Accountant Fees and Services
PricewaterhouseCoopers LLP, independent registered public accounting firm, served as auditors of the Company for the fiscal year ended 31 March 2004. | |
Audit Fees | |
The aggregate fees billed by PricewaterhouseCoopers LLP for the audit of the Companys financial statements and regulatory reporting for the fiscal year ended 31 March 2004, and the review of interim financial statements for the sixth months ended 30 September 2004 were £5 million. Fees billed by PricewaterhouseCoopers for the audit of the Companys financial statements and regulatory reporting for the fiscal year ended March 31, 2003, and the review of interim financial statements for the sixth months ended 30 September 2003 were £4 million. | |
Audit-Related Fees | |
The aggregate fees billed by PricewaterhouseCoopers LLP for assurance and related services that were reasonably related to the performance of the audit or review of the Companys financial statements and are not disclosed under Audit Fees above were £2 million in fiscal 2003/04, and £3 million in fiscal 2002/03. Services comprising these fees included £1.5 million in fiscal 2003/04 of assurance services associated with the separation of UK based gas distribution networks, and £2 million in fiscal 2002/03 relating to the merger of National Grid and Lattice. The remaining amounts, in both years, relate to services provided on bond programs, audit of pension schemes and the provision of accounting advice. | |
Tax Fees | |
Aggregate fees billed by PricewaterhouseCoopers LLP for tax compliance, tax advice and tax planning were £1 million in fiscal 2003/04, and £3 million during fiscal 2002/03. | |
All Other Fees | |
Aggregate fees billed by PricewaterhouseCoopers LLP for all other services in fiscal 2003/04 were £2 million, which related to vendor due diligence work associated with the proposed disposal of UK-based gas distribution networks. Aggregate fees billed by PricewaterhouseCoopers LLP for all other services in fiscal 2002/03 were £3 million, which largely related to services supplied by the consulting business unit of PricewaterhouseCoopers LLP which was sold to IBM United Kingdom Limited on 30 September 2002. | |
Subject to the Companys Articles of Association, the Audit Committee is solely and directly responsible for the approval of the appointment, re-appointment, compensation and oversight of the Companys independent auditors. The Audit Committee must approve in advance all non-audit work to be performed by the independent auditors. | |
During fiscal 2003/04, all of the audit, audit-related and non-audit services provided by PricewaterhouseCoopers were pre-approved by the Audit Committee. |
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable. |
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
PART III
Item 17. Financial Statements
The Company has responded to Item 18 in lieu of this Item.
Item 18. Financial Statements
The information set forth under the headings Statement of Directors responsibilities for preparing the accounts on page 69, Accounting Policies on pages 71 to 73, Group Profit and Loss Account on page 74, Balance Sheets on page 75, Group Cash Flow Statement on page 76, Group Statement of Total Recognised Gains and Losses on page 76 and Notes to the Accounts on pages 77 to 128 of the Companys Annual Report and Accounts 2003/04 contained in Exhibit 14.1 is incorporated herein by reference. The audit report on these financial statements is presented below. | |
Report of Independent Registered Public Accounting Firm |
To the Board of Directors and Shareholders of National Grid Transco plc | |
In our opinion, the accompanying consolidated Balance Sheets and related consolidated Profit and Loss Account, Cash Flow Statement, Statement of Total Recognised Gains and Losses and the related notes present fairly, in all material respects, the financial position of National Grid Transco plc and its subsidiaries at 31 March 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended 31 March 2004, in conformity with accounting principles generally accepted in the United Kingdom. These accounts are the responsibility of the Companys Directors and management. Our responsibility is to express an opinion on these accounts based on our audits. We conducted our audits of these accounts in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts, assessing the accounting principles used and significant estimates made by management, and evaluating the overall accounts presentation. We believe that our audits provide a reasonable basis for our opinion. | |
As described in Note 1 to the accounts, the Company has changed its accounting policy for treasury stock during the year ended 31 March 2004. | |
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 32, as restated, to the consolidated accounts. | |
/s/ PricewaterhouseCoopers LLP | |
PricewaterhouseCoopers LLP |
Chartered Accountants and Registered Auditors |
London, United Kingdom |
19 May 2004 |
Item 19. Exhibits
Exhibit | Description | ||||||
1.1 | Memorandum and Articles of Association of National Grid Transco plc (Exhibit 1 to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958). | Incorporated by reference | |||||
1.2 | Amendment to Memorandum and Articles of Association of National Grid Transco plc (Exhibit 1 to National Grid Transco Form 20-F dated 11 June 2003 File No. 1-14958). | Incorporated by reference | |||||
2.1 | Amended and restated Deposit Agreement dated as of 31 January 2002 (Exhibit 2(a) to National Grid Group Form 20-F dated 21 June 2002 File No. 1-14958). | Incorporated by reference | |||||
4.1 | Credit agreement dated 18 November 2003 between National Grid Transco plc; HSBC Bank plc (the facility agent); HSBC Bank USA (the swingline agent); and certain banks and financial institutions (the banks). | Filed herewith | |||||
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
NATIONAL GRID TRANSCO PLC | |||
By: | /s/ Stephen Lucas | ||
Stephen Lucas
Group Finance Director |
London, England
June 16, 2004
C L I F F O R D
|
LIMITED LIABILITY PARTNERSHIP |
C H A N C E | |
CONFORMED COPY |
DATED 18 NOVEMBER 2003
NATIONAL GRID TRANSCO plc
(formerly National Grid Group plc)
as Borrower
THE BANK OF TOKYO-MITSUBISHI, LTD.
BARCLAYS CAPITAL
DRESDNER KLEINWORT WASSERSTEIN LIMITED
and
HSBC BANK plc
as Bookrunners
HSBC BANK plc
as Facility Agent
HSBC BANK USA
as Swingline Agent
and
CERTAIN BANKS AND FINANCIAL INSTITUTIONS
as Banks
CONTENTS
THIS AGREEMENT is made on 18 November 2003
BETWEEN:
(1) |
NATIONAL GRID TRANSCO plc
(formerly
National Grid Group plc) (a company incorporated in England and Wales
with registered number 04031152) (the
Borrower
)
as borrower;
|
(2) |
THE BANK OF TOKYO-MITSUBISHI, LTD., BARCLAYS CAPITAL, DRESDNER KLEINWORT WASSERSTEIN LIMITED
and
HSBC BANK plc
as
joint bookrunners (the
Bookrunners
);
|
(3) |
THE FINANCIAL INSTITUTIONS
listed in part III of Schedule 1 (
The Banks
)
as joint Mandated Lead Arrangers (the
Mandated Lead Arrangers
);
|
(4) |
HSBC BANK plc
as
facility agent (the
Facility Agent
);
|
(5) |
HSBC BANK USA
as
swingline agent (the
Swingline Agent
); and
|
(6) |
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Part I and Part II of Schedule 1 (
The Banks
) as Banks.
|
IT IS AGREED
as follows:
|
1. |
INTERPRETATION
|
1.1 |
Definitions
|
In this Agreement:
|
2001 Facility Agreement
means
the syndicated revolving credit facility agreement dated 22 November
2001 (as amended from time to time) between (amongst others) National
Grid Group plc, New National Grid plc as borrowers and guarantors and
NGG Finance plc as a borrower and HSBC Investment Bank plc as facility
agent.
|
Advance
means
a Revolving Facility Advance or a Term-out Advance made or to be made
by a Revolving Facility Bank under the Revolving Facility or a Swingline
Advance made or to be made available by a Swingline Bank.
|
Affiliate
means
a Subsidiary or a Holding Company (as defined in Section 736 of the
Companies Act 1985) of a person and any other Subsidiary of that Holding
Company.
|
Affiliated Bank
means
a Bank which is an Affiliate of another Bank.
|
Agent
means
the Facility Agent or the Swingline Agent and the term
relevant Agent
shall
be construed accordingly.
|
Agreed Percentage
means
in relation to a Revolving Facility Bank and a Swingline Advance, the
amount of its Revolving Facility Commitment expressed as a percentage
of the Total Commitments.
|
Anniversary
means
an anniversary of the Signing Date.
|
- 1 -
Applicable Margin
means
the percentage rate per annum determined from time to time to be the
Applicable Margin in accordance with Clause 9.6 (
Applicable Margin
).
|
Asset Disposal
means
any single disposal of any assets (including but not limited to a disposal
of any Subsidiary or Affiliate, any disposal to facilitate or as part
of a securitisation and any issue by the Borrower or a Principal Subsidiary
of any debt instrument convertible into all or any part of the equity
share capital owned by it in another member of the Group) by the Borrower
or a Principal Subsidiary after the Signing Date other than a disposal
of assets permitted under paragraphs (b)(i) to (b)(xi) of Clause 18.9
(
Disposals
).
|
Authority
means
the Gas and Electricity Markets Authority established by section 1(1)
of the Utilities Act.
|
Availability Period
means
the period from the Signing Date to the date which is 364 days after
the Signing Date or, in relation to any Bank, such later date as that
Bank may have agreed under Clause 5.7 (
Extension of Availability Period
).
|
Banks
means
the Revolving Facility Banks and the Swingline Banks.
|
Business Day
means:
|
(a) |
a day (other than a Saturday or a Sunday) on which banks are open for general interbank business in:
|
(i) |
London and, in relation to a transaction involving Dollars, New York; and
|
(ii) |
in relation to a transaction involving an Optional Currency (other than Euros), the principal financial centre of the country of that Optional Currency; and
|
(b) |
in relation to a rate fixing for, or payment in, Euros, a TARGET Day.
|
Cash or Cash Equivalents
means:
|
(a) |
cash in hand and deposits with any bank or other financial institution (including cash in hand and deposits denominated in freely convertible foreign currencies);
|
(b) |
securities issued or guaranteed by the UK government or the United States government;
|
(c) |
participations
in open-ended mutual funds which invest in commercial paper, bankers acceptances, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities, and pay money market rates of interest, which are
rated at least AA by S&P or Aa2 by Moodys and which are immediately
convertible into cash;
|
(d)
|
(i) |
debt
securities rated at least A1 by Moodys or A+ by S&P;
|
(ii) |
commercial
paper rated at least A-1 by Moodys and P-1 by S&P;
|
- 2 -
(iii) |
certificates
of deposit or time deposits or bankers acceptances issued by
any commercial bank (which has outstanding debt securities rated as
referred to above in (c) and (d)(i));
|
(iv) |
investments in money market funds which invest substantially all of their assets in securities of the type referred to above; and
|
(v) |
any other instrument, security or investment approved in writing by the Majority Banks, and
|
(e) |
all
currency or interest rate swaps, cap or collar arrangements or any
other derivative instruments held by any member of the Group with a
contractual counterparty which has a long term credit rating of at
least A- by S&P or A3 by Moodys which are freely
realisable and, if terminated at the date of calculation of Cash or Cash Equivalents,
would result in a termination payment being payable by the relevant
contractual counterparty, the value of such instruments to be calculated
by aggregating the mark-to-market values of all such instruments,
|
to the extent beneficially owned by a member of the Group free of restrictions (other than exchange control requirements) on withdrawal or transfer (in the case of cash) and (in all cases) unencumbered by any Security Interests other than Security Interests permitted under
paragraph (c) of Clause 18.8 (
Negative Pledge
).
|
Companies Act Subsidiary
means
a subsidiary within the meaning of Section 736 of the Companies Act
1985, as amended by Section 144 of the Companies Act 1989.
|
Dangerous Substance
means
any radioactive emissions and any natural or artificial substance (whether
in solid or liquid form or in the form of a gas or vapour) which (whether
alone or in conjunction with any other substance) gives rise to a risk
of causing harm to man or any other living organism or causing damage
to the Environment or public health or welfare and includes but is
not limited to any controlled, special, hazardous, toxic, radioactive
or dangerous waste.
|
Default
means
an Event of Default or any event which, with the giving of notice,
expiry of any applicable grace period, determination of materiality
or fulfilment of any other applicable condition (or any combination
of the foregoing) in each case as specified in Clause 19 (
Default
), would constitute an Event of Default.
|
Disposal Proceeds
means
in relation to any Asset Disposal, the value of all the consideration
received or receivable by the Group in relation to that Asset Disposal
whether at the time of the Asset Disposal or on a deferred basis and
for this purpose:
|
(a) |
counting as part of the consideration the aggregate principal amount of any Financial Indebtedness in the entity disposed of and which remains in that entity immediately after the Asset Disposal;
|
(b) |
taking the value of any deferred consideration as an amount determined by the auditors of the Borrower to represent its net present value as at the time the Asset Disposal is substantially completed; and
|
- 3 -
(c) |
taking non-cash proceeds
at their fair value as at the time the Asset Disposal is substantially
completed.
|
|
Distribution Networks
means
each of the eight regional networks comprising the LDZs set out below:
|
(a) |
East Midlands LDZ and East Anglia LDZ;
|
(b) |
London LDZ;
|
(c) |
North of England LDZ and Yorkshire LDZ;
|
(d) |
North West England LDZ ;
|
(e) |
Scotland LDZ;
|
(f) |
South of England LDZ and South East of England LDZ;
|
(g) |
Wales LDZ and South West of England LDZ;
|
(h) |
West Midlands LDZ.
|
Double Taxation Treaty
means
any convention between the government of the United Kingdom and any
other government for the avoidance of double taxation and the prevention
of fiscal evasion with respect to taxes on income and capital gains.
|
Electricity Act
means
the UK Electricity Act 1989 as amended from time to time and all subordinate
legislation made under it.
|
EMU
means
Economic and Monetary Union as contemplated by the Treaty establishing
the European Community.
|
EMU legislation
means
legislative measures of the European Union in relation to EMU.
|
Energy and Network Business
means
the business of generation, storage, metering, trading, supply or the
operation, maintenance, development and exploitation of a transmission
or distribution network for electricity, gas or other sources of energy,
the undertaking of an energy and telecoms business generally and any
businesses ancillary or incidental to any of those businesses.
|
Energy Laws
means
the Electricity Act, the Gas Act, Utilities Act and all other laws,
regulations or requirements of any relevant authority (in so far as
such regulations or requirements have the force of law) relating to
the generation, operation, maintenance, development and exploitation
of a transmission or distribution network, metering, trading or supply
of electricity, gas or other sources of energy in each jurisdiction
in which the Borrower or any of its Subsidiaries carries on business
at any time.
|
Environment
means
the media of air, water and land (wherever occurring) and in relation
to the media of air and water includes, without limitation, the air
and water within buildings and the air and water within other natural
or man-made structures above or below ground and any water contained
in any underground strata.
|
- 4 -
Environmental Approvals
means
all authorisations of any kind required under Environmental Laws to
which any member of the Group is subject at any time.
|
Environmental Law
means
all legislation, regulations or orders (insofar as such regulations
or orders have the force of law) to the extent that they relate to
the protection or impairment of the Environment or the control of Dangerous
Substances to which any member of the Group is subject at any relevant
time.
|
EURIBOR
means
in relation to any Advance in Euros:
|
(a) |
the applicable Screen Rate; or
|
(b) |
(if no Screen Rate is available for the Interest Period or Term of that Advance) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request, quoted by the Reference Banks to leading banks in the
European interbank market;
|
at or about 11.00 a.m. Brussels time on the applicable Rate Fixing Day for the offering of deposits in Euros for the applicable Interest Period for a Term-out Advance or the Term of an Advance (other than a Term-out Advance).
|
Euro, Euros,
means
the single currency of the Participating Member States.
|
Euro unit
means
a unit of the Euro as defined in EMU legislation.
|
Event of Default
means
an event specified as such in Clause 19.1 (
Events of Default
).
|
Existing Bank
shall
have the meaning given to it in Clause 27.2(a) (
New Banks
).
|
Facilities
means
the Revolving Facility and the Swingline Advance Facility (as a sub-limit
of the Revolving Facility).
|
Facility
Agents Spot Rate of Exchange
means the spot rate
of exchange as determined by the Facility Agent for the purchase
of the relevant Optional Currency in the London foreign exchange
market with Dollars at or about 11.00 a.m. on a particular day.
|
Facility Office
means the office or offices notified by a Bank to the relevant Agent in writing on or before the date it becomes a Bank through which it will perform all or any of its obligations under this Agreement (or, in the case of any New Bank, the office(s) specified in
the relevant Transfer Certificate) or such other office(s) as it may from time to time select by not less than five Business Days notice
to the relevant Agent.
|
Federal Funds Rate
means,
in relation to any day, the rate per annum equal to:
|
(a) |
the weighted average of the rates on overnight Federal funds transactions with members of the US Federal Reserve System arranged by Federal funds brokers, as published for that day (or, if that day is not a New York Business Day, for the immediately preceding
New York Business Day) by the Federal Reserve Bank of New York; or
|
- 5 -
(b) |
if a rate is not published for that day or preceding day, the average of the quotations for that day on those transactions received by the Swingline Agent from three Federal funds brokers of recognised standing selected by the Swingline Agent.
|
Fee Letter
means
each of:
|
(a) |
the arrangement fee letter from the Bookrunners to the Borrower dated 13 October 2003 setting out the amount of fees referred to in Clause 21.1 (
Arrangement and Participation fees
); and
|
(b) |
the agency fee letter from the Facility Agent to the Borrower dated on or around the Signing Date setting out the amount of fees referred to in Clause 21.4 (
Agency fee
).
|
Final Maturity Date
means,
subject to Clause 8 (
Prepayment and Cancellation
):
|
(a) |
the date falling 364 days after the Signing Date; or
|
(b) |
where any Revolving Facility Banks agree to extend the Availability Period pursuant to Clause 5.7 (
Extension of Availability Period
) then, with respect to Revolving Facility Advances and Swingline Advances made under the Revolving Facility by those Revolving
Facility Banks (in their capacity as a Revolving Facility Bank or Swingline Bank as appropriate) only;
|
(i) |
the date that is 364 days after the date in paragraph (a) above; or
|
(ii) |
the date that is 364 days after the immediately preceding extended final maturity date in the case of multiple extensions; or
|
(c) |
in the case of a Term-out Advance, the date specified as such in the Utilisation Request for the Term-out Advance in accordance with paragraph (e) of Clause 5.2 (
Form of Utilisation Request
).
|
Finance Document
means
this Agreement, a Fee Letter, a Transfer Certificate and any other
document designated in writing as such by an Agent and the Borrower.
|
Finance Party
means
each of the Bookrunners, Mandated Lead Arrangers, the Banks and the
Agents (as the context requires).
|
Financial Indebtedness
means
(without double counting) any indebtedness in respect of:
|
(a) |
moneys borrowed or debit balances at banks and other financial institutions;
|
(b) |
any debenture, bond, note, commercial paper, loan stock or other debt instrument;
|
(c) |
any acceptance (or dematerialised equivalent) or documentary credit facilities, bill discounting or factoring facilities;
|
- 6 -
(d) |
receivables sold or discounted (otherwise than on a non-recourse basis);
|
(e) |
the acquisition cost of any asset to the extent payable before or after the time of acquisition or possession by the party liable where the advance or deferred payment is arranged primarily as a method of raising finance or financing the acquisition of that asset;
|
(f) |
leases (whether in respect of land, machinery, equipment or otherwise) entered into primarily as a method of raising finance or financing the acquisition of the asset leased;
|
(g) |
currency or interest swap, cap or collar arrangements or any other derivative instrument;
|
(h) |
amounts raised under any other transaction having the commercial effect of a borrowing or raising of money; and
|
(i) |
any guarantee, indemnity or similar assurance in respect of indebtedness of any person falling within any of paragraphs (a) to (h) (both inclusive) above.
|
Financial Indebtedness Limit
means
each of the limits placed on the amount of permitted Financial Indebtedness
of Subsidiaries set out in paragraph (a)(ii) of Clause 18.15 (
Restriction on Subsidiary Financial Indebtedness
).
|
GAAP
means
generally accepted accounting principles in the United Kingdom.
|
Gas Act
means
the Gas Act 1986 as amended from time to time and all subordinate legislation
made under it.
|
Group
means
the Borrower and its Subsidiaries from time to time, but if at any
time a Project Finance Company is a Subsidiary Undertaking but not
a Companies Act Subsidiary, then, for so long as it shall be a Subsidiary
Undertaking but not a Companies Act Subsidiary, it shall be deemed
for the purposes of the Finance Documents (unless the contrary is specified)
not to be a member of the Group.
|
Information Memorandum
means the document in the form approved by the Borrower concerning the Group which, at the Borrowers
request and on its behalf, was prepared in relation to this transaction
and distributed by the Bookrunners to selected financial institutions
prior to the Signing Date.
|
Interest Date
means
the last day of an Interest Period.
|
Interest Period
means,
in relation to a Term-out Advance, each period determined in accordance
with Clause 9.1 (
Selection of Interest Periods for Term-out Advances
) or, in relation to overdue amounts, Clause 9.4 (
Default interest
).
|
Interest Period Selection Notice
means
a notice substantially in the form set out in Schedule 4 (
Form of Utilisation Request/Interest Period Selection Notice
).
|
LDZ
means
each of the 12 parts of the gas transportation system in Great Britain
(excluding the national transmission system) for the time being designated
as such by Transco plc and described by reference to a geographical
area in which the assets of the LDZ are located.
|
- 7 -
LIBOR
means
in relation to any Advance (other than a Swingline Advance or an Advance
in Euros):
|
(a) |
the applicable Screen Rate; or
|
(b) |
(if no Screen Rate is available for the currency, Interest Period or Term of that Advance) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request, quoted by the Reference Banks to leading banks in the
London interbank market,
|
at or about 11.00 a.m. London time on the applicable Rate Fixing Day for the offering of deposits in the currency of the relevant Advance for the applicable Interest Period for a Term-out Advance or the Term of an Advance (other than a Term-out Advance).
|
Majority Banks
means,
at any time, Revolving Facility Banks the sum of whose aggregate undrawn
Revolving Facility Commitments and Original Dollar Amount of Utilisations
at that time aggregate at least 66 2/3 per cent. of the sum of the
aggregate Original Dollar Amount of all Utilisations then outstanding
and the then undrawn Revolving Facility Total Commitments (or if the
Revolving Facility Total Commitments have been reduced to zero and
there are no Utilisations then outstanding, whose Revolving Facility
Commitments
aggregate at least 66 2/3 per cent. of the Revolving Facility Total Commitments
immediately before the reduction).
|
Mandatory Cost
means
the percentage per annum calculated by the Facility Agent in accordance
with Schedule 3 (
Calculation of the Mandatory Cost
).
|
Material Licence
means
each of the following:
|
(a) |
the transmission licences granted under Section 6(l)(b) of the Electricity Act;
|
(b) |
the gas transporter licence treated as granted under Section 7 of the Gas Act; and
|
(c) |
each
other licence, permission, concession or franchise granted by any Utility
Regulator to a Principal Subsidiary pursuant to an Energy Law or otherwise
which is material to the continuation or authorisation of that Principal
Subsidiarys Energy and Network
Business,
|
and any other licences notified as such by the Borrower to the Facility Agent.
|
Maturity Date
means
the last day of the Term of an Advance (other than a Term-out Advance).
|
Moodys
means Moodys
Investors Services, Inc.
|
New York Business Day
means
a day (other than a Saturday or a Sunday) on which banks are open for
business in New York.
|
- 8 -
Optional Currency
means
Sterling, Euros and any other currency which is for the time being
freely transferable and convertible into Dollars and deposits of which
are readily available in the London interbank market.
|
Original Dollar Amount
means
in relation to Utilisations under the Revolving Facility:
|
(a) |
if a Utilisation is denominated in Dollars, the principal amount of that Utilisation; or
|
(b) |
if
a Utilisation is denominated in any other currency, the principal amount
of that Utilisation notionally converted into Dollars on the basis
of the Facility Agents Spot Rate of Exchange on the date of receipt
by the Facility Agent of the Utilisation Request for, or Interest Period
Selection Notice in relation to, that Utilisation.
|
Original Group Accounts
means
the audited consolidated accounts of the Group for the year ended 31
March 2003 prepared in accordance with GAAP.
|
Participating Member State
means
a member state of the European Union that, at the relevant time, has
adopted the Euro as its currency in accordance with EMU legislation.
|
Party
means
a party to this Agreement.
|
Prime Rate
means,
on any day, the prime commercial lending rate from time to time publicly
announced by the Swingline Agent, which rate may not be the lowest
rate charged to its borrowers. Each change in the interest rate on
a Swingline Advance which results from a change in the Prime Rate becomes
effective on the day on which the change in the Prime Rate becomes
effective.
|
Principal Subsidiary
means:
|
(a) |
National Grid Company plc, registered number 2366977;
|
(b) |
Transco plc, registered number 2006000;
|
(c) |
Niagara Mohawk Power Corporation, a New York corporation;
|
(d) |
Massachusetts Electric Company, a Massachusetts corporation;
|
(e) |
Narragansett Electric Company, a Rhode Island corporation;
|
(f) |
New England Power Company, a Massachusetts corporation,
|
provided always
that
if the whole or substantially the whole of the assets of a Principal
Subsidiary is transferred by that Principal Subsidiary (the
disposing Subsidiary
)
to another Subsidiary of the Borrower or a number of Subsidiaries of
the Borrower (each a
receiving Subsidiary
), the
disposing Subsidiary shall forthwith upon the transfer cease to be
a Principal Subsidiary and the receiving Subsidiary shall forthwith
upon the transfer become a Principal Subsidiary.
|
- 9 -
Project Finance Borrowing
means
any Financial Indebtedness to finance a project:
|
(a) |
which is borrowed by a single purpose company, partnership or other legal person (whether or not a member of the Group) where its or one or more of its subsidiaries, principal assets and business are constituted by that project and whose liabilities in respect of the
Financial Indebtedness concerned are not directly or indirectly the subject of a guarantee, indemnity or other form of assurance, undertaking or support from any member of the Group (except as expressly referred to in paragraph (b)(iii) below or as a result of the
making of acceptances or endorsements of bills in the ordinary course of trading or payment netting arrangements and other usual course of business banking arrangements); or
|
(b) |
in respect of which the person or persons making that Financial Indebtedness available to the relevant borrower (whether or not a member of the Group) have no recourse whatsoever to any member of the Group for the repayment of or payment of any sum relating
to that Financial Indebtedness other than:
|
(i) |
recourse to the borrower or one or more of its subsidiaries, for amounts limited to the aggregate cash flow or net cash flow (other than historic cash flow or historic net cash flow) from the project; and/or
|
(ii) |
recourse to the borrower, or one or more of its subsidiaries or any shareholder of the borrower for the purpose only of enabling amounts to be claimed in respect of that Financial Indebtedness in an enforcement of any Security Interest permitted pursuant
to Clause 18.8 (
Negative pledge
) given by the borrower or one or more of its subsidiaries over the assets comprised in the project (or given by any shareholder of the borrower over its shares in the borrower together with, in the case of a UK incorporated
shareholder whose only material assets are those shares in the borrower, a supporting floating charge over all or substantially all of its assets, to secure that Financial Indebtedness or any recourse referred to in (iii) below or as a result of the making of
acceptances or endorsements of bills in the ordinary course of trading or payment netting arrangements and other usual course of business banking arrangements,
provided that
(A) the extent of the recourse to the borrower or one or more of its
subsidiaries or shareholder is limited solely to the amount of any recoveries made on any such enforcement, and (B) the person or persons are not entitled, by virtue of any right to claim arising out of or in connection with the Financial Indebtedness, to
commence proceedings for the winding up or dissolution of the borrower or shareholder or to appoint or procure the appointment of any receiver, trustee or similar person or official in respect of the borrower or shareholder or any of its assets (save for the
assets the subject of the relevant Security Interest); and/or
|
(iii) |
recourse to such borrower generally, or directly or indirectly to a member of the Group under any form of assurance or undertaking, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in
a specified way) for breach of an obligation (not being a payment obligation or an obligation to procure payment by another or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by
the person against whom such recourse is available; or
|
- 10 -
(c) |
which the Majority Banks shall have agreed in writing to treat as Project Finance Borrowing for the purposes of the Finance Documents.
|
If at any time any Financial Indebtedness is made to finance a project and that Financial Indebtedness does not qualify as a Project Finance Borrowing pursuant to the above paragraphs (b)(i), (ii) or (iii) but would so qualify if there were not recourse to a member of the Group
which is either (i) limited as to the period during which it is in force (for example, during the period up to completion of the project) or (ii) limited as to the obligations of the borrower to which it applies, then, in any such case, the Financial Indebtedness shall be regarded as a
Project Finance Borrowing for the purposes of this definition to the extent that, and during the period that, there is no such recourse to a member of the Group.
|
Project Finance Company
means
any company, partnership or other legal person falling within the scope
of paragraph (a) of the definition of Project Finance Borrowing or
which the Majority Banks have agreed shall be treated as a Project
Finance Company for the purposes of the Finance Documents.
|
PUHCA
means
the United States of America Public Utility Holding Company Act of
1935, as amended.
|
QTE Lease
means
a lease or hire purchase transaction involving assets which the lessee
has reason to believe will represent qualified technological equipment
under the US tax code at the time of the inception of the lease or
hire purchase transaction.
|
Qualifying Bank
means
a Bank which is for an Advance to the Borrower (incorporated in the
United Kingdom), either:
|
(a) |
a UK Bank; or
|
(b) |
a Treaty Bank.
|
Rate Fixing Day
means
in relation to any Advance (other than a Swingline Advance):
|
(a) |
the second Business Day before the first day of an Interest Period or the Term of an Advance (other than an Advance in Sterling or Euros); or
|
(b) |
in the case of an Advance in Sterling, the first day of an Interest Period or the Term of that Advance; or
|
(c) |
in the case of an Advance
in Euros, the second TARGET Day before the first day of an Interest
Period or the Term of that Advance,
|
|
or such other day on which it is market practice in the relevant interbank market for leading banks to give quotations for deposits in the relevant currency for delivery on the first day of the relevant Interest Period or Term, as determined by the Facility Agent. |
- 11 -
Reference Banks
means,
subject to Clause 27.4 (
Reference Banks
), the principal London offices of Barclays Bank PLC, HSBC Bank plc and The Royal Bank of Scotland plc.
|
Regulated Holding Company
means,
in respect of any Bank, any person which is a Holding Company (as defined
in section 736 of the Companies Act 1985) of that Bank and is regulated
as a bank or other financial institution.
|
Regulatory Order
means,
with respect to any Principal Subsidiary, any material order or regulation
issued by a Utility Regulator that is applicable to such Principal
Subsidiary.
|
Relevant Time
means
the applicable time set opposite a Clause number in Schedule 6 (
Timetables
).
|
Requisite Extension Majority
means
at least two of the Banks under the Revolving Facility (whose Revolving
Facility Commitments are in aggregate at least equal to 50% of the
Revolving Facility Total Commitments) which agree to extend the Availability
Period pursuant to Clause 5.7 (
Extension of Availability Period
).
|
Requested Amount
means
the requested amount of a Utilisation as set out in a Utilisation Request.
|
Revolving Facility
means
the facility referred to in Clause 2.1 (
The Facilities
) (including the Swingline Advance Facility except where the context requires otherwise).
|
Revolving Facility Advances
means
any Advances except Term-out Advances and Swingline Advances.
|
Revolving Facility Banks
means
each of the banks and financial institutions listed in Part I of Schedule
1 (
The Banks
), their respective successors in title and any other bank or financial institution which becomes a Party pursuant to Clause 26.3 (
Increase of Revolving
Facility Total Commitments
) or Clause 27.3 (
Procedure for transfers
).
|
Revolving Facility Commitment
means
in relation to a Bank:
|
(a) |
the amount in Dollars set opposite its name in Part I of Schedule 1 (
The Banks
); or
|
(b) |
the amount of that Revolving Facility Commitment acquired by such Bank pursuant to Clause 27.2 (
New Banks
) and/or Clause 27.3 (
Procedure for transfers
),
|
less in each case the amount of that Revolving Facility Commitment cancelled, reduced or transferred by that Bank pursuant to this Agreement.
|
- 12 -
Revolving Facility Total Commitments
means,
on any day and from time to time, the aggregate of the Revolving Facility
Commitments, being US$1,485,000,000 at the date of this Agreement.
|
Screen Rate
means:
|
(a) |
in relation to LIBOR, the British Bankers Association Interest Settlement Rate for the relevant currency and period; and
|
(b) |
in relation to EURIBOR, the percentage rate per annum determined by the Banking Federation of the European Union for the relevant period,
|
displayed on the appropriate page of the Telerate screen. If the agreed page is replaced or service ceases to be available, the Facility Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower and the Banks.
|
Security Interest
means
any mortgage, pledge, lien, charge, assignment, hypothecation or security
interest or any other agreement or arrangement having the effect of
conferring security.
|
Signing Date
means
the date of this Agreement.
|
S&P
means Standard & Poors
Corporation.
|
Subsidiaries
means
Companies Act Subsidiaries and Subsidiary Undertakings (and
Subsidiary
shall
be construed accordingly).
|
Subsidiary Undertaking
means
a subsidiary undertaking within the meaning of Section 258 of the Companies
Act 1985 (as inserted by Section 21 of the Companies Act 1989).
|
Swingline Advance
means
an Advance in Dollars made or to be made by a Swingline Bank under
the Swingline Advance Facility and drawn under Clause 6.1 (
Receipt of Utilisation Requests
).
|
Swingline Advance Facility
means
the facility referred to in paragraph (ii) of Clause 2.1 (
The Facilities
), which comprises a sub-limit of the Revolving Facility.
|
Swingline Banks
means
each of the banks and financial institutions (being, in each case,
a Revolving Facility Bank (or its Affiliated Bank) listed in Part II
of Schedule 1 (
The Banks
), their respective successors in title and any other bank or financial institution which
becomes a Party pursuant to Clause 26.3 (
Increase of Revolving Facility Total Commitments
) or Clause 27.3 (
Procedure for transfers
).
|
Swingline Commitment
means
in relation to a Swingline Bank:
|
(a) |
the amount in Dollars set opposite its name in Part II of Schedule 1 (
The Banks
); or
|
(b) |
the amount of that Swingline Commitment acquired by such Bank pursuant to Clause 27.2 (
New Banks
) and/or Clause 27.3 (
Procedure for transfers
), less in each case the amount of that Swingline Commitment cancelled, reduced or transferred by that Bank
pursuant to this Agreement.
|
- 13 -
Swingline Rate
means,
on any day, the higher of:
|
(a) |
the US Dollar Prime Rate, and
|
(b) |
the aggregate of the Federal Funds Rate plus 0.50 per cent. per annum
|
on that day.
|
TARGET Day
means
a day on which the Trans-European Automated Real-Time Gross Settlement
Express Transfer (TARGET) System is open.
|
Term
means,
in relation to any Advance (other than a Term-out Advance) the period
selected by the Borrower for which the relevant Advance is to be outstanding,
as specified in the Utilisation Request.
|
Term-out Advance
means
an Advance drawn under paragraph (b) of Clause 7.1 (
Repayment of Revolving Facility Advances and Term-out Advances
).
|
Total Commitments
means
the Revolving Facility Total Commitments (which includes the Total
Swingline Commitments as a sub-limit within the Revolving Facility
Total Commitments).
|
Total Swingline Commitments
means,
on any day and from time to time, the aggregate of the Swingline Commitments.
|
Transfer Certificate
has
the meaning given to it in Clause 27.3 (
Procedure for transfers
).
|
Treaty Bank
means an institution which is resident (as such term is defined in the appropriate Double Taxation Treaty) in a country with which the United Kingdom has an appropriate Double Taxation Treaty giving residents of that country exemption from UK taxation
on interest and does not carry on business in the United Kingdom through a permanent establishment with which the Treaty Banks
participation in the Facilities is effectively connected.
|
UK Bank
means
a Bank which is within the charge to UK corporation tax in respect
of, and is beneficially entitled to, a payment of interest on an Advance
made by a person that was a bank for the purposes of Section 349 of
the Income and Corporation Taxes Act 1988 (as currently defined in
Section 840A of the Income and Corporation Taxes Act 1988) at the time
an Advance was made available.
|
United Kingdom
means
the United Kingdom of Great Britain and Northern Ireland.
|
United States
means
the United States of America.
|
Utilisation
means
a utilisation of any of the Facilities pursuant to the terms of this
Agreement and includes all the Advances made or to be made therein.
|
- 14 -
Utilisation Date
means
in the case of any Utilisation, the date for the making of the relevant
Advances.
|
Utilisation Request
means
a notice substantially in the form set out in Schedule 4 (
Form of Utilisation Request/Interest Period Selection Notice
).
|
Utilities Act
means
the Utilities Act 2000 as amended from time to time and all subordinate
legislation made under it.
|
Utility Regulator
means
any state or federal regulatory body in the United States having the
authority to regulate any Principal Subsidiary in its capacity as a
public utility, including the Federal Energy Regulatory Commission,
the Massachusetts Department of Telecommunications and Energy, the
New York Public Service Commission, the Rhode Island Public Utilities
Commission and the United States Securities and Exchange Commission.
|
1.2 |
Construction
|
(a) |
In this Agreement, unless the contrary intention appears, any reference to:
|
(i) |
an
amendment
includes
a supplement, variation, novation, re-enactment or a waiver;
|
assets
includes
present and future properties, revenues and rights of every description;
|
an
authorisation
includes
an authorisation, consent, approval, resolution, licence, exemption,
filing, registration and notarisation;
|
Barclays Capital
is
a reference to Barclays Capital, the investment banking division of
Barclays Bank PLC;
|
indebtedness
shall
be construed so as to include any obligation for the payment or repayment
of money, whether present or future, actual or contingent and whether
incurred as principal or surety;
|
a
month
is
a reference to a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next calendar month,
except that:
|
(a) |
if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not); or
|
(b) |
if there is no numerically corresponding day in the calendar month in which that period ends, that period shall end on the last Business Day in that calendar month;
|
a
person
includes
any individual, company, unincorporated association or body or persons
(including a partnership, joint venture or consortium), government,
state, agency, international organisation or other entity;
|
- 15 -
a
regulation
includes
any regulation, rule, official directive, request or guideline (whether
or not having the force of law, but, if not having the force of law,
being one with which the relevant Party is accustomed to comply) of
any governmental body, agency, department or regulatory, self-regulatory
or other authority or organisation;
|
tax
includes
any tax, levy, impost, duty or other charge or withholding of a similar
nature (including any penalty or interest payable in connection with
any failure to pay or any delay in paying any of the same).
|
(ii) |
a provision of a law is a reference to that provision as amended or re-enacted;
|
(iii) |
the
term Secretary of State shall be construed as a reference
to that term as used in the Electricity Act or Gas Act (as applicable);
|
(iv) |
a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement;
|
(v) |
a person includes its successors, transferees and assigns;
|
(vi) |
a Finance Document or another document is a reference to that Finance Document or that other document as amended;
|
(vii) |
a time of day is a reference to London time; and
|
(viii) |
Sterling
and
£
and
Dollars
and
US$
denote
the lawful currencies for the time being of the United Kingdom and
the United States of America respectively.
|
(b) |
Unless the contrary intention appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.
|
(c) |
The index and headings in this Agreement are for convenience only and are to be ignored in construing this Agreement.
|
2. |
THE FACILITIES
|
2.1 |
The Facilities
|
Subject to the terms and conditions hereof, the Banks grant to the Borrower a committed 364 day Dollar denominated multi currency revolving credit facility, with extension options and an option to draw Term-out Advances pursuant to which:
|
(i) |
the Revolving Facility Banks shall, when requested by the Borrower, make cash advances in Dollars or in Optional Currencies to the Borrower on a revolving basis during the Availability Period or on a term basis once the option to draw a Term-out Advance has
been exercised; and
|
- 16 -
(ii) |
the Swingline Banks shall, when requested by the Borrower, make to the Borrower Swingline Advances in Dollars on a revolving basis during the Availability Period.
|
2.2 |
Overall Facilities limit and sub-limit
|
(a) |
No Utilisation shall be made if it would cause the aggregate Original Dollar Amount of all outstanding Advances to exceed the Total Commitments.
|
(b) |
No Utilisation shall be made if it would cause the aggregate Original Dollar Amount of all outstanding Utilisations under the Swingline Advance Facility to exceed the Total Swingline Commitments.
|
2.3 |
Bank limits
|
(a) |
No Advance shall be made by any Revolving Facility Bank if the operation of Clause 5.3 (
Amount
of each Revolving Facility Banks Advance
) would cause the
total amount outstanding and owing to that Revolving Facility Bank
(and its Affiliated Bank (if any)) (together the
affected Bank
)
to exceed its Revolving Facility Commitment at that time.
|
(b) |
No Swingline Advance shall be made by any Swingline Bank if the operation of Clause 6.3 (
Amount
of each Swingline Banks Advance
) would cause the total amount outstanding and owing to the affected Bank to exceed its Swingline Commitment or its
Revolving Facility Commitment at that time.
|
(c) |
For
the purposes of this Clause 2.3, the
total amount outstanding
of
a Bank on any Utilisation Date is the aggregate Original Dollar Amount
of all Advances made by that Bank under the Facilities (including the
Swingline Facility) which would be outstanding on that Utilisation
Date if:
|
(i) |
all outstanding Utilisations having Maturity Dates or Final Maturity Dates which fall on or before that Utilisation Date are repaid; and
|
(ii) |
all Utilisations to be made on or before that Utilisation Date and in respect of which a Utilisation Request has been received by the relevant Agent are made.
|
2.4 |
Availability, number of Utilisation Requests and Utilisations
|
(a) |
No Utilisation may be made at any time after the date one month prior to the applicable Final Maturity Date.
|
(b) |
No Utilisation Request may specify a Utilisation Date which is within three Business Days of another Utilisation Date (unless the Utilisation the subject of that Utilisation Request is to refinance an existing Utilisation).
|
(c) |
No more than one Utilisation Request may be delivered on any one day but that Utilisation Request may subject to Clause 5 (
Availability of Revolving Facility Advances and Term-out Advance
) and Clause 6 (
The Swingline Advance Facility
) specify any number
and type of Utilisations from the Facilities.
|
- 17 -
(d) |
Unless the Facility Agent agrees otherwise, no more than 20 Utilisations may be outstanding at any one time save that no Utilisations under the Swingline Advance Facility are to be counted for the purposes of this provision.
|
2.5 |
Nature
of each Finance Partys rights and obligations
|
(a) |
The obligations of each Finance Party under the Finance Documents are several.
|
(b) |
The failure of a Finance Party to carry out those obligations does not relieve any other Party of its obligations under the Finance Documents and no Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.
|
(c) |
The rights of a Finance Party under the Finance Documents are divided rights and a Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights.
|
3. |
PURPOSE
|
3.1 |
Use of proceeds
|
The
Borrower shall apply each Utilisation made to it under the Facilities
to meet the general corporate purposes of the Group (including, but
not limited to, supporting the Groups US commercial paper programme),
provided that
the Borrower shall not apply the proceeds of
a Swingline Advance towards the repayment of an outstanding Swingline Advance.
|
3.2 |
No enquiry
|
Without affecting the obligations of the Borrower in any way no Finance Party is bound to monitor or verify the application of the proceeds of any Utilisation.
|
4. |
CONDITIONS PRECEDENT
|
4.1 |
Documentary conditions precedent
|
The obligations of each Finance Party to the Borrower under this Agreement are subject to the condition precedent that the Facility Agent has notified the Borrower and the Banks that it has received all of the documents set out in Schedule 2 (
Conditions Precedent
Documents
) in form and substance satisfactory to it.
|
4.2 |
Further conditions precedent generally
|
The obligations of each Bank to participate in a Utilisation are subject to the further conditions precedent that on both the relevant date of the Utilisation Request and the Utilisation Date:
|
(a) |
the representations and warranties in Clause 17 (
Representations and Warranties
) to be repeated on those dates are correct and will be correct in all material respects immediately after the Utilisation; and
|
(b) |
no Default is outstanding or would result from the Utilisation (
provided that
where no notice has been given pursuant to Clause 19.15 (
Acceleration
) but where a Default is outstanding each Bank shall be obliged to participate in a Utilisation, to the extent required
by the terms hereof, where such Utilisation is in the same currency as and is in an amount equal to or less than an outstanding Utilisation which is to mature on the Utilisation Date for the proposed Utilisation and is to be applied on such Utilisation Date in repaying
such outstanding Utilisation).
|
- 18 -
5. |
AVAILABILITY OF REVOLVING FACILITY ADVANCES AND TERM-OUT ADVANCES
|
5.1 |
Receipt of Utilisation Requests
|
The Borrower may borrow Revolving Facility Advances or a Term-out Advance if the Facility Agent receives, not later than the Relevant Time, a duly completed Utilisation Request. Each such Utilisation Request shall be copied to the Swingline Agent.
|
5.2 |
Form of Utilisation Request
|
A Utilisation Request for a Revolving Facility Advance or a Term-out Advance will not be regarded as having been duly completed unless:
|
(a) |
the proposed Utilisation Date is a Business Day during the Availability Period;
|
(b) |
the Requested Amount for each separate Utilisation comprising a Revolving Facility Advance or a Term-out Advance is in a minimum Original Dollar Amount of US$50,000,000 and an integral multiple of US$10,000,000, (or such other amount as the Borrower
and the Facility Agent may agree before the delivery of that Utilisation Request) or an integral multiple of the amounts in the relevant Optional Currency agreed between the Borrower and the Facility Agent before the delivery of the relevant Utilisation Request;
|
(c) |
only one Term or, in the case of Term-out Advances, one Interest Period and Final Maturity Date, for each separate Utilisation is specified which:
|
(i) |
does not extend beyond the Availability Period (other than in the case of Term-out Advances); and
|
(ii) |
is a period of 1, 2, 3 or 6 months for any Advance (or such other period as all the Revolving Facility Banks may previously have agreed for the purposes of such Advances
provided that
the Revolving Facility Banks agree that the Borrower may select
such other period as may be necessary for the purposes of facilitating the accession of additional financial institutions pursuant to Clause 26.3 (
Increase of Revolving Facility Total Commitments
);
|
(d) |
the payment instructions comply with Clause 11 (
Payments
); and
|
(e) |
in the case of a Term-out Advance, the proposed Final Maturity Date which must be the same date for all Term-out Advances drawn on the same date is a date after the Availability Period but no later than the second Anniversary or if the Availability Period has
been extended pursuant to Clause 5.7 (
Extension of Availability Period
) at the time the option to draw the first Term-out Advance has been exercised, 12 months after the date that extended Availability Period expires.
|
Each Utilisation Request, once delivered, shall be irrevocable.
|
- 19 -
5.3 |
Amount
of each Revolving Facility Banks Advance
|
The
amount of each Revolving Facility Banks Advance will be the proportion
of the Requested Amount which its Revolving Facility Commitment bears
to the Revolving Facility Total Commitments of all Revolving Facility
Banks on the date of receipt of the relevant Utilisation Request, adjusted,
if necessary, to reflect the operation of Clause 2.3 (
Bank limits
).
|
5.4 |
Notification to Revolving Facility Banks
|
The Facility Agent shall, not later than the Relevant Time, notify each Revolving Facility Bank of the details of the requested Advances and the aggregate amount of those Advances to be made by that Revolving Facility Bank.
|
5.5 |
Selection of an optional duration
|
(a) |
If the Borrower requests an Interest Period or a Term in a Utilisation Request other than 1, 2, 3 or 6 months, it may also select in the relevant Utilisation Request an alternative Interest Period or Term of 1, 2, 3 or 6 months to apply and paragraph (b) below shall
apply
|
(b) |
If:
|
(i) |
the Borrower requests an Interest Period or a Term other than 1, 2, 3 or 6 months; and
|
(ii) |
the Facility Agent receives notice from a Revolving Facility Bank not later than the Relevant Time stating that it does not agree to such request,
|
then the Interest Period or Term for the proposed Utilisation shall instead be the alternative period specified in the relevant Utilisation Request or, in the absence of any alternative selection, one month.
|
(c) |
If the Facility Agent receives a notice from a Revolving Facility Bank under paragraph (b)(ii) above it shall notify the Borrower and the Revolving Facility Banks of the revised Interest Period or Term for the proposed Advances not later than the Relevant Time.
|
5.6 |
Payment of Proceeds
|
Subject to the terms of this Agreement, each Revolving Facility Bank shall make its Advance available to the Facility Agent for the Borrower for value on the relevant Utilisation Date.
|
5.7 |
Extension of Availability Period
|
The Borrower may, not earlier than 60 days nor later than 30 days prior to the original expiry date of the Availability Period (or if extended pursuant to this Clause 5.7, the expiry date of the extended Availability Period), request by notice to the Facility Agent (who will
promptly notify the Revolving Facility Banks) that the Availability Period be extended to a date which is not later than 364 days after the then applicable expiry date. The Borrower may request (without any limitation on the number of such requests which can be made) that
the Availability Period be extended pursuant to this Clause for additional periods of 364 days each from any then applicable expiry date of the Availability Period. If any Revolving Facility Bank notifies the Facility Agent that it agrees to extend the Availability Period then
the Availability Period will be extended in relation to that Revolving Facility Bank accordingly, whether or not any other Revolving Facility Bank extends
provided that
no extension of the Availability Period pursuant to this Clause shall be permitted (a) after a Term-out
Advance has been made or requested pursuant to paragraph (b) of Clause 7.1 (
Repayment of Revolving Facility Advances and Term-out Advances
)
or (b) if the Requisite Extension Majority is not achieved. No Revolving Facility
Bank is under any obligation of any kind to agree to the Borrowers request to extend and any Revolving Facility Bank which fails to respond or reply within 15 Business Days of the Borrowers
request will be deemed to have declined to extend.
|
- 20 -
6. |
THE SWINGLINE ADVANCE FACILITY
|
6.1 |
Receipt of Utilisation Requests
|
The Borrower may borrow Swingline Advances if the Swingline Agent receives, not later than the Relevant Time, a duly completed Utilisation Request. Each such Utilisation Request shall be copied at the same time to the Facility Agent.
|
6.2 |
Form of Utilisation Requests
|
A Utilisation Request for a Swingline Advance will not be regarded as having been duly completed unless:
|
(a) |
the proposed Utilisation Date is a Business Day during the Availability Period;
|
(b) |
the Requested Amount for each separate Utilisation is in a minimum Original Dollar Amount of US$25,000,000 and an integral multiple of US$5,000,000 or such other amount as the Borrower and the Swingline Agent may agree before the delivery of that
Utilisation Request;
|
(c) |
only one Utilisation is specified, the Term of which:
|
(i) |
does not extend beyond the Availability Period; and
|
(ii) |
is a period not exceeding 5 Business Days;
|
(d) |
it specifies that it is a utilisation of the Swingline Advance Facility; and
|
(e) |
the payment instructions comply with Clause 11 (
Payments
).
|
Each Utilisation Request, once delivered, shall be irrevocable.
|
6.3 |
Amount
of each Swingline Banks Advance
|
The
amount of each Swingline Banks Advance will be the proportion
of the Requested Amount which its Swingline Commitment bears to the
Total Swingline Commitments on the date of receipt of the relevant
Utilisation Request, adjusted, if necessary, to reflect the operation
of Clause 2.3 (
Bank limits
).
|
- 21 -
6.4 |
Notification to Swingline Banks
|
The Swingline Agent shall promptly notify each Swingline Bank of the details of the requested Swingline Advances and the aggregate amount of those Swingline Advances to be made by that Swingline Bank.
|
6.5 |
Payment of proceeds
|
Subject to the terms of this Agreement, each Swingline Bank shall make its Swingline Advance available to the Swingline Agent for the Borrower for value on the relevant Utilisation Date.
|
7. |
REPAYMENT
|
7.1 |
Repayment of Revolving Facility Advances and Term-out Advances
|
(a) |
The Borrower will repay each Revolving Facility Advance made to it in full on its Maturity Date or, in the case of a Term-out Advance, its Final Maturity Date, by payment to the Facility Agent for the relevant Revolving Facility Bank. As the Revolving Facility is
available on a revolving basis during the Availability Period, amounts repaid to a Revolving Facility Bank may be reborrowed from that Revolving Facility Bank during the Availability Period applicable to that Revolving Facility Bank subject to the terms of this
Agreement.
|
(b) |
At any time prior to the expiry of the Availability Period applicable to any Revolving Facility Bank, the Borrower under the Revolving Facility may, by delivery of a duly completed Utilisation Request to the Facility Agent (who shall send a copy to the Revolving
Facility Banks) elect to draw Term-out Advances under the Revolving Facility from all Revolving Facility Banks (pro rata to their Revolving Facility Commitments) provided that if following a request from the Borrower under Clause 5.7 (
Extension of Availability
Period
), a Revolving Facility Bank does not agree to extend its Availability Period, the Borrower may not elect to draw a Term-out Advance from that Revolving Facility Bank unless it simultaneously elects to draw Term-out Advances from every Revolving
Facility Bank and elects not to extend the Availability Period pursuant to Clause 5.7 (
Extension of Availability Period
). No Term-out Advance, once repaid or prepaid, may be reborrowed. Upon drawdown of a Term-out Advance, the Revolving Facility Total
Commitments shall be reduced by the amount of such Term-out Advance.
|
(c) |
No Advance may be outstanding after the Final Maturity Date applicable to that Advance.
|
7.2 |
Repayment of Swingline Advance
|
(a) |
The Borrower will repay each Swingline Advance in full on its Maturity Date by payment to the Swingline Agent for the relevant Swingline Bank. No Swingline Advance may be outstanding after the Final Maturity Date.
|
(b) |
In the event that a Swingline Advance is not repaid in accordance with the provisions of paragraph (a) above each Revolving Facility Bank will within four Business Days of a request to that effect from the Facility Agent, pursuant to a demand from the Swingline
Agent, pay to the Swingline Agent for the Swingline Banks an amount equal to its Agreed Percentage of the unpaid portion of the principal of such Swingline Advance, less the amount of its participation in such Swingline Advance, and accrued interest (including
default interest) thereon to the date of actual payment by such Revolving Facility Bank. If this produces a negative figure for a Bank, no amount need be paid by that Revolving Facility Bank.
|
- 22 -
(c) |
Each Revolving Facility Bank which makes a payment under paragraph (b) above will be subrogated to the rights of the Swingline Banks which share in the payment received.
|
(d) |
If and to the extent that any Revolving Facility Bank is not able to rely on its rights under paragraph (c) above, the Borrower will be liable to each Revolving Facility Bank which makes such a payment for a debt equal to that payment made by that Revolving
Facility Bank.
|
(e) |
Any payment under paragraph (b) above does not reduce the obligations in aggregate of the Borrower.
|
(f) |
Any Revolving Facility Bank which makes a claim against the Borrower under either paragraph (c) or paragraph (d) above shall be entitled also to claim from the Borrower, and the Borrower shall be liable to pay to it, interest on the sum paid by it to the Swingline
Agent under paragraph (b) above, from the date on which it paid that sum until the date on which the Borrower reimburses that sum (together with such interest), at the rate set out for Advances (other than Swingline Advances) in paragraph (a) of Clause 9.4
(
Default Interest
).
|
8. |
PREPAYMENT AND CANCELLATION
|
8.1 |
Automatic cancellation of Revolving Facility Commitments and Swingline Commitments
|
(a) |
The Revolving Facility Commitment of each Revolving Facility Bank shall be automatically cancelled at close of business in London on the last day of the Availability Period then applicable to that Revolving Facility Bank.
|
(b) |
The Swingline Commitment of each Swingline Bank shall be automatically cancelled at close of business in London on the last day of the Availability Period then applicable to that Swingline Bank.
|
8.2 |
Voluntary cancellation
|
(a) |
The
Borrower may, by giving not less than five Business Days prior
notice to the Facility Agent, cancel the unutilised portion of the
Total Commitments in whole or in part (but, if in part, in a minimum
amount of US$25,000,000). Any cancellation in part of the Revolving
Facility shall be applied against the Revolving Facility Commitment
of each Revolving Facility Bank pro rata.
|
(b) |
Whenever part of the Total Commitments is cancelled, the Swingline Commitments will not be cancelled unless (i) the amount of the Total Swingline Commitments would exceed the Total Commitments after such cancellation or (ii) the Swingline Commitment of
any Swingline Bank would exceed its Revolving Facility Commitment after such cancellation. In any such case, the Total Swingline Commitments shall, at the same time as the cancellation of the Total Commitments takes effect, be cancelled by such amount as is
necessary to ensure that after the relevant cancellation of the Total Commitments the Total Swingline Commitments do not exceed the Total Commitments and the Swingline Commitment of each Swingline Bank does not exceed its Revolving Facility
Commitment.
|
- 23 -
8.3 |
Prepayment of Advances
|
(a) |
Subject to Clause 24.2 (
Other Indemnities
),
the Borrower may, by giving not less than five Business Days notice
to the relevant Agent, prepay at any time any Advances made to it under
the Facilities in whole or in part (but, if in part, in a minimum Original
Dollar Amount of US$25,000,000 (or such other amount as the Borrower
and the Facility Agent, or Swingline Agent, where relevant, may agree
before the delivery of the relevant notice of prepayment)).
|
(b) |
Any voluntary prepayment made under paragraph (a) above will be applied against the Advances as so designated by the Borrower.
|
8.4 |
Additional right of prepayment and cancellation
|
Subject to Clause 24.2 (
Other Indemnities
), if the Borrower is required to pay any amount to a Bank under Clause 12 (Taxes) or Clause 14 (
Increased Costs
), the Borrower may, whilst the circumstances giving rise to the requirement continue, serve a notice of prepayment and
cancellation on that Bank through the relevant Agent. On the date falling five Business Days after the date of service of the notice:
|
(a) |
the Borrower shall prepay any Advances made to it by that Bank (together with all other amounts payable by it to that Bank under this Agreement); and
|
(b) |
that
Banks Revolving Facility Commitment or Swingline Commitment,
where relevant, shall be cancelled in full on the date of service of
the notice.
|
8.5 |
Mandatory Prepayment and Cancellation on Change of Control
|
If any single person, or group of persons acting in concert (as defined in the City Code on Take-Overs and Mergers) acquires control (as defined in Section 416 of the Income and Corporation Taxes Act 1988) of the Borrower, then the Facility Agent may, and shall if so
directed by the Majority Banks, within 90 days after the occurrence of such event by notice in writing to the Borrower, where relevant:
|
(a) |
reduce the Total Commitments to the aggregate Original Dollar Amount of all outstanding Utilisations under those Facilities at the date of such notice; and/or
|
(b) |
declare that:
|
(i) |
the Final Maturity Date for all Facilities shall be brought forward to the date falling 30 days after the date of such notice whereupon each reference in this Agreement to the Final Maturity Date (and each such period) shall be amended and construed
accordingly;
|
- 24 -
(ii) |
the
Borrowers obligations under Clause 7 (
Repayment
) in respect of Advances outstanding on the date of such notice with Maturity Dates falling after the Final Maturity Date (as amended) shall be due and payable on the Final Maturity Date (as
amended); and
|
(iii) |
on the Final Maturity Date (as amended) the Total Commitments shall be cancelled and all other amounts accrued or otherwise outstanding under this Agreement shall be due and payable.
|
8.6 |
Mandatory Prepayment and Cancellation on Revocation, Surrender or Breach of Material Licences, Breach of Regulatory Orders, Or Imposition Of Additional Regulatory Orders
|
If (i) any Material Licence is revoked (or any notice of revocation is issued by the Secretary of State or other relevant authority under the applicable Energy Laws) or surrendered other than where the revocation or surrender is effected in relation to a transfer to another
member of the Group or in connection with a disposal permitted pursuant to Clause 18.9 (
Disposals
) or (ii) the Borrower or a Principal Subsidiary fails to comply in all material respects with the terms of its Material Licences and Regulatory Orders or (iii) any Regulatory
Order is made which would materially restrict the ability of the Borrower or any Principal Subsidiary to continue to carry out its business substantially as that carried out by it at the date hereof, the Facility Agent may, and will if so directed by the Majority Banks, by notice in
writing to the Borrower permanently cancel the Total Commitments and require the Borrower to repay or prepay all Advances within 30 days of such notice.
|
8.7 |
Miscellaneous provisions
|
(a) |
Any notice of cancellation and/or prepayment under this Agreement shall be irrevocable and an Agent shall notify the Banks promptly of receipt of any such notice.
|
(b) |
All prepayments under this Agreement shall be made together with accrued interest up to and including the date of prepayment on the amount prepaid and any other amounts due under this Agreement in respect of that prepayment (including, but not limited to, any
amounts payable under Clause 24.2 (
Other Indemnities
) if not made on an Interest Date or Maturity Date (as appropriate) in respect of the relevant Advance(s)) without penalty or premium.
|
(c) |
No cancellation or prepayment is permitted except in accordance with the express terms of this Agreement.
|
(d) |
Amounts prepaid under this Agreement in respect of Term-out Advances may not subsequently be re-borrowed. Subject thereto and to the terms of this Agreement, any amount prepaid under Clause 8.3 (
Prepayment of Advances
) but not under any other provision
of this Agreement may be reborrowed under any other provision of this Agreement. Any Revolving Facility Commitment or Swingline Commitment cancelled may not subsequently be reinstated.
|
- 25 -
9. |
INTEREST
|
9.1 |
Selection of Interest Periods for Term-out Advances
|
The
life of each Term-out Advance is divided into successive periods (each
an
Interest Period
) for the calculation of interest.
The first Interest Period of each such Advance will be the period selected
in the Utilisation Request for that Advance. Each subsequent Interest
Period will be the period selected by the Borrower in an Interest Period
Selection Notice received by the Facility Agent not later than 4.30
p.m. on the third Business Day before the end of the then current Interest
Period being 1, 2, 3, or 6 months or, in any case, such other
period as the Borrower and all the Revolving Facility Banks may agree from time
to time or, if no notice from the Borrower is received by the Facility
Agent, one month.
|
9.2 |
Interest rates
|
(a) |
The rate of interest applicable to each Term-out Advance for each of their Interest Periods and to each Advance (other than a Term-out Advance or a Swingline Advance) for each of their Terms is the rate per annum determined by the Facility Agent to be the
aggregate of:
|
(i) |
the Applicable Margin;
|
(ii) |
LIBOR (or EURIBOR in the case of Advances made in Euros); and
|
(iii) |
the Mandatory Costs.
|
(b) |
The rate of interest applicable to each Swingline Advance for its Term is the rate per annum calculated by the Swingline Agent to be the Swingline Rate for each day during its Term save that, if any day during a Term is not a New York Business Day, the rate of
interest on that day shall be the rate applicable on the immediately preceding New York Business Day.
|
9.3 |
Due dates
|
Except as otherwise provided in this Agreement, accrued interest on each Advance is payable by the Borrower:
|
(a) |
in the case of a Term-out Advance, on each Interest Date applicable to that Advance; and
|
(b) |
in the case of an Advance (other than a Term-out Advance) on its Maturity Date,
|
and also, in the case of an Advance with an Interest Period or a Term longer than 6 months, at 6 monthly intervals after its Utilisation Date (or the start of the relevant Interest Period or Term) for so long as the Interest Period or Term is outstanding.
|
9.4 |
Default interest
|
(a) |
If
the Borrower fails to pay any amount payable by it under this Agreement
(an
overdue amount
), it shall forthwith on demand
by an Agent pay default interest on the overdue amount from the due
date until the date of actual payment, as well after as before judgment,
at a rate (the
default rate
) determined by that
Agent to be 1 per cent. per annum above:
|
- 26 -
(i) |
if the overdue amount relates to a Swingline Advance, the Swingline Rate; or
|
(ii) |
in all other cases, the rate which would have been payable if the overdue amount had, during the period of non payment, constituted an Advance (other than a Swingline Advance)
|
in
the currency of the overdue amount for such successive Interest Periods
or Terms of such duration as that Agent may determine (each a
Default Term
).
|
(b) |
If any overdue amount consists of all or part of an Advance which became due on a day which was not the last day of an Interest Period or Term relating to that Advance:
|
(i) |
the first Interest Period or Term for that overdue amount shall have a duration equal to the unexpired portion of the current Interest Period relating to that Advance (if any); and
|
(ii) |
the rate of interest applying to the overdue amount during that first Interest Period or Term shall be 1 per cent. above the rate which would have applied if the overdue amount had not become due.
|
(c) |
The default rate will be determined:
|
(i) |
if calculated by reference to the Swingline Rate, on each day; or
|
(ii) |
on the first day of, or two Business Days before the first day of, the relevant Default Term, as appropriate.
|
(d) |
If an Agent determines that deposits in the currency of the overdue amount are not at the relevant time being made available by the Reference Banks to leading banks in the London interbank market, the default rate will be determined by reference to the cost of
funds to that Agent from such sources as it reasonably may select.
|
(e) |
Default interest will be compounded monthly (if calculated by reference to the Swingline Rate) or at the end of each Default Term (if calculated by reference to the rate which would have been payable if the overdue amount had, during the period of non payment,
constituted an Advance (other than a Swingline Advance)).
|
9.5 |
Notification of rates of interest
|
(a) |
The Facility Agent shall promptly notify each relevant Party of the determination by it of a rate of interest under this Agreement.
|
(b) |
The Swingline Agent shall promptly upon its determination notify each relevant Party of the determination of a rate of interest by it on a Swingline Advance on the first and last days of its Term. In the notification on the last day of that Term, the Swingline Agent
shall include details of the applicable rate of interest for each day of that Term.
|
- 27 -
9.6 |
Applicable Margin
|
(a) |
The Applicable Margin for an Advance (other than a Swingline Advance) will be 0.325 per cent. per annum, unless adjusted in accordance with this Clause 9.6.
|
(b) |
If at close of business on the first day of an Interest Period or Term the aggregate Original Dollar Amount of all Advances under the Facilities exceeds 50 per cent. of the uncancelled Total Commitments, the Applicable Margin for that Interest Period or Term shall
be increased by 0.05 per cent. per annum.
|
10. |
OPTIONAL CURRENCIES
|
10.1 |
Selection
|
(a) |
The Borrower shall select the currency of an Advance (other than a Swingline Advance):
|
(i) |
(in the case of a Revolving Facility Advance) in a Utilisation Request; and
|
(ii) |
(in relation to a Term-out Advance) in an Interest Period Selection Notice.
|
(b) |
The Borrower may not request an Advance denominated in an Optional Currency (other than Sterling or Euros) unless the Facility Agent has confirmed to the Borrower that the Optional Currency is readily available and freely transferable in the London foreign
exchange market.
|
(c) |
If the Borrower fails to issue an Interest Period Selection Notice in relation to a Term-out Advance, that Advance will remain denominated for its next Interest Period in the same currency in which it is then outstanding.
|
(d) |
If the Borrower issues an Interest Period Selection Notice in relation to a Term-out Advance requesting a change of currency and the first day of the requested Interest Period is not a Business Day for the new currency, the Facility Agent shall promptly notify the
Borrower and the Revolving Facility Banks and that Advance will remain in the existing currency (with Interest Periods running from one Business Day until the next Business Day) until the next day which is a Business Day for both currencies, on which day the
requested Interest Period will begin.
|
10.2 |
Non-availability of Currency
|
If:
|
(a) |
before 9.00 a.m. on any Rate Fixing Day for any Advance to be denominated in an Optional Currency, the Facility Agent receives notice from a Revolving Facility Bank that it is impracticable for that Revolving Facility Bank to fund its required Advance in that
Optional Currency for its requested Term or Interest Period in the ordinary course of business in the relevant interbank market; or
|
- 28 -
(b) |
the use of the proposed Optional Currency would or might contravene any law or regulation,
|
then:
|
(i) |
the Facility Agent shall promptly (and in any event before 10.00 a.m. on that Rate Fixing Day) notify the Borrower and the Revolving Facility Banks; and
|
(ii) |
unless the Borrower and the Facility Agent otherwise agree, the Advance requested from the Revolving Facility Bank referred to in paragraph (a) above will be denominated instead in Dollars, in an amount equal to the Original Dollar Amount of the requested
Advance in the Optional Currency.
|
10.3 |
Change of currency
|
(a) |
If a Term-out Advance is to be denominated in different currencies during two successive Interest Periods:
|
(i) |
if the currency for the second Interest Period is an Optional Currency the amount of the Advance in that Optional Currency will be calculated by the Facility Agent as the amount of that Optional Currency equal to the Original Dollar Amount of that
Term-out Advance;
|
(ii) |
if the currency for the second Interest Period is Dollars, the amount of the Advance will be equal to the Original Dollar Amount of that Term-out Advance;
|
(iii) |
(unless the Facility Agent and the Borrower agree otherwise in accordance with paragraph (b) below) the Borrower shall repay the Advance on the last day of the first Interest Period in the currency in which it was denominated for that Interest Period; and
|
(iv) |
subject to Clause 4.2 (
Further conditions precedent generally
) the Revolving Facility Banks shall re-advance the Advance in the new currency in accordance with paragraphs (d) and (e) of Clause 10.5 (
Notification of Rates and Amounts
).
|
(b) |
If the Facility Agent and the Borrower agree, the Facility Agent shall:
|
(i) |
apply the amount paid to it by the Revolving Facility Banks pursuant to paragraph (a)(iv) above (or so much of that amount as is necessary) in or towards purchase of an amount in the currency in which the Term-out Advance is outstanding for the first
Interest Period; and
|
(ii) |
use
the amount it purchases in or towards the satisfaction of the Borrowers
obligations under paragraph (a)(iii) above.
|
(c) |
If the amount purchased by the Facility Agent pursuant to paragraph (b)(i) above is less than the amount required to be repaid by the Borrower, the Facility Agent shall promptly notify the Borrower and the Borrower shall, on the last day of the first Interest Period,
pay an amount to the Facility Agent (in the currency of the outstanding Term-out Advance for the first Interest Period) equal to the difference.
|
- 29 -
(d) |
If any part of the amount paid to the Facility Agent by the Revolving Facility Banks pursuant to paragraph (a)(iv) above is not needed to purchase the amount required to be repaid by the Borrower, the Facility Agent shall promptly notify the Borrower and pay the
Borrower, on the last day of the first Interest Period, that part of that amount (in the new currency).
|
10.4 |
Same Optional Currency during successive Interest Periods
|
(a) |
If a Term-out Advance is to be denominated in the same Optional Currency during two successive Interest Periods, the Facility Agent shall calculate the amount of the Term-out Advance in the Optional Currency for the second of those Interest Periods (by
calculating the amount of Optional Currency equal to the Original Dollar Amount of that Term-out Advance) and (subject to paragraph (b) below):
|
(i) |
if the amount calculated is less than the existing amount of that Term-out Advance in the Optional Currency during the first Interest Period, promptly notify the Borrower and the Borrower shall pay, on the last day of the first Interest Period, an amount
equal to the difference; or
|
(ii) |
if the amount calculated is more than the existing amount of that Term-out Advance in the Optional Currency during the first Interest Period, promptly notify each Revolving Facility Bank which participated in the Advance and, if no Event of Default is
continuing, each such Revolving Facility Bank shall, on the last day of the first Interest Period, pay its participation in amount equal to the difference.
|
(b) |
If the calculation made by the Facility Agent pursuant to paragraph (a) above shows that the amount of the Term-out Advance in the Optional Currency has increased or decreased by less than the lower of US$40,000,000 and 5 per cent. compared to its Original
Dollar Amount, no notification shall be made by the Facility Agent and no payment shall be required under paragraph (a) above.
|
10.5 |
Notification of rates and amounts
|
(a) |
If
an Advance is to be drawn down in an Optional Currency, the amount
thereof shall be determined by converting the Original Dollar Amount
thereof into that Optional Currency on the basis of the Facility Agents
Spot Rate of Exchange on the date of receipt by the Facility Agent
of the Utilisation Request for that Advance.
|
(b) |
If
any Advance (save for any Term-out Advance) is to be repaid or prepaid
by reference to an Original Dollar Amount, the amount of Optional Currency
to be repaid or prepaid shall be determined by reference to the Facility
Agents Spot Rate of Exchange last used
for determining the Optional Currency amount of that Advance under paragraph
(a) above.
|
- 30 -
(c) |
If
any Term-out Advance is to be repaid or prepaid by reference to an
Original Dollar Amount, the amount of Optional Currency to be repaid
or prepaid shall be determined by reference to the Facility Agents Spot Rate of Exchange used for determining the
Optional Currency amount of that Term-out Advance when first drawn down or, if applicable, by reference to the Facility Agents
Spot Rate of Exchange by reference to which the most recent adjusted payment
has been made under paragraph (a) of Clause 10.4 (
Same Optional Currency during successive Interest Periods
) in respect of that Term-out Advance.
|
(d) |
The
Facility Agent shall notify each relevant Party of any applicable Facility
Agents Spot Rate of Exchange or Original Dollar Amount, as applicable,
promptly after it has ascertained the same.
|
(e) |
All calculations made by the Facility Agent pursuant to this Clause 10 will take into account any repayment, prepayment, consolidation or division of Term-out Advances to be made on the last day of the first Interest Period.
|
(f) |
Each
Banks participation in a Term-out Advance will, subject to paragraph
(a) above, be determined in accordance with paragraph (b) of Clause
7.1 (
Repayment of Revolving Facility Advances and Term-out Advances
).
|
11. |
PAYMENTS
|
11.1 |
Place
|
Except where expressly provided to the contrary, all payments by the Borrower or a Bank under this Agreement shall be made to the relevant Agent to its account at such office or bank in the principal financial centre of the country of the relevant currency (or, in the case of
Euros, the principal financial centre of a Participating Member State or London) as it may notify to the Borrower or Bank for this purpose.
|
11.2 |
Funds
|
Payments under this Agreement to an Agent shall be made for value on the due date at such times and in such funds as that Agent may specify to the Party concerned as being customary at the time for the settlement of transactions in the relevant currency in the place for
payment.
|
11.3 |
Distribution
|
(a) |
Each
payment received by an Agent under this Agreement for another Party
shall, subject to paragraphs (b) and (c) below, be made available by
that Agent to that Party by payment (on the date and in the currency
and funds of receipt) to its account with such bank in the principal
financial centre of the country of the relevant currency (or, in the
case of Euros, the principal financial centre of a Participating Member
State or London) as it may notify to that Agent for this purpose by
not less than 5 Business Days prior notice or,
in the case of the Borrower, in the relevant Utilisation Request.
|
(b) |
An Agent may apply any amount received by it for the Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from the Borrower under this Agreement or in or towards the purchase of any amount of any currency
to be so applied.
|
- 31 -
(c) |
Where
a sum is to be paid under this Agreement to an Agent for the account
of another Party, that Agent is not obliged to pay that sum to that
Party until it has established that it has actually received that sum.
Unless an Agent receives not less than one Business Days written
notice that a sum to be paid under this Agreement will not be paid,
it may assume that the sum has been paid to it in accordance with this
Agreement and, in reliance on that assumption, make available to that
Party a corresponding amount. If the sum has not been made available,
but an Agent has paid a corresponding amount to another Party, that
Party shall forthwith on demand refund the corresponding amount to
that Agent together with interest on that amount from the date of payment
to the date of receipt,
calculated at a rate determined by that Agent to reflect its cost of funds.
|
(d) |
If on any Utilisation Date:
|
(i) |
a Revolving Facility Bank is required to participate in an Advance pursuant to Clause 5 (
Availability of Revolving Facility Advances and Term-out Advances
); and
|
(ii) |
a payment is due to that Revolving Facility Bank pursuant to Clause 7 (
Repayment
),
|
then the Facility Agent shall (without prejudice to the obligations of the Borrower under Clause 7 (
Repayment
)) apply the amount payable by such Revolving Facility Bank to the Facility Agent for the account of the Borrower on that Utilisation Date in or towards
satisfaction of the amount payable by the Borrower to such Bank on such Utilisation Date pursuant to Clause 7 (
Repayment
). The Facility Agent shall advise the Borrower, and each such Revolving Facility Bank of the net amount, if any, due from one party to the
other after the application of funds as aforesaid and such net amount due shall be paid by the Borrower or the Revolving Facility Bank(s), as the case may be, on such date.
|
11.4 |
Currency
|
(a)
|
(i) |
A repayment or prepayment of an Advance is payable in the currency in which the Advance is denominated.
|
(ii) |
Interest is payable in the currency in which the relevant amount in respect of which it is payable is denominated.
|
(iii) |
Amounts payable in respect of costs, expenses, taxes and the like are payable in the currency in which they are incurred.
|
(iv) |
Any other amount payable under this Agreement is, except as otherwise provided in this Agreement, payable in Sterling.
|
(v) |
Any amount payable under this Agreement in the currency of a Participating Member State will be paid in Euros.
|
- 32 -
(b) |
If a change in any currency of a country occurs in a manner different to that expressly contemplated in this Agreement, this Agreement will be amended to the extent the Agents and the Borrower agree (such agreement not to be unreasonably withheld) to be
necessary to reflect the change in currency and to put the Banks and the Borrower in the same position, as far as possible, that they would have been in if no change in currency had occurred.
|
11.5 |
Set-off and counterclaim
|
All payments made by the Borrower under this Agreement shall be made without set-off or counterclaim.
|
11.6 |
Non-Business Days
|
(a) |
If a payment under this Agreement is due on a day which is not a Business Day, the due date for that payment shall instead be the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).
|
(b) |
During any extension of the due date for payment of any principal under this Agreement interest is payable on the principal at the rate payable on the original due date.
|
11.7 |
Partial payments
|
(a) |
If an Agent receives a payment insufficient to discharge all the amounts then due and payable by the Borrower under the Finance Documents that Agent shall apply that payment towards the obligations of the Borrower under the Finance Documents in the following
order:
|
(i) |
first
, in or towards payment pro rata of any unpaid costs, fees and expenses of the relevant Agent or the Agents under this Agreement;
|
(ii) |
secondly
, in or towards payment pro rata of any accrued fees due but unpaid under Clauses 21.1 (
Arrangement and Participation fees
), 21.2 (
Commitment fee
), and 21.3 (
Term-out Fee
);
|
(iii) |
thirdly
, in or towards payment pro rata of any accrued interest due but unpaid under this Agreement;
|
(iv) |
fourthly
, in or towards payment pro rata of any principal due but unpaid under this Agreement; and
|
(v) |
fifthly
, in or towards payment pro rata of any other sum due but unpaid under this Agreement.
|
(b) |
The Agents shall, if so directed by all the Banks, vary the order set out in paragraphs (a)(ii) to (v) inclusive above.
|
(c) |
Paragraphs (a) and (b) above shall override any appropriation made by the Borrower.
|
- 33 -
12. |
TAXES
|
12.1 |
Gross-up
|
(a) |
For
the purposes of this Clause 12,
tax
and
taxes
in
relation to any payment to be made by the Borrower under the Finance
Documents means any present or future taxes of any nature now or subsequently
imposed by the laws of:
|
(i) |
the United Kingdom;
|
(ii) |
any other jurisdiction from which, or through which, such payment is made or to the taxation laws of which the Borrower is at the time of such payment subject;
|
(iii) |
any political sub division of the United Kingdom or any such other jurisdiction; or
|
(iv) |
any federation or association of states of which the United Kingdom or any such other jurisdiction is, at the time of such payment, a member.
|
(b) |
All payments by the Borrower under the Finance Documents to a Finance Party shall be made without any deduction, and free and clear of and without deduction or withholding for or on account of any taxes, except to the extent that the Borrower is required by law
to deduct or withhold taxes from any amounts payable or paid or to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by the Borrower, or paid or
payable by an Agent to a Bank, under the Finance Documents, the Borrower shall pay such additional amounts as may be necessary to ensure that the relevant Bank receives a net amount equal to the full amount which it would have received had payment not been
made subject to tax or other deduction.
|
12.2 |
Tax receipts
|
All taxes required by law to be deducted or withheld by the Borrower from any amounts paid or payable under the Finance Documents shall be paid by the Borrower when due (unless the obligation to pay any such tax is being disputed in good faith) and the Borrower shall,
within 15 days of the payment being made, deliver to the relevant Agent for the relevant Bank an original receipt (or copy thereof) evidencing to that Bank that the payment has been duly remitted to the appropriate authority.
|
12.3 |
Qualifying Bank
|
(a) |
In respect of amounts payable by the Borrower, if otherwise than as a result of the introduction of, change in, or change in the interpretation, administration or application of, any law or regulation or any practice or concession of the United Kingdom Inland
Revenue occurring after the date a Bank became a Bank under this Agreement, that Bank is not or ceases to be a Qualifying Bank or the relevant Bank is a Treaty Bank and the Borrower is able to demonstrate that the payment could have been made to the Bank
without the gross-up had the Bank complied with its obligations under paragraph (c) below, the Borrower is not liable to pay to that Bank under Clause 12.1 (
Gross-up
) any amount in respect of taxes levied or imposed by the United Kingdom or any taxing authority
of or in the United Kingdom in excess of the amount it would have been obliged to pay if that Bank was or had not ceased to be a Qualifying Bank.
|
- 34 -
(b) |
If for whatever reason a Bank ceases to be a Qualifying Bank it shall immediately notify the relevant Agent and the Borrower in writing.
|
(c) |
Each Bank undertakes, as soon as reasonably practicable after the Signing Date or, as applicable, the date upon which it becomes a Party to this Agreement, where reasonably requested in writing by the Borrower to do so, to complete and file, or to provide such
information in order to complete and file, any declaration, claim, exemption or other form, which it is able to complete and file or, in the case of information, to provide, as may be required to ensure that the Borrower is not required to pay any additional amount
pursuant to paragraph (b) of Clause 12.1 (
Gross-up
).
|
12.4 |
Tax Credits
|
(a) |
If
the Borrower pays any additional amount (a
Tax Payment
)
under Clause 12.1 (
Gross-up
) and a Bank obtains a refund of
tax, or relief or credit against tax, by reason of that Tax Payment
(a
Tax Credit
) and is able to identify the Tax Credit
as being attributable to the Tax Payment, then it shall reimburse to
the Borrower such amount as the Bank reasonably determines (in its
absolute discretion) to be the proportion of the Tax Credit as will
leave it, after that reimbursement, in no better or worse position
than it
would have been in if the Tax Payment had not been required. Each Bank shall
have an absolute discretion as to whether to claim any Tax Credit and,
if it does so claim, the extent, order and manner in which it does
so. No Bank shall be obliged to disclose any information regarding
its tax affairs or computations to the Borrower in respect of any provision
of this Agreement or otherwise.
|
(b) |
If any Bank makes any payment to the Borrower pursuant to paragraph (a) above and that Bank subsequently determines that the credit, relief or refund in respect of which such payment was made was not available to it or has been withdrawn from it or that it was
unable to use such credit, relief or refund in full, the Borrower shall within 5 Business Days of demand reimburse that Bank to the extent (but not exceeding the relevant payment by that Bank under paragraph (a) above) such credit, relief or refund had been so
withdrawn or was unable to be used.
|
13. |
MARKET DISRUPTION
|
(a) |
If LIBOR or EURIBOR is to be determined by reference to Reference Banks but a Reference Bank does not supply an offered rate by 12 noon on a Rate Fixing Day, the applicable LIBOR or EURIBOR, where relevant, shall, subject to paragraph (b) below, be
determined on the basis of the quotations of the remaining Reference Banks.
|
(b) |
If, in relation to any proposed Utilisation (save for Utilisations comprising Swingline Advances):
|
- 35 -
(i) |
LIBOR or EURIBOR are to be determined by reference to Reference Banks but no, or only one, Reference Bank supplies a rate for the purposes of determining the applicable LIBOR or EURIBOR; or
|
(ii) |
the Facility Agent receives notification from Revolving Facility Banks participating in more than 50 per cent. in value of the proposed Advances that, in their opinion:
|
(A) |
matching deposits may not be available to them in the London interbank market in the ordinary course of business to fund their Advances for the relevant Interest Period or Term; or
|
(B) |
the cost to them of matching deposits in the London interbank market would be in excess of LIBOR or, where relevant, EURIBOR for the relevant Interest Period or Term,
|
then the Facility Agent shall promptly notify the Borrower, and the relevant Revolving Facility Banks of the fact and that this Clause 13 is in operation.
|
(c) |
After any notification under paragraph (b) above:
|
(i) |
the Borrower and the Revolving Facility Banks may (through the Facility Agent) agree that the relevant Advances comprised in the Utilisation shall not be made; or
|
(ii) |
in the absence of such agreement:
|
(A) |
the relevant Advances shall still be made;
|
(B) |
the Interest Period or Term of each relevant Advance shall be one month;
|
(C) |
during the Interest Period or Term of each relevant Advance the rate of interest applicable to that Advance shall be the Applicable Margin plus the applicable Mandatory Costs plus the rate per annum notified by the relevant Revolving Facility
Bank to the Facility Agent before the last day of that Interest Period or Term to be that which expresses as a percentage rate per annum the cost to the Revolving Facility Bank of funding its relevant Advance from whatever sources it may
reasonably select;
|
(D) |
during the relevant Interest Period or Term of each relevant Advance, the Borrower, and the Facility Agent shall enter into negotiations for a period of not more than 30 days with a view to agreeing a substitute basis for determining the rate of
interest and/or funding applicable to any such future Advances to be denominated in the currency of the affected Advances for the duration agreed at the time of determining the substitute basis; and
|
- 36 -
(E) |
any substitute basis agreed
under paragraph (D) above shall be, with the prior consent of all the
Revolving Facility Banks and the Borrower, binding on all the Parties.
|
|||
14. |
INCREASED COSTS
|
14.1 |
Increased costs
|
(a) |
Subject to Clause 14.2 (
Exceptions
), the Borrower shall forthwith on demand by a Finance Party pay that Finance Party the amount of any increased cost incurred by it as a result of:
|
(i) |
the introduction of, or any change in, or any change in the interpretation, administration or application of, any law or regulation after the date of this Agreement;
|
(ii) |
compliance with any law or regulation made after the date of this Agreement,
|
(including any law or regulation relating to taxation or reserve asset, special deposit, cash ratio, liquidity or capital adequacy requirements or any other form of banking or monetary control).
|
(b) |
In
this Agreement,
increased cost
means:
|
(i) |
an additional cost incurred by a Finance Party or its Regulated Holding Company to the extent and as a result of that Finance Party having entered into, or performing, maintaining or funding its obligations under, any Finance Document; or
|
(ii) |
that portion of an additional cost incurred by a Finance Party or its Regulated Holding Company in making, funding or maintaining all or any advances comprised in a class of advances formed by or including the Advances made or to be made by it under
this Agreement as is attributable to it making, funding or maintaining its Advances; or
|
(iii) |
a reduction in any amount payable to a Finance Party or its Regulated Holding Company or the effective return to a Finance Party under this Agreement or on its overall capital to the extent and as a result of that Finance Party having entered into, or
performing, maintaining or funding its obligations under, any Finance Documents; or
|
(iv) |
the amount of any payment made by a Finance Party or its Regulated Holding Company, or the amount of interest or other return foregone by a Finance Party or its Regulated Holding Company, calculated by reference to any amount received or
receivable by a Finance Party or any of its Regulated Holding Company from any other Party under this Agreement.
|
14.2 |
Exceptions
|
Clause 14.1 (
Increased costs
) does not apply to any increased cost:
|
(a) |
compensated for by the payment of the Mandatory Costs; or
|
- 37 -
(b) |
compensated for by the
operation of Clause 12 (
Taxes
) or would have been but for the
exception in Clause 12.3 (
Qualifying Bank
); or
|
|
(c) |
attributable to any change in the rate of tax on the overall net income of a Finance Party or its Regulated Holding Company (or the overall net income of a division or branch of the Finance Party or its Regulated Holding Company) imposed in the jurisdiction in
which its principal office or Facility Office is situated; or
|
(d) |
attributable to the wilful breach by a Finance Party or its Regulated Holding Company of any law or regulation.
|
15. |
MITIGATION
|
If any circumstances arise in relation to any Bank which would, or would upon the giving of notice, result in:
|
(a) |
a demand for payment pursuant to Clause 14.1 (
Increased costs
) or the provisions of Clause 13 (
Market Disruption
) applying;
|
(b) |
a cancellation of its Revolving Facility Commitment or Swingline Commitment, where relevant, pursuant to paragraph (b)(ii) of Clause 16 (
Illegality
); or
|
(c) |
an increase in the amount of any payment to be made to it or for its account pursuant to Clause 12.1 (
Gross-up
),
|
then,
without in any way limiting, reducing or otherwise qualifying the Borrowers
obligations under any of the provisions referred to in paragraphs (a)
to (c) above, the Bank will promptly upon becoming aware of the same
notify the relevant Agent thereof and, in consultation with that Agent
and the Borrower use reasonable endeavours to transfer its participation
in the Facilities and its rights and obligations under this Agreement
to another financial institution or Facility Office acceptable to that
Agent and the Borrower and willing to
participate as a Bank under this Agreement and otherwise take such steps as
it considers reasonably open to it to mitigate the effects of those
circumstances, unless, in the reasonable opinion of that Bank, such
steps might have a material adverse effect upon the tax position, business,
operations or financial condition, or be contrary to the banking policy,
of that Bank. Nothing in this provision shall require a Bank to disclose
any information as to its banking policy or any other matters which
it regards as confidential or commercially sensitive.
|
16. |
ILLEGALITY
|
If it becomes unlawful in any jurisdiction for a Bank to give effect to any of its obligations as contemplated by this Agreement or to fund or maintain any Advance, then:
|
(a) |
the Bank may notify the Borrower (through the relevant Agent) accordingly; and
|
- 38 -
(b)
|
(i) |
the Borrower shall forthwith
prepay or repay any Advances made to it by that Bank together with
all other amounts payable by it to that Bank under this Agreement on
or before the last day permitted by the relevant law being, if possible,
the Maturity Date for any Advance (other than a Term-out Advance) or
the next Interest Date for a Term-out Advance;
|
||
(ii) |
that
Banks Revolving Facility Commitment or Swingline Commitment (or
both of them, where the Bank is both a Revolving Facility Bank and
a Swingline Bank) shall be cancelled in full with effect from the date
of the notification made under paragraph (a) above.
|
17. |
REPRESENTATIONS AND WARRANTIES
|
17.1 |
Representations and warranties
|
Subject to Clause 17.16 (
Times for making representations and warranties
), the Borrower makes the representations and warranties set out in this Clause 17 to each Finance Party.
|
17.2 |
Status
|
(a) |
It is a limited liability company, duly incorporated and validly existing under the laws of the jurisdiction of its incorporation; and
|
(b) |
each member of the Group has the power to own its assets and carry on its business as it is being conducted.
|
17.3 |
Power and authority
|
It has the power to enter into and perform, and has taken all necessary action to authorise the entry into, performance and delivery of, the Finance Documents to which it is or will be a party and the transactions contemplated by those Finance Documents.
|
17.4 |
Legal validity
|
Each Finance Document to which it is or will be a party constitutes, or when executed in accordance with its terms will constitute, its legal, valid, binding and enforceable obligation in accordance with its terms.
|
17.5 |
Non-conflict
|
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not:
|
(a) |
conflict with any applicable law or regulation or judicial or official orders;
|
(b) |
conflict with its constitutional documents;
|
(c) |
conflict with any document which is binding upon it or any of its assets; or
|
(d) |
result in the creation or imposition of any Security Interest on the assets of any member of the Group.
|
17.6 |
No default
|
(a) |
No Event of Default is outstanding or would result from any Utilisation.
|
- 39 -
(b) |
No other event is outstanding which constitutes (or, with the giving of notice, expiry of any applicable grace period, lapse of time, determination of materiality or the fulfilment of any other applicable condition or any combination of the foregoing, is reasonably
likely to constitute) a default under any document which is binding on any member of the Group or any asset of any member of the Group to an extent or in a manner which is reasonably likely to have a material adverse effect on the financial condition of the
Borrower or on the ability of the Borrower to perform its obligations under the Finance Documents.
|
17.7 |
Title to Material Licences
|
The Borrower and the Principal Subsidiaries hold all the Material Licences.
|
17.8 |
Material Licences
|
No licences are required by the Borrower and each Principal Subsidiary in connection with the Energy and Network Business which if not obtained would have a material adverse effect on the business, operation, assets or condition (financial or otherwise) of the Group or
could reasonably be expected to have a material adverse effect on the ability of the Borrower to comply with its obligations under the Finance Documents other than the Material Licences.
|
17.9 |
Compliance with Material Licences and Regulatory Orders
|
The Borrower and each Principal Subsidiary is in compliance with all its obligations under the Material Licences and with all Regulatory Orders in any such case applicable to it to an extent or in a manner where failure to do so is reasonably likely materially and adversely to
affect the ability of the Borrower to perform its obligations under the Finance Documents.
|
17.10 |
Environmental matters
|
The Borrower and each Principal Subsidiary has or will at the relevant times have obtained all Environmental Approvals required in connection with its business and has at all times complied in all material respects with the terms of those Environmental Approvals and all
other applicable Environmental Laws in each case where failure to do so is reasonably likely materially and adversely to affect the ability of the Borrower to perform its obligations under the Finance Documents.
|
17.11 |
Authorisations
|
All authorisations required in connection with the entry into, performance and validity of, and the transactions contemplated by the Finance Documents have been obtained or effected (as appropriate) and are in full force and effect.
|
17.12 |
Accounts
|
(a) |
The audited consolidated accounts of the Group most recently delivered to the Agents (which, at the date of this Agreement, are the Original Group Accounts):
|
(i) |
save as specified therein, have been prepared in accordance with GAAP consistently applied; and
|
(ii) |
give a true and fair view of the consolidated financial condition of the Group as at the date to which they were drawn up.
|
- 40 -
(b) |
There has been no material adverse change in the consolidated financial condition of the Group since the date to which the audited consolidated accounts of the Group most recently delivered to the Facility Agent were drawn up.
|
17.13 |
Litigation
|
No litigation, arbitration or administrative proceedings are current or, to its knowledge, pending or threatened, which are reasonably likely, if adversely determined, to have a material adverse effect on the financial condition of the Group or the ability of the Borrower to
perform its obligations under the Finance Documents.
|
17.14 |
Information Memorandum
|
(a) |
The
factual information contained in the Information Memorandum is to the
best of the Borrowers knowledge and belief true and accurate
in all material respects as at its date and all such information was
provided in good faith.
|
(b) |
The Information Memorandum did not omit at its date any information which made misleading in any material respect any factual information in the Information Memorandum.
|
(c) |
Nothing has occurred since the date of the Information Memorandum which renders the information contained in it untrue, or misleading in any material respect and which, if disclosed, could reasonably be expected to adversely affect the decision of a person
considering whether to enter into this Agreement.
|
17.15 |
Borrowing Limits
|
The borrowing of Advances under this Agreement up to and including the maximum amount available to it under this Agreement will not, when borrowed, cause any limit on borrowings or, as the case may be, on the giving of guarantees (whether imposed by statute,
regulation or agreement) or on the powers of its board of directors, applicable to it, to be exceeded.
|
17.16 |
Times for making representations and warranties
|
(a) |
The representations and warranties set out in this Clause 17 (
Representations and Warranties
) are made by the Borrower on the Signing Date;
|
(b) |
(except in the case of Clause 17.9 (
Compliance with Material Licences and Regulatory Orders
), Clause 17.12(b) (
Accounts
) and Clause 17.14 (
Information Memorandum
)) the representation and warranties set out in this Clause 17 (
Representations and Warranties
)
are deemed to be repeated by the Borrower on the date of each Utilisation Request, on each Utilisation Date and on the first day of each Interest Period or Term, as the case may be, with reference to the facts and circumstances then existing; and
|
(c) |
Clause 17.12(b) (
Accounts
)
shall be deemed to be repeated on the date the Availability Period
is extended pursuant to Clause 5.7 (
Extension of Availability Period
).
|
- 41 -
18. |
COVENANTS
|
18.1 |
Duration and Scope
|
The undertakings in this Clause 18 remain in force from the date of this Agreement for so long as any amount is or may be outstanding under this Agreement or any Revolving Facility Commitment or Swingline Commitment is in force.
|
18.2 |
Financial Information
|
(a) |
The Borrower shall supply to the Agents in sufficient copies for all the Banks:
|
(i) |
as soon as the same are available (and in any event within 180 days of the end of each of its financial years) the audited consolidated accounts of the Group for that financial year;
|
(ii) |
as soon as the same are available (and in any event within 120 days of the end of the first half-year of each of its financial years), the unaudited consolidated profit and loss account or the interim statement of the Group for that half year;
|
(iii) |
together with the accounts specified in paragraphs (a)(i) and (a)(ii) above, a certificate signed by one of its directors and one of its senior officers setting out in reasonable detail:
|
(A) |
computations establishing compliance or non-compliance (as the case may be) with Clause 18.15 (
Restriction on Subsidiary Financial Indebtedness
); and
|
(B) |
at any time on request by an Agent, a list of the then current Principal Subsidiaries; and
|
(C) |
on request by an Agent, the annual published audited accounts of any other member of the Group.
|
18.3 |
Information Miscellaneous
|
The Borrower shall supply to the Agents (and, if requested by the Agent, in sufficient copies for all Banks):
|
(a) |
promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which are current, threatened or pending (and which in the reasonable opinion of the Borrower, after taking any appropriate legal advice, there is a
reasonable prospect of a determination adverse to the interests of the relevant member of the Group) which are reasonably likely to have a material adverse effect on the financial condition of the Group or on the ability of the Borrower to perform its obligations
under the Finance Documents;
|
(b) |
promptly, details of all amendments to each Material Licence or each Regulatory Order held by or relating to the Borrower or a Principal Subsidiary which may be material to the decision of a person whether or not to provide finance to the Borrower had such a
decision been required at the time of such amendment and all material notices received by the Borrower or a Principal Subsidiary from the Authority or any other relevant authority in any applicable jurisdiction in relation to its Material Licences and Regulatory
Orders;
|
- 42 -
(c) |
promptly, details of any Regulatory Order relating to a Principal Subsidiary made after the date of this Agreement which may be material to the decision of a person whether or not to provide finance to the Borrower had such a decision been required at the time
such Regulatory Order was made;
|
(d) |
at the same time as they are despatched, all documents despatched by the Borrower to its shareholders generally (or any class of them) or its creditors generally in their respective capacities as such;
|
(e) |
as soon as reasonably practicable, such further information in the possession or control of any member of the Group regarding its financial condition as any Finance Party through either Agent may reasonably request and which such member of the Group may
reasonably provide having regard to its existing legal obligations from time to time;
|
(f) |
within
10 days of the date on which they are filed with the Securities and
Exchange Commission, the Groups quarterly return (if any) with
the Securities and Exchange Commission; and
|
(g) |
promptly, details of all declarations and applications made by it and all relevant notices, approvals and orders issued to it or received by it under PUHCA in relation to this Agreement or any Utilisation hereunder which may be material to the decision of a person
whether or not to provide finance to the Borrower had such a decision been required at the time of such amendment.
|
18.4 |
Notification of Default or Mandatory Prepayment or Cancellation Event
|
(a) |
The Borrower shall notify the Agents of any Default (and the steps, if any, being taken to remedy it) or any event that has occurred specified in Clauses 8.5 (
Mandatory Prepayment and Cancellation on Change of Control
) and 8.6 (
Mandatory Prepayment and
Cancellation on Revocation, Surrender or Breach of Material Licences, Breach of Regulatory Orders, Or Imposition Of Additional Regulatory Orders
) promptly upon its becoming aware of the same; and
|
(b) |
The Borrower shall notify the Agents immediately if it or any Principal Subsidiary receives any enforcement order under s.25 of the Electricity Act or s.28 of the Gas Act or any applicable Energy Laws.
|
18.5 |
Compliance Certificates
|
The Borrower shall supply to an Agent promptly upon request by that Agent at any time, if that Agent reasonably believes a Default may have occurred, a certificate signed by two of its senior officers on its behalf certifying that no Default is outstanding or, if a Default is
outstanding, specifying the Default and the steps, if any, being taken to remedy it.
|
- 43 -
18.6 |
Authorisations
|
The Borrower shall at all relevant times promptly:
|
(a) |
obtain, maintain and comply with the terms of; and
|
(b) |
on reasonable request by an Agent, supply certified copies to that Agent of,
|
any authorisation, approval or order required under any law or regulation including, without limitation, under any law to enable it to perform its obligations under, or for the validity of, any Finance Document.
|
18.7 |
Pari passu ranking
|
The Borrower shall procure that its obligations under the Finance Documents do and will rank at least pari passu with all its other present and future unsecured obligations (subject to the preference of certain obligations in the liquidation, bankruptcy or other analogous
proceedings in respect of it by operation of applicable law).
|
18.8 |
Negative pledge
|
(a) |
The Borrower shall not and shall procure that no Principal Subsidiary will, create or permit to subsist any Security Interest on any of its assets.
|
(b) |
No Group member which is a holding company of a Principal Subsidiary shall grant any Security Interest over (i) its share holding in a Principal Subsidiary or (ii) its shareholding in any holding company of a Principal Subsidiary.
|
(c) |
Paragraph (a) above does not apply to:
|
(i) |
any Security Interest created with the prior written consent of the Majority Banks;
|
(ii) |
any Security Interest granted prior to the date of this Agreement and disclosed to an Agent in writing but only if the maximum principal amount secured thereby is not subsequently increased;
|
(iii) |
any Security Interest by way of title retention entered into in the ordinary course of business;
|
(iv) |
any lien arising by operation of law in the ordinary course of business;
|
(v) |
any
bankers lien or right of set-off arising by operation of law
in the ordinary course of commercial banking transactions or any contractual
set-off arrangements in the ordinary course of commercial banking transactions;
|
(vi) |
any Security Interest existing over assets acquired after the date of this Agreement and existing on the date of acquisition,
provided that
:
|
(A) |
the Security Interest is not created in contemplation of the acquisition of the same; and
|
(B) |
the maximum principal amount secured thereby or the maturity of those obligations is not thereafter increased;
|
- 44 -
(vii) |
any Security Interest over the assets of any company which becomes a Principal Subsidiary after the date of this Agreement and which exist at the date on which it becomes a Principal Subsidiary, but only:
|
(A) |
to the extent of the principal amount secured by the Security Interest at the date it becomes a Principal Subsidiary; and
|
(B) |
if the Security Interest is not created in contemplation of it becoming a Principal Subsidiary;
|
(viii) |
any Security Interest over goods and/or documents of title, or insurance policies and sale contracts in relation to such goods, arising in the ordinary course of trading in connection with letters of credit and similar transactions where such Security Interest
secures only so much of the acquisition cost of such goods which is required to be paid within 180 days after the date upon which the same was first incurred;
|
(ix) |
any Security Interest created in substitution for any Security Interest permitted pursuant to this Clause 18.8
provided that
the substituted Security Interest is over the same asset and the principal amount secured does not exceed the principal amount
secured on such asset prior to the substitution;
|
(x) |
any
Security Interest created or granted from time to time in respect of
any Project Finance Borrowing including, for the avoidance of doubt,
any Security Interest created or granted by the Borrower or a Principal
Subsidiary in its capacity as a shareholder of a company making a Project
Finance Borrowing over its shareholding in that company (including,
in the case of the Borrower or a Principal Subsidiary whose only material
assets are shares in the company incurring the Project Finance Borrowing,
a
supporting floating charge over all or substantially all of that members
assets) as security for such Project Finance Borrowing,
provided that
the right of recourse against such shareholder is limited to the realisation of the shareholding in that company;
|
(xi) |
any Security Interest created by a Project Finance Company;
|
(xii) |
any Security Interest created or granted from time to time by a Principal Subsidiary in its capacity as a shareholder of a Project Finance Company over its shareholding in that Project Finance Company as security for the obligations of such Project
Finance Company;
|
(xiii) |
any Security Interest, whether granted prior to or after the date of this Agreement, which is granted by a Subsidiary of the Borrower incorporated in, or which has its principal place of business in, the United States or which is granted in relation to a QTE
Lease entered into by the Borrower or a Principal Subsidiary to secure Financial Indebtedness of up to US$4,200,000,000 in aggregate outstanding at any time;
|
- 45 -
(xiv) |
any
Security Interest created by a special purpose securitisation vehicle
over its assets where substantially all of those assets were acquired
by that vehicle from a member of the Group as part of or to facilitate
a securitisation and where the disposal of those assets to the securitisation
vehicle constitutes a disposal of assets on arms length terms,
the consideration for which is substantially all Cash or Cash Equivalent
consideration, after the Signing Date, so long as the aggregate outstanding
principal amount of Financial Indebtedness secured by all the Security
Interests permitted under this paragraph (xiv) by all members of the
Group does not exceed US$1,000,000,000 or its equivalent in other currencies
at any time and
provided that
the right of
recourse in respect of such Security Interest is limited to those assets of the special purpose securitisation vehicle; and
|
(xv) |
in
addition to each of the Security Interests permitted under paragraphs
(i) through (xiv) above any other Security Interest whether granted
prior to or after the date of this Agreement so long as the aggregate
outstanding principal amount of Financial Indebtedness secured by all
the Security Interests permitted under this paragraph (xv) by the Borrower
and any Principal Subsidiaries does not exceed £80,000,000 or
its equivalent in other currencies.
|
18.9 |
Disposals
|
(a) |
The
Borrower shall not and shall procure that no Principal Subsidiary will,
either in a single transaction or in a series of transactions, whether
related or not and whether voluntarily or involuntarily sell, transfer,
grant or lease or otherwise dispose (each a
disposal
)
of all of any part of its assets.
|
(b) |
Paragraph (a) above does not apply to:
|
(i) |
disposals to a wholly owned member of the Group not being a Project Finance Company or from a Principal Subsidiary to the Borrower;
|
(ii) |
disposals made in the ordinary course of trading of the disposing entity; or
|
(iii) |
disposals of assets in exchange for other assets to the extent that the assets acquired are comparable or superior as to value, type and quality or earnings generation; or
|
(iv) |
disposals of obsolete assets; or
|
(v) |
the
payment of cash dividends or distributions of any kind to the Borrowers
shareholders in accordance with the Companies Act 1985 or any other
relevant law; or
|
(vi) |
disposals to which the Majority Banks have agreed in writing; or
|
(vii) |
disposals by way of factoring or discounting of receivables to the extent such factoring or discounting is carried out in the ordinary course of business or for administrative purposes and, in either case, the primary purpose is not the raising of finance; or
|
- 46 -
(viii) |
disposals
of assets made in the ordinary course of business on arms length
terms; or
|
(ix) |
disposals
on arms length terms and on a non-recourse basis to non-Group
companies for the purposes of securitisations where the aggregate Disposal
Proceeds for all such disposals in aggregate over the life of the Facilities
is substantially Cash or Cash Equivalent consideration and does not
exceed US$1,000,000,000 or its equivalent; or
|
(x) |
disposals of up to four of the Distribution Networks; or
|
(xi) |
any
other disposals not otherwise permitted under paragraphs (b)(i) to
(x) above, where the aggregate Disposal Proceeds for all such disposals
in aggregate over the life of the Facilities does not exceed £1,000,000,000
or its equivalent.
|
18.10 |
Insurance
|
(a) |
The Borrower shall ensure and shall procure that the Group ensures that all its property and assets of an insurable nature (according to what is reasonably insurable in current insurance market) are kept insured against loss or damage by fire and other risks normally
insured in a sum or sums which the Borrower, or the Group, where relevant, considers prudent having regard to the nature and extent of the assets to be insured.
|
(b) |
The Borrower shall promptly pay all premiums and do all other things necessary and shall procure that the Group promptly pays and does all other things necessary to maintain in place the insurance required to be taken out by it pursuant to paragraph (a) above.
|
18.11 |
Compliance with law
|
The Borrower will and will procure that each of its Principal Subsidiaries will comply with, or take all reasonable practical and available steps to comply with, the requirements of all laws, rules, regulations and orders of any relevant authority in any applicable jurisdiction
relating to the Energy and Network Business, applicable to the Borrower or its Principal Subsidiaries (including, without limitation, Regulatory Orders) where failure to do so could reasonably be expected to have a material adverse effect on the ability of the Borrower to
perform its obligations under the Finance Documents.
|
18.12 |
Material Licences and Regulatory Orders
|
(a) |
The Borrower shall and shall procure that its Principal Subsidiaries shall comply, or shall take all reasonable practicable and available steps to comply (or, as the case may be, take all reasonable practicable and available steps to procure compliance) in all material
respects with the terms of its Material Licences and all Regulatory Orders applicable to the Borrower or such Principal Subsidiary.
|
- 47 -
(b) |
The Borrower shall not and shall procure that no Principal Subsidiary shall, consent to any material modification of the terms of its Material Licences where such modification may be material to the decision of a person whether or not to provide finance to the
Borrower had such a decision been required at the time of such modification.
|
18.13 |
Change of business
|
Except with the prior consent of the Majority Banks, the Borrower shall procure that no substantial change is made to the general nature of the businesses of the Group (taken as a whole) from that carried on at the date of this Agreement outside the Energy and Network
Businesses and other infrastructure network businesses of the Group from time to time.
|
18.14 |
Maintenance of status
|
The Borrower shall and shall procure that each of its Principal Subsidiaries shall, except as otherwise permitted in this Agreement, in all material respects do all such things as are necessary to maintain its corporate existence.
|
18.15 |
Restriction on Subsidiary Financial Indebtedness
|
(a) |
The Borrower shall procure that no member of the Group (excluding the Borrower) shall create, assume, incur, guarantee or otherwise be liable in respect of or have outstanding any Financial Indebtedness other than:
|
(i) |
any Financial Indebtedness owing by one member of the Group to another member of the Group, or any guarantee, indemnity or similar assurance issued by any Subsidiary in connection with the Financial Indebtedness of another Subsidiary that is
permitted under this Clause 18.15;
|
(ii) |
any other Financial Indebtedness (whether or not secured under sub-paragraph (c) of Clause 18.8 (
Negative Pledge
)) incurred by any Subsidiary
provided that
the aggregate outstanding principal amount of such Financial Indebtedness (but less Cash or
Cash Equivalents held by the relevant Subsidiary and excluding the aggregate amount of the bonds issued by NGG Finance plc set out in subparagraph (iii) below):
|
(A) |
of
all Subsidiaries other than Subsidiaries incorporated or whose principal
place of business is in the United States does not exceed £13,000,000,000
in aggregate; and
|
(B) |
of all Subsidiaries incorporated or whose principal place of business is in the United States, does not exceed US$9,000,000,000 in aggregate;
|
(iii) |
the bond due August 2006 in an amount of Euro 1.25 billion and the bond due August 2011 in an amount of Euro 750 million issued by NGG Finance plc,
|
or, in each case, its equivalent in other currencies converted into Dollars or Sterling as applicable at the time of calculation at the spot rate of exchange as determined by the Facility Agent for the purchase of such other currency in the London foreign
exchange market into Dollars or Sterling, as applicable, at or about 11.00 a.m. on any date such rate falls to be determined.
|
- 48 -
(b) |
For
the purposes of paragraph (ii) above, the amount of any Financial Indebtedness
which is constituted by currency or interest swaps, cap or collar arrangements
or any other derivative instruments shall be calculated by aggregating
the mark-to-market values of all such currency or interest swaps, cap
or collar arrangements or other derivative instruments, and the determination
of such amount shall (within the bounds of ordinary market practice)
be in the Facility Agents sole discretion and shall, in the absence
of manifest error, be conclusive and shall not be open to dispute by
any party to this Agreement or any third party.
|
18.16 |
Environmental Undertakings
|
The Borrower will and will procure that each other member of the Group will, comply in all respects with:
|
(a) |
all applicable Environmental Laws; and
|
(b) |
the terms and conditions of all Environmental Approvals applicable to it,
|
where failure to do so could reasonably be expected to have a material adverse effect on the ability of the Borrower to perform its obligations under the Finance Documents and for this purpose will implement procedures to monitor compliance and contain liability under
Environmental Laws.
|
18.17 |
Repayment of 2001 Facility Agreement
|
The Borrower shall ensure that:
|
(a) |
the proceeds of any Utilisation are first applied in repayment or prepayment of any amounts outstanding under the 2001 Facility Agreement to the extent not otherwise repaid;
|
(b) |
from the first Utilisation Date under this Agreement no further drawings are made under the 2001 Facility Agreement; and
|
(c) |
all undrawn commitments thereunder are cancelled with effect from a date no later than the first Utilisation Date under this Agreement.
|
19. |
DEFAULT
|
19.1 |
Events of Default
|
Each of the events set out in Clauses 19.2 (
Non-payment
) to 19.14 (
Unlawfulness
) (both inclusive) is an Event of Default (whether or not caused by any reason whatsoever outside the control of the Borrower or any other person).
|
19.2 |
Non-payment
|
The Borrower does not pay within three Business Days of the due date any amount payable by it under the Finance Documents at the place at and in the currency in which it is expressed to be payable.
|
- 49 -
19.3 |
Breach of other obligations
|
The Borrower does not comply with any provision of the Finance Documents applicable to it (other than those referred to in Clause 19.2 (
Non-payment
)) and such failure (if capable of remedy before the expiry of such period) continues unremedied for a period of thirty (30)
days from the date on which the relevant Agent gives notice to the Borrower requiring the same to be remedied save to the extent such failure to comply with any such provision of the Finance Documents constitutes a mandatory prepayment event pursuant to Clause 8.6
(
Mandatory Prepayment and Cancellation on Revocation, Surrender or Breach of Material Licences, Breach of Regulatory Orders Or Imposition Of Additional Regulatory Orders
).
|
19.4 |
Misrepresentation
|
A representation, warranty or statement made or repeated by the Borrower in or in connection with any Finance Document or in any document delivered by or on behalf of the Borrower under or in connection with any Finance Document is incorrect in any material respect
when made or deemed to be made or repeated save to the extent the circumstances giving rise to such a representation, warranty or statement being incorrect constitutes a mandatory prepayment pursuant to Clause 8.6 (
Mandatory Prepayment and Cancellation on Revocation,
Surrender or Breach of Material Licences, Breach of Regulatory Orders Or Imposition Of Additional Regulatory Orders
).
|
19.5 |
Cross-default
|
(a) |
Subject to paragraph (b) below:
|
(i) |
any Financial Indebtedness of the Borrower and/or a Principal Subsidiary is not paid when due or within any originally applicable grace period;
|
(ii) |
an event of default howsoever described occurs under any document relating to Financial Indebtedness of the Borrower and/or a Principal Subsidiary;
|
(iii) |
any Financial Indebtedness of the Borrower and/or a Principal Subsidiary becomes prematurely due and payable or is placed on demand as a result of an event of default (howsoever described);
|
(iv) |
any commitment for, or underwriting of, any Financial Indebtedness of the Borrower and/or a Principal Subsidiary is cancelled or suspended as a result of an event of default (howsoever described) under the document relating to that Financial
Indebtedness; or
|
(v) |
any Security Interest securing Financial Indebtedness over any asset of the Borrower and/or a Principal Subsidiary becomes enforceable by reason of an event of default howsoever described,
|
so
long as the principal amount of any single instance of such Financial
Indebtedness equals or exceeds £50,000,000 or the aggregate principal amount of any such Financial Indebtedness incurred by the Borrower and/or any Principal Subsidiary is equal to or
exceeds £100,000,000 or its equivalent in other currencies.
|
- 50 -
(b) |
For the purposes of this Clause 19.5 the definition of Financial Indebtedness shall exclude Project Finance Borrowings.
|
(c) |
For
the purposes of paragraph (a) above, the amount of any Financial Indebtedness
which is constituted by currency or interest swaps, cap or collar arrangements
or any other derivative instruments (after taking account of any enforceable
netting arrangement permitted and/or required in respect of such currency
or interest swaps, cap or collar arrangements or other derivative instruments
under the terms of any applicable contract with a particular counterparty)
shall be calculated by aggregating the mark-to-market
values of any such currency or interest swaps, cap or collar arrangements or
other derivative instruments, and the determination of such amount
shall (within the bounds of ordinary market practice) be in the Facility
Agents sole discretion and shall, in the absence
of manifest error, be conclusive and shall not be open to dispute by any party
to this Agreement or any third party.
|
19.6 |
Insolvency
|
(a) |
The Borrower or a Principal Subsidiary is, or is deemed for the purposes of any law to be unable to pay its debts as they fall due or to be insolvent, or admits inability to pay its debts as they fall due; or
|
(b) |
The Borrower or a Principal Subsidiary suspends making payments on all or any class of its debts or announces an intention to do so or a moratorium is declared in respect of any of its indebtedness; or
|
(c) |
The Borrower or a Principal Subsidiary by reason of financial difficulties generally begins negotiations with one or more of its creditors with a view to the readjustment or rescheduling of any of its indebtedness.
|
19.7 |
Insolvency proceedings
|
(a) |
Any step (including petition, proposal or convening a meeting) is taken, by reason of financial difficulties, with a view to a composition, assignment or scheme of arrangement with any creditors of the Borrower or a Principal Subsidiary; or
|
(b) |
a meeting of the Borrower or a Principal Subsidiary is convened for the purpose of considering any resolution for (or to petition for) its winding-up or its administration or any such resolution is passed; or
|
(c) |
any person presents a petition for the winding-up or for the administration of the Borrower or a Principal Subsidiary other than a petition which is frivolous and vexatious and which is not struck out within 14 days of its presentation; or
|
(d) |
any order for the winding-up or administration of the Borrower or a Principal Subsidiary is made; or
|
(e) |
any other step (including petition, proposal or convening a meeting) is taken with a view to the rehabilitation, administration, custodianship, liquidation, winding-up or dissolution of or any other insolvency proceedings involving the Borrower or a Principal
Subsidiary.
|
- 51 -
19.8 |
Appointment of receivers and managers
|
(a) |
Any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like is appointed in respect of the Borrower, or a Principal Subsidiary or any part of its assets; or
|
(b) |
the directors of the Borrower, or a Principal Subsidiary requests the appointment of a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like; or
|
(c) |
any other steps are taken to enforce any Security Interest over any part of the assets of the Borrower, or a Principal Subsidiary.
|
19.9 |
Creditors process
|
Any attachment, sequestration, distress or execution affects any asset of the Borrower or a Principal Subsidiary and is not discharged within 21 days.
|
19.10 |
Analogous proceedings
|
There occurs, in relation to the Borrower or a Principal Subsidiary, any event anywhere which, in the opinion of the Majority Banks, is analogous to any of those mentioned in Clauses 19.6 (
Insolvency
) to 19.9 (
Creditors process
) (both inclusive).
|
19.11 |
Cessation of business
|
The Borrower or a Principal Subsidiary ceases to carry on its business pursuant to its Material Licences or Regulatory Orders, unless any of its Material Licences (or the relevant part thereof) are granted or transferred to another member of the Group or pursuant to a disposal
permitted under Clause 18.9 (
Disposals
).
|
19.12 |
Ownership of Principal Subsidiaries
|
Any of the Principal Subsidiaries are not or cease to be wholly-owned direct or indirect Subsidiaries of the Borrower.
|
19.13 |
Repudiation
|
The Borrower repudiates a Finance Document or evidences an intention to repudiate a Finance Document.
|
19.14 |
Unlawfulness
|
It is or becomes unlawful for the Borrower to perform any of its obligations under the Finance Documents.
|
19.15 |
Acceleration
|
On and at any time after the occurrence of an Event of Default an Agent may, and will if so directed by the Majority Banks, by notice to the Borrower:
|
(a) |
cancel the Total Commitments; and/or
|
(b) |
demand that all the Advances, together with accrued interest, and all other amounts accrued under this Agreement be immediately due and payable, whereupon they will become immediately due and payable; and/or
|
- 52 -
(c) |
demand that all the Advances
be payable on demand, whereupon they will immediately become payable
on demand.
|
|
20. |
THE AGENTS AND THE BOOKRUNNERS
|
20.1 |
Appointment and duties of the Agents
|
(a) |
Subject to paragraph (f) of Clause 20.15 (
Resignation of an Agent
), each Finance Party (other than the Facility Agent) irrevocably appoints the Facility Agent to act as its agent under and in connection with the Finance Documents; and
|
(b) |
each Swingline Bank irrevocably appoints the Swingline Agent to act as its agent under and in relation to the Swingline Advance Facility,
|
and in each case authorises that Agent on its behalf to:
|
(i) |
perform the duties and to exercise the rights, powers and discretions that are specifically delegated to it under or in connection with the Finance Documents, together with all other incidental rights, powers and discretions; and
|
(ii) |
execute as agent for that Finance Party each Finance Document to which that Agent is a party.
|
(c) |
An Agent shall have only those duties which are expressly specified in this Agreement. Those duties are solely of a mechanical and administrative nature.
|
20.2 |
Role of the Bookrunners
|
Except as otherwise specifically provided in this Agreement, no Bookrunner has any obligations of any kind to any other Party under or in connection with any Finance Document.
|
20.3 |
Relationship
|
The relationship between an Agent and the other Finance Parties is that of agent and principal only. Nothing in this Agreement constitutes an Agent as trustee or fiduciary for any other Party or any other person and an Agent need not hold in trust any moneys paid to it for a
Party or be liable to account for interest on those moneys.
|
20.4 |
Majority
Banks directions
|
An Agent will be fully protected if it acts in accordance with the instructions of the Majority Banks in connection with the exercise of any right, power or discretion or any matter not expressly provided for in the Finance Documents. Any such instructions given by the
Majority Banks will be binding on all the Banks. In the absence of such instructions an Agent may act as it considers to be in the best interests of all the Banks.
|
20.5 |
Delegation
|
An Agent may act under the Finance Documents through its personnel and agents.
|
20.6 |
Responsibility for documentation
|
Neither an Agent nor any Bookrunner is responsible to any other Party for:
|
- 53 -
(a) |
the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document;
|
(b) |
the collectability of amounts payable under any Finance Document; or
|
(c) |
the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document.
|
20.7 |
Default
|
(a) |
An Agent is not obliged to monitor or enquire as to whether or not a Default has occurred and an Agent will not be deemed to have knowledge of the occurrence of a Default. An Agent may assume that no Default has occurred (unless it has actual knowledge of a
Default arising under Clause 19.2 (
Non-payment
). However, if an Agent receives notice from a Party referring to this Agreement, describing the alleged Default and stating that it believes the event is a Default, that Agent shall promptly notify the Banks.
|
(b) |
An Agent may require the receipt of security satisfactory to it, whether by way of payment in advance or otherwise, against any liability or loss which it will or may incur in taking any proceedings or action arising out of or in connection with any Finance
Document before it commences those proceedings or takes that action.
|
20.8 |
Exoneration
|
(a) |
Without
limiting paragraph (b) below, an Agent will not be liable to any other
Party for any action taken or not taken by it under or in connection
with any Finance Document, unless directly caused by that Agents
gross negligence or wilful misconduct.
|
(b) |
No Party may take any proceedings against any officer, employee or agent of an Agent in respect of any claim it might have against that Agent or in respect of any act or omission of any kind (including negligence or wilful misconduct) by that officer, employee or
agent in relation to any Finance Document.
|
20.9 |
Reliance
|
An Agent may:
|
(a) |
rely on any notice or document believed by it to be genuine and correct and to have been signed by, or with the authority of, the proper person;
|
(b) |
rely on any statement made by a director or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify; and
|
(c) |
engage,
pay for and rely on legal or other professional advisers selected by
it (including those in that Agents employment and those representing
a Party other than that Agent).
|
- 54 -
20.10 |
Credit approval and appraisal
|
Without affecting the responsibility of the Borrower for information supplied by it or on its behalf in connection with any Finance Document, each Bank confirms that it:
|
(a) |
has made its own independent investigation and assessment of the financial condition and affairs of the Borrower and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by an
Agent or a Bookrunner in connection with any Finance Document; and
|
(b) |
will continue to make its own independent appraisal of the creditworthiness of the Borrower and its related entities while any amount is or may be outstanding under the Finance Documents or any Revolving Facility Commitment or Swingline Commitment is in
force.
|
20.11 |
Information
|
(a) |
Each Agent shall promptly forward to the person concerned the original or a copy of any document which is delivered to that Agent by a Party for that person.
|
(b) |
Each Agent shall promptly supply a Bank with a copy of each document received by that Agent under Clause 4 (
Conditions Precedent
) upon the request of that Bank.
|
(c) |
Except where this Agreement specifically provides otherwise, an Agent is not obliged to review or check the accuracy or completeness of any document it forwards to another Party.
|
(d) |
Except as provided above, an Agent has no duty:
|
(i) |
either initially or on a continuing basis to provide any Bank with any credit or other information concerning the financial condition or affairs of the Borrower or any related entity of the Borrower, whether coming into its possession or that of any of its
related entities before, on or after the date of this Agreement unless such information is provided to the Agent in its capacity as agent in which case such information will be made available promptly to each of the Banks; or
|
(ii) |
unless specifically requested to do so by a Bank in accordance with this Agreement, to request any certificates or other documents from the Borrower.
|
20.12 |
The Agent and the Bookrunners individually
|
(a) |
If it is a Bank, each of the Agents and any Bookrunner has the same rights and powers under this Agreement as any other Bank and may exercise those rights and powers as though it were not an Agent or a Bookrunner.
|
(b) |
Each of the Agents, and any Bookrunner may:
|
(i) |
carry on any business with the Borrower or its related entities;
|
(ii) |
act as agent or trustee for, or in relation to any financing involving, the Borrower or its related entities; and
|
(iii) |
retain any profits or remuneration in connection with its activities under this Agreement or in relation to any of the foregoing.
|
- 55 -
(c) |
The Borrower irrevocably authorises each of the Agents to disclose to the other Finance Parties any information which, in the reasonable opinion of that Agent, is received by it in its capacity as Agent.
|
20.13 |
Indemnities
|
(a) |
Without
limiting the liability of the Borrower under the Finance Documents,
each Revolving Facility Bank or (in the case of the Swingline Agent)
each Swingline Bank shall forthwith on demand indemnify each Agent
for its proportion of any liability or loss incurred by that Agent
in any way relating to or arising out of it acting as an agent, except
to the extent that the liability or loss arises directly from that
Agents gross negligence or wilful misconduct.
|
(b) |
A
Revolving Facility Banks proportion of the liability or loss set out in paragraph (a) above is the proportion which the Original Dollar Amount of its Advances bears to the Original Dollar Amount, as the case may be, of all Advances (other than Swingline
Advances) outstanding on the date of the demand. If, however, no such Advances are outstanding on the date of demand, then the proportion will be that which each Banks
Revolving Facility Commitment bears to the Total Commitments at the date of
demand or, if the Total Commitments have been cancelled, bore to the Total Commitments
immediately before being cancelled.
|
(c) |
A
Swingline Banks proportion of the liability or loss set out in paragraph (a) above is the proportion which the Original Dollar Amount of its Swingline Advances bears to the Original Dollar Amount, as the case may be, of all Swingline Advances outstanding on
the date of the demand. If, however, no Swingline Advances are outstanding on the date of demand, then the proportion will be that which each Banks
Swingline Commitment bears to the Total Swingline Commitments at the date of
demand or, if the Total Swingline Commitments have been cancelled, bore to the
Total Swingline Commitments immediately before being cancelled.
|
(d) |
The Borrower shall forthwith on demand reimburse each Bank for any payment made by it under paragraphs (b) and (c) above.
|
20.14 |
Compliance
|
(a) |
An Agent may refrain from doing anything which might, in its opinion, constitute a breach of any law or regulation or be otherwise actionable at the suit of any person, and may do anything which, in its opinion, is necessary or desirable to comply with any law or
regulation of any jurisdiction.
|
(b) |
Without limiting paragraph (a) above, an Agent need not disclose any information relating to the Borrower or any of its related entities if the disclosure might, in the opinion of that Agent constitute a breach of any law or regulation or any duty of secrecy or
confidentiality or be otherwise actionable at the suit of any person.
|
- 56 -
(c) |
Nothing
in this Agreement shall oblige either Agent or the Bookrunners to carry
out any know your customer or other checks in relation
to any person on behalf of any Bank and each Bank confirms to the Agent
and the Bookrunners that it is solely responsible for any such checks
it is required to carry out and that it may not rely on any statement
in relation to such checks made by either Agent or the Bookrunners.
|
20.15 |
Resignation of an Agent
|
(a) |
Notwithstanding its irrevocable appointment, an Agent may resign by giving notice to the Banks and the Borrower, in which case that Agent may forthwith appoint one of its Affiliates as successor Agent or, failing that, the Majority Banks may appoint a successor
Agent.
|
(b) |
If the appointment of a successor Agent is to be made by the Majority Banks but they have not, within 30 days after notice of resignation, appointed a successor Agent which accepts the appointment, a retiring Agent may, after prior consultation with the Borrower,
appoint a successor Agent.
|
(c) |
The
resignation of a retiring Agent and the appointment of any successor
Agent will both become effective only upon the successor Agent notifying
all the Parties that it accepts the appointment. On giving the notification,
the successor Agent will succeed to the position of the retiring Agent
and the term
Facility Agent
or
Swingline Agent
will
mean the successor Agent, where appropriate.
|
(d) |
The retiring Agent shall, at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as the relevant Agent under this
Agreement.
|
(e) |
Upon its resignation becoming effective, this Clause 20 shall continue to benefit the retiring Agent in respect of any action taken or not taken by it under or in connection with the Finance Documents while it was an Agent and, subject to paragraph (d) above, it shall
have no further obligation under any Finance Document.
|
(f) |
An Agent shall, forthwith upon being requested to do so by the Majority Banks, resign in accordance with paragraph (a) above. However, in this event, an Agent may not appoint one of its Affiliates as successor Agent as contemplated by paragraph (a) above and
the Majority Banks shall appoint a successor Agent.
|
20.16 |
Banks
|
(a) |
An Agent may treat each Bank as a Bank and entitled to payments under this Agreement and as acting through its Facility Office(s) until it has received notice from the Bank to the contrary not less than five Business Days prior to any relevant payment.
|
(b) |
An Agent may at any time, and shall if requested to do so by the Majority Banks, convene a meeting of the Banks.
|
- 57 -
20.17 |
Chinese Wall
|
In acting as an Agent or as a Bookrunner, the agency and syndications division of each of an Agent and the Bookrunners shall be treated as a separate entity from its other divisions and departments. Any information acquired at any time by an Agent, or any Bookrunner
otherwise than in the capacity of Agent or Bookrunner through its agency and syndications division (whether as financial advisor to any member of the Group or otherwise) may be treated as confidential by that Agent or Bookrunner and shall not be deemed to be information
possessed by that Agent or Bookrunner in their capacity as such. Each Finance Party acknowledges that an Agent and the Bookrunners may, now or in the future, be in possession of, or provided with, information relating to the Group which has not or will not be provided to
the other Finance Parties. Each Finance Party agrees that, except as expressly provided in this Agreement, neither any Agent nor any Bookrunner will be under any obligation to provide, or under any liability for failure to provide, any such information.
|
21. |
FEES
|
21.1 |
Arrangement and Participation fees
|
The Borrower shall pay the arrangement and participation fees with respect to the Facility in accordance with the relevant Fee Letter between the Bookrunners and the Borrower.
|
21.2 |
Commitment fee
|
(a) |
The Borrower shall pay to the Facility Agent for each Bank a commitment fee at the rate of 0.1 per cent. per annum.
|
(b) |
Accrued commitment fees are payable quarterly in arrears on the daily undrawn, uncancelled amount of the relevant Revolving Facility Commitment on each day from the Signing Date until the last day of the Availability Period with the first payment due three
months after the Signing Date. Accrued commitment fee is also payable to the Facility Agent for the relevant Bank(s) on the cancelled amount of its Revolving Facility Commitment at the time the cancellation takes effect. Accrued commitment fees are payable in
Dollars.
|
21.3 |
Term-out Fee
|
On the day on which a Term-out Advance is made pursuant to paragraph (b) of Clause 7.1 (
Repayment of Revolving Facility Advances and Term-out Advances
), the Borrower shall pay the Facility Agent for distribution pro rata to the Revolving Facility Banks which
participate in the relevant Term-out Advance a fee of 0.05 per cent. flat on the aggregate Original Dollar Amount of all Term-out Advances made on that date.
|
21.4 |
Agency fee
|
The
Borrower shall pay to the Facility Agent for its own and for the Swingline
Agents account agency fees in the amounts agreed in the relevant
Fee Letter between the Borrower and the Facility Agent.
|
21.5 |
VAT
|
Any fee referred to in this Clause 21 is exclusive of any value added tax or any other tax which might be chargeable in connection with that fee. If any value added tax or other tax is so chargeable, it shall be paid by the Borrower at the same time as it pays the relevant fee.
|
- 58 -
22. |
EXPENSES
|
22.1 |
Initial and special costs
|
The Borrower shall forthwith on demand pay the Facility Agent and the Bookrunners the amount of all reasonable costs and expenses (including legal fees (subject to any agreed caps)) incurred by any of them in connection with:
|
(a) |
the arranging and primary syndication of the Facilities;
|
(b) |
the negotiation, preparation, printing and execution of:
|
(i) |
this Agreement and any other documents referred to in this Agreement;
|
(ii) |
any other Finance Document (other than a Transfer Certificate) executed after the date of this Agreement; and
|
(c) |
any amendment, waiver, consent or suspension of rights (or any proposal for any of the foregoing) requested by or on behalf of the Borrower and relating to a Finance Document or a document referred to in any Finance Document.
|
22.2 |
Enforcement costs
|
The Borrower shall forthwith on demand pay to each Finance Party the amount of all reasonable costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document.
|
23. |
STAMP DUTIES
|
The Borrower shall pay and forthwith on demand indemnify each Finance Party against any liability it incurs in respect of any stamp, registration and similar tax which is or becomes payable in connection with the entry into, performance or enforcement of any Finance
Document.
|
24. |
INDEMNITIES
|
24.1 |
Currency indemnity
|
(a) |
If
a Finance Party receives an amount in respect of the Borrowers
liability under the Finance Documents or if that liability is converted
into a claim, proof, judgement or order in a currency other than the
currency (the
contractual currency
) in which the
amount is expressed to be payable under the relevant Finance Document:
|
(i) |
the Borrower shall indemnify that Finance Party as an independent obligation against any loss or liability arising out of or as a result of the conversion;
|
(ii) |
if the amount received by the Finance Party, when converted into the contractual currency at a market rate in the usual course of its business, is less than the amount owed in the contractual currency, the Borrower shall forthwith on demand pay to that
Finance Party an amount in the contractual currency equal to the deficit; and
|
- 59 -
(iii) |
the Borrower shall pay to the Finance Party concerned on demand any exchange costs and taxes payable in connection with any such conversion.
|
(b) |
The Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency other than that in which it is expressed to be payable.
|
24.2 |
Other Indemnities
|
The Borrower shall forthwith on demand indemnify each Finance Party against any cost, loss or liability which that Finance Party incurs as a consequence of:
|
(a) |
the occurrence of any Event of Default;
|
(b) |
the operation of Clause 19.15 (
Acceleration
) or Clause 30 (
Redistributions
);
|
(c) |
any payment of principal or an overdue amount being received from any source otherwise than on its Maturity Date or the last day of its Interest Period and, for the purposes of this paragraph (c), the Maturity Date of an overdue amount is the last day of each
Default Term (as defined in Clause 9.4 (
Default interest
)); or
|
(d) |
(other than by reason of negligence or default by a Finance Party) a Utilisation not being effected by reason of the operation of any one or more provisions of this Agreement after the Borrower has delivered a Utilisation Request for that Utilisation.
|
The
Borrowers liability in each case includes any loss of margin
or other loss or expense on account of funds borrowed, contracted for
or utilised to fund any amount payable under any Finance Document,
any amount repaid or prepaid or any Advance.
|
24.3 |
Indemnity to the Agent
|
The Borrower shall promptly indemnify any Agent against any cost, loss or liability incurred by that Agent (acting reasonably) as a result of:
|
(a) |
entering into or performing any foreign exchange contract for the purposes of Clause 10.3 (
Change of Currency
); or
|
(b) |
acting or relying on any notice, request or instruction from the Borrower which it reasonably believes to be genuine, correct and appropriately authorised.
|
25. |
CALCULATIONS AND EVIDENCE OF DEBT
|
25.1 |
Accounts
|
Accounts maintained by a Finance Party in connection with this Agreement are prima facie evidence of the matters to which they relate.
|
25.2 |
Certificates and Determination
|
(a) |
Any certification or determination by a Finance Party of a rate or amount under this Agreement shall be supported (other than in relation to any calculation of interest) by reasonable evidence of how the calculation has been made and, if so supported, shall be, in the
absence of manifest error, conclusive evidence of the matters to which it relates.
|
- 60 -
(b) |
Any determination by an Agent of a rate of interest shall be, in the absence of manifest error, conclusive.
|
(c) |
Nothing in this Clause obliges any Finance Party to disclose any confidential information.
|
25.3 |
Calculations
|
(a) |
Interest payable on an amount denominated in Sterling or payable in respect of the Swingline Advance Facility and any applicable Mandatory Cost accrue from day to day and are calculated on the basis of the actual number of days elapsed and a year of 365 days;
and
|
(b) |
interest payable on an amount denominated in Dollars or an Optional Currency (other than a Swingline Advance or where market practice otherwise dictates) and the fees payable under Clause 21 (
Fees
) accrue from day to day and are calculated on the basis of the
actual number of days elapsed and a year of 360 days,
|
(or, in either case, as otherwise agreed between the Facility Agent and the Borrower in accordance with usual market practice).
|
26. |
AMENDMENTS AND WAIVERS
|
26.1 |
Procedure
|
(a) |
Subject to Clause 26.2 (
Exceptions
), any term of the Finance Documents may be amended or waived with the agreement of the Borrower and the Majority Banks and (in so far as its position as an Agent is affected) an Agent. The Facility Agent may effect, on
behalf of the Majority Banks, an amendment to which they have agreed.
|
(b) |
The Facility Agent shall promptly notify the other Parties of any amendment or waiver effected under paragraph (a) above, and any such amendment or waiver shall be binding on all the Parties.
|
26.2 |
Exceptions
|
(a) |
An amendment or waiver which relates to:
|
(i) |
the
definition of Majority Banks in Clause 1.1 (
Definitions
);
|
(ii) |
Clause 2.5 (
Nature
of each Finance Partys rights and obligations
);
|
(iii) |
an extension of the date for, or a decrease in an amount (including any fees payable or the Applicable Margin) or a change in the currency of, any payment under the Finance Documents;
|
- 61 -
(iv) |
subject to Clause 26.3 (
Increase of Revolving Facility Total Commitments
),
an increase in a Banks Revolving Facility Commitment or Swingline
Commitment, where relevant;
|
(v) |
a term of a Finance Document which expressly requires the consent of each Bank; or
|
(vi) |
Clause 30 (
Redistributions
) or this Clause 26,
|
may not be effected without the consent of each Bank.
|
(b) |
An amendment or waiver which relates to an Agent may not be effected without the consent of that Agent, not to be unreasonably withheld or delayed.
|
26.3 |
Increase of Revolving Facility Total Commitments
|
(a) |
The Borrower shall be entitled to increase any number of times the Total Commitments (subject to a maximum increase of US$150,000,000 in aggregate) at any time by requesting that additional financial institutions become a party to this Agreement. If the
Borrower so requests, the Borrower and the Agents may without the consent of the Banks, amend this Agreement to allow such financial institutions to accede with additional commitments not exceeding in aggregate US$150,000,000 and the Facility Agent shall
promptly notify the Banks of such increase
provided that
(i) (if any Advances are outstanding) the date on which such financial institutions accede is a date on which all such outstanding Advances are due to be repaid and (ii) such accession shall only take effect if
all such Advances are repaid on the date they are due to be repaid. For the avoidance of doubt, the Revolving Facility Commitment and Swingline Commitment of an Existing Bank shall not be increased unless that Existing Bank (at its sole discretion) agrees to
such increase.
|
(b) |
If a Bank declines or is deemed to decline to extend the Availability Period in respect of its Revolving Facility Commitment or Swingline Commitment pursuant to Clause 5.7 (
Extension of Availability Period
)
(the
Declining Bank
), the Borrower may at any
time, prior to the date falling 60 days after the last day of such Declining Banks
Availability Period (the
Expiry Date
) request that additional
financial institutions participate in the Facilities in an aggregate maximum
amount equal to or less than the aggregate Revolving Facility Commitment and
Swingline Commitment of all Declining Banks (the
Relevant Amount
)
immediately prior to the Expiry Date. If the Borrower so requests, following
consultation with the Agents, it may amend this Agreement to allow such financial
institutions to accede with additional Revolving Credit Commitments and Swingline
Commitments not to exceed the Relevant Amount
provided that
(i) (if any Advances are outstanding) the date on which such financial institutions accede is a date on
which all such outstanding Advances are due to be repaid and (ii) such accession shall only take effect if all such Advances are repaid on the date they are due to be repaid. For the avoidance of doubt, the Revolving Facility Commitment and Swingline Commitment
of an Existing Bank shall not be increased unless that Existing Bank agrees (at its sole discretion) to such increase.
|
- 62 -
26.4 |
Waiver and Remedies Cumulative
|
The rights of each Finance Party under the Finance Documents:
|
(a) |
may be exercised as often as necessary;
|
(b) |
are cumulative and not exclusive of its rights under the general law; and
|
(c) |
may be waived only in writing and specifically.
|
Delay in exercising or non-exercise of any such right is not a waiver of that right.
|
27. |
CHANGES TO THE PARTIES
|
27.1 |
Transfers by the Borrower
|
The Borrower may not assign, transfer, novate or dispose of any of, or any interest in, its rights and/or obligations under the Finance Documents.
|
27.2 |
New Banks
|
(a) |
A
Bank (the
Existing Bank
) may, at any time, assign,
transfer or novate any of its rights and/or obligations under this
Agreement to a Qualifying Bank (the
New Bank
) without
the prior consent of or notice to the Borrower:
|
(i) |
save that the prior written consent of the Borrower (such consent not to be unreasonably withheld or delayed) is required for any such assignment, transfer or novation unless it is to another Existing Bank or Affiliate or an Event of Default has occurred
and is continuing and such consent will be deemed to have been given if, within fourteen days of receipt by the Borrower of an application for consent, it has not been expressly refused;
|
(ii) |
(subject
to (i) above) without restriction, save that in the case of a partial
assignment, transfer or novation of its rights and/or obligations under
either Facility a minimum amount of US$5,000,000 (or its equivalent)
in aggregate or, if as a result of such assignment, novation or transfer
the Existing Banks rights and/or obligations under any Facility
would in aggregate be less than US$10,000,000 (or its equivalent) such
amount as represents all its rights, benefits and obligations hereunder
(unless the relevant Agent agrees otherwise) must be assigned, transferred
or novated; and
|
(iii) |
no
assignment, novation or transfer of all or any part of a Swingline
Commitment or Revolving Facility Commitment shall be made by that Existing
Bank unless simultaneously therewith a pro rata amount of the Revolving
Facility Commitment or Swingline Commitment of that Existing Bank (or
its Affiliated Bank) and a pro rata amount of each of that Existing
Banks (or its Affiliated Banks) outstanding Swingline Advances
or as the case may be, Revolving Facility Advances are also assigned,
novated or transferred (where relevant) to the New Bank (or its Affiliated
Bank),
provided that
no such pro rata assignment, novation or transfer of a Revolving Facility Commitment or outstanding Revolving Facility Advances shall be required to be
made by a Revolving Facility Bank which is also a Swingline Bank if it assigns, novates or transfers a Swingline Commitment to its Affiliated Bank.
|
- 63 -
(b) |
A transfer of obligations will be effective only if:
|
(i) |
the obligations are transferred by way of novation in accordance with Clause 27.3 (
Procedure for transfers
);
|
(ii) |
the New Bank confirms to the relevant Agent and the Borrower that it undertakes to be bound by the terms of this Agreement as a Bank in form and substance satisfactory to that Agent. On the transfer becoming effective in this manner the Existing Bank
shall be relieved of its obligations under this Agreement to the extent that they are transferred to the New Bank; and
|
(iii) |
upon
performance of all know your customer or other checks relating
to any person that the Facility Agent is required to carry out in relation
to such assignment to a New Bank, the completion of which the Facility
Agent shall promptly notify to the Existing Bank and the New Bank.
|
(c) |
Nothing in this Agreement restricts the ability of a Bank to sub-contract an obligation if that Bank remains liable under this Agreement for that obligation.
|
(d) |
On each occasion that an Existing Bank assigns, transfers or novates any of its rights and/or obligations under this Agreement (other than to an Affiliate), the New Bank shall, on the date the assignment, transfer and/or novation takes effect, pay to the relevant Agent
for its own account a fee of US$1,500.
|
(e) |
An Existing Bank is not responsible to a New Bank for:
|
(i) |
the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document;
|
(ii) |
the collectability of amounts payable under any Finance Document; or
|
(iii) |
the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document.
|
(f) |
Each New Bank confirms to the Existing Bank and the other Finance Parties that it:
|
(i) |
has made its own independent investigation and assessment of the financial condition and affairs of the Borrower and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it
by the Existing Bank in connection with any Finance Document; and
|
(ii) |
will continue to make its own independent appraisal of the creditworthiness of the Borrower and its related entities while any amount is or may be outstanding under this Agreement or any Revolving Commitment or Swingline Commitment, where
relevant, is in force.
|
- 64 -
(g) |
Nothing in any Finance Document obliges an Existing Bank to:
|
(i) |
accept a re-transfer from a New Bank of any of the rights and/or obligations assigned or transferred or novated under this Clause; or
|
(ii) |
support any losses incurred by the New Bank by reason of the non performance by the Borrower of its obligations under this Agreement or otherwise.
|
(h) |
Any reference in this Agreement to a Bank includes a New Bank but excludes a Bank if no amount is or may be owed to or by that Bank under this Agreement and its Revolving Commitment and Swingline Commitment have been cancelled or reduced to
nil.
|
27.3 |
Procedure for transfers
|
(a) |
A transfer by way of novation is effected if:
|
(i) |
the Existing Bank and the New Bank deliver to the relevant Agent a duly completed certificate substantially in the form set out in Schedule 5 (
Transfer Certificate
)
(a
Transfer Certificate
) with such changes
as that Agent approves to achieve a substantially similar effect (which
may be delivered by fax and confirmed by delivery of a hard copy original
but the fax will be effective irrespective of whether confirmation
is received); and
|
(ii) |
the Facility Agent (subject to paragraph (b) below) executes it.
|
(b) |
The
Facility Agent shall only be obliged to execute a Transfer Certificate
delivered to it by an Existing Bank and the New Bank upon its completion
of all know your customer or other checks relating to any
person that it is required to carry out in relation to the transfer
to such New Bank.
|
(c) |
Each Party (other than the Existing Bank and the New Bank) irrevocably authorises the Facility Agent to execute any duly completed Transfer Certificate on its behalf and the Facility Agent agrees promptly to provide a copy of the Transfer Certificate to the
Borrower after it has executed it.
|
(d) |
To the extent that they are expressed to be the subject of the transfer in the Transfer Certificate, on the date of execution of the Transfer Certificate by the Facility Agent (or the date specified in the Transfer Certificate if later):
|
(i) |
the
Existing Bank and the other Parties (the
existing Parties
)
will be released from their obligations to each other (the
discharged obligations
);
|
(ii) |
the New Bank and the existing Parties will assume obligations towards each other which differ from the discharged obligations only in so far as they are owed to or assumed by the New Bank instead of the Existing Bank;
|
- 65 -
(iii) |
the
rights of the Existing Bank against the existing Parties and vice versa
(the
discharged rights
) will be cancelled; and
|
(iv) |
the New Bank and the existing Parties will acquire rights against each other which differ from the discharged rights only in so far as they are exercisable by or against the New Bank instead of the Existing Bank,
|
all on the date of execution of the Transfer Certificate by the Facility Agent or, if later, the date specified in the Transfer Certificate.
|
(e) |
If the effective date of a novation is after the date a Utilisation Request is received by an Agent but before the date a requested Advance is disbursed to for the Borrower, the Existing Bank shall be obliged to participate in that Advance in respect of its discharged
obligations notwithstanding that novation and the New Bank shall reimburse the Existing Bank for its participation in that Advance and all interest and fees thereon up to the date of reimbursement (in each case to the extent attributable to the discharged
obligations) within three Business Days of the Utilisation Date of that Advance.
|
27.4 |
Reference Banks
|
If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of which it is an Affiliate) ceases to be one of the Banks, the Facility Agent shall (in consultation with the Borrower) appoint another Bank to replace the Reference Bank.
|
27.5 |
Additional Payments
|
If following:
|
(a) |
any assignment, transfer or novation of all or any part of the rights or obligations of an Existing Bank to a New Bank under Clause 27.2 (
New Banks
); or
|
(b) |
any
change in an Existing Banks Facility Office,
|
any additional amount is required to be paid to the New Bank or that Existing Bank (as the case may be) by the Borrower under Clause 12 (
Taxes
) or Clause 14 (
Increased Costs
) of this Agreement as a result of circumstances existing at the time of that assignment, transfer,
novation or change, then the New Bank or Existing Bank (acting through its new Facility Office) will be entitled to receive any such amount only to the extent that the New Bank or Existing Bank (acting through its old Facility Office) would have been so entitled had there
been no assignment, transfer, novation or change in Facility Office (as the case may be).
|
27.6 |
Register
|
Each
Agent shall keep a register of all the Parties and shall supply any
other Party (at that Partys expense) with a copy of the register
on request.
|
- 66 -
28. |
DISCLOSURE OF INFORMATION
|
A Bank may disclose to (i) its professional advisers; (ii) any of its Affiliates; (iii) any other person with whom it is proposing to enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement; and/or (iv) any person to whom, and
to the extent that, information is required to be disclosed by any applicable law or regulation:
|
(a) |
a copy of any Finance Document;
|
(b) |
a copy of the Information Memorandum; and
|
(c) |
any information which that Bank has acquired under or in connection with any Finance Document,
|
provided that
a Bank shall not disclose any such information to a person unless that person has provided to that Bank a confidentiality undertaking addressed to that Bank and the Borrower, substantially in the form set out in Schedule 7 (
Form of Confidentiality Undertaking
)
or such other form as the Borrower may approve.
|
Notwithstanding
anything to the contrary, it is hereby agreed that from the commencement
of discussions with respect to transactions contemplated by this Agreement
(the
Transactions
), any Party (and any employee,
representative or other agent of any Party) may disclose to any and
all persons, without limitation of any kind, the tax treatment and
tax structure of the Transactions and all materials of any kind (including
opinions or other tax analysis) that are provided to it relating to
such tax treatment and tax structure.
|
29. |
SET-OFF
|
A Finance Party may set off any matured obligation owed by the Borrower under this Agreement (to the extent beneficially owned by that Finance Party) against any obligation (whether or not matured) owed by that Finance Party to the Borrower, regardless of the place of
payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. If either obligation is unliquidated
or unascertained, the Finance Party may set off in an amount estimated by it in good faith to be the amount of that obligation.
|
30. |
REDISTRIBUTIONS
|
30.1 |
Redistribution
|
If
any amount owing by the Borrower under this Agreement to a Finance
Party (the
recovering Finance Party
) is discharged
by payment, set-off or any other manner other than through the Facility
Agent or the Swingline Agent in accordance with Clause 11 (
Payments
)
(a
recovery
), then:
|
(a) |
the recovering Finance Party shall, within 3 Business Days, notify details of the recovery to the relevant Agent;
|
- 67 -
(b) |
that Agent shall determine whether the recovery is in excess of the amount which the recovering Finance Party would have received had the recovery been received by that Agent and distributed in accordance with Clause 11 (
Payments
);
|
(c) |
subject to Clause 30.3 (
Exceptions
),
the recovering Finance Party shall, within 3 Business Days of demand
by the relevant Agent, pay to that Agent an amount (the
redistribution
)
equal to the excess;
|
(d) |
the relevant Agent shall treat the redistribution as if it were a payment by the Borrower concerned under Clause 11 (
Payments
) and shall pay the redistribution to the Finance Parties (other than the recovering Finance Party) in accordance with Clause 11.7 (
Partial
payments
); and
|
(e) |
after payment of the full redistribution, the recovering Finance Party will be subrogated to the portion of the claims paid under paragraph (d) above, and the Borrower will owe the recovering Finance Party a debt which is equal to the redistribution, immediately
payable and of the type originally discharged.
|
30.2 |
Reversal of Redistribution
|
If under Clause 30.1 (
Redistribution
):
|
(a) |
a recovering Finance Party must subsequently return a recovery, or an amount measured by reference to a recovery, to the Borrower; and
|
(b) |
the recovering Finance Party has paid a redistribution in relation to that recovery,
|
each Finance Party shall, within 3 Business Days of demand by the recovering Finance Party through the relevant Agent, reimburse the recovering Finance Party all or the appropriate portion of the redistribution paid to that Finance Party. Thereupon the subrogation in
paragraph (e) of Clause 30.1 (
Redistribution
) will operate in reverse to the extent of the reimbursement.
|
30.3 |
Exceptions
|
(a) |
A recovering Finance Party need not pay a redistribution to the extent that it would not, after the payment, have a valid claim against the Borrower concerned in the amount of the redistribution pursuant to paragraph (e) of Clause 30.1 (
Redistribution
).
|
(b) |
Where a recovering Finance Party has received a recovery as a consequence of the satisfaction or enforcement of a judgment obtained in any legal action or proceedings to which it is a party it need not pay a redistribution to any Finance Party which (being entitled
to do so) did not join in with the recovering Finance Party in the legal action or proceedings, unless the recovering Finance Party did not give prior notice of its involvement in the legal action or proceedings to the relevant Agent for disclosure to all the Banks.
|
- 68 -
31. |
SEVERABILITY
|
If a provision of any Finance Document is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect:
|
(a) |
the legality, validity or enforceability in that jurisdiction of any other provision of the Finance Documents; or
|
(b) |
the legality, validity or enforceability in other jurisdictions of that or any other provision of the Finance Documents.
|
32. |
COUNTERPARTS
|
This Agreement may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement
|
33. |
NOTICES
|
33.1 |
Giving of notices
|
All notices or other communications under or in connection with this Agreement shall be given in writing or facsimile. Any such notice will be deemed to be given as follows:
|
(a) |
if in writing, when delivered;
|
(b) |
if by facsimile, when received in legible form.
|
However, a notice given in accordance with the above but received other than on a Business Day or after business hours in the place of receipt will only be deemed to be given on the next Business Day in that place. Facsimile notices to the relevant Agent must be confirmed
in writing (but non-receipt of that confirmation will not affect the validity of the original facsimile notice).
|
33.2 |
Notices
|
The address, facsimile and telephone numbers and contact details of each Party for all notices and other matters under or in connection with this Agreement are:
|
(a) |
in the case of the Agents and the Borrower, identified with its signature below; or
|
(b) |
in the case of the Banks as previously notified in writing to the Facility Agent (or, in the case of any Bank that becomes a Party pursuant to a Transfer Certificate, set out in the relevant Transfer Certificate); or
|
(c) |
as
otherwise notified by that Party for this purpose to the relevant Agent
by not less than five Business Days notice.
|
34. |
GOVERNING LAW AND JURISDICTION
|
34.1 |
Governing Law
|
This Agreement is governed by English law.
|
- 69 -
34.2 |
Submission to Jurisdiction
|
(a) |
The Borrower irrevocably agrees for the benefit of each of the Finance Parties that the Courts of England shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning a Finance Document and in relation to, or in relation to the
enforcement of, any judgment relating to any such claim, dispute or difference and accordingly submits to the jurisdiction of the English Courts.
|
(b) |
The Borrower irrevocably waives any right that it may have to object to an action being brought in the Courts of England, to claim that the action has been brought in an inconvenient forum or to claim that the Courts of England do not have jurisdiction.
|
(c) |
Nothing
in this Clause shall (or be construed so as to) limit the right of
any Finance Party to bring legal proceedings in any other court of
competent jurisdiction (including, without limitation the courts have
jurisdiction by reason of the Borrowers place of
incorporation) or concurrently on more than one jurisdiction), whether by way
of substantive action, ancillary relief, enforcement or otherwise.
|
34.3 |
Forum convenience and enforcement abroad
|
The Borrower agrees that a judgment or order of a court of England in connection with a Finance Document is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.
|
34.4 |
No Third Party Reliance
|
A person who is not a party to this Agreement may not enforce its terms under the Contracts (Rights of Third Parties) Act 1999.
|
IN WITNESS whereof this Agreement has been entered into on the date set out above. |
- 70 -
SCHEDULE 1
THE BANKS
Part I
Revolving Facility Banks and Commitments
Banks
|
Commitments
US$ |
|||
ABN AMRO Bank N.V.
|
45,000,000.00 | |||
Australia and New Zealand Banking Group Limited
|
45,000,000.00 | |||
Bank of America, N.A.
|
45,000,000.00 | |||
The Bank of New York
|
45,000,000.00 | |||
The Bank of Tokyo-Mitsubishi, Ltd.
|
45,000,000.00 | |||
Bank One, NA
|
45,000,000.00 | |||
Barclays Bank PLC
|
45,000,000.00 | |||
Bayerische Hypo-und Vereinsbank AG, London Branch
|
45,000,000.00 | |||
Bayerische Landesbank, London Branch
|
45,000,000.00 | |||
BBVA Ireland plc
|
45,000,000.00 | |||
Citibank N.A.
|
45,000,000.00 | |||
Commerzbank Aktiengesellschaft, London Branch
|
45,000,000.00 | |||
Commonwealth Bank of Australia
|
45,000,000.00 | |||
Credit Lyonnais
|
45,000,000.00 | |||
Credit Suisse First Boston
|
45,000,000.00 | |||
Deutsche Bank AG London
|
45,000,000.00 | |||
Dresdner Bank AG London Branch
|
45,000,000.00 | |||
Fleet National Bank
|
45,000,000.00 | |||
HSBC Bank plc
|
45,000,000.00 | |||
ING Bank N.V., London Branch
|
45,000,000.00 | |||
JPMorgan Chase Bank
|
45,000,000.00 | |||
Landesbank
Baden-Württemberg, London Branch
|
45,000,000.00 | |||
Landesbank
Hessen-Thüringen Girozentrale, Irish Branch
|
45,000,000.00 | |||
Merrill Lynch Bank USA
|
45,000,000.00 |
- 71 -
Banks
|
Commitments
US$ |
|||
Mizuho Corporate Bank, Ltd,
|
45,000,000.00 | |||
Morgan Stanley Bank
|
45,000,000.00 | |||
National Australia Bank Limited
|
45,000,000.00 | |||
Royal Bank of Canada Europe Limited
|
45,000,000.00 | |||
The Royal Bank of Scotland plc
|
45,000,000.00 | |||
Société Générale
|
45,000,000.00 | |||
Sumitomo Mitsui Banking Corporation Europe Limited
|
45,000,000.00 | |||
TD Bank Europe Limited
|
45,000,000.00 | |||
WestLB AG, London Branch
|
45,000,000.00 | |||
|
|
|||
Revolving Facility Total Commitments
|
1,485,000,000.00 | |||
|
|
- 72 -
Part II
Swingline Banks and Swingline Commitments
Banks
|
Commitments
US$ |
|||
ABN AMRO Bank N.V.
|
11,111,111.11 | |||
Bank of America, N.A.
|
11,111,111.11 | |||
The Bank of New York
|
11,111,111.11 | |||
Bank One, NA
|
11,111,111.11 | |||
Barclays Bank PLC London
|
11,111,111.11 | |||
Bayerische Hypo-und Vereinsbank AG, New York Branch
|
11,111,111.11 | |||
Bayerische Landesbank New York Branch
|
11,111,111.11 | |||
BBVA Ireland plc acting through Banco Bilbao Vizcaya Argentaria S.A.
|
11,111,111.11 | |||
Citibank N.A. New York
|
11,111,111.11 | |||
Commerzbank Aktiengesellschaft New York Branch
|
11,111,111.11 | |||
Commonwealth Bank of Australia
|
11,111,111.11 | |||
Credit Lyonnais
|
11,111,111.11 | |||
Credit Suisse First Boston, acting through its Cayman Islands Branch
|
11,111,111.11 | |||
Deutsche Bank AG New York Branch
|
11,111,111.11 | |||
Dresdner Bank AG New York
|
11,111,111.11 | |||
Fleet National Bank
|
11,111,111.11 | |||
HSBC Bank plc
|
11,111,111.11 | |||
ING Bank N.V., London Branch
|
11,111,111.11 | |||
JPMorgan Chase Bank
|
11,111,111.11 |
- 73 -
Banks
|
Commitments
US$ |
|||
Merrill Lynch Bank USA
|
11,111,111.11 | |||
Morgan Stanley Bank
|
11,111,111.11 | |||
National Australia Bank Limited
|
11,111,111.11 | |||
Royal Bank of Canada Europe Limited
|
11,111,111.11 | |||
The Royal Bank of Scotland plc
|
11,111,111.11 | |||
Société Générale
|
11,111,111.11 | |||
Toronto Dominion (Texas), Inc.
|
11,111,111.11 | |||
WestLB AG, New York Branch
|
11,111,111.11 | |||
|
|
|||
Total Swingline Commitments
|
300,000,000.00 | |||
|
|
- 74 -
Part III
The Mandated Lead Arrangers
ABN AMRO Bank N.V.
|
Australia and New Zealand Banking Group Limited
|
Bank of America, N.A.
|
The Bank of New York
|
The Bank of Tokyo-Mitsubishi, Ltd.
|
Bank One, NA
|
Barclays Capital
|
Bayerische Hypo-und Vereinsbank AG, London Branch
|
Bayerische Landesbank, London Branch
|
BBVA Ireland plc
|
Citibank N.A.
|
Commerzbank Aktiengesellschaft, London Branch
|
Commonwealth Bank of Australia
|
Credit Lyonnais
|
Credit Suisse First Boston
|
Deutsche Bank AG London
|
Dresdner Kleinwort Wasserstein Limited
|
Fleet National Bank
|
HSBC Bank plc
|
ING Bank N.V., London Branch
|
JPMorgan Chase Bank
|
Landesbank
Baden-Württemberg, London Branch
|
Landesbank
Hessen-Thüringen Girozentrale, Irish Branch
|
Merrill Lynch Bank USA
|
Mizuho Corporate Bank, Ltd,
|
Morgan Stanley Bank
|
National Australia Bank Limited
|
Royal Bank of Canada Europe Limited
|
- 75 -
The Royal Bank of Scotland plc
|
Société Générale
|
Sumitomo Mitsui Banking Corporation Europe Limited
|
TD Bank Europe Limited
|
WestLB AG, London Branch
|
76
SCHEDULE 2
CONDITIONS PRECEDENT DOCUMENTS
(a) |
A copy of the memorandum and articles of association and certificate of incorporation of the Borrower;
|
(b) |
a copy of the extract of a committee resolution of the Borrower and of the board of directors establishing such committee:
|
(i) |
approving the terms of, and the transactions contemplated by, the Finance Documents and resolving that it execute the Finance Documents;
|
(ii) |
authorising a specified person or persons to execute and, where applicable, deliver the Finance Documents to which it is a party on its behalf; and
|
(iii) |
authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices (including but not limited to Utilisation Requests) to be signed and/or despatched by it under or in connection with the Finance Documents;
|
(c) |
specimens of the signatures of each person authorised by the resolution referred to in paragraph (b) above;
|
(d) |
a certificate of a director of the Borrower on its behalf confirming that utilisation of the Facilities in full would not, when utilised, cause any borrowing limit binding on it to be exceeded;
|
(e) |
a certificate of an authorised signatory of the Borrower certifying that each copy document specified in this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement;
|
(f) |
a legal opinion of Clifford Chance addressed to the Finance Parties substantially in the form distributed to the Banks prior to the Signing Date;
|
(g) |
evidence that the Borrower has given a notice of prepayment and cancellation of the undrawn commitment (if any) under the 2001 Facility Agreement such prepayment and cancellation to be effective no later than the first Utilisation Date (and if drawn to be funded from
utilisation of the Revolving Facility);
|
(h) |
the Original Group Accounts; and
|
(i) |
evidence satisfactory to the Facility Agent that all fees, costs and expenses due and payable by the Borrower under this Agreement at the date hereof have been paid.
|
- 77 -
SCHEDULE 3
CALCULATION OF THE MANDATORY COST
1. |
The Mandatory Cost is an addition to the interest rate in relation to the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the
requirements of the European Central Bank.
|
2. |
On
the first day of each Term or Interest Period (or as soon as possible
thereafter) the Facility Agent shall calculate, as a percentage rate,
a rate (the
Additional Cost Rate
) in accordance
with the paragraphs set out below. The Mandatory Cost will be calculated
by the Facility Agent as the average of the rates supplied by the Reference
Banks and will be expressed as a percentage rate per annum.
|
3. |
The Additional Cost Rate for any Bank lending from a Facility Office in a Participating Member State will be the percentage determined by the Facility Agent as the cost of complying with the minimum reserve requirements of the European Central Bank.
|
4. |
The Additional Cost Rate for any Bank lending from a Facility Office in the United Kingdom will be calculated by the Facility Agent as follows:
|
(a) |
in relation to a domestic sterling Advance:
|
AB
+
C
(
B D
) +
E x
0.01
100 ( A + C ) |
per cent. per annum |
(b) |
in relation to an Advance in any currency other than domestic sterling:
|
E x
0.01
300 |
per cent. per annum. |
Where:
|
(A) |
is the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which that Reference Bank is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio
requirements.
|
(B) |
is the percentage rate of interest (excluding the Applicable Margin and the Mandatory Cost) payable for the relevant Term or Interest Period on the Advance.
|
(C) |
is the percentage (if any) of Eligible Liabilities which that Reference Bank is required from time to time to maintain as interest bearing Special Deposits with the Bank of England.
|
(D) |
is the percentage rate per annum payable by the Bank of England to the Facility Agent on interest bearing Special Deposits.
|
- 78 -
(E) |
is
the rate of charge payable by that Reference Bank to the Financial
Services Authority pursuant to the Fees Rules (calculated for this
purpose by that Reference Bank as being the average of the Fee Tariffs
applicable to that Reference Bank) and expressed in pounds per £1,000,000
of the Tariff Base of that Reference Bank.
|
5. |
For the purposes of this Schedule:
|
(a) |
Eligible Liabilities
and
Special Deposits
have
the meanings given to them from time to time under or pursuant to the
Bank of England Act 1998 or (as may be appropriate) by the Bank of
England;
|
(b) |
Fees Rules
means
the rules on periodic fees contained in the FSA Supervision Manual
or such other law or regulation as may be in force from time to time
in respect of the payment of fees for the acceptance of deposits;
|
(c) |
Fee Tariffs
means
the fee tariffs specified in the Fees Rules under the activity group
A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required
pursuant to the Fees Rules but taking into account any applicable discount
rate); and
|
(d) |
Tariff Base
has
the meaning given to it, and will be calculated in accordance with,
the Fees Rules.
|
6. |
In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5 per cent. will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be
rounded to four decimal places.
|
7. |
If requested by the Facility Agent, each Reference Bank shall supply any information required by the Facility Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Reference Bank shall supply the following information in
writing on or prior to the date on which it becomes a Reference Bank:
|
(a) |
the jurisdiction of its Facility Office;
|
(b) |
the rate of charge payable by that Reference Bank to the Financial Services Authority calculated in accordance with E above; and
|
(c) |
any other information that the Facility Agent may reasonably require for such purpose.
|
Each
Reference Bank shall promptly notify the Facility Agent in writing
of any change to the information provided by it pursuant to this paragraph
and, if requested by the Facility Agent, each Reference Bank shall,
as soon as practicable after publication by the Financial Services
Authority, supply to the Facility Agent, the rate of charge payable
by that Reference Bank to the Financial Services Authority pursuant
to the Fees Rules in respect of the relevant financial year of the
Financial Services Authority (calculated in accordance with E
above) and expressed in pounds per £1,000,000 of the Tariff Base of that
Reference Bank.
|
- 79 -
8. |
The
percentages or rates of charge of each Reference Bank for the purpose
of A, C and E above shall be determined by the Facility Agent based
upon the information supplied to it pursuant to paragraph 7 above and
on the assumption that, unless a Reference Bank notifies the Facility
Agent to the contrary, each Reference Banks obligations in relation
to cash ratio deposits and Special Deposits are the same as those of
a typical bank from its jurisdiction of incorporation with a Facility
Office in the same jurisdiction as its Facility Office.
|
9. |
The Facility Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Reference Bank pursuant to paragraphs 3 and 7
above is true and correct in all respects.
|
10. |
The Facility Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank and each Reference Bank pursuant to paragraphs 3 and 7
above.
|
11. |
Any determination by the Facility Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all Parties.
|
12. |
The Facility Agent may from time to time, after consultation with the Borrower and the Banks, determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from
time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and
binding on all Parties.
|
- 80 -
SCHEDULE 4
FORM OF UTILISATION REQUEST/INTEREST PERIOD SELECTION NOTICE*
To: |
[HSBC Bank plc as Facility Agent]/[HSBC Bank USA as Swingline Agent]
|
From: |
National Grid Transco plc
|
Date: [] |
Dear Sirs
|
National Grid Transco plc
US$1,485,000,000 364 DAY MULTICURRENCY REVOLVING CREDIT
(INCLUDING US$300,000,000 SWINGLINE ADVANCE FACILITY)
dated [
],
2003
(the Agreement)
1. |
We refer to the Agreement.
|
2. |
We wish to utilise the Revolving Facility* and/or the Swingline Advance Facility* by way of Revolving Facility Advances* and/or Term-out Advances* and/or Swingline Advances* as follows* and/or select an Interest Period for an outstanding Term-out Advance as
follows*:
|
(a)
|
Proposed Utilisation Date: | Revolving Facility: | [ | ] | * | |||
Swingline Advance Facility: | [ | ] | * | |||||
(b)
|
Requested Amount (including currency): | Revolving Facility: | [ | ] | * | |||
Swingline Advance Facility: | [ | ] | * | |||||
(c)
|
Interest Period/Term*: | Revolving Facility: | [ | ] | * | |||
Swingline Advance Facility: | [ | ] | * | |||||
(d)
|
Payment Instructions: | Revolving Facility: | [ | ] | * | |||
Swingline Advance Facility: | [ | ] | * | |||||
(e)
|
Initial Interest Period: | Revolving Facility: | [ | ] | * | |||
(for Term-out Advances only)* | ||||||||
(f)
|
Final Maturity Date | Revolving Facility: | [ | ] | * | |||
(for Term-out Advances only )* |
- 81 -
3. |
We confirm that each condition specified in Clause 4.2 (
Further conditions precedent generally
) is satisfied on the date of this Utilisation Request.**
|
Yours faithfully
|
By:
|
_____________________________
|
National Grid Transco plc
|
Authorised Signatory |
|
* |
Delete as appropriate
|
** |
Delete as appropriate
|
- 82 -
SCHEDULE 5
TRANSFER CERTIFICATE
To: |
HSBC Bank plc as Facility Agent
|
cc: |
[HSBC Bank USA as Swingline Agent]
|
From: |
[The Existing Bank] and [The New Bank]
|
Date: [] |
National Grid Transco plc
US$1,485,000,000 364 DAY MULTICURRENCY REVOLVING CREDIT
(INCLUDING US$300,000,000 SWINGLINE ADVANCE FACILITY)
dated [
], 2003
(the Agreement)
1. |
We refer to Clause 27.3 (
Procedure for transfers
) of the Agreement. Terms defined in the Agreement have the same meaning in this Transfer Certificate.
|
2. |
We
[ ] (the
Existing Bank
) and we [ ]
(the
New Bank
) agree to the Existing Bank and the New Bank transferring by way of novation all the Existing Banks
rights and obligations referred to in the Schedule in accordance with
Clause 27.3 (
Procedure for
transfers
).
|
3. |
The specified date for the purposes of paragraph (c) of Clause 27.3 (
Procedure for transfers
) is [date of transfer].
|
4. |
The Facility Office and address for notices of the New Bank for the purposes of Clause 33.2 (
Notices
) are set out in the Schedule.
|
5. |
The New Bank warrants that on the date of this Transfer Certificate it is a Qualifying Bank.
|
6. |
This Transfer Certificate is governed by English law.
|
- 83 -
SCHEDULE TO TRANSFER CERTIFICATE
All of the rights and obligations of the Existing Bank in relation to the Advances and Commitments as specified in this Transfer Certificate shall be transferred.
|
Amount of Revolving Facility Commitment transferred*:
|
Amount of Revolving Facility Advances transferred*:
|
Amount of Swingline Commitment transferred*:
|
Amount of Swingline Advances transferred*:
|
[New Bank]
|
[Facility Office]
|
[Address for notices:] | |||
Telephone No.] | ||||
[Facsimile No.] | ||||
[Contact:] | ||||
[Existing Bank]
|
[New Bank] | Facility Agent | ||
By: .................................
|
By: ............................. | By: ............................. | ||
Date: .............................
|
Date: .......................... | Date: ............................. |
* delete as applicable.
|
- 84 -
SCHEDULE 6
TIMETABLES
In this Schedule 6:
|
B |
=
|
Bank
|
D-[x] |
=
|
x Business Days before the relevant Utilisation Date
|
SA |
=
|
Swingline Agent
|
SB |
=
|
Swingline Bank
|
UR |
=
|
Utilisation Request
|
Revolving Facility Advances
Clause
|
Event | Time | ||||||||||||
Dollars/Optional
Currency (other than sterling) |
Sterling
|
|||||||||||||
Terms or Interest Periods of 1, 2, 3 or 6 months | Terms or Interest Periods other than 1, 2, 3 or 6 months | Terms or Interest Periods of 1, 2, 3 or 6 months | Terms other than 1, 2, 3 or 6 months | |||||||||||
5.1
|
Facility Agent receives | D-3 | D-3 | D-1 | D-1 | |||||||||
UR | 4.30 pm | 10.30 am | 4.30 pm | 10.30 am | ||||||||||
5.4
|
Facility Agent notifies B of requested Revolving Facility Advances and aggregate amount of Revolving Facility Advances |
[D-2
9 a.m.] |
D-3
2 pm |
D-1
9 am |
D-1
2 pm |
|||||||||
5.5(b)
|
Facility Agent receives objection by B to selection of a Term other than 1, 2, 3 or 6 months (if applicable) |
D-3
3.30 pm |
D-1
3.30 pm |
|||||||||||
5.5(c)
|
Facility Agent notifies Borrower and Bs of the new Term (if applicable) |
D-2
9.00 am |
D
9.00 am |
- 85 -
Swingline Advances
Clause
|
Event | Time | |||||||||||
6.1
|
SA receives UR |
D
11.00 am (New York time) |
- 86 -
SCHEDULE 7
FORM OF CONFIDENTIALITY UNDERTAKING
To: |
[Existing Bank]
National Grid Transco plc |
Dear Sirs,
|
We
refer to the Credit Agreement dated [], 2003 relating to US$1,485,000,000
364-day Multi-currency Revolving Credit (including a US$300,000,000
swingline facility) (the
Credit Agreement
) between,
among others, National Grid Transco plc, HSBC Bank plc as Facility
Agent and HSBC Bank USA as Swingline Agent.
|
This is a confidentiality undertaking referred to in Clause 28 (
Disclosure of Information
) of the Credit Agreement. Terms defined in the Credit Agreement have the same meaning in this undertaking.
|
We
are considering entering into contractual relations with [insert name
of Existing Bank] (the
Bank
) and understand that
it is a condition of our receiving information about the Group and
its related companies and any Finance Document and/or any information
under or in connection with any Finance Document (the
Information
)
that we execute this undertaking.
|
We undertake to treat as confidential any Information and to use the Information solely for the purposes of determining whether or not to enter into contractual relations and to keep any Information under secured and controlled conditions. We will not disclose any of the
Information to any third party (other than our directors, officers, employees or professional advisors, in each case who need to know the Information for such purposes and who shall be advised of and agree to those confidentiality obligations) without the prior written consent
of National Grid Transco plc.
|
The foregoing undertakings do not apply to any Information that is publicly available when provided or that thereafter becomes publicly available other than through a breach by us (or by any person to whom disclosure of Information is made as permitted under this
undertaking) of the above undertakings, or that is required to be disclosed by us by judicial or administrative process in connection with any action, suit, proceedings or claim or in order to comply with a request from any fiscal, regulatory, monetary or other authority with
which we are accustomed to comply or otherwise by applicable law (
provided that
if
we are required to disclose any of the Information we will give you such prior
notice and inform you of the full circumstances of that disclosure to the extent
permitted by law). Information shall be deemed publicly available if
it becomes a matter of public knowledge or is contained in materials available
to the public or is obtained by us from any source other than the Bank or from
you (or its or your directors, officers, employees or outside advisors),
provided that
such source has not entered into a confidentiality agreement with respect to the Information.
|
- 87 -
Without
prejudice to any representations and warranties made by the Group in
the Credit Agreement, we acknowledge and agree that neither you nor
any of your officers, employees or advisers (each a
Relevant Person
)
(i) make any representation or warranty, express or implied, as to,
or assume any responsibility for, the accuracy, reliability or completeness
of any of the Information or any other information supplied by you
or any member of the Group or the assumptions on which it is based
or (ii) shall be under any obligation to update or
correct any inaccuracy in the Information or any other information supplied
by you or any member of the Group or be otherwise liable to us or any
other person in respect of the Information or any such information.
|
We further acknowledge and agree that you or members of the Group may be irreparably harmed by the breach of the terms of this letter and damages may not be an adequate remedy; each Relevant Person or member of the Group may be granted on injunction or specific
performance for any threatened or actual breach of the provisions of this letter by us.
|
Subject to the above two paragraphs the terms of this letter may be enforced and relied upon by the parties to this letter only and the operation of the Contracts (Rights of Third Parties) Act 1999 is excluded.
|
Yours faithfully,
|
- 88 -
SIGNATORIES
NATION- AL GRID TRANSCO plc |
as Borrower |
By: M. COOPER
|
Address: |
1-3 Strand
London WC2N 5EH |
Fax: |
020 7004 3342
|
Attention: |
Malcolm Cooper, Group Treasurer
|
The Bookrunners
|
THE BANK OF TOKYO-MITSUBISHI, LTD.
as Bookrunner |
By: ANDREW TRENOUTH
|
BARCLAYS CAPITAL
as Bookrunner |
By: ANNA GOUGH
|
DRESDNER KLEINWORT WASSERSTEIN LIMITED
as Bookrunner |
By:
SIMEON STEVENS MARTIN
BRADLEY
|
HSBC BANK plc
as Bookrunner |
By: MARK STAPLEY
|
- 89 -
The Mandated Lead Arrangers
|
ABN AMRO BANK N.V.
as Mandated Lead Arranger |
By: MARTYN TALPLIN |
PAUL MATTHEWS
|
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
as Mandated Lead Arranger |
By: R. J. HEYHOE
|
BANK OF AMERICA, N.A.
as Mandated Lead Arranger |
By: J. WADE
|
THE BANK OF NEW YORK
as Mandated Lead Arranger |
By: JANINE GLEESON
|
THE BANK OF TOKYO-MITSUBISHI, LTD.
as Mandated Lead Arranger |
By: ANDREW TRENOUTH
|
BANK ONE, NA
as Mandated Lead Arranger |
By: ALASTAIR STEVENSON
|
- 90 -
BARCLAYS CAPITAL
as Mandated Lead Arranger |
By: ANNA GOUGH
|
BAYERISCHE HYPO-UND VEREINSBANK AG, LONDON BRANCH
as Mandated Lead Arranger |
By: J. HOLMES |
G. SMITH
|
BAYERISCHE LANDESBANK, LONDON BRANCH
as Mandated Lead Arranger |
By: MATTHEW WILLIAMS |
MATTHEW DUNN
|
BBVA IRELAND PLC
as Mandated Lead Arranger |
By: PABLO VALLEJO
|
CITIBANK N.A.
as Mandated Lead Arranger |
By: NIELS C. KIRK
|
COMMERZBANK AKTIENGESELLSCHAFT, LONDON BRANCH
as Mandated Lead Arranger |
By: JONATHAN BOURNE
|
- 91 -
COMMONWEALTH BANK OF AUSTRALIA
as Mandated Lead Arranger
By: BRIAN PARKER
CREDIT LYONNAIS
as Mandated Lead Arranger
By: LIAM OKEEFE
CREDIT SUISSE FIRST BOSTON
as Mandated Lead Arranger
By: GARRETT LYNSKEY |
COLIN HELY-HUTCHINSONS
|
DEUTSCHE BANK AG LONDON
as Mandated Lead Arranger
By: RICHARD SEDLACEK |
MICHAEL STARMER-SMITH
|
DRESDNER KLEINWORT WASSERSTEIN LIMITED
as Mandated Lead Arranger
By: MARTIN BRADLEY
FLEET NATIONAL BANK
as Mandated Lead Arranger
By: ROBERT SULLIVAN
- 92 -
HSBC BANK PLC
as Mandated Lead Arranger
By: MARK STAPLEY
ING BANK N.V., LONDON BRANCH
as Mandated Lead Arranger
By: ANJILA THOMAS
JPMORGAN CHASE BANK
as Mandated Lead Arranger
By: KATHRYN JEPSON
LANDESBANK
BADEN-WÜRTTEMBERG, LONDON BRANCH
as Mandated Lead Arranger
By: JON MARCH |
ALAIN LAVIOLETTE
|
LANDESBANK
HESSEN-THÜRINGEN GIROZENTRALE, IRISH BRANCH
as Mandated Lead Arranger
By: PETER V. MURRAY |
PATRICK SMYTH
|
MERRILL LYNCH BANK USA
as Mandated Lead Arranger
By: LOUIS ALDER
- 93 -
MIZUHO CORPORATE BANK, LTD,
as Mandated Lead Arranger
By: CHRIS GRAY
MORGAN STANLEY BANK
as Mandated Lead Arranger
By: SIMON RANKIN
NATIONAL AUSTRALIA BANK LIMITED (A.B.N. 12 004 044 937)
as Mandated Lead Arranger
By: DAVID ROBERTS
ROYAL BANK OF CANADA EUROPE LIMITED
as Mandated Lead Arranger
By: MICHAEL ATHERTON
THE ROYAL BANK OF SCOTLAND PLC
as Mandated Lead Arranger
By: J.P JONES
SOCIÉTÉ GÉNÉRALE
as Mandated Lead Arranger
By: IRFANA ROBB
- 94 -
SUMITOMO MITSUI BANKING CORPORATION EUROPE LIMITED
as Mandated Lead Arranger
By: JEREMY SLATER
TD BANK EUROPE LIMITED
as Mandated Lead Arranger
By: JULIE EVANS
WESTLB AG, LONDON BRANCH
as Mandated Lead Arranger
By: RICHARD SAINT |
JOHN FINN
|
The Revolving Facility Banks
ABN AMRO BANK N.V.
as a Revolving Facility Bank
By: MARTYN TAPLIN |
PAUL MATTHEWS
|
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
as a Revolving Facility Bank
By: R.J. HEYHOE
BANK OF AMERICA, N.A.
as a Revolving Facility Bank
By: J. WADE
- 95 -
THE BANK OF NEW YORK
as a Revolving Facility Bank
By: JANINE GLEESON
THE BANK OF TOKYO-MITSUBISHI, LTD.
as a Revolving Facility Bank
By: ANDREW TRENOUTH
BANK ONE, NA
as a Revolving Facility Bank
By: ALASTAIR STEVENSON
BARCLAYS BANK PLC
as a Revolving Facility Bank
By: ANNA GOUGH
BAYERISCHE HYPO-UND VEREINSBANK AG, LONDON BRANCH
as a Revolving Facility Bank
By: J. HOLMES |
G. SMITH
|
BAYERISCHE LANDESBANK, LONDON BRANCH
as a Revolving Facility Bank
By: MATTHEW WILLIAMS |
MATTHEW DUNN
|
- 96 -
BBVA IRELAND PLC
|
as a Revolving Facility Bank
|
By: PABLO VALLEJO
|
CITIBANK N.A.
|
as a Revolving Facility Bank
|
By: NIELS C. KIRK
|
COMMERZBANK AKTIENGESELLSCHAFT, LONDON BRANCH
|
as a Revolving Facility Bank
|
By: JONATHAN BOURNE
|
COMMONWEALTH BANK OF AUSTRALIA
|
as a Revolving Facility Bank
|
By: BRIAN PARKER
|
CREDIT LYONNAIS
|
as a Revolving Facility Bank
|
By:
LIAM OKEEFE
|
CREDIT SUISSE FIRST BOSTON
|
as a Revolving Facility Bank
|
By: GARRETT LYNSKEY |
COLIN HELY-HUTCHINSONS
|
- 97 -
DEUTSCHE BANK AG LONDON
|
as a Revolving Facility Bank
|
By: RICHARD SEDLACEK |
MICHAEL STARMER-SMITH
|
DRESDNER BANK AG LONDON
BRANCH
|
as a Revolving Facility Bank
|
By: MARTIN BRADLEY
|
FLEET NATIONAL BANK
|
as a Revolving Facility Bank
|
By: ROBERT SULLIVAN
|
HSBC BANK PLC
|
as a Revolving Facility Bank
|
By: MARK STAPLEY
|
ING BANK N.V., LONDON BRANCH
|
as a Revolving Facility Bank
|
By: ANJILA THOMAS
|
JPMORGAN CHASE BANK
|
as a Revolving Facility Bank
|
By: KATHRYN JEPSON
|
- 98 -
LANDESBANK
BADEN-WÜRTTEMBERG,
LONDON BRANCH
|
as a Revolving Facility Bank
|
By: JON MARCH |
ALAIN LAVIOLETTE
|
LANDESBANK
HESSEN-THÜRINGEN
GIROZENTRALE, IRISH BRANCH
|
as a Revolving Facility Bank
|
By: PETER V. MURRAY |
PATRICK SMYTH
|
MERRILL LYNCH BANK USA
|
as a Revolving Facility Bank
|
By: LOUIS ALDER
|
MIZUHO CORPORATE BANK, LTD,
|
as a Revolving Facility Bank
|
By: CHRIS GRAY
|
MORGAN STANLEY BANK
|
as a Revolving Facility Bank
|
By: SIMON RANKIN
|
NATIONAL AUSTRALIA BANK LIMITED (A.B.N. 12 004 044 937)
|
as a Revolving Facility Bank
|
By: DAVID ROBERTS
|
- 99 -
ROYAL BANK OF CANADA EUROPE LIMITED
|
as a Revolving Facility Bank
|
By: MICHAEL ATHERTON
|
THE ROYAL BANK OF SCOTLAND PLC
|
as a Revolving Facility Bank
|
By: J.P JONES
|
SOCIÉTÉ GÉNÉRALE
|
as a Revolving Facility Bank
|
By: IRFANA ROBB
|
SUMITOMO MITSUI BANKING CORPORATION EUROPE LIMITED
|
as a Revolving Facility Bank
|
By: JEREMY SLATER
|
TD BANK EUROPE LIMITED
|
as a Revolving Facility Bank
|
By: JULIE EVANS
|
WESTLB AG, LONDON BRANCH
|
as a Revolving Facility Bank
|
By: RICHARD SAINT |
JOHN FINN
|
- 100 -
The Swingline Banks
|
ABN AMRO BANK N.V.
|
as a Swingline Bank
|
By: MARTYN TALPIN |
PAUL MATTHEWS
|
BANK OF AMERICA, N.A.
|
as a Swingline Bank
|
By: J. WADE
|
THE BANK OF NEW YORK
|
as a Swingline Bank
|
By: JANINE GLEESON
|
BANK ONE, NA
|
as a Swingline Bank
|
By: ALASTAIR STEVENSON
|
BARCLAYS BANK PLC LONDON
|
as a Swingline Bank
|
By: ANNA GOUGH
|
BAYERISCHE HYPO-UND VEREINSBANK AG, NEW YORK BRANCH
|
as a Swingline Bank
|
By: CURT SCHADE |
THOMAS TAYLOR
|
- 101 -
BAYERISCHE LANDESBANK, NEW YORK BRANCH
|
as a Swingline Bank
|
By: MATTHEW WILLIAMS |
MATTHEW DUNN
|
BBVA IRELAND plc acting through Banco Bilbao Vizcaya Argentaria S.A.
|
as a Swingline Bank
|
By: PABLO VALLEJO
|
CITIBANK N.A. NEW YORK
|
as a Swingline Bank
|
By: NIELS C. KIRK
|
COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH
|
as a Swingline Bank
|
By: JONATHAN BOURNE
|
COMMONWEALTH BANK OF AUSTRALIA
|
as a Swingline Bank
|
By: BRIAN PARKER
|
CREDIT LYONNAIS
|
as a Swingline Bank
|
By:
LIAM OKEEFE
|
- 102 -
CREDIT SUISSE FIRST BOSTON, ACTING THROUGH ITS CAYMAN ISLANDS BRANCH
|
as a Swingline Bank
|
By: JAY CHALL |
CHRISTOPHER LALLY
|
DEUTSCHE BANK AG NEW YORK BRANCH
|
as a Swingline Bank
|
By: MICHAEL STARMER-SMITH
|
DRESDNER BANK AG NEW YORK
|
as a Swingline Bank
|
By: KATHLEEN BERESWILL |
HOWARD L. RAMLAL
|
FLEET NATIONAL BANK
|
as a Swingline Bank
|
By: ROBERT SULLIVAN
|
HSBC BANK PLC
|
as Swingline Bank
|
By: MARK STAPLEY
|
ING BANK N.V., LONDON BRANCH
|
as a Swingline Bank
|
By: ANJILA THOMAS
|
- 103 -
JPMORGAN CHASE BANK
|
as a Swingline Bank
|
By: KATHRYN JEPSON
|
MERRILL LYNCH BANK USA
|
as a Swingline Bank
|
By: LOUIS ALDER
|
MORGAN STANLEY BANK
|
as a Swingline Bank
|
By: SIMON RANKIN
|
NATIONAL AUSTRALIA BANK LIMITED (A.B.N. 12 004 044 937)
|
as a Swingline Bank
|
By: DAVID ROBERTS
|
ROYAL BANK OF CANADA EUROPE LIMITED
|
as a Swingline Bank
|
By: MICHAEL ATHERTON
|
THE ROYAL BANK OF SCOTLAND PLC
|
as a Swingline Bank
|
By: J.P JONES
|
SOCIÉTÉ GÉNÉRALE
|
as a Swingline Bank
|
By: IRFANA ROBB
|
- 104 -
TORONTO DOMINION (TEXAS), INC.
|
as a Swingline Bank
|
By: MARK CHERRY
|
WESTLB AG, NEW YORK BRANCH
|
as a Swingline Bank
|
By: RI CHARD SAINT |
JOHN FINN
|
HSBC BANK PLC
|
as Facility Agent
|
By: JOHN HAIRE
|
Address: |
Level 17
|
8 Canada Square
|
London E14 5HQ
|
Fax: |
+ 44 (0) 207 991 4348
|
Attention: |
Debt Finance Support and Agency Services
|
HSBC BANK USA
|
as Swingline Agent
|
By: JOHN HAIRE
|
Address: |
1 HSBC Center
|
26th Floor
|
Buffalo, NY 14203
|
Fax: |
+1 716 841 5099
|
Attention: |
Tricia Graham / Donna Riley
|
- 105 -
Exhibit 4.3
THE NATIONAL GRID GROUP PLC and NATIONAL GRID
COMPANY PLC
And
Edward Astle
Dated 27 July 2001
SERVICE AGREEMENT
INDEX TO CLAUSES
2
THE NATIONAL GRID GROUP plc (the "Company") and THE NATIONAL GRID COMPANY plc whose registered offices are at 15 Marylebone Road, London NW1 5JD and National Grid House, Kirby Corner Road, Coventry, CV4 8JY respectively ( the "Companies" ) and Mr Edward Astle, Bailey's Farmhouse, Chatham Green, Essex CM3 3LE.
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(c) | become bankrupt or compound with your creditors; or | |
(d) | are convicted of any arrestable criminal offence (other than an offence under road traffic legislation in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed). | |
15.3 | If you are incapacitated by sickness (including mental disorder) or injury from carrying out your duties under this Contract for a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months, the Company will be entitled, notwithstanding Clause 10.2 or your entitlement at that time to sick pay or benefits under the Company's permanent health insurance scheme, to terminate this Contract by not less than 6 months' written notice given within 6 months after the end of the 180 or (as the case may be) 130 working days. | |
15.4 | When requested to do so during the currency of any notice to terminate your employment given or received by you and, in any event, on the Date of Termination you will promptly: | |
(a) | resign (if you have not already done so) from all offices held by you in the Company and its Subsidiaries and Associates; | |
(b) | deliver up (if you have not already done so) to the Company all lists of customers, correspondence, documents, discs, tapes, data listing, codes, designs, drawings and all other materials and property belonging to the Company or any of its Subsidiaries or Associates which may be in your possession or under your control, including any copies; | |
(c) | confirm in writing that you no longer have in your possession, custody or power any property of or relating to the business of the Company and that you have not retained or made any unauthorised copy (whether in documentary or electronic form) of any data which contains or refers to any Confidential information; and | |
(d) | deliver up to the Company forthwith any car provided under this Contract; and you hereby irrevocably authorise the Company to appoint someone as your attorney to act in your name and on your behalf to execute all documents and do all things necessary to effect the resignations referred to above, in the event of your failure to do so within 7 days of your being so requested or of the Termination Date (as the case may be). | |
15.5 | On serving or receiving notice to terminate this Contract or at any time thereafter during the currency of such notice the Company reserves the right in its absolute discretion to pay to you your salary (at the rate then payable under Clause 3.1 hereof) in lieu of your entitlement to notice. | |
15.6 | Any termination of your employment will be without prejudice to your continuing obligations under this Agreement. |
11
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14
SCHEDULE 1
THE NATIONAL GRID GROUP plc and THE NATIONAL GRID COMPANY
plc
SPECIAL BONUS PLAN ARRANGEMENTS AND OTHER ITEMS
Edward Astle
This Schedule, should be read in conjunction with the Service Agreement between the National Grid Group plc and National Grid Company plc (the Company) and Edward Astle. | |||
1. | Special Bonus Scheme: | ||
You will participate in a special bonus scheme that will cover an initial Review period followed by the ongoing Delivery period. | |||
a) | To 31 March 2002: Review period: | ||
In addition to the annual performance bonus that applies to all Executive Directors, there will be an enhanced bonus delivering £100,000 covering the period ending 31 March 2002. This bonus will be contingent on completing the telecommunications strategic review and gaining Board approval both for the review and for the business plans that result from the review. | |||
b) |
Post 31 March 2002: Delivery period: |
||
When the strategy and business plans have been agreed, the Company will be in a much better position to set out a specific structure regarding incentives that reflect achievement and the realities of the telecommunications market. | |||
There are certain fundamental considerations that will underpin whatever structures are put in place. | |||
i) | The special scheme will be in addition to the various incentive schemes that apply to the other Group Executive Directors. | ||
ii) | Maximum achievement will deliver 100% of base salary on an annualised basis. | ||
iii) | Target achievement will deliver about 66% of base salary on an annualised basis. | ||
iv) | Assessment of achievement against targets will be determined by the Remuneration Committee. | ||
v) | The special scheme will be structured in the way that best supports the achievement of whatever business objectives are agreed. The special scheme might be structured as an annual or as a long-term plan (which may be a phantom option plan). If a long-term plan is set up, shareholder approval would need to be sought. |
1
If we are unable to draw up a mutually acceptable special scheme then the Company would recognise the importance of the telecommunications portfolio to enhancing NGG shareholder value by granting an increased multiple of share options for an additional two years after the initial grant. This multiple would be 3 times annual base salary. | |||
2. | IPO / Divestment | ||
An additional special bonus, recognising your personal contribution, will be paid in the event of an IPO or any divestment subject to the transaction(s) significantly enhancing shareholder value. The Remuneration Committee will decide on the exact level of bonus but an award of up to two times base salary would be envisaged for a successful and significant transaction. Corporate Finance will develop a method of calculating potential awards up to this level. | |||
3. | Termination of services, by the Company, for reasons unrelated to your performance and outside your control | ||
i) | In the event of termination you would have contractual notice which initially is for two years. | ||
ii) | The special bonus (1 (a) above) would still be paid in the event of termination on or before 31 March 2002. | ||
iii) | For a termination after 31 March 2002 the Company would recommend to the Remuneration Committee that the | ||
a) Annual Bonus be paid in line with actual achievement against objectives for the pro-rated period to actual date of departure PLUS an amount equal to 50% of the outstanding notice period assessed at target achievement. | |||
b) Special Bonus (see 1(b) above) be paid in line with actual achievement against objectives for the pro-rated period to actual date of departure. | |||
iv) | Notwithstanding 3 (iii) (a) and (b) above, the Remuneration Committee will be able, at its discretion, to determine whether any additional payment should be made, having regard to the circumstances prevailing at the time. | ||
v) | The Remuneration Committee would have the discretion to grant a period of time wherein you could exercise National Grid Group Executive Share Options. | ||
vi) | The above terms regarding termination of services will remain in force for the first three years of your employment. Thereafter termination terms will revert to those applicable to the other Executive Directors. |
2
SCHEDULE 2
THE NATIONAL GRID GROUP plc and THE NATIONAL GRID COMPANY plc
SUMMARY OF ENHANCED PENSION AND LIFE ASSURANCE
ARRANGEMENTS
Edward Astle
This summary, which should be read in conjunction with the National Grid Company plc ("the Company") section of the ESPS booklet, notifies you of your entitlement to additional benefits to those provided by the ESPS. The additions are as follows:
1
4. | Should your employment be terminated as a result of redundancy, and the termination is with the consent of the Companies, you will be entitled to the greater of: | |
(a) | the severance terms of The National Grid Group, as amended from time to time, which currently include payment of a pension under standard ESPS terms only, (i.e. not a pension based on the enhanced accrual rate set out in this summary) at age 50, or immediately if aged over 50, or; | |
(b) |
a deferred pension (and lump sum) payable at your request from age 50, or such later date as you may choose but no later than 60. The pension (and lump sum) will be calculated on your Pensionable Service and your Pensionable Salary at the date of termination. Should such a termination occur after your 50th birthday you will be entitled to an immediate unreduced pension (and lump sum) calculated on your Pensionable Service and your Pensionable Salary at the date of termination. | |
5. | In the event that it is agreed with the Companies that you should continue in service beyond age 60, there will be an appropriate adjustment to your benefits. The exact terms of the adjustment will be determined by the Companies and notified to you, upon advice received from the Actuary, when you reach age 60. | |
6. | On death in service before the Normal Pension Age a lump sum is available for your beneficiaries equal to four times your annual rate of basic salary at death, plus the total amount of contributions with interest paid by you into the National Grid Company plc Section of the ESPS. | |
7. | The pension payable to a spouse on death in service before Normal Pension Age is calculated as 2/3 of the pension you would have received at Normal Pension Age based on your Pensionable Salary at death. | |
8. | The pension payable to a spouse on death after retirement is calculated as 2/3 of your pension. The calculation will assume you chose to exchange no pension for cash at retirement and will be increased at the same rate as your pension has increased between retirement and death. | |
9. | In the event of a transfer in of accrued pension benefits from another pension provider, any Back Service Credit will be calculated on standard ESPS benefits. | |
10. | Your contributions will be normally be 6% of your Salary. However, this may be reduced from time to time based on actuarial advice. In this respect, you will benefit from a reduction in your contribution to 3% of your salary until March 2002 or such later time as notified. |
2
11. | In this schedule "Salary" means the annual amount of salary payable by the Companies as stipulated in your Agreement as increased from time to time but excluding any bonus, allowance or emoluments in kind appertaining to your employment, unless otherwise determined by the Companies. | |
"Pensionable Salary" means the greater of | ||
(a) | the Salary paid or payable in the highest paid year in the last five years of Pensionable Service, or if Pensionable Service is for a shorter period than five years in respect of such shorter period, or; | |
(b) | the average annual Salary paid in the three highest paid consecutive years in the last ten of Pensionable Service, or if your Pensionable Service is for a shorter period, in respect of such shorter period. | |
Where a year other than the last one is used, such Salary to be increased in line with RPI. | ||
"Pensionable Service" means service whilst a contributing member of the ESPS. It is calculated in complete years but with each day completed in excess of a complete year calculated as 1/365 of a year and may include a Back Service Credit or Added year. | ||
12. | You should note that the Inland Revenue have placed a restriction (the "earnings cap") on the amount of pay on which benefits may be calculated in an approved arrangement (£95,400 for the 2001/2002 Tax Year). Your pension at Normal Pension Age will be augmented under the National Grid Company plc Section of the ESPS, if necessary, up to the maximum allowable at that date. If your full pension promise, as set out in paragraph 2 of this Schedule, cannot be met from the National Grid Company plc Section of the ESPS, you will be provided with additional benefits of equivalent value under a separate agreement. For the avoidance of doubt, if your Pensionable Service is terminated (for any reason) prior to your Normal Pension Age you will be entitled at Normal Pension Age to pension benefits which give effect to your full pension promise as set out in paragraph 2 of this Schedule, but only in respect of your Pensionable Service up to the date of termination of your Pensionable Service, and this will apply mutatis mutandis to the provisions of paragraphs 3 and 4 (b). With the exception of the earnings cap restriction, all other limits imposed by the Inland Revenue on approved arrangements will apply to the benefits referred to in this summary. | |
13. | In all other respects the provisions of ESPS will apply to you. |
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Exhibit 4.4
THE NATIONAL GRID GROUP PLC and NATIONAL GRID
COMPANY
PLC
And
Steven Holliday
Dated 6th March 2001
SERVICE AGREEMENT
INDEX TO CLAUSES
THIS SERVICE AGREEMENT DATED 6th March 2001 IS BETWEEN:
THE NATIONAL GRID GROUP plc (the "Company") and THE NATIONAL GRID COMPANY plc whose registered offices are at 15 Marylebone Road, London NW1 5JD and National Grid House, Kirby Corner Road, Coventry, CV4 8JY respectively ( the " Companies ") and Steven Holliday .
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8
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15.3 | If you are incapacitated by sickness (including mental disorder) or injury from carrying out your duties under this Contract for a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months, the Company will be entitled, notwithstanding Clause 10.2 or your entitlement at that time to sick pay or benefits under the Company's permanent health insurance scheme, to terminate this Contract by not less than 6 months' written notice given within 6 months after the end of the 180 or (as the case may be) 130 working days. | |
15.4 | When requested to do so during the currency of any notice to terminate your employment given or received by you and, in any event, on the Date of Termination you will promptly: | |
(a) | resign (if you have not already done so) from all offices held by you in the Company and its Subsidiaries and Associates; | |
(b) | deliver up (if you have not already done so) to the Company all lists of customers, correspondence, documents, discs, tapes, data listing, codes, designs, drawings and all other materials and property belonging to the Company or any of its Subsidiaries or Associates which may be in your possession or under your control, including any copies; | |
(c) | confirm in writing that you no longer have in your possession, custody or power any property of or relating to the business of the Company and that you have not retained or made any unauthorised copy (whether in documentary or electronic form) of any data which contains or refers to any Confidential information; and | |
(d) | deliver up to the Company forthwith any car provided under this Contract; and you hereby irrevocably authorise the Company to appoint someone as your attorney to act in your name and on your behalf to execute all documents and do all things necessary to effect the resignations referred to above, in the event of your failure to do so within 7 days of your being so requested or of the Termination Date (as the case may be). | |
15.5 | On serving or receiving notice to terminate this Contract or at any time thereafter during the currency of such notice the Company reserves the right in its absolute discretion to pay to you your salary (at the rate then payable under Clause 3.1 hereof) in lieu of your entitlement to notice. | |
15.6 | Any termination of your employment will be without prejudice to your continuing obligations under this Agreement. |
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Signed for and on behalf of
The National Grid Group plc and The National Grid Company plc
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Signed | ||
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Date | 6.3.01 | |
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I accept employment with the National Grid Group plc and The National Grid Company plc on the terms and conditions contained in this Service Agreement.
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Signed | ||
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Date | 13.3.01 | |
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15
SCHEDULE 1
THE NATIONAL GRID GROUP plc and THE NATIONAL GRID COMPANY plc
SUMMARY OF ENHANCED PENSION AND LIFE ASSURANCE
ARRANGEMENTS
Steven Holliday
This summary, which should be read in conjunction with the National Grid Company plc ("the Company") section of the ESPS booklet, notifies you of your entitlement to additional benefits to those provided by the ESPS. The additions are as follows:
1. | Your Normal Pension Age is age 60. | |
2. | Your pension will accrue at a rate of 1/30th of your Pensionable Salary for each year of Pensionable Service from 30th March 2001 (complete days will count) or such higher amount as may be advised by the Actuary to the Scheme, subject to pension payable, including any retained benefits, not exceeding Inland Revenue limits (but see 12 below). You will be able to exchange part of your pension for a tax free lump sum up to the maximum permitted by the Inland Revenue. | |
3. | You may retire early and opt for payment of an immediate pension, subject to the consent of the Companies, at any time after age 55 in which case you will be entitled to an immediate pension calculated on your Pensionable Service and your Pensionable Salary at the date of termination. | |
4. | Should your employment be terminated as a result of redundancy, and the termination is with the consent of the Companies, you will be entitled to the greater of: | |
(a) | the severance terms of The National Grid Group, as amended from time to time, which currently include payment of a pension under standard ESPS terms only, (ie not a pension based on the enhanced accrual rate set out in this summary) at age 50, or immediately if aged over 50, or; |
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(b) | a deferred pension (and lump sum) payable at your request from age 50, or such later date as you may choose but no later than 60. The pension (and lump sum) will be calculated on your Pensionable Service and your Pensionable Salary at the date of termination. Should such a termination. occur after your 50th birthday you will be entitled to an immediate pension (and lump sum) calculated on your Pensionable Service and your Pensionable Salary at the date of termination. | |
5. | In the event that it is agreed with the Companies that you should continue in service beyond age 60, there will be an appropriate adjustment to your benefits. The exact terms of the adjustment will be determined by the Companies and notified to you, upon advice received from the Actuary, when you reach age 60. | |
6. | On death in service before the Normal Pension Age a lump sum is available for your beneficiaries equal to four times your annual rate of basic salary at death, plus the total amount of contributions with interest paid by you into the National Grid Company plc Section of the ESPS. | |
7. | The pension payable to a spouse on death in service before Normal Pension Age is calculated as 2/3 of the pension you would have received at Normal Pension Age based on your Pensionable Salary at death. | |
8. | The pension payable to a spouse on death after retirement is calculated as 2/3 of your pension. The calculation will assume you chose to exchange no pension for cash at retirement and will be increased at the same rate as your pension has increased between retirement and death. | |
9. | In the event of a transfer in of accrued pension benefits from another pension provider, any Back Service Credit will be calculated on standard ESPS benefits. | |
10. | Your contributions will be normally be 6% of your Salary. However, this may be reduced from time to time based on actuarial advice. In this respect, you will benefit from a reduction in your contribution to 3% of your salary until March 2002 or such later time as notified. | |
11. | In this schedule "Salary" means the annual amount of salary payable by the Companies as stipulated in your Agreement as increased from time to time but excluding any bonus, allowance or emoluments in kind appertaining to your employment, unless otherwise determined by the Companies. | |
"Pensionable Salary" means the greater of | ||
(a) | the Salary paid or payable in the highest paid year in the, last five years of Pensionable Service, or if Pensionable Service is for a shorter period than five years in respect of such shorter period, or; |
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(b) | the average annual Salary paid in the three highest paid consecutive years in the last ten of Pensionable Service, or if your Pensionable Service is for a shorter period, in respect of such shorter period. | |
Where a year other than the last one is used, such Salary to be increased in line with RPI. | ||
"Pensionable Service" means service whilst a contributing member of the ESPS. It is calculated in complete years but with each day completed in excess of a complete year calculated as 1/365 of a year and may include a Back Service Credit or Added year. | ||
11. | You should note that the Inland Revenue have placed a restriction (the "earnings cap") on the amount of pay on which benefits may be calculated in an approved arrangement (£91,800 for the 2000/2001 Tax Year). Your pension at Normal Pension Age will be augmented under the National Grid Company plc Section of the ESPS, if necessary, up to the maximum allowable. If your full pension promise cannot be met from the National Grid Company plc Section of the ESPS, you will be provided with additional benefits of appropriate value under a separate agreement. With the exception of the earnings cap restriction, all other limits imposed by the Inland Revenue on approved arrangements will apply to the benefits referred to in this summary. | |
13. | In all other respects the provisions of ESPS will apply to you. |
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Exhibit 4.5
NATIONAL GRID GROUP PLC and
NATIONAL GRID COMPANY PLC
And
STEVE LUCAS
Dated 13/6/2002
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SERVICE AGREEMENT | ||
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THIS SERVICE AGREEMENT DATED 13/6/2002 IS BETWEEN:
NATIONAL GRID GROUP plc (to become National Grid Transco plc) (the Company) and THE NATIONAL GRID COMPANY plc whose registered offices are at 15 Marylebone Road, London NW1 5JD and National Grid House, Kirby Comer Road, Coventry, CV4 8JY respectively ( the Companies ) and STEVE LUCAS (you).
1. | CONDITION PRECEDENT | |
This agreement shall be conditional upon the scheme of arrangement for the merger of the Company and Lattice Group plc becoming unconditional and becoming effective by not later than 31 March 2003 or such later date (if any) as the Company and Lattice Group plc may agree and the High Court may allow. | ||
2. | APPOINTMENT AND TERM | |
2.1 | You will be employed by the Company as an Executive Director and will perform such duties as may be assigned to you from time to time in accordance with Clause 3. Your current job title is Group Finance Director and you will report to the Group Chief Executive. | |
2.2 | Your appointment to this post will continue, subject to and in accordance with the provisions of this contract, until terminated: | |
(a) | by the Companies in accordance with Clause 16; | |
(b) | by the Companies giving you not less than twelve months notice; | |
(c) | by you giving the Companies not less than twelve months notice. | |
2.3 | In accordance with the Companys Articles of Association, your appointment is subject to ratification by shareholders in General Meeting. | |
2.4 | Your previous employment with Lattice Group plc does count as part of your period of continuous employment with the Companies. Your period of continuous employment commenced on 25 July 1994. | |
3. | DUTIES | |
3.1 | During the continuance of your employment, you will: | |
(b) | perform such duties as may from time to time be reasonably assigned to you whether those duties relate to the business of the Company or to the business of any of its Subsidiaries or Associates (including the holding of offices therein); | |
(b) | in all respects comply with all lawful directions given by or under the authority of the Company; | |
(c) | use your best endeavours to promote, develop and extend the business and the interests of the Company and any of its subsidiaries; |
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(d) | unless prevented by sickness or injury and except during holidays, devote the whole of your time, attention and ability during your hours of work to the performance of your duties under this Contract; | |
(e) | act only in accordance with the Memorandum and Articles of Association of the Company or of the relevant Associate or Subsidiary In the Company; and | |
(f) | keep the board of directors of the Company (and, where applicable of the relevant Group company) promptly and fully informed (in writing if so requested) of your conduct of the business or affairs of the Company and provide such explanations as they may require. | |
3.2 | Your normal hours of work total 37 hours per week However, you will be expected to work such other hours as may reasonably be required for the proper performance of your duties and you will not be entitled to receive additional remuneration for work over and above normal hours. In line with the Working Time Regulations, you will not be required to work more than an average of 48 hours per week. | |
3.3 | You will be based in London. | |
3.4 | The Company reserves the right (as far as it is reasonable to do so and after giving you reasonable notice of the change) to relocate your main place of work to (or to require you to perform some of your duties from or to post you temporarily to) any of its UK offices. | |
4. | SALARY | |
4.1 | During the continuance of your employment (subject to Clause 10.2), you will be entitled to a salary at the rate of £315,000 per annum (or such higher rate as may from time to time be agreed between the parties). | |
4.2 | Your salary will accrue from day to day, be payable by equal monthly instalments on or before the last day of each month, and be inclusive of any remuneration to which you may be, or become entitled as a holder of any office in the Company or any other company for the time being in the Company. | |
4.3 | The salary referred to in Clause 4.1 above shall be reviewed annually. The current review date is 1 April and your salary will be reviewed for the first time in April 2003. | |
4.4 | The remuneration of senior staff is linked to the Company's and their own performance and you will be covered by these arrangements. This includes performance management principles and clear and agreed performance targets and objectives for each year which will be discussed and agreed with you by the Group Chief Executive. Following assessment of performance against these targets an annual bonus, currently of up to 60%, may be payable in June following the relevant year end. The performance year is 1 April to 31 March. | |
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5. | PENSION AND BENEFITS | |
5.1 | You will be entitled to remain a member of the Lattice Group Pension Scheme. The scheme's benefits and contributions are subject to a statutory earnings cap. If your pensionable earnings exceed this cap you will automatically participate in the Lattice Group Supplementary Benefits Scheme. This provides for pension benefits to be payable in respect of those earnings above the cap that would otherwise have been pensionable had the limit not applied. Membership of such schemes is subject to and in accordance with the rules of the relevant scheme. The Companies agree to become participating employers if necessary to maintain your membership of the pension scheme(s). | |
5.2 | There will be no further awards under the Lattice Long and Short Term Incentive Schemes and any other incentive schemes that Lattice Group plc has established which will close but without prejudice to existing awards. Subject to meeting the Company's eligibility criteria you will be eligible to participate in other share schemes in the Company. At the Company's discretion you will have the opportunity of participating in the Lattice personal accident, private medical insurance and financial counselling schemes. The Company may amend, suspend or terminate these schemes or any parts thereof, at any time in its absolute discretion and you shall have no contractual right to any continued participation in the same. Membership of such schemes is subject to and in accordance with the rules of the relevant schemes as amended from time to time. | |
6. | PROFESSIONAL FEES | |
6.1 | The Company will reimburse you in full for subscriptions for any professional memberships which, in its opinion, are relevant to your employment. | |
7. | CAR | |
7.1 | You will be provided you with a car of suitable age, make, model and specification during the continuance of your employment in accordance with the policy laid down by the Company from time to time and the Company shall pay all standing and running costs relating to it (including the cost of fuel for private mileage) but not any taxable benefit arising. You shall comply with all rules laid down by the Company in relation to Company vehicles, notify the Company immediately of any accident involving your car and of any charge brought against you for a motoring offence and, unless otherwise agreed, shall return the car to your place of work forthwith on termination of your employment. | |
8. | EXPENSES | |
8.1 | You will be reimbursed with all reasonable and properly incurred travelling, hotel and other expenses properly incurred by you in the performance of your duties under this Contract, subject to you providing the Company with receipts or other evidence as shall be required, of payment of the said expenses. The Company will also, during your employment, reimburse line rental and cost of business calls in respect of your home telephone. | |
9. | HOLIDAYS | |
9.1 | You will be entitled, on a pro-rata monthly basis, to 28 working days' holiday without loss of pay in each year to be taken at such times as may be approved in advance by the Group Chief Executive. Holidays may not be carried forward from one year to the next. No payment will be made by the Company during the continuance of this Contract in lieu of holidays not taken. |
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9.2 | Upon termination of this Contract, you shall be entitled to payment (at the rate of 1/260th of your annual salary for each day) in lieu on a pro rata basis for any holidays not taken which have accrued in the year up to the Date of Termination. However, if appropriate, the Company shall be entitled to deduct from your final salary instalment an amount equal to 1/260th of your salary for each day's holiday taken prior to the Date of Termination in excess of your proportionate entitlement. | |
10. | SICKNESS AND INJURY | |
10.1 | If you are absent from work as a result of sickness or injury you will: | |
(a) | notify the Company by telephone on the first day of your absence or in the event of being unable to do so, as soon as practicable thereafter; | |
(b) | if the period of absence is less than 8 consecutive calendar days, submit to the Company on your return a certificate of sickness completed by yourself; | |
(c) | if it is 8 consecutive calendar days or more, submit to the Company without delay a medical certificate signed by a practising medical practitioner in respect of each week of absence after the first; | |
(d) | you will, on request by the Company, allow yourself to be examined by the Company doctor who shall report to the Group Chief Executive as appropriate. | |
10.2 | You will, subject to compliance with sub-clause 10.1 above and to Clause 16 below, be entitled to: | |
(a) | payment of salary at the full basic rate and maintenance of other contributions and benefits contractually provided by the Company (less any social security or other benefits payable to you) during any period of absence from work as a result of sickness or injury up to a maximum of a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months; | |
(b) | payment of salary at half the full basic rate in addition to other contributions and benefits (less any social security or other benefits payable to you) during any such periods of absence in excess of a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months; | |
but you will not be entitled to any payment of salary or maintenance of benefits during any absence in excess of 12 months. | ||
10.3 | The Company will pay statutory sick pay, where appropriate, in accordance with the legislation in force at the time of absence, and any payment of salary in accordance with Clause 10.2 will go towards discharging its liability to pay statutory sick pay. |
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11. | CODE OF CORPORATE GOVERNANCE |
11.1 | The National Grid Group plc's Code of Corporate Governance provides for you, in furtherance of your duties as a Director of the Company, to take independent professional advice, if necessary, at the Company's expense. The Chairman or the Group Company Secretary should be notified if this step is taken, which should only be taken in the best interests of the Company. |
11.2 | As a Director of the Company you are, of course, bound by the provisions of the Companies Act and the Listing Rules of the United Kingdom Listing Authority, the provisions of the Financial Services and Markets Act 2000 and the Code of Market Conduct, the details of which are available from the Group General Counsel and Company Secretary. If at any point you are uncertain as to the interpretation of such provisions you must seek the advice of the Group Chief Executive. |
12. | INTERESTS IN OTHER BUSINESSES |
12.1 | You shall disclose promptly in writing to the Company all your interests and those of your spouse and dependent children, in any business other than the business of the Company and its Subsidiaries and Associates and, save with the written consent of the Company (such consent not to be unreasonably withheld), you will not during the continuance of your employment accept any public office nor will you hold any directorship nor will you be engaged or interested (except as the holder for passive investment purposes of any shares or other securities quoted or dealt in on the London Stock Exchange, any other recognised stock exchange or NASDAQ not exceeding, in any case, 3 per cent of the class of securities of the company concerned) either directly or indirectly in any business or commercial occupation other than the business of the Company and its Subsidiaries and Associates. |
12.2 | In relation to dealing in shares, debentures or other securities of the Companies, its Subsidiaries or Associates and unpublished price sensitive information affecting the shares, debentures or other securities of any other company, you shall comply where relevant with every rule of law, every regulation of the UKLA, The London Stock Exchange and every regulation of the Company from time to time in force including compliance with the spirit as well as the letter of the rules for the time being applicable to the relevant stock exchanges on which shares of the Companies, its Subsidiaries or Associates are for the time being listed or traded. In relation to overseas dealings, you will also comply with all laws of the state and all regulations of the stock exchange, market or dealing system in which such dealings take place; and you will not (and will procure so far as you are able that your spouse and children do not) deal or become or cease to be interested (within the meaning of Part 1 of Schedule XIII to the Companies Act 1985) in any securities of the Company except in accordance with any rules or guidelines from time to time relating to securities transactions by senior executives of the Company. |
13. | CONFIDENTIALITY |
13.1 | You will not during the continuance of your employment or afterwards (unless authorised to do so by the Company or by a court of competent jurisdiction) directly or indirectly: |
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(a) | use for your own benefit or the benefit of any other person; or | |
(b) | disclose to any person, | |
any trade secrets or other confidential information relating to the business, affairs, finances, products or processes of the Company and/or of any of its Subsidiaries or Associates ("Confidential Information"). | ||
13.2 | The restriction in this Clause will not prevent you after the Date of Termination, from using for your own or another's benefit, any Confidential Information which: | |
(a) | by virtue of your employment, becomes part of your own skill and knowledge; and | |
(b) | apart from the provisions of this Contract, could lawfully be used by you for that purpose. | |
13.3 | During your employment, you will not: | |
(a) | directly or indirectly solicit, receive or obtain any discount, rebate, commission or other inducement (whether in cash or in kind) which is not authorised by regulations or guidelines from time to time governing dealings by executives on behalf of the Company, or, if you do, you will account immediately to the Company for the amount so received; | |
(b) | except in the proper course of your duties under this Agreement remove from Company premises or copy or allow others to copy (or transmit by fax, e-mail or other means) the contents of any document, computer disk, tape or other tangible item which contains any Confidential Information or which belongs to the Company; or | |
(c) | at any time make any untrue or misleading statement relating to the Company, or any of its Subsidiaries or Associates. | |
14. | PROTECTION OF INTERESTS OF COMPANY | |
14.1 | During the period of 12 months after the Date of Termination, you will not directly or indirectly offer employment to or solicit or entice away or endeavour to entice away from the Company, or any of its Subsidiaries or Associates, any person who is and was, at any time during the period of two years prior to the Date of Termination, employed or engaged by the Company or any of its Subsidiaries or Associates in a senior management, senior technical or senior sales position and who, by reason of such position, possesses any Confidential Information or is likely to be able to solicit the custom of any customer of the Company, or its Subsidiaries or Associates. | |
14.2 | After the Date of Termination, you will not represent yourself or permit yourself to be held out as being in any way connected with or interested in the business of the Company, and after such date you will not represent yourself or permit yourself to be held out as being in any way connected with the business of any of the Subsidiaries or Associates of the Company, except if and for so long as you remain an employee of that Subsidiary or Associate. |
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14.3 | It is your obligation to ensure you take no action and make no statement (or omit to take any action or make any statement) which constitutes unlawful discrimination whether under the Equal Pay Act 1970, the Sex Discrimination Act 1975, the Race Relations Act 1976, the Trade Union and Labour Relations (Consolidation) Act 1992, the Disability Discrimination Act 1995 or otherwise. | |
14.4 | You are required to comply with the provisions of the legislation on health and safety and working conditions. You are further required to do your utmost to ensure that the Company, and any of its Subsidiaries or Associates, comply with such health and safety legislation, all legislation concerning their areas of activity and generally with all legal obligations affecting the Company, or any of its Subsidiaries or Associates. | |
14.5 | In this Clause references to acting directly or indirectly include (without prejudice to the generality of that expression) references to acting alone or jointly with or by means of any other person, firm or company. | |
15. | DATA PROTECTION ACT 1998 | |
15.1 | For the purpose of the Data Protection Act 1998 you give your consent to the holding and processing of personal data provided by you to the Company for all purposes relating to the performance of this Contract including, but not limited to: | |
(a) | administering and maintaining personnel records; | |
(b) | paying and reviewing salary and other remuneration and benefits; | |
(c) | providing and administering benefits (including, if relevant, pension, life assurance, permanent health insurance and medical and accident insurance); | |
(d) | undertaking performance appraisals and reviews; | |
(e) | maintaining sickness and other absence records; | |
(f) |
taking decisions as to your fitness for work; |
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(g) | providing references and information to future employers, and if necessary, governmental and quasi-governmental bodies, the Inland Revenue and Contributions Agency, for social security and other purposes; | |
(h) | providing information to future purchasers of the Company or of the business in which you work; and transferring information concerning you to a country or territory outside the European Economic Area. | |
16. | TERMINATION | |
16.1 | At any time after notice to terminate your employment has been served or received by the Company, the Company may: |
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(a)
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require you to return to the Company any documents, computer disks and tapes and other tangible items in your possession or under your control which belong to the Company or which contain or refer to any Confidential Information; and/or | |
(b)
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require you to delete all Confidential Information from any computer disks, tapes or other reu-sable material in your possession or under your control and destroy all other documents and tangible items in your possession or under your control which contain or refer to any Confidential Information; and/or | |
(c)
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for such period as it considers reasonable ending no later than the expiry of such notice suspend you from the performance of all or any of your duties under this Agreement; and/or | |
(d) | appoint a replacement to hold the same or similar job title as you and/or to carry out all or any of your duties instead of you; and/or | |
(e) | for such period as it considers reasonable ending not later than the expiry of such notice exclude you from all or any premises of the Company or its Subsidiaries or Associates; and/or | |
(f)
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for such period as it considers reasonable ending no later than the expiry of such notice require you not, without its prior consent, to engage in any contact (whether or not at your own instance) with any customer, supplier, employee, director, officer or agent of any company in the Company which touches and concerns any of the business affairs of the Company. | |
16.2 | Without prejudice to the Company's right to summarily dismiss you for gross misconduct, the Company will be entitled to terminate your employment without notice if you: | |
(a) | commit a serious or persistent breach of any term of this Contract; | |
(b) | commit any act of dishonesty or engage in any conduct (in either case whether or not in the course of your employment) which, in the opinion of the Company, causes or is likely to cause your continued employment to be detrimental to the interests or reputation of the Company, or any of its Subsidiaries or Associates; | |
(c) | become bankrupt or compound with your creditors; or | |
(d) | are convicted of any arrestable criminal offence (other than an offence under road traffic legislation in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed). | |
16.3 | If you are incapacitated by sickness (including mental disorder) or injury from carrying out your duties under this Contract for a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months, the Company will be entitled, notwithstanding Clause 10.2 or your entitlement at that time to sick pay or benefits under the Company's permanent health insurance scheme, to terminate this Contract by not less than 6 months' written notice given within 6 months after the end of the 180 or (as the case may be) 130 working days. |
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16.4 | When requested to do so during the currency of any notice to terminate your employment given or received by you and, in any event, on the Date of Termination you will promptly: | |
(a) | resign (if you have not already done so) from all offices held by you in the Company and its Subsidiaries and Associates; | |
(b) | deliver up (if you have not already done so) to the Company all lists of customers, correspondence, documents, discs, tapes, data listing, codes, designs, drawings and all other materials and property belonging to the Company or any of its Subsidiaries or Associates which may be in your possession or under your control, including any copies; | |
(c) | confirm in writing that you no longer have in your possession, custody or power any property of or relating to the business of the Company and that you have not retained or made any unauthorised copy (whether in documentary or electronic form) of any data which contains or refers to any Confidential information; and | |
(d) | deliver up to the Company forthwith any car provided under this Contract; | |
and you hereby irrevocably authorise the Company to appoint someone as your attorney to act in your name and on your behalf to execute all documents and do all things necessary to effect the resignations referred to above, in the event of your failure to do so within 7 days of your being so requested or of the Termination Date (as the case may be). | ||
16.5 | On serving or receiving notice to terminate this Contract or at anytime thereafter during the currency of such notice the Company reserves the right in its absolute discretion to pay to you your salary (at the rate then payable under Clause 4.1 hereof) in lieu of your entitlement to notice. | |
16.6 | Any termination of your employment will be without prejudice to your continuing obligations under this Agreement. | |
17. | TERMINATION BY REORGANISATION OR RECONSTRUCTION | |
17.1 | If there is a "change of control" (as hereinafter defined) and this Contract is terminated by the Company within twelve months of the change of control taking place (including a termination which amounts to constructive dismissal but excluding a termination in accordance with Clause 16.2 of this Contract or by reason of gross misconduct) the Company shall (i) be under no obligation to give you any period of notice and (ii) as liquidated damages, pay to you within one month of the termination, an amount equal to one year's salary at the rate current on the Date of Termination and credit you with one year's additional pensionable service (together "the Damages"). For this purpose this contract is "terminated" on the date the Contract ends. For the avoidance of doubt, the merger of the Company and Lattice Group plc shall not be a "change of control" for these purposes. |
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17.2 | Any payments made under Clause 17.1 above shall be less any deductions which the Company may be required by law to make including, without limitation, in respect of tax and other statutory deductions, and are conditional on you agreeing to be bound by the restrictive covenants in the Confidentiality and Business Protection Agreement and your signing a compromise agreement which complies with the requirements of Section 203 of the Employment Rights Act 1996 whereby you accept such payments in full and final settlement of all claims which you have or may have against the Company or any subsidiary or associated company arising out of the termination of this Contract and your employment, save for any personal injury claim, any accrued rights that you have in the Lattice Group Pension Scheme. It is agreed that the Damages are a genuine pre-estimate of your loss and shall not be reduced by reason of the doctrines of mitigation and accelerated receipt. | ||
17.3 | For the purposes of this Contract, a "change of control" shall occur if: | ||
(a) | the Company becomes a subsidiary of another company, unless this is part of a process on reconstruction under which the company becomes a subsidiary of another company which is owned by substantially the same shareholders as the shareholders of the Company; | ||
(b) | 50% or more of the voting rights for the time being of the Company become vested in any individual or body or group of individuals acting in concert (as defined in the City Code on Take-Overs and Mergers); | ||
(c) | the right to appoint or remove the majority of the Board becomes vested in any individual or body or group of individuals or bodies acting in concert (as defined in the City Code on Take-Overs and Mergers); | ||
(d) | all or substantially all of the business, assets and undertakings of the Company becomes owned by any person, firm or company (other than a subsidiary or associated company). | ||
18. | WAIVER OF RIGHTS | ||
18.1 | If: | ||
(a) | your employment is terminated: | ||
i | by reason of the liquidation of the Company for the purpose of amalgamation or reconstruction; or | ||
ii | as part of any arrangement for the amalgamation of the undertaking of the Company not involving liquidation or for the transfer of the whole or part of the undertaking of the Company to any of its Subsidiaries or Associates, and | ||
(b) | you are offered employment of a similar nature with the amalgamated or reconstructed or transferee company on terms not generally less favourable to you than the terms of this Contract; | ||
you will have no claim against the Company under this Contract in respect of that termination. |
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19. | DISCIPLINE AND GRIEVANCES | |
19.1 | As a Director of the Company, you are expected to conduct yourself in a thoroughly professional manner at all times. A copy of the Employee Rules of the Company for the time being in force, which apply to you by virtue of your employment hereunder but which do not form part of your terms and conditions of employment, can be obtained from Group Human Resources. | |
20. | INVENTIONS | |
20.1 | If at any time during the continuance of your employment you, whether alone or with any other person, make, discover or produce any invention, process, development or design which relates to, or affects, or in the opinion of the Company is capable of being used or adapted for use in or in connection with, the business or any product, process or intellectual property right of the Company or any of its Subsidiaries or Associates: | |
(a) | the invention, process, development or design will be the absolute property of the Company (except to the extent, if any, provided otherwise by Section 39 of the Patents Act 1977); and | |
(b) | you will immediately disclose it to the Company in writing. | |
20.2 | You will, if and when required to do so by the Company (whether during the continuance of your employment or afterwards), and at its expense: | |
(a) | apply, or join with the Company, or any of its Subsidiaries or Associates in applying for letters patent or other protection in any part of the world for any invention, process, development or design to which Clause 20.1 above applies; | |
(b) | execute or procure to be executed all instruments, and do or procure to be done all things, which are necessary for vesting such letters patent or other protection in the Company or any other company, or subsequently for renewing and maintaining the same in the name of the Company or its nominee; and | |
(c) | assist in defending any proceedings relating to, or to any application for, such letters patent or other protection. | |
20.3 | In relation to each and every copyright work or design which relates either directly or indirectly to the business of the Company, or any of its Subsidiaries or Associates (a "Group Work") which you (jointly or alone) originate, conceive, write or make at any time during the period of your employment: | |
(a) | you will promptly disclose such Group Work to the Company. Group Works made wholly outside your normal working hours which are wholly unconnected with your employment are not Group Works; | |
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(b) | you hereby assign to the Company by way of future assignment all copyright, design right and other proprietary rights (if any) throughout the world in such Group Work; | |
(c) | you hereby irrevocably and unconditionally waive in favour of the Company any and all moral rights conferred on you by Part 1 of the Copyright Designs and Patents Act 1988 in relation to any such Group Works; | |
(c) | you acknowledge that, for the purposes of the proviso to Section 2(1) of the Registered Designs Act 1949 (as amended by the Copyright Designs and Patents Act 1988), the covenants on the part of you and the Company will be treated as good consideration and, for the purposes of that Act, the Company will be the proprietor of any design which forms part of the Group Works. | |
21. | INTERPRETATION | |
In this Contract: | ||
21.1 | "Associate" means a body corporate which for the time being has not less than 20 per cent of its equity share capital beneficially owned by the Company; | |
21.2 | "Date of Termination" means the date upon which your employment under this Agreement terminates or, where so notified by the Company, the date with effect from which the Company exercises its right to suspend you under Clause 16.1(c); | |
21.3 | "Subsidiary" has the meaning attributed to it by Section 736 of the Companies Act 1985 and "equity share capital" has the meaning attributed to it by Section 744 of the Companies Act 1985; | |
21.4 | unless otherwise stated and except in Clause 22 below, a reference to "your employment" is to your employment by the Companies under this Contract; | |
21.5 | unless the context otherwise requires, words in the singular include the plural and vice versa, and a reference to a person includes a reference to a body corporate and to an unincorporated body of persons; | |
21.6 | a reference to a statute or statutory provisions includes a reference to that statute or provision as from time to time modified or re-enacted. | |
22. | ENTIRE CONTRACT CONTINUITY AND CONDITIONALITY | |
22.1 | Except as otherwise expressly provided by its terms and for any detailed rules (not being inconsistent with the express terms hereof) from time to time laid down by the Company, this Contract represents the entire understanding, and supersedes any previous agreement including between yourself and Lattice Group plc, between the parties in relation to your employment by the Company, its Subsidiaries or Associates. | |
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23. | NOTICES | |
23.1 | Any notice to be given under this Contract will be in writing and will be deemed to be sufficiently served by one party on the other if it is either delivered personally or is sent by prepaid first class post and addressed to the party to whom it is to be given, in the case of yourself, at your last known residence and in the case of the Company, at its registered office, and any such notice if so posted will be deemed to have been served on the day (excluding Sundays and public holidays) following that on which it was posted. | |
24. | JURISDICTION | |
24.1 | This Contract shall be governed by and interpreted in accordance with the laws of England and Wales and each of the parties submits to the jurisdiction of the English and Welsh courts as regards any claim or matter arising under this Contract or as a direct result of your employment by the Company. |
Witness Signature: |
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Address: | 4 OLD DENE COTTS, RANMORE COMMON RD, WEST HUMBLE, SURREY RH5 6AZ | ||
Occupation: | EXEC P.A. |
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000, or from another appropriately authorised independent financial adviser.
Lattice Group plc | National Grid Group plc |
130 Jermyn Street | 15 Marylebone Road |
London SW1 Y4UR | London NW1 5JD |
Registered in England and Wales No: 3900804 | |
Registered in England and Wales No: 4031152 | |
Mr S Lucas, | |
50, The Rise, | 10 th June 2002 |
Sevenoaks, | |
Kent, | |
TN13 1RL |
Dear Steve,
The Lattice Group Long Term Incentive Scheme (the "Scheme")
1 | Introduction |
As you are aware, the merger of Lattice Group plc (" Lattice ") and National Grid Group plc (" National Grid ") by means of a scheme of arrangement (the " Merger ") is due to take place later this year. This letter explains the impact the Merger will have on your Allocations under the Scheme and seeks your agreement to the proposal set out in 3 below. Terms used in this letter are those used in the Rules of the Scheme, unless otherwise defined. | |
2 | Impact of the Merger |
The following table sets out your current Allocations under the Scheme: | |
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Based on the current timescales for the Merger, the Court sanction of the Merger may occur after the end of the Measurement Period for the 1999 Allocation. If this is the case, then the amount of that Allocation which is due to you will already be known. | ||
3 | The Proposal | |
Although you would be entitled to receive your Allocations on the Merger, the Remuneration Committees of both Lattice and National Grid believe that as an executive director of the newly merged National Grid Transco, you should have an immediate stake in its performance. Therefore both Lattice and National Grid are seeking your agreement to the following proposal (the " Proposal "). | ||
3.1 | Your 1999 Allocation | |
On completion of the Merger, your 1999 Allocation will vest and the vested shares will be "banked" until the end of the original retention period of the 1999 Allocation, being 1st October 2003 (the "First Transfer Date"). The number of shares which will be banked will be calculated by applying the Performance Targets to your 1999 Allocation at the time of the Merger in accordance with the rules of the Scheme. | ||
The shares which will be banked will be National Grid Transco shares rather than Lattice shares and the number of those shares will be calculated under the Merger share exchange ratio by reference to the number of Lattice shares which will have vested under the procedure described above. | ||
On the assumption that the Merger takes place in October 2002, and the Performance Target which applies to your 1999 Allocation is met in full, 83,300 Lattice shares will vest and therefore 31,237 National Grid Transco shares will be banked (rounded down to the nearest whole share). | ||
The banked shares will be subject to an option granted by the trustee of the Lattice Group Employees Share Trust (the " Trustee "). You will be able to exercise your option on payment of £1 during a period of three months from the First Transfer Date. The option will be granted to you on the same principle terms as your 1999 Allocation, including dividend reinvestment, but will only be subject to forfeiture if you cease employment by reason of gross misconduct. There will be a number of minor differences between the terms of your 1999 Allocation and the option to reflect that the fact that you will have an option rather than a conditional awards of shares. | ||
3.2 | Your 2000 and 2001 Allocations | |
Following the Merger, your 2000 and 2001 Allocations will continue on their original terms save that: | ||
(i) | your Allocations will continue over National Grid Transco shares which will have been substituted for Lattice shares on the basis of the Merger share exchange ratio; and | |
(ii) | the Performance Targets will be a measure of the TSR of National Grid Transco measured against the current Comparator Group of companies but the Measurement Period will continue so that the Performance Targets will include both the TSR performance of Lattice before the Merger and the TSR performance of National Grid Transco after the Merger; and |
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(iii) | if you leave the employment of the National Grid Transco group for any reason you will, unless the Remuneration Committee of National Grid Transco decides otherwise, be entitled to receive the shares comprised in your 2000 and 2001 Allocations subject to the extent to which the Performance Targets have been achieved at the last Measurement Date prior to the date you leave. | |
The Proposal is conditional upon the completion of the Merger but your acceptance of the Proposal will be irrevocable. | ||
On receipt of your acceptance of the Proposal, Lattice will notify the Trustee accordingly and it will grant you an option over National Grid Transco shares in relation to your 1999 Allocation nearer to the time of the Merger, conditional upon the Merger taking place. You will also be required to enter into an agreement to reflect the revised terms of your 2000 and 2001 Allocations. | ||
4 | Acceptance of the Proposal | |
To confirm your acceptance of the terms set out in this letter, please sign and date the enclosed copy of this letter, which will need to be signed by you as a deed, and return it to Pat Fulker, Group HR Director, as soon as possible. |
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for and on behalf
of
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Lattice Group plc |
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This document has been approved by J.P. Morgan plc of 125 London wall, London EC2Y 5AJ and Cazenove & Co. Ltd of 12 Tokenhouse Yard, London EC2R 7AN solely and specifically for the purposes of Section 21 of the Financial Services and Markets Act 2000. JPMorgan and Cazenove are acting for the Lattice Group plc and no one else in connection with the Merger and will not be responsible to anyone other than Lattice Group plc for providing the protections afforded to customers of JPMorgan and Cazenove or for giving advice in relation to the Merger.
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Exhibit 4.6
EMPLOYMENT AGREEMENT
RICHARD P. SERGEL
TABLE OF CONTENTS
EMPLOYMENT AGREEMENT
WITNESSETH THAT
WHEREAS, the Company wishes to provide for the orderly succession of management of the Company following the effective date of the Merger (the "Effective Time"); and
WHEREAS, this Agreement is the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements concerning the same subject, including the severance agreement between the Company and the Executive, dated March 1,1998.
1. Employment Period.
(a) The Company shall employ the Executive, and the Executive shall serve the Company, on the terms and conditions set forth in this Agreement, from the Effective Time until the date which is the third (3rd) anniversary of the Effective Time or such later date as provided in paragraph (b) of this Section 1 (the "Employment Period"). This Agreement shall not be effective prior to the Effective Time. For all periods prior to, but not including, the Effective Time, the severance agreement between the Company and the Executive, dated March 1, 1998, shall remain in full force and effect .
(c) Notwithstanding the other provisions of this Section 1, any termination of employment by the Executive other than for Good Reason shall require not less than six months' written notice.
2. Position and Duties.
(b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote reasonable attention and time during normal business hours to the business and affairs of the Company and its affiliates, as directed by the Board, and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic, or charitable boards or committees, so long as such activities do not materially interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement.
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3. Compensation. The Executive's compensation during the Employment Period shall be determined by, and in the sole discretion of, National Grid or any successor thereto, subject to Sections 3(a), 3(b), 3(c) and 3(d) and Sections 4(d)(iv), 5 and 9 hereof.
(b) Incentive Compensation. (i) During the Employment Period, the Executive shall participate in annual bonus arrangements, the maximum opportunity for which shall comprise: (A) 50% of Annual Base Salary, payable in cash (the "Annual Cash Bonus") and (B) 60% of the Annual Cash Bonus, payable in phantom or similar shares of Company stock and subject to a three year vesting requirement and such other terms and conditions as such incentive plan may provide, based on Company performance goals and standards as determined by National Grid. The Executive shall be eligible to participate in the above arrangements at a level (in terms of the amount and types of compensation that the Executive has the opportunity to receive and the terms thereof) no less favorable in the aggregate than those arrangements which are provided to other senior officers of the Company.
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(c) Other Benefits.
(i) Supplemental Executive Retirement Plan. During the Employment Period, the Executive shall participate in a supplemental executive retirement plan ("SERP") such that the aggregate value of the retirement benefits that he and his spouse will receive at the end of the Employment Period under all defined benefit plans of the Company and its affiliates (whether qualified or not) will be not less than the aggregate value of the benefits he and his spouse would have received (and with the same forms of benefit payments) had he continued, through the end of the Employment Period, to accrue the supplemental retirement benefits provided by the terns of the Supplemental Retirement Income Plan of the Company as in effect immediately before the Effective Time.
(ii) Without limiting the generality of the foregoing, during the Employment Period and thereafter, except to the extent the Executive is already covered under another National Grid-provided or employer-provided arrangement providing substantially similar payments or benefits: (A) the Executive shall be entitled to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company and its subsidiaries to the same extent as other senior officers of the Company; and (B) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries, including, without limitation, medical, prescription, dental, disability, sick leave, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, to the same extent as other senior officers of the Company; provided, however, except as may be expressly set forth elsewhere in this Agreement, nothing contained in this section or any other section of this Agreement shall entitle the Executive to receive duplicate or multiple payments or benefits under the same plan or arrangement.
(d) Fringe Benefits. During the Employment Period, the Executive shall be entitled to receive fringe benefits substantially similar to those enjoyed by the Executive immediately prior to the Effective Time and shall be entitled to participate in the vacation policy of the Company and avail himself of paid holidays (as determined from time to time by the Company) on the same terms and conditions as other senior officers of the Company.
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(a) Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period in accordance with the Company's long-term disability plan as in effect immediately prior to the Effective Date.
(b) By the Company .
(i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause.
(ii) "Cause" means: (A) the willful and continued failure by the Executive to substantially perform the Executive's duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(d)) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (B) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company and its affiliates taken as a whole, monetarily or otherwise. For purposes of the foregoing, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company.
(c) By the Executive .
(i) The Executive may terminate employment for Good Reason or, upon six months' prior written notice, without Good Reason.
(ii) "Good Reason" means the occurrence (without the Executive's express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (A), (B), (C) or (D) below, such act or failure to act is corrected within thirty days of the Notice of Termination given in respect thereof:
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(A) the assignment to the Executive of duties substantially inconsistent with the Executive's status as a senior officer of the Company or the duties described in Section 2(a) above;
(B) a reduction in the Executive's Annual Base Salary or any breach by the Company or National Grid of their respective obligations under Sections 3(b), 3(c) and 3(d) above;
(C) the Company requiring the Executive's principal place of employment to be anywhere other than at the Company's headquarters, wherever such headquarters may be located from time to time, or the relocation of the Company's headquarters to a location more than 150 miles from Westborough, Massachusetts; or
(D) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 4(d); for purposes of this Agreement, no such purported termination shall be effective.
The Executive's right to terminate his employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. Except as provided below, the Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. No such event described hereunder shall constitute Good Reason unless the Executive has given written notice to the Company specifying the event relied upon for such termination within one year (but in no event beyond the term of this Agreement) from the occurrence of such event.
(d) Termination Procedures and Compensation During Dispute.
(i) Notice of Termination . Any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 12(b) hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated.
A. Termination for Cause . A Notice of Termination for Cause shall also include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board (excluding, for this purpose, the Executive if a Board member) (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in the definition of Cause herein, and specifying the particulars thereof in detail.
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B. Termination for Good Reason. A Notice of Termination for Good Reason shall specify in reasonable detail the specific provision(s) in this Agreement and the event(s) relied upon as the basis for such termination.
(ii) Date of Termination. Except as otherwise provided in Section 11(c) of this Agreement, "Date of Termination", with respect to any purported termination of the Executive's employment during the Employment Period, shall mean (A) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (B) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company for other than Cause, shall not be less than thirty (30) days and, in the case of a termination by the Executive other than for Good Reason, shall not be less than six (6) months, from the date such Notice of Termination is given).
(iii) Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given by the Executive for Good Reason under Section 4(c)(ii)(A) above ("Special Good Reason"), the Company notifies the Executive that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected).
(iv) Compensation During Dispute. If a Special Good Reason termination is disputed in accordance with Section 4(d)(iii), the Company shall pay the Executive the full compensation in effect when the notice giving rise to such dispute was given (including, but not limited to, Annual Base Salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 4(d)(iii). Amounts paid under this Section 4(d)(iv) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.
(v) No Waiver. The failure to set forth any fact or circumstance in a Notice of Termination shall not constitute a waiver of the right to assert, and shall not preclude the party giving notice from asserting, such fact or circumstance in an attempt to enforce any right under or provision of this Agreement.
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5. Obligations of the Company upon Termination.
(a) By the Company other than for Cause, Death or Disability, or by the Executive for Good Reason .
(i) If during the Employment Period, the Company terminates the Executive's employment, other than for Cause, death, or Disability, or the Executive terminates his employment for Good Reason, the Company shall: (A) pay the Executive the Accrued Obligations (as defined in Section 5(b) below) in a lump sum cash payment within five (5) business days of the Date of Termination; (B) pay the Executive the amounts the Executive would have earned under paragraphs (a) and (b)(i) of Section 3 (other than stock options) as if he had remained employed through the end of the Severance Period (as defined below) in a lump sum cash payment within five (5) business days of the Date of Termination and (C) continue to provide the Executive with the compensation and benefits set forth in paragraphs (c) and (d) of Section 3 as if he had remained employed by the Company pursuant to this Agreement (x) for a period of 36 months, if such termination of employment occurs prior to the second anniversary of the Effective Time or within 2 years following a Change in Control or (y) for a period of 18 months, if such termination of employment occurs following the second anniversary of the Effective Time and either prior to a Change in Control or more than 2 years following a Change in Control and, in either such case, the Executive had then terminated employment with whatever rights and benefits would have been available to Executive at that date (the period described in (x) or (y) above, as applicable, the "Severance Period"); PROVIDED, however, that for purposes of the foregoing, the Executive shall be deemed to earn, during each year in such period, a bonus under Section 3(b)(i) equal to the greater of the average bonus earned by the Executive under all incentive compensation plans of the Company in the three years preceding the Effective Time or the three years preceding the Date of Termination; PROVIDED further, however, that to the extent any benefits described in paragraphs (b), (c) and (d) of Section 3 cannot be provided pursuant to the plan or program maintained by the Company for its executives, the Company shall provide such benefits outside such plan or program at no additional cost (including, without limitation, tax costs) to the Executive and his family; and PROVIDED further, that during any period when the Executive is eligible to receive benefits of the type described in clause (B) of paragraph (c)(ii) of Section 3 under another employer-provided plan, the benefits provided by the Company under this paragraph (a) of Section 5 may be made secondary to those provided under such other plan. In addition to the foregoing, any restrictions on restricted stock outstanding on the Date of Termination shall lapse as of the Date of Termination without regard to the termination of the Executive's employment, any outstanding incentive compensation awards with vesting and/or payment contingent upon attainment of individual, Company, or affiliate performance goals shall, for purposes of awards considered short term by National Grid, be deemed satisfied at 90% of "Maximum" level and paid, in a lump sum cash payment within five (5) days of the Date of Termination, prorata for the portion of the performance year through the Date of Termination and all National Grid Options outstanding as of the Date of Termination under the Scheme shall be governed by the terms of the Scheme. The payments and benefits provided pursuant to this paragraph (a) of Section 5 are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause, death, or Disability or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and shall be the sole and exclusive remedy therefor.
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(ii) For purposes of this Agreement. "Change in Control" shall mean:
A. any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding a corporation at least 80% of the ownership of which after acquiring its interest is owned directly by the holder of common stock of the Company immediately prior to such acquisition ("Person")), is the beneficial owner, directly or indirectly, of 20% or more of the outstanding stock of the Company requiring the filing of a report with the Securities and Exchange Commission under Section 13(d) of the 1934 Act; or
B. National Grid ceases to be the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 60% of the combined voting power of the voting securities of the Company; or
C. the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, more than 50% of the combined voting power of the voting securities of which are owned by National Grid; or
D. the acquisition by National Grid, The Company, the Surviving Entity or any of their affiliates, whether by purchase, merger or otherwise, of any regulated utility company, the primary place of business of which is in the United States, for a purchase price in excess of $1.5 billion; or
E. any Person, other than a Person who beneficially owns more than 10% of the outstanding stock of National Grid at the Effecttive Time, becomes the beneficial owner, directly or indirectly, of 30% or more of the outstanding stock of National Grid.
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In no event shall the Merger or any transaction contemplated by the Merger Agreement constitute a Change in Control for purposes of this Agreement.
(b) Death or Disability . If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative) in a lump sum in cash within 30 days after the Date of Termination, the sum of the following amounts (the "Accrued Obligations"): (i) any portion of the Executive's Annual Base Salary through the Date of Termination that has not yet been paid; (ii) in respect of incentives awarded under Section 3(b)(i) of this Agreement, an amount representing the target Incentive Compensation for the year that would otherwise vest and/or become payable within the year in which the Date of Termination occurs, computed by assuming that the amount of all such target Incentive Compensation would be equal to the amount of such target Incentive Compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period and incentives under the Scheme shall be governed by the rules of the Scheme; (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not yet been paid; and (iv) any accrued but unpaid Incentive Compensation and vacation pay; and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below.
(c) By the Company for Cause or by the Executive other than for Good Reason. If the Executive's employment is terminated by the Company for Cause during the Employment Period, the Company shall pay the Executive the Annual Base Salary through the Date of Termination and the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), in each case to the extent not yet paid, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. If the Executive voluntarily terminates employment during the Employment Period other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below.
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6. Non-Exclusivity of Rights . Except as provided in Sections 1.3, and 12 of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Vested benefits and other amounts that the Executive is otherwise entitled to receive under any other plan, policy, practice, or program of; or any contract or agreement with, the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract, or agreement, as the case may be, except as explicitly modified by this Agreement.
7. Full Settlement . The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in paragraph (a) of Section 5 with respect to benefits described in clause (B) of paragraph (c)(ii) of Section 3, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
8. Non-Competition Provision and Confidential Information.
(a) Without prior written consent of the Company, during the period of the Executive's employment with the Company and for one year thereafter, the Executive shall not, as a shareholder, officer, director, partner, consultant, or otherwise, engage directly or indirectly in any business or enterprise which is "in competition" with the Company or its successors or assigns or affiliates thereof or undertake any action which would be injurious to the Company or its affiliates or assist the Company's or its affiliates' competitors; provided, however, that the Executive's ownership of less than five percent of the issued and outstanding voting securities of a publicly traded company shall not be deemed to constitute such competition. A business or enterprise is deemed to be "in competition" if it is engaged in any material business in any state of the United States in which the Company or any of its affiliates operates at the "applicable time." "Applicable time" means (i) during the period of the Executive's employment hereunder, the specific date, and (ii) after the Date of Termination, the Date of Termination.
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(b) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information"). The Executive shall not communicate, divulge, or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
(c) (i) The Executive acknowledges that if the Executive shall breach or threaten to breach any provision of this Section 8, the damages to the Company and its affiliates may be substantial, although difficult to ascertain, and money damages will not afford the Company and its affiliates an adequate remedy. Therefore, if the provisions of this Section 8 are violated, in whole or in part, the Company and its affiliates shall be entitled to specific performance and injunctive relief, without prejudice to other remedies the Company and/or its affiliates may have at law or in equity.
(ii) If any term or provision of this Section 8, or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Section 8, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Section 8 shall be valid and enforceable to the fullest extent permitted by law. Moreover, if a court of competent jurisdiction deems any provision hereof to be too broad in time, scope, or area, it is expressly agreed that such provision shall be reformed to the maximum degree that would not render it unenforceable.
9. Certain Additional Payments by the Company .
(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any Person affiliated with the Company or such Person, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
12
(b) Subject to the provisions of paragraph (c) of this Section 9, all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm designated by the Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) of this Section 9 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
13
(i) give the Company any infoemation reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim;
PROVIDED, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c) of Section 9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and PROVIDED, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
14
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 9, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (c) of this Section 9) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 9, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Attorneys' Fees. The Company also shall pay to the Executive, at the conclusion of any contest, to the fullest extent permitted by law, all legal fees court costs and litigation expenses reasonably incurred by the Executive as a result of any contest by the Company, the Executive, or others regarding the validity or enforceability of or liability under, or otherwise involving, any provision of this Agreement (except to the extent it is determined by a court of competent jurisdiction, mediator or arbitrator, as the case may be, that the Executive's material claim is, or claims are, frivolous or without merit, in which case the Executive shall bear all such fees and expenses), together with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code.
11. Successors.
(a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts. unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
15
(c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executives employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, Company shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. Any action by the Company to amend or modify this Agreement must be approved by the Companys Board of Directors,
(b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested. postage prepaid, addressed as follows:
16
If to National Grid: | The National Grid Group plc |
National Grid House | |
Kirby Corner Road | |
Coventry CV4 8JY | |
United Kingdom | |
Attention: General Counsel |
or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 12. Notices and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local, and foreign taxes that are required to be withheld by applicable laws or regulations. All cash amounts required to be paid hereunder shall be paid in United States dollars.
(e) The Executives or the Companys failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement supersedes and terminates any other severance and employment agreements between the Executive and the Company or any Company affiliates.
17
(g) The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Employment Period (including, without limitation, those under Sections 4, 5, 8 and 9 hereof) shall survive such expiration.
(h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.
18
ASSUMPTION AGREEMENT
The undersigned, NGG Holdings, Inc., as successor to New England Electric System (NEES), hereby expressly assumes and agrees to perform that certain Employment Agreement dated as of March 22, 2000, by and among The National Grid Group plc, NEES, and Richard P. Sergel (the Agreement) in the same manner and to the same extent that NEES would be required to perform said Agreement if no such succession had taken place.
Dated: March 22, 2000
NGG HOLDINGS, INC. | ||
By: |
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Its: Vice President |
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of their respective Boards of Directors, the Company and National Grid (with respect to Section 3(b)(ii) only) have caused this Agreement to be executed in their name on their behalf, all as of the day and year first above written.
RICHARD P. SERGEL | ||
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NEW ENGLAND ELECTRIC SYSTEM | ||
By: |
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Its Sr. Vice President | ||
THE NATIONAL GRID GROUP PLC | ||
(in respect of Section 3(b)(ii) only) | ||
By: |
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Its Group Chief Executive |
19
Exhibit 4.7 |
31 January 2001 | |||
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National Grid
Group plc |
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Private and Confidential
Dr R J Urwin c/o The National Grid Group plc 15 Marylebone Road London NW1 5JD |
James Ross | 15 Marylebone Road | |
Chairman | London | ||
NW1 5JD | |||
Tel +44 (0) 20 7312 5721 | |||
Fax +44 (0)20 7312 5654 | |||
Dear Roger,
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I am delighted to tell you that the Remuneration Committee recently reviewed your salary, taking into account your new responsibilities as Group Chief Executive, and agreed that this should be increased to
£500,000 with effect from 1 April 2001. This revised salary will be included in your April pay.
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The Remuneration Committee also agreed changes to the annual bonus plans for next year. Details will follow but it was confirmed that the maximum cash bonus would be increased to 60% and the Share Match to
33.3%.
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I would like to take this opportunity to thank you for all your efforts over the last year and I look forward to working with you on the challenges of the coming year.
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With best personal regards | |
Yours, | |
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Registered Office: | Registered in | |
15 Marylebone Road | England and Wales | |
London | No 2367004 | |
NW1 5JD |
THE NATIONAL GRID GROUP plc |
AND |
THE NATIONAL GRID COMPANY plc |
- and - |
ROGER J URWIN |
SERVICE AGREEMENT |
-1-
Clause
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Description | Page No. |
NOTICES | 19 | |
JURISDICTION | 19 |
-2-
THIS AGREEMENT BETWEEN:-
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(1) |
THE NATIONAL GRID GROUP plc AND THE NATIONAL GRID COMPANY plc whose registered offices are at National Grid House, Kirby Corner Road, Coventry, CV4 8JY (the Companies); and
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(2) |
ROGER J URWIN of Treetops, 14 Whitehill Road, Kidderminister, Worcestershire, DY11 6JJ.
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IT IS AGREED
as follows:-
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1. |
APPOINTMENT AND TERM
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1.1 |
This Agreement is conditional upon the admission to the Official List of The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited of all or any part of the issued ordinary share capital of The National Grid Group plc becoming effective.
Upon satisfaction of the condition you will be employed by The National Grid Group plc and The National Grid Company plc as an Executive Director and will be appointed to the office of Managing Director Transmission. Your employment and appointment under this
Agreement shall be deemed to have had effect as from 17 November 1995.
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1.2 |
Unless terminated in accordance with Clauses 1.3 or 15 hereof, this Agreement may be terminated by the Companies by them giving you not less than two years prior written notice at any time on or before 16th November 1996; thereafter by giving not less than one years
prior notice, provided that such notice shall not expire earlier than 16 November 1998. You may terminate this Agreement by giving the Companies one years prior written notice, at any time.
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1.3 |
In any event, this Agreement shall terminate on the last day of the month in which you attain the normal retirement age of the Companies (as varied from
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-3-
time to time and as distinct from the normal retirement date applicable to you) unless otherwise specifically agreed in writing between the Companies and you. Where the normal retirement age of the Companies, currently 63, is varied the Companies will make up any
difference in your pension benefits to those which would have been earned had the normal retirement age of the Companies not been so varied. As outlined in Schedule 2, the normal retirement age for Directors, for pension purposes, is aged 60.
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2. |
DUTIES
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2.1 |
During your employment
you will:-
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(a) |
perform any duties as may from time to time be reasonably assigned to you by the Board whether those duties relate to the business of the Companies or to the business of any of their Subsidiaries or Associates (including the holding of offices therein);
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(b) |
in all respects comply with all lawful directions given by or under the authority of the Board;
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(c) |
use your best endeavours to promote, develop and extend the business and the interests of the Companies; and
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(d) |
unless prevented by sickness or injury and except during holidays, devote the whole of your time, attention and ability during your agreed hours of work to the performance of your duties under this Agreement.
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2.2 |
Your agreed hours of work will be normal business hours and such other hours as may be required for the proper performance of your duties.
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2.3 |
You will be based at the Head Office of the Companies. If the Head Office is relocated to a different area of the United Kingdom you shall be entitled to reimbursement of your reasonable relocation expenses in accordance with the Companies policy relating to relocation
expenses for Directors.
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3. |
SALARY
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3.1 |
During your employment you will be entitled to a salary at the rate of £170,000 per annum (or such higher rate as may from time to time be agreed between you and the Companies). In addition, you will have a notional salary, for the purpose of determining Pensionable
Salary, of £190,000 per annum which will be indexed in line with changes to the Retail Prices Index from 1st October 1995.
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3.2 |
Your salary will accrue from day to day, be payable by equal monthly instalments on or before the last day of each month, and be inclusive of any remuneration to which you may be or become entitled as a director of the Companies or of any of its subsidiaries or associates
for the time being.
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3.3 |
The salary referred to in Clause 3.1 above shall be reviewed at least annually by the Remuneration Committee, the first review taking place on 1st April 1996.
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3.4 |
In addition to the salary under 3.1 above, subject to satisfying any eligibility criteria and to the rules of the Scheme as they may be altered or amended from time to time, as determined by the Remuneration Committee, you will be entitled to participate in the Group Directors
Bonus Scheme and be paid any bonus payment appropriate to your employment as a Director during the year. Any payments made under the Scheme are non-pensionable. A copy of the 1995/96 Scheme is attached at Schedule 1 for information. This will be reviewed by the
Remuneration Committee annually and any changes will be notified to you in writing.
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3.5 |
The Companies may introduce other incentive arrangements for Directors and/or employees, from time to time.
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4. |
PENSION
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4.1 |
In this Clause the ESPS means
the Electricity Supply Pension Scheme and words used in this Clause
have the same meaning as they have under the provisions of the ESPS.
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4.2 |
Subject to the terms and conditions (both statutory and non-statutory) in force from time to time in respect of the ESPS Group in which the Companies participate or of which they are the Principal Employer you will be eligible (but not obliged) to be a Member of the ESPS.
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4.3 |
The Companies provide enhanced pension benefits for Executives as summarised in Schedule 2 attached. Full details relating to your personal position will be forwarded to you under separate cover.
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4.4 |
A Contracting-out certificate is in force in respect of your employment.
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5. |
INSURANCE BENEFITS
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5.1 |
The Companies will provide you, your spouse and dependent children whilst you are employed under this Agreement with membership of a private medical expenses scheme details of which are available from the Director of Human Resources.
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5.2 |
The Companies will provide personal accident insurance to you whilst you are employed under this Agreement in accordance with the Companies scheme, details of which are available from the Director of Human Resources.
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6. |
PROFESSIONAL FEES
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6.1 |
The Companies will re-imburse you in full for professional subscriptions for relevant qualifications.
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7. |
CAR
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7.1 |
The Companies will provide a suitable car for your use during the continuance of your employment in accordance with the policy laid down by the Companies from time to time and the Companies shall pay all standing and running costs relating to it (including the cost of
fuel, road tax, insurance and maintenance). You shall comply with all rules laid down by the Companies from time to time in relation to the Companies vehicles and, unless otherwise agreed, shall return the car on termination of your employment.
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8. |
EXPENSES
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8.1 |
The Companies will reimburse your reasonable travelling, hotel and other expenses properly incurred by you in the performance of your duties under this Agreement and you will provide the Companies with receipts or other evidence as the Board shall require of payment of
the said expenses. The Companies will reimburse rental and cost of business calls in respect of your home telephone.
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9. |
HOLIDAYS
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9.1 |
You will be entitled
to 33 days holiday in each Holiday Year to be taken at such times
as may be approved by the Group Chief Executive, in addition to public
holidays. Holidays may not be carried forward from one Holiday Year
to the next without the express permission of the Group Chief Executive.
No payment will be made by the Companies during the continuance of
this Agreement in lieu of holidays not taken unless the Remuneration
Committee at its absolute discretion decides otherwise.
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9.2 |
Upon termination of this Agreement for whatever reason you shall be entitled to payment in lieu on a pro-rata basis for any holidays not taken which have accrued in the Holiday Year including the Date of Termination or, if appropriate, you shall repay to the Companies any
salary received in respect of holiday taken prior to the Date of Termination in excess of your proportionate entitlement.
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10. |
SICKNESS AND INJURY
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10.1 |
If you are absent from work as a result of sickness or injury you will:
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(a) |
notify the Companies as soon as practicable of your absence;
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(b) |
if the period of absence is less than 8 consecutive calendar days, submit to the Companies on your return a certificate of sickness completed by yourself;
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(c) |
if it is 8 consecutive days or more, submit to the Companies a medical certificate signed by a practising medical practitioner in respect of each week of absence after the first;
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(d) |
you will on request by the Companies allow yourself to be examined by the Companies doctor who shall report to the Board.
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10.2 |
You will subject to compliance with sub-clause 10.1 above and to Clause 14 below, be entitled to:
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(a) |
payment of your salary
at the full basic rate and maintain other contributions and benefits
(less any social security or other benefits payable to you) during
any period of absence from work as a result of sickness or injury up
to a maximum of a continuous period of 180 days or 130 working days
in aggregate in any 12 consecutive months;
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(b) |
payment of your salary at half the full basic rate in addition to other contributions and benefits (less any social security or other benefits payable to you) during any such periods of absence in excess of a continuous period of 180 days or 130 working days in
aggregate in any 12 consecutive months;
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but you will not be entitled to any payment of salary during any absence in excess of 12 months.
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10.3 |
The Companies will pay statutory sick pay, where appropriate, in accordance with the legislation in force at the time of absence, and any payment of salary in accordance with this Clause will go towards discharging its liability to pay statutory sick pay.
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11. |
CODE OF CORPORATE GOVERNANCE
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11.1 |
The National Grid Group plcs Code of Corporate Governance provides for you, in furtherance of your duties as a Director of the Companies, to take independent professional advice, if necessary, at the Companies expense. The Chairman or the Group Company Secretary
should be notified if this step is taken, which should only be taken in the best interests of the Companies.
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12. |
INTERESTS IN OTHER BUSINESS
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12.1 |
You shall disclose promptly in writing to the Board all your interests in compliance with the requirements of Companies Act, any other legislation in force and in association with the Companies articles of association and any additional requirements agreed by the Companies
own code of government in operation.
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12.2 |
You shall disclose promptly in writing to the Board any and all non-executive Directorship offices held by you in any company save the Companies Subsidiaries or associates for the time being. The Board may, at its absolute discretion, request you to resign any position as
non-executive Director in the event that they consider the holding of that office to give rise to a conflict of interest. You will be entitled to retain any fee payable to you in respect of two non-executive offices but will account to the Companies for any fees payable in respect of
additional non-executive offices.
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12.3 |
You shall comply with any code or regulations issued by the Companies from time to time relating to securities transactions by Directors or senior executives.
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13. |
CONFIDENTIALITY
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13.1 |
You will not during
the continuance of your employment or afterwards (unless authorised
to do so by the Board or by a court of competent jurisdiction):-
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(a) |
use for your own benefit or the benefit of any other person; or
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(b) |
disclose to any person;
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any trade secrets or other confidential information relating to the business affairs, finances, products or processes of the Companies and/or of any of their Subsidiaries or Associates.
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13.2 |
The restriction in this Clause will not prevent you, after the Date of Termination, from using for your own or anothers benefit, any information which:
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(a) |
by virtue of your employment, becomes part of your own skill and knowledge; and
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-10-
(b) |
apart from the provisions of this Agreement, could lawfully be used by you for that purpose, and in this respect you acknowledge without limitation the restrictions in Section 57 of the Electricity Act.
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14. |
PROTECTION OF INTERESTS OF COMPANIES
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14.1 |
As you are likely to obtain knowledge of not only the Companies confidential information but also that of other electricity generators and suppliers provided by those persons to the Companies, you agree that you will not until the expiration of 12 months from the Date of
Termination directly or indirectly within England and Wales unless express permission is given by the Board and such permission will not be unreasonably withheld:
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(a) |
be employed or engaged by any person licenced to generate, transmit or supply electricity or any associate thereof in any executive, managerial, technical or advisory capacity; and/or
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(b) |
be a director or
other officer of any person authorised to generate, transmit or
supply electricity to any associate thereof;
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BUT this sub-clause shall not prevent you from holding for investment purposes only up to 3 per cent of any class of securities of a company which are quoted or dealt in on a Recognised Stock Exchange.
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14.2 |
Until the expiration of 12 months from the Date of Termination you will not directly or indirectly solicit or entice away or endeavour to entice away from the Companies or any of their Subsidiaries or Associates any director or senior employee.
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14.3 |
After the Date of Termination or, if later, the date of your ceasing to be a Director of the Companies you will not represent yourself or permit yourself to be held out as being in any way connected with or interested in the
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-11-
business of the Companies; and after that termination you will not represent yourself to be held out as being in any way connected with the business of any of the Subsidiaries or Associates of the Companies, except if and for so long as you remain a director or an employee of
the Subsidiary or Associate.
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14.4 |
In this Clause references to acting directly or indirectly include (without prejudice to the generality of that expression) references to acting alone or jointly with or by means of any other person.
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15. |
TERMINATION
|
15.1 |
If you have given notice to terminate this Agreement the Companies shall have the right during the notice period or in circumstances where no notice has been given by you the Companies shall have the same right for a period not exceeding twelve months to relieve you of all
your duties and responsibilities under this Agreement, exclude you from your place of work and/or require you to resign forthwith all offices held in the Companies, their Subsidiaries or Associates or any other appointment held as nominee or representative or any of the
foregoing.
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15.2 |
Without prejudice
to the Companies right to summarily dismiss you for gross misconduct
the Companies will be entitled to terminate your employment without
notice if you:-
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(a) |
commit a serious or persistent breach of any term of this Agreement;
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(b) |
become bankrupt or compound with your creditors; or
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(c) |
become prohibited by law from being director of a company or of your own volition cease to be a Director of the Companies.
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-12-
15.3 |
If you are incapacitated by sickness (including mental disorder) or injury from carrying out your duties under this Agreement for a continuous period of 180 days or for an aggregate of 130 working days in any 12 consecutive months, the Companies will be entitled to
terminate this Agreement by not less than 3 months written notice given within 3 months after the end of the 180 or (as the case may be) 130 working days.
|
15.4 |
On the Date of Termination you will promptly:-
|
(a) |
resign (if you have not already done so) from all offices held by you in the Companies and their Subsidiaries and Associates;
|
(b) |
deliver up to the Companies all lists of customers, correspondence, documents, discs, tapes, data listing, codes, designs, drawings and all other materials and property belonging to the Companies or any of their Subsidiaries or Associates which may be in your
possession or under your control, including any copies; and
|
(c) |
deliver up to the Companies forthwith any car provided under this Agreement;
|
and you irrevocably authorise the Companies in your name and on your behalf to execute all documents and do all things necessary to effect the resignations referred to above, in the event of your failure to do so.
|
15.5 |
Your employment as Managing Director, Transmission will terminate immediately if you resign as a Director of the Companies or any of their Subsidiaries or Associates (otherwise than at the request or with the prior agreement of the Board which shall not be unreasonably
withheld) and no claim for damages for wrongful termination of employment shall arise.
|
-13-
15.6 |
Any termination of your employment as Managing Director, Transmission will be without prejudice to your continuing obligations under this Agreement.
|
16. |
WAIVER OF RIGHTS
|
If:-
|
(a) |
your employment is terminated:-
|
(i) |
by reason of the liquidation of the Companies or either of them for the purpose of amalgamation or reconstruction; or
|
(ii) |
as part of any arrangement for the amalgamation of the undertaking of the Companies not involving liquidation or for the transfer of the whole or part of the undertaking of the Companies to any of their Subsidiaries or Associates, and
|
(b) |
you are offered employment of a similar nature with the amalgamated or reconstructed or transferee company on terms not generally less favourable to you than the terms of this Agreement;
|
you will have no claim against the Companies under this Agreement in respect of that termination.
|
17. |
DISCIPLINE AND GRIEVANCES
|
17.1 |
A copy of the Employee Rules of the Companies for the time being in force which apply to you by virtue of your employment hereunder can be obtained from the Director of Human Resources.
|
-14-
17.2 |
If you are dissatisfied with any disciplinary decision or have any grievance relating to your employment, you should raise the matter with the Chairman either orally or in writing and the reference will be dealt with by discussion.
|
18. |
INVENTIONS
|
18.1 |
If at any time during
your employment you, whether alone or with any other person, make,
discover or produce any invention, process, development or design which
relates to, or affects, or in the opinion of the Board is capable of
being used or adapted for use in or in connection with, the business
or any product, process or intellectual property right of The National
Grid Group plc or any of its Subsidiaries or Associates:-
|
(a) |
the invention, process, development or design will be absolute property of The National Grid Group plc (except to the extent, if any, provided otherwise by Section 39 of the Patents Act 1977); and
|
(b) |
you will immediately disclose it to the Companies in writing.
|
18.2 |
You will, if and when
required to do so by The National Grid Group plc (whether during your
employment or afterwards), and at their expense:-
|
(a) |
apply, or join with The National Grid Group plc in applying for letters patent or other protection in any part of the world for any invention, process, development or design to which Clause 18.1 above applies;
|
(b) |
execute or procure
to be executed all instruments, and do or procure to be done all things,
which are necessary for vesting such letters patent or other such letters
patent or other protection in The National Grid Group plc or any other
Company, or subsequently for renewing and maintaining the same in
the name of The National Grid Group plc or its nominee; and
|
-15-
(c) |
assist in defending any proceedings relating to, or to any application for, such letters patent or other protection.
|
18.3 |
You agree to irrevocably appoint The National Grid Group plc as your attorney in your name and on your behalf to execute all documents, and do all things, required in order to give full effect to the provisions of this Clause.
|
19. |
ADDITIONAL PARTICULARS
|
The following additional particulars are given for the purposes of the Employment Protection (Consolidation) Act 1978:-
|
19.1 |
Subject to Clause 1.1 your employment under this Agreement began on 17th November 1995 and your period of continuous employment began on 30th September 1995.
|
19.2 |
Under the terms of the Redundancy Payments Act Exemption Order (Part VI Employment Protection (Consolidation) Act 1978), your employment with any Existing Body or Public Electricity Supplier counts as continuous employment with the Companies (and for these
purposes any appointment as chairman or deputy chairman of an Existing Body or Public Electricity Supplier shall be treated as an employment) and your period of continuous employment for these purposes began on 1st March 1971.
|
19.3 |
Except as otherwise provided by this Agreement, there are no terms or conditions of employment relating to hours of work or to normal working hours or to entitlement to holidays (including public holidays) or holiday pay or to incapacity for work due to sickness or injury or
to pensions or pension schemes.
|
-16-
20. |
INTERPRETATION
|
In this Agreement and the Schedule:-
|
20.1 |
Associate means a body corporate which for the time being has not less than 20 per cent of its equity share capital beneficially owned by the Companies;
|
20.2 |
the Board means the board of executive and non-executive directors of The National Grid Group plc unless expressly stated to mean the Executive Board;
|
20.3 |
the Date of Termination means the date upon which your employment under this Agreement terminates whether such termination results from the Companies breach and whether such breach is repudiatory or otherwise;
|
20.4 |
an Existing Body means the Electricity Council or any Electricity Board (as defined in the Electricity Act 1989);
|
20.5 |
Holiday Year means each 12 month period commencing 1st April and ending 31st March;
|
20.6 |
Public Electricity Supplier means the companies treated as such in the Electricity Act 1989;
|
20.7 |
Recognised Stock Exchange has the meaning attributed to it by Section 841 of the Income and Corporation Taxes Act 1988;
|
20.8 |
Remuneration Committee means the committee of the Board bearing that name or, if there is no committee with such name, such other committee as shall from time to time be delegated responsibility by the Board for determining the emoluments of directors of the
Companies;
|
-17-
20.9 |
Subsidiary has the meaning attributed to it by Section 736 of the Companies Act 1985 and equity share capital has the meaning attributed to it by Section 744 of the Companies Act 1985;
|
20.10 |
Unless otherwise stated, and except in Clause 19.2 above, a reference to your employment is to your employment by the Companies under this Agreement;
|
20.11 |
Unless the context otherwise requires, words in the singular include the plural and vice versa, and a reference to a person includes a reference to a body corporate and to an unincorporated body of persons;
|
20.12 |
A reference to a statute or statutory provision includes a reference to that statute or provision as from time to time modified or re-enacted.
|
21. |
ENTIRE AGREEMENT CONTINUITY AND CONDITIONALITY
|
21.1 |
Except as otherwise expressly provided by its terms and for any detailed rules (not being inconsistent with the express terms hereof) from time to time laid down by the Companies, this Agreement represents the entire understanding.
|
21.2 |
Upon the satisfaction of the condition in Clause 1.1 above, any previous contract of service between you and the Companies or either of them shall be deemed to have been terminated by mutual consent as from 16th November 1995.
|
22. |
AMENDMENTS
|
22.1 |
Any major changes to your terms and conditions will be subject to mutual agreement by both parties and any other changes will be notified to you, in writing, within four weeks of any such change.
|
-18-
23. |
NOTICES
|
23.1 |
Any notice to be given under this Agreement will be in writing and will be deemed to be sufficiently served by one party on the other if it is either delivered personally or is sent by prepaid first class post and addressed to the party to whom it is to be given, in your case at your
last known residence and in the case of the Companies at their registered office, and any such notice if so posted will be deemed to have been served on the day (excluding Sundays and public holidays) following that on which it was posted.
|
24. |
JURISDICTION
|
24.1 |
This Agreement shall be governed by and interpreted in accordance with the laws of England and each of the parties submits to the jurisdiction of the English courts as regards any claim or matter arising under this Agreement.
|
-19-
IN WITNESS
whereof this Agreement is executed under the seal on the date set out below.
|
THE COMMON SEAL of
was hereunto affixed
Dated |
|
Member of Board Sealing Committee |
|
|
THE COMMON SEAL of
was hereunto affixed
Dated |
|
-20-
|
|||
SIGNED SEALED AND DELIVERED by | |||
|
|||
in the presence of:- | |||
Dated | 17 November 1995 | ||
Name: | R. K. DREW | ||
Occupation: | Company Secretary | ||
Address: |
11 Willes Terrace
Leamington Spa CV31 1DL |
-21-
Exhibit 4.8
Dated 28th April 2003
National Grid Transco plc
National Grid Company plc
And
Nicholas Winser
Service Agreement
1
This Agreement
is made on 28
th
April 2003
between
|
(1) |
NATIONAL GRID TRANSCO PLC
whose registered office is at 1-3 Strand, London, WC2N 3EH (the
Company
); National Grid Company PLC and
|
(2) |
Nicholas Winser of 19 Pegan Lane, South Natick, Massachusetts, MA 01760, U.S.A (the
Executive
).
|
This agreement records the terms on which the Executive will serve the Company.
1. |
Interpretation
|
In this agreement (and any schedules to it):
|
1.1 |
Definitions
|
Board
means the board of directors of the Company from time to time or any person or committee nominated by the board of directors as its representative for the purposes of this agreement;
|
Employment
means the employment governed by this agreement;
|
Group
means the Company and the Companys associates (as defined in section 435 of the Insolvency Act 1986) from time to time;
|
Group Company
means a member of the Group and
Group Companies
will be interpreted accordingly,
|
Holiday Year
means each 12-month period commencing on 1 April and ending on 31 March;
|
Listing Rules
means the Listing Rules made by the UK Listing Authority under section 142 of the Financial Services Act I986;
Termination Date
means the date on which the Employment terminates; and
|
UK Listing Authority
means the Financial Services Authority in its capacity as competent authority under the Financial Services Act 1986.
|
2 |
Commencement of Employment
|
2.1 |
The Employment will start on 28 April 2003 (the
Commencement Date
). The Employment will continue until termination in accordance with the provisions of this agreement.
|
2.2 |
In accordance with the Companys Articles of Association, the Executives appointment is subject to ratification by shareholders in General Meeting.
|
3 |
Appointment and Duties of the Executive
|
3.1 |
The Executive will serve as Group Director, Transmission and Chief Executive, National Grid Company plc, or in any other executive capacity as the Company reasonably may decide from time to time.
|
3.2 |
The Executive will:
|
3.2.1 |
(unless prevented from doing so by sickness or injury) devote the whole of his working time, attention and skill to the Employment;
|
|
2
3.2.2 |
properly perform his duties and exercise his powers;
|
3.2.3 |
accept any offices or directorships as reasonably required by the Board;
|
3.2.4 |
comply with all rules and regulations issued by the Company;
|
3.2.5 |
obey the reasonable directions of the Board;
|
3.2.6 |
act in accordance with the Memorandum and Articles of Association of the Company and any relevant Group Company; and
|
3.2.7 |
use his best endeavours to promote the interests and reputation of every Group Company.
|
3.3 |
The Executive accepts that:
|
3.3.1 |
the Company may require him to perform duties for any other Group Company whether for the whole or part of his working time. In performing those duties clause 3.2.4 will apply as if references to the Company are to the appropriate Group Company. The
Company will remain responsible for the payments and benefits he is entitled to receive under this agreement; and
|
3.3.2 |
the Company may appoint any other person to act jointly with him; and
|
3.3.3 |
the Company may transfer the Employment to any other Group Company.
|
3.4 |
The Executive will keep the Board (and, where appropriate the board of directors of any other Group Company) fully informed of his conduct of the business, finances or affairs of the Company or any other Group Company in a prompt and timely manner. He will provide
information to the Board in writing if requested.
|
3.5 |
The Executive will promptly disclose to the Board full details of any wrongdoing by any employee of any Group Company where that wrongdoing is material to that employees employment by the relevant company or to the interests or reputation of any Group Company.
|
3.6 |
At any time during
the Employment the Company may require the Executive to undergo a medical
examination by a medical practitioner appointed by the Company. Subject
to prior disclosure and consultation with the Executive, the Executive
authorises that medical practitioner to disclose to the Company any
report or test results prepared or obtained as a result of that examination
and to discuss with it any matters arising out of the examination which
are relevant to the Employment or which might prevent the Executive
properly
performing the duties of the Employment.
|
4 |
Hours
|
4.1 |
The Executive will comply with the Companys normal hours of work and will also work any additional hours which may be reasonably necessary to perform his duties to the satisfaction of the Board. He will not receive any further remuneration for any hours worked in
addition to the normal working hours.
|
4.2 |
The Executive and the Company agree that the Executive is a managing executive for the purposes of the Working Time Regulations 1998 (the
Regulations
) and is able to determine the duration of his working time himself. As such, the exemptions in Regulation 20 of the
Regulations will apply to the Employment.
|
3
5 |
Interests of the Executive and Code
|
5.1 |
The Executive will disclose promptly in writing to the Board all his interests and those of his spouse and dependent children (for example, shareholdings or directorships) (whether or not of a commercial or business nature) except his interests in any Group Company.
|
5.2 |
Subject to clause 5.3, during the Employment the Executive will not be directly or indirectly engaged or concerned in the conduct of any business activity (except as a representative of the Company or with the written consent of the Board).
|
5.3 |
The Executive may not hold or be interested in investments which amount to more than three per cent of the issued investments of any class of any one company whether or not those investments are listed or quoted on any recognised stock exchange.
|
5.4 |
The Executive will
(and will procure that his spouse and dependent children) comply with
all rules of law, including Part V of the Criminal Justice Act 1993,
the Model Code as set out in the appendix to Chapter 16 of the Listing
Rules as amended from time to time and rules or policies applicable
to the Company from time to time in relation to the holding or trading
of securities including compliance with the spent as well as the letter
of those rules. In relation to overseas dealings, he will also comply
with all laws of the state and all regulations of
the stock exchange, market on dealing system in which such dealings take place.
|
5.5 |
The Companys Code of Corporate Governance provides that the Executive, in furtherance of his duties as a director of the Company, may take independent professional advice, if necessary, at the Companys expense. This step should only be taken if it is in the best interests
of the Company to do so and, in any event, the Chairman or Group Company Secretary should be notified.
|
5.6 |
As a director, the Executive is bound by the provisions of company law and to the Stock Exchange Listing requirements, details of which are available from the Group General Counsel and Group Company Secretary. The Executive should seek the advice of the Chairman on
the interpretation of these provisions in the event of any uncertainty.
|
6 |
Location
|
6.1 |
The executive will
initially be based at the offices of National Grid USA, 25 Research
Drive, Westborough, Massachusetts, MA 01582, USA until he can complete
his relocation to the United Kingdom. The Executive will then work
at National Grid UKs offices in Coventry
(with a move to Warwick due prior to the end of 2003) or anywhere else within
the United Kingdom required by the Board. He may be required to travel
and work outside the United Kingdom from time to time but may not be
required to relocate his residence outside of the United Kingdom (or
for three years from the date hereof from any permanent residence in
the U.K. occupied by him).
|
7 |
Salary and Benefits
|
7.1 |
The Company will pay the Executive a salary of £300,000 per annum. Salary will be paid monthly in arrears by bank credit transfer and will accrue from day to day. Salary will be reviewed annually commencing in 2004. The review will usually take place in April of each
year.
|
4
7.2 |
The salary referred to in clause 7.1 includes directors fees from the Group Companies and any other companies in which the Executive is required to accept a directorship under the terms of this Employment. To achieve this:
|
7.2.1 |
the Executive will repay any fees he receives to the Company; or
|
7.2.2 |
his salary will be reduced by the amount of those fees; or
|
7.2.3 |
a combination of the methods set out in clauses 7.2.1 and 7.2.2 will be applied.
|
7.3 |
The Executives current terms of membership of the Electricity Supply Pension Scheme will remain unchanged as at the commencement date. However, pension benefits for Directors are under review and these terms, including the age for normal retirement may
subsequently be changed.
|
7.4 |
The Company will provide a death in service lump sum of 4 x the Executives basic pay to be paid if he dies in service. The Company may insure that benefit and/or set up a trust to provide that benefit if it thinks fit.
|
7.5 |
Without prejudice to the Companys right to terminate the Employment at any time in accordance with clause 11, if the Executive complies with any eligibility or other conditions set by the Company and any insurer appointed by the Company from time to time (the
Insurer
), the Executive will be provided with permanent health insurance. The terms upon which this insurance is provided and the level of cover will be in accordance with Company policy from time to time. The Executive understands and agrees that if the Insurer fails
or refuses to provide him with any benefit under the insurance arrangement provided by the Company, the Executive will have no right of action against the Company in respect of such failure or refusal.
|
If the Executive complies with any eligibility requirements or other conditions set by the Company and any insurer appointed by the Company, the Executive and his spouse and children under 18 years of age may participate in the Companys private health insurance
arrangements at the Companys expense and subject to the terms of those arrangements from time to time. The Company reserves the right at any time to withdraw this benefit or to amend the terms upon which it is provided.
|
7.6 |
The Executive, will, during the Employment, be provided with personal accident insurance cover subject to in accordance with the rules of the relevant scheme from time to time in force. Details of these arrangements are available from Group Human Resources.
|
7.7 |
The Company will reimburse
the Executive in full for subscriptions for any professional memberships
which, in the opinion of the Company, are relevant to the Executives
employment.
|
7.8 |
The Executive is entitled to 31 days paid holiday each Holiday Year (in addition to English Bank and other public holidays) to be taken at times approved in advance by the Board. Holidays may not be carried forward from one Holiday Year to the next. The Executive
agrees that the provisions of Regulations 15(1)-(4) inclusive of the Regulations (dates on which leave is taken) do not apply to the Employment.
|
Holiday entitlement
will accrue from day to day. For part years, the Executives
holiday entitlement for the year will be pro-rated to the length of
his service in that year. The Executive will be paid for any accrued
holiday not taken at the Termination Date. The Company may require
the Executive to take any accrued holiday during any notice period.
If on the Termination Date the Executive has exceeded his accrued holiday
entitlement, the excess may be deducted from any sums due to him. The
formula for calculating the amount of holiday due to the Executive
and any payments or repayments to be made is 1/260 of the Executives
annual basic salary.
|
|
5
7.9 |
Without prejudice to the Companys right to terminate the Employment at any time in accordance with clause 11:
|
7.9.1 |
salary payable and benefits provided to the Executive under this agreement will cease after 180 consecutive days of absence or an aggregate of 130 working days in any period of 365 days from work due to illness or injury; and
|
7.9.2 |
the amount of any
benefit which the Executive is entitled to claim during that period
of absence under any Social Security or National Insurance Scheme and/or
any scheme of which the Executive is a non-contributory member by virtue
of the Employment will be deducted from any salary paid to him. The
Company will pay the Executive statutory sick pay under the Social
Security Contributions and Benefits Act 1992 (as amended) and any salary
paid to him will be deemed to include statutory sick pay. The Company
reserves the right to offset the amount of these benefits against salary
paid to the Executive even if the Executive has not recovered them.
|
7.10 |
If the Executive is absent from work due to sickness or injury which is caused by the fault of another person, and as a consequence recovers from that person or another person any sum representing compensation for loss of salary under this agreement, the Executive will
repay to the Company any money it has paid to him as salary in respect of the same period of absence.
|
7.11 |
If the Executive is absent from work as a result of sickness or injury, he will:
|
(i) |
notify the Company by telephone on the first day of his absence, or in the event of being unable to do so, as soon as practicable thereafter;
|
(ii) |
if the period of absence is less than 8 consecutive calendar days, provide to the Company, on his return, a self-completed certificate of sickness;
|
(iii) |
if absent for 8 consecutive
calendar days or more, provide to the Company, without delay, a medical
certificate signed by a practising medical practitioner in respect
of each week of absence after the first.
|
8 |
Expenses
|
8.1 |
The Company will refund to the Executive all reasonable expenses properly incurred by him in performing his duties under this agreement, provided that these are incurred in accordance with Company policy from time to time. The Company will require the Executive to
produce receipts or other documents as proof that he has incurred any expenses he claims.
|
9 |
Confidentiality
|
9.1 |
Without prejudice
to the common law duties which he owes to the Company the Executive
agrees that he will not, except in the proper performance of his duties,
copy, use or disclose to any person any of the Companys
trade secrets or confidential information. This restriction will continue
to apply after the termination of the Employment without limit in time
but will not apply to trade secrets or confidential information which
become public other than through unauthorised disclosure by the Executive.
The Executive will use his best endeavours to prevent the unauthorised
copying use or disclosure of such information.
|
6
For the purposes of this agreement trade secrets and confidential information include but will not be limited
to business plans, Company and Group Company forecasts, details of trading levels, customer and other third party contracts, pricing structures and
arrangements,
and any other information in whatever form (written, oral, visual and electronic) concerning the confidential affairs of the Company.
|
9.2 |
In the course of the
Employment the Executive is likely to obtain trade secrets and confidential
information belonging or relating to other Group Companies and other
persons. He will treat such information as if it falls within the terms
of clause 9.1 and clause 9.1 will apply with any necessary amendments
to such information. If requested to do so by the Company the Executive
will enter into an agreement with other Group Companies and any other
persons in the same terms as clause 9.1 with any amendments necessary
to give effect to this
provision.
|
9.3 |
Nothing in this agreement will prevent the Executive from making a protected disclosure in accordance with the provisions of the Employment Rights Act 1996.
|
Invention
means any invention (whether patentable or not within the meaning of the Patents Act 1977 or other applicable legislation in any other country) relating to or capable of being used in the business of the Company.
|
10.2 |
If an Invention belongs
to the Company, the Executive will act as a trustee for the Company
in relation to that Invention and will, at the request and expense
of the Company, do everything necessary to vest all right, title and
interest in it in the Company or its nominee with full title guarantee
and to secure full patent or other appropriate protection
anywhere in the world.
|
10.3 |
If the Executive creates or is involved in creating any Work during the Employment, the Executive will promptly give the Company full details of it.
|
Work
means any discovery, design, database or other work (whether registrable or not and whether a copyright work or not) which is not an Invention and which the Executive creates or is involved in creating:
|
10.3.1 |
in connection with his Employment; or
|
10.3.2 |
relating to or capable of being used in those aspects of the businesses of the Group Companies in which he is involved.
|
10.4 |
The Executive:
|
10.4.1 |
assigns to the Company to the extent allowed by law with full title guarantee all his right, title and interest in any current or future Work (whether now existing or brought into being in the future); and
|
|
7
10.4.2 |
will act as a trustee for the Company in relation to all such Works;
|
and will in either case at the request and expense of the Company do everything necessary to vest all right, title and interest in any Work in the Company or its nominees and to defend its rights in those works and to secure appropriate protection anywhere in the world.
|
10.5 |
If the Executive generates any Information or is involved in generating any Information during the Employment he will promptly give to the Company full details of it and he acknowledges that such Information belongs to the Company.
|
Information
means
any idea, method or information, which is not an Invention or Work
generated by the Executive either:
|
10.5.1 |
in the course of his Employment; or
|
10.5.2 |
outside the course of his Employment but relating to the business, finance or affairs of any Group Company.
|
10.6 |
If the Executive becomes aware of any infringement or suspected infringement of any intellectual property right in any Invention, Work or Information he will promptly notify the Company in writing.
|
10.7 |
The Executive will not copy disclose or make use of any Invention, Work or Information without the Companys prior written consent unless the disclosure is necessary for the proper performance of his duties.
|
10.8 |
So far as permitted by law the Executive irrevocably waives any rights he may have under Chapter IV (Moral Rights) of Part 1 of the Copyright, Designs and Patents Act 1988 and any foreign corresponding rights in respect of all Works.
|
10.9 |
Rights and obligations under clause 10 will continue after the termination of this agreement in respect of all Inventions, Works and Information made or obtained during the Employment and will be binding on the personal representatives of the Executive.
|
10.10 |
The Executive agrees that he will not by his acts or omissions do anything which would or might prejudice the rights of the Company under clause 10.
|
10.11 |
The Executive will
not make copies of any computer files belonging to any Group Company
or their service providers and will not introduce any of his own computer
files into any computer used by any Group Company in breach of any
Group Company policy, unless he has obtained the consent of the Board.
|
10.12 |
By entering into this
agreement the Executive irrevocably appoints the Company to act on
his behalf to execute any document and do anything in his name for
the purpose of giving the Company (or its nominee) the full benefit
of the provision of clause 10 or the Companys
entitlement under statute. If there is any doubt as to whether such a document
(or other. thing) has been carried out within the authority conferred
by this clause 10.12, a certificate in writing (signed by any director
or the secretary of the Company) will be sufficient to prove that
the act or thing falls within that authority.
|
11 |
Termination and Suspension
|
11.1 |
The Employment will continue until terminated by either party giving written notice as set out in clause 11.2.
|
8
11.2 |
Either party may terminate the Employment by giving not less than 12 months written notice to the other.
|
11.3 |
Notwithstanding the other provisions of this agreement and in particular clause 11.2, the Employment will automatically terminate on the last day of the month in which the Executive reaches the age of 63.
|
11.4 |
The Company may at its sole and absolute discretion pay any bonus or pay in lieu of benefits (as referred to in clause 7.1, at the rate in force at the time such payment is made) sums due in lieu of any unexpired period of notice (whether given by the Company or Executive)
(less any deductions the Company is required by law to make) which may be by instalments.
|
11.5 |
The Company may terminate the Employment with immediate effect by giving 6 months written notice whether or not the Executives entitlement to sick pay, contractual or otherwise, has been exhausted if the Executive does not perform the duties of the Employment for a
period of 180 consecutive days or 130 working days in any period of 365 days. This notice can be given whilst the Executive continues not to perform his duties or on expiry of the 180 (or 130) day period. In this clause, days includes Saturdays, Sundays and public
holidays.
|
11.6 |
The Company may terminate the Employment with immediate effect by giving written notice if the Executive:
|
11.6.1 |
commits any serious or persistent breach of his obligations under this agreement; or
|
11.6.2 |
does not comply with any material terms of this agreement; or does not comply with any reasonable lawful order or direction given to him by the Board; or
|
11.6.3 |
is guilty of any gross misconduct or conducts himself (whether in connection with the Employment or not) in a way which is harmful to any Group Company; or
|
11.6.4 |
is guilty of dishonesty or is convicted of an offence (other than a motoring offence which does not result in imprisonment) whether in connection with the Employment or not; or
|
11.6.5 |
commits (or is reasonably believed by the Board to have committed) a breach of any legislation in force which may affect or relate to the business of any Group Company; or
|
11.6.6 |
becomes of unsound mind, is bankrupted or has a receiving order made against him or makes any general composition with his creditors or takes advantage of any statute affording relief for insolvent debtors; or becomes disqualified from being a director of a
company or the Executives directorship of the Company terminates without the consent or concurrence of the Company; or
|
11.6.7 |
commits any breach of contract which would entitle the Company to terminate the Employment and this agreement.
|
11.7 |
The Executive will have no claim for damages or any other remedy against the Company if the Employment is terminated for any of the reasons set out in clause 11.6.
|
11.8 |
When the Employment terminates the Company may deduct from any money due to the Executive (including remuneration) any amount which he owes to any Group Company.
|
9
11.9 |
The Company may suspend the Executive from the Employment on full salary at any time, and for any reason for a reasonable period to investigate any matter in which the Executive is implicated or involved (whether directly or indirectly) and to conduct any related
disciplinary proceedings.
|
12 |
Garden Leave
|
12.1 |
At any time after
notice to terminate the Employment is given by either party under clause
11 above, or if the Executive resigns without giving due notice and
the Company does not accept his resignation, the Company may require
the Executive to comply with any or all of the provisions in clauses
12.2 and 12.3 for a maximum period of six months (the
Garden Leave Period
).
|
12.2 |
The Executive will not, without prior written consent of the Board, be employed or otherwise engaged in the conduct of any business activity during the Garden Leave Period. Further, the Executive will not, unless requested by the Company:
|
12.2.1 |
enter or attend the premises of the Company or any other Group Company; or
|
12.2.3 |
contact or have any communication with any customer or client of the Company or any other Group Company in relation to the business of the Company or any other Group Company; or
|
12.2.3 |
contact or have any communication with any employee, officer, director, agent or consultant of the Company or any other Group Company in relation to the business of the Company or any other Group Company; or
|
12.2.4 |
remain or become involved in any aspect of the business of the Company or any other Group Company except as required by such companies.
|
12.3 |
The Company may require the Executive or the Executive may elect:
|
12.3.1 |
to comply with the provisions of clause 15; and
|
12.3.2 |
to immediately resign
from any directorship which he holds in the Company, any other Group
Company or any other company where such directorship is held as a consequence
or requirement of the Employment, unless he is required to perform
duties to which any such directorship relates in which case he may
retain such directorships while those duties are ongoing. The Executive
hereby irrevocably appoints the Company to be his attorney to execute
any instrument and do anything in his name and on his behalf to effect
his
resignation if he fails to do so in accordance with this clause 12.3.2.
|
12.4 |
During the Garden
Leave Period, the Executive will be entitled to receive his salary
and all contractual benefits in accordance with the terms of this agreement.
Any unused holiday accrued at the commencement of the Garden Leave
Period and any holiday accrued during any such Period will be deemed
to be taken by the Executive during the Garden Leave Period.
|
12.5 |
At the end of, or at any time during, the Garden Leave Period, the Company may, at its sole and absolute discretion, pay the Executive salary in lieu of the balance of any period of notice given by the Company or the Executive, (less any deductions the Company is required
by law to make).
|
10
12.6 |
All duties of the Employment (whether express or implied), including without limitation the Executives duties of fidelity, good faith and exclusive service, shall continue throughout the Garden Leave Period save as expressly varied by this clause.
|
13 |
Protection of interests of the Company and the Group
|
13.1 |
In this Clause the
expressions following bear the meanings ascribed to them
respectively below, namely:-
|
13.1.1 |
Confidential Information
means trade secrets and confidential information which are for the time being confidential to the Company or (as the case may be) any other member of the Group;
|
13.1.2 |
Garden Leave Period
has the meaning given in Clause 12.1 hereof;
|
13.1.3 |
Prohibited
Area
means England, Scotland and Wales and any geographical
area in which the Company or any Relevant Group Company carries on
a Restricted Business (as defined below) at the Termination Date;
|
13.1.4 |
Relevant Group Company
means any Group Company (excluding the Company but including any predecessor of a Group Company) in respect of whose business the Executive has been directly concerned pursuant to the provisions of this Agreement at any
time during the period of two years prior to the Termination Date;
|
13.1.5 |
Restricted Business
means the transmission, distribution or supply of gas or electricity;
|
13.1.6 |
Restricted Period
means the period of six months commencing with the Termination Date but such period shall be reduced by one day for each day of a Garden Leave Period; and
|
13.1.7 |
Termination Date
means the date on which the Employment terminates irrespective of the cause or manner (except for termination by the Company in breach of this Agreement).
|
13.2 |
Since the Executive is likely to obtain in the course of his duties under this Agreement Confidential Information and personal knowledge of and influence over employees of Group Companies the Executive hereby agrees with the Company that in addition to the other terms
of this Agreement and without prejudice to other restrictions imposed upon him by law, he will be bound by the following covenants:
|
13.2.1 |
that he will not during
the Restricted Period either on his own behalf or for any other person
(whether as employee, consultant, adviser, principal, partner, agent,
shareholder, director or otherwise) directly or indirectly carry on,
or assist with, or be engaged in or concerned with, any Restricted
Business which competes with, or is about to compete with, any business
carried on at the Termination Date by the Company or any other Relevant
Group Company within the Prohibited Area (NGT Business)
if but only if
|
(i) |
either the Executive has been directly or substantially involved or concerned or had responsibility pursuant to the provisions of this Agreement for such NGT Business at any time during the period of twelve months prior to the Termination Date; or
|
||
11
(ii) |
in the course of the Employment the Executive had access to and acquired knowledge of Confidential Information in relation to such NGT Business at any time during the period of twelve months prior to the Termination Date
|
PROVIDED THAT this shall not restrict the Executive (including his spouse and children under 18 years of age) from holding or acquiring by way of bona fide in investment only investments whether or not listed or quoted representing not more than one per cent.
of the issued investments of any class of any one company and shall not restrict any activity the performance of which could not involve the Executive in such competition;
|
13.2.2 |
that he will not during the Restricted Period either on his own behalf or for any other person, whether directly or indirectly entice or try to entice away from the Company or any other Group Company any person who as a senior manager, in a senior technical
position or a senior sales position in such a company at the Termination Date and who had been in such a position at any time during the six months prior to the Termination Date and with whom he had worked closely at any time during that period; and
|
13.2.3 |
that he shall not following the Termination Date represent himself as being in any way currently connected with the business of the Company or that of any Relevant Group Company (except to the extent agreed by such a company).
|
13.3 |
The Executive agrees that each of the paragraphs contained in Clause 13.2 above constitute an entirely separate and independent covenant on his part and the validity of one paragraph shall not be affected by the validity or unenforceability of another.
|
13.4 |
The Executive agrees that he will at the request and cost of the Company enter into a direct agreement or undertaking with any Relevant Group Company whereby he wi!l accept restrictions and provisions corresponding to the restrictions and provisions above (or such of
them as may be reasonable and appropriate in the circumstances) in relation to such activities and such areas and for such a period as such company may reasonably require for the protection of its legitimate interests.
|
13.5 |
The Executive agrees that having regard to the facts and matters set out above the restrictive covenants in this Clause 13 are necessary for the protection of the business and Confidential Information of the Company and Relevant Group Companies.
|
13.6 |
The Executive and the Company agree that while the restrictions imposed in this Clause are considered necessary for the protection of the Company and Relevant Group Companies it is agreed that if any one or more of such restrictions shall either taken by itself or
themselves together be adjudged to go beyond what is reasonable in all the circumstances for the protection of the Companys or any Relevant Group Companys legitimate interest but would be adjudged reasonable if any particular restriction or restrictions were deleted or if
any part or parts of the wording thereof were deleted, restricted or limited in a particular manner then the said restrictions shall apply with such deletions, restrictions or limitations as the case may be.
|
13.7 |
Any benefit given
or deemed to be given by the Executive to any Group Company under the
terms of Clause 13 is received and held on trust by the Company for
the relevant Group Company.
|
12
14 |
Offers on Liquidation
|
The Executive will
have no claim against the Company if the Employment is terminated by
reason of liquidation in order to reconstruct or amalgamate the Company
or by reason of any reorganisation of the Company and the Executive
is offered employment with the company succeeding to the Company upon
such liquidation or reorganisation and the new terms of employment
offered to the Executive are no less
favourable to him than
the terms of this agreement.
|
15 |
Return of Company Property
|
15.1 |
At any time during the Employment (at the request of the Company) and in any event when the Employment terminates, the Executive will immediately return to the Company:
|
15.1.1 |
all documents and
other materials (whether originals or copies) made or compiled by or
delivered to the Executive during the Employment and concerning all
the Group Companies. The Executive will not retain any copies of any
materials or other information; and
|
15.1.2 |
all other property belonging or relating to any of the Group Companies.
|
15.2 |
If the Executive commences Garden Leave in accordance with clause 12 he may be required to comply with the provisions of clause 15.1.
|
16 |
Directorships
|
16.1 |
The Executives office as a director of the Company or any other Group Company is subject to the Articles of Association of the relevant company (as amended from time to time). If the provisions of this agreement conflict with the provisions of the Articles of Association,
the Articles of Association will prevail.
|
16.2 |
The Executive must resign from any office held in any Group Company if he is asked to do so by the Company.
|
16.3 |
If the Executive does
not resign as an officer of a Group Company, having been requested
to do so in accordance with clause 16.2, the Company will be appointed
as his attorney to effect his resignation. By entering into this agreement,
the Executive irrevocably appoints the Company as his attorney to act
on his behalf to execute any document or do anything in his name necessary
to effect his resignation in accordance with clause 16.2. If there
is any doubt as to whether such a document (or other thing) has been
carried out within the authority
conferred by this clause 16.3, a certificate in writing (signed by any director
or the secretary of the Company) will be sufficient to prove that the
act or thing falls within that authority.
|
16.4 |
The termination of any directorship or other office held by the Executive will not terminate the Executives employment or amount to a breach of terms of this agreement by the Company.
|
16.5 |
During the Employment the Executive will not do anything which could cause him to be disqualified from continuing to act as a director of any Group Company.
|
16.6 |
The Executive must not resign his office as a director of any Group Company without the agreement of the Company.
|
13
17. |
Notices
|
17.1 |
Any notices given
under this agreement must be given by letter or fax. Notice to the
Company must be addressed to its registered office at the time the
notice is given. Notice to the Executive must be given to him personally
or sent to his last known address.
|
17.2 |
Except for notices
given by hand, notices given by post will be deemed to have been given
on the next working day after the day of posting and notices given
by fax will be deemed to have given in the ordinary course of transmission.
|
18 |
Statutory Particulars
|
18.1 |
The written particulars
of employment which the Executive is entitled to receive under the
provisions of Part I of the Employment Rights Act 1996 are set out
below, insofar
as they are not set out elsewhere in this agreement.
|
18.1.1 |
The Executives
period of continuous employment began on 8
th
February 1993
but your pensionable service began on 26
th
September 1983.
|
18.1.2 |
There is a contracting-out certificate in force in relation to the Executives Employment.
|
18.1.3 |
The Companys
disciplinary rules and disciplinary and grievance procedures as set
out in the Employee Rules from time to time are applicable to the Executive.
The disciplinary rules are contractual. The disciplinary and grievance
procedures are non-contractual. A copy of the Employee Rules may be
obtained from Group Human Resources.
|
18.1.4 |
The Companys normal hours of work are 9am to 5pm Monday to Friday.
|
18.1.5 |
There are no terms and conditions relating to collective agreements or to the requirement to work outside the United Kingdom.
|
19 |
Data Protection Act 1998
|
19.1 |
For the purposes of
the Data Protection Act 1998 (the
Act
) the Executive gives
his consent to the holding, processing and disclosure of personal data
(including sensitive personal data within the meaning of the Act) provided
by the Executive to the Company for all purposes relating to the performance
of this agreement including but not
limited to:
|
19.1.1 |
administering and maintaining personnel records;
|
19.1.2 |
paying and reviewing
salary and other remuneration and benefits;
|
19.1.3 |
providing and administering benefits (including if relevant, pension, life assurance, permanent health insurance and medical insurance);
|
19.1.4 |
undertaking performance appraisals and reviews;
|
19.1.5 |
maintaining sickness and other absence records;
|
19.1.6 |
taking decisions as to the Executives fitness for work;
|
19.1.7 |
providing references and information to future employers, and if necessary, governmental and quasi-governmental bodies for social security and other purposes, the Inland Revenue and the Contributions Agency;
|
|
14
19.1.8 |
providing information to future purchasers of the Company or of the business in which the Executive works; and
|
19.1.9 |
transferring information concerning the Executive to a country or territory outside the EEA.
|
19.2 |
The Executive acknowledges
that during his Employment he will have access to and process, or
authorise the processing of, personal data and sensitive personal data
relating to employees, customers and other individuals held and controlled
by the Company. The Executive agrees to comply with the terms of the
Act in relation to such data and to abide by the Companys data
protection policy issued from time to time.
|
20 |
Contracts (Rights of Third Parties) Act 1999
|
20.1 |
To the extent permitted
by law, no person other than the parties to this agreement and the
Group Companies shall have the right to enforce any term of this agreement
under the Contracts (Rights of Third Parties) Act 1999. For the avoidance
of doubt, save as expressly provided in this clause the application of the
Contracts (Rights of Third Parties) Act 1999
is specifically excluded from this agreement, although this does not affect
any other right or remedy of any third party which exists or is available other
than under this Act.
|
21 |
Miscellaneous
|
21.1 |
This agreement may only be modified by the written agreement of the parties.
|
21.2 |
The Executive cannot assign this agreement to anyone else.
|
21.3 |
References in this agreement to rules, regulations, policies, handbooks or other similar documents which supplement it, are referred to in it or describe any pensions or other benefits arrangement are references to the versions or forms of the relevant documents as amended or
updated from time to time.
|
21.4 |
This agreement supersedes
any previous written or oral agreement between the parties in relation
to the matters dealt with in it. It contains the whole agreement between
the parties .relating to the Employment at the date the agreement was
entered into (except for those terms implied by law which cannot be
excluded by the agreement of the. parties). The Executive acknowledges
that he has not been induced to enter into this agreement by any representation,
warranty or undertaking not expressly incorporated into it. The Executive
agrees and acknowledges that his only rights and remedies in relation
to any representation, warranty or undertaking made or given in connection
with this agreement (unless such representation, warranty or undertaking
was made fraudulently) will be for breach of the terms
of this agreement, to the exclusion of all other rights and remedies (including
those in tort or arising under statute).
|
21.5 |
Neither partys rights or powers under this agreement will be affected if:
|
21.5.1 |
one party delays in enforcing any provision of this agreement; or
|
21.5.2 |
one party grants time to the other party.
|
|
15
21.6 |
The Interpretation
Act 1978 shall apply to this agreement in the same way as it applies to an enactment.
|
21.7 |
References to any statutory provisions include any modifications or re-enactments of those provisions.
|
21.8 |
Headings will be ignored in construing this agreement.
|
21.9 |
If either party agrees to waives his rights under a provision of this agreement, that waiver will only be effective if it is in writing and it is signed by him. A partys agreement to waive any breach of any term or condition of this agreement will not be regarded as a waiver of any
subsequent breach of the same term or condition or a different term or condition.
|
21.10 |
This agreement is governed by and will be interpreted in accordance with the laws of England and Wales. Each of the parties submits to the exclusive jurisdiction of the English Courts as regards any claim or matter arising under this agreement.
|
16
Exhibit 4.9
Dear |
|
With reference to your letter of appointment dated 16th November 1995 as amended by the letters of 11th October 1996, 1st September 1998 and 24th October 2001, I am writing to confirm the terms of your appointment as a NonExecutive Director of National Grid Transco plc (the "Company") with effect from 1 April 2003. It is agreed that this is a contract for services and is not a contract of employment.
Appointment
Your appointment commended on 17th November 1995 and currently lasts until the Company's AGM in 2004, unless otherwise terminated earlier in accordance with the Company's Articles of Association or by and at the discretion of either party upon one month's written notice. Continuation of your contract of appointment is contingent on satisfactory performance and reelection at forthcoming AGMs. In the unlikely event that shareholders do not support, your appointment or other shareholder action terminates your appointment before the 2004 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that NonExecutive Directors are typically expected to serve two three-year terms,
although the Board has invited you to serve for an additional period to the AGM in 2004. In advance of this date the Nominations Committee will reassess any further extensions in the light of best practice in corporate governance at that time.
Time Commitment
Overall we anticipate a time commitment of approximately 2-2½ days on average per month taking account reading and preparation time for Board and Committee meetings. This will include attendance at Board meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary general meetings, 2 Board strategy sessions and at least one site visit per year. It is planned that certain Board meetings will be held out of London at the Company's operations (in the UK and USA).
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company.
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
Role |
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board: |
| Provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: | |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as a Non-Executive Director of the Company. You have also been requested to serve on the Audit and Nominations Committees and be chairman of the Remuneration Committee.
Fees
You will be paid an annual retainer fee of £30,000
gross per annum which will be paid monthly in arrears. You will also be entitled
to attendance fees of £1,500 for each Board meeting held in your country
of residence and £3,000 for each overseas meeting. This attendance fee
is intended to cover your attendance at any Committee meetings. For your chairmanship
of the Remuneration Committee you will receive £12,500
per annum. You will not receive any additional fees for membership of, or attendance
at, any Board Committee meetings. The Company will reimburse you for all reasonable
and properly documented expenses you incur in performing the duties of your office.
The Board shall review the above fees from time to time and they are therefore
subject to change. All fees and payments will be made subject to any deductions
required to be made by the Company.
Outside Interests |
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Chairman and/or Company Secretary as soon as apparent. |
The Board of the Company have determined you to be independent according to the provision of the Combined Code. |
Confidentiality |
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiary or associate companies which you obtained during your appointment or otherwise. |
You will be required to return all papers containing confidential information on termination of the appointment. | |
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary. | |
Induction |
You have already been provided with an introduction to the Company and its businesses and detailed information on a variety of areas plus a directors' information pack. We have also arranged for various site visits and meetings with senior and middle management and the Company's advisors. We will also arrange for you to meet major investors as appropriate. | |
Review Process |
The performance of individual directors and the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate. | |
Insurance |
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack. |
Independent Professional Advice |
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in accordance in respect of such advice. |
Indemnity |
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled. |
Governinq Law | |
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts. | |
Entire Aqreement | |
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment and supersedes any previous agreement between yourself and the Company with respect thereto. | |
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship. | |
Yours sincerely | |
|
|
Sir John Parker
Chairman |
|
Agreed and Accepted by | |
|
|
John Grant | |
Exhibit 4.10
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 |
London WC2N 5EH | F +44 (0) 20 7004 3004 | |
www.ngtgroup.com |
With reference to the letter of appointment from National Grid Group plc dated 1 st June 2002, I am writing to confirm the terms of your appointment as a Non-Executive Director of National Grid Transco plc (the "Company") with effect from 1 April 2003. It is agreed that this is a contract for services and is not a contract of employment.
Appointment |
Your appointment, which commenced on 21 October 2002, will be for an initial term of three years, ending at the Company's AGM in 2006, unless otherwise terminated earlier in accordance with the Company's Articles of Association or by and at the discretion of either party upon one month's written notice. Continuation of your contract of appointment is contingent on satisfactory performance and re-election at forthcoming AGMs. In the unlikely event that shareholders do not support your appointment or other shareholder action terminates your appointment before the 2006 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that Non-Executive Directors are typically expected to serve two three-year terms; any extension to this is subject to review by the Nominations Committee (prior to making recommendations to the Board) in the light of good corporate governance policy at the time. |
Time Commitment
Overall we anticipate a time commitment
of approximately 2-2½ days on average per month, after the induction
phase, taking account reading and preparation time for Board and Committee
meetings. This will include attendance at Board meetings (estimated 9 scheduled
meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc
and emergency meetings, the AGM, any extraordinary general meetings, 2 Board
strategy sessions and at least one site visit per year. It is planned that
certain Board meetings will be held out of London at the Company's operations
(in the UK and USA).
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company.
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack. |
Role |
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board: |
| provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: | |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as
a Non-Executive Director of the Company. You have also been requested to
serve on the Nominations, Audit and Remuneration Committees.
Fees
You will be paid an annual retainer fee
of £30,000 gross per annum which will be paid monthly in arrears. You
will also be entitled to attendance fees of £1,500 for each Board meeting
held in your country of residence and £3,000 for each overseas meeting.
This attendance fee is intended to cover your attendance at any Committee
meetings. You will not receive any additional
fees
for membership of, or attendance at, any Board Committee meetings. The Company
will reimburse you for all reasonable and properly documented expenses you
incur in performing the duties of your office. The Board shall review the
above fees from time to time and they are therefore subject to change. All
fees and payments will be made subject to any deductions required to be made
by the Company.
Outside Interests |
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Chairman and/or Company Secretary as soon as apparent. |
The Board of the Company have determined you to be independent according to the provision of the Combined Code. |
Confidentiality |
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiaries or associate companies which you obtained during your appointment or otherwise. |
You will be required to return all papers containing confidential information on termination of the appointment. |
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary. |
Induction
You have already been provided with an introduction
to the Company and its businesses and detailed information on a variety of
areas plus a directors' information pack. We have also arranged for various
site visits and meetings with senior and middle management and the Company's
advisors. We will also arrange for you to meet major investors as appropriate.
Review Process
The performance of individual directors
and the whole Board and its Committees is evaluated annually. If, in the
interim, there are any matters which cause you concern about your role you
should discuss them with the Chairman as soon as is appropriate.
Insurance |
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack. |
Independent Professional Advice |
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in accordance in respect of such advice. |
Indemnity |
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled. |
Governinq Law |
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts. |
Entire Aqreement |
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment and supersedes any previous agreement between yourself and the Company with respect thereto. |
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship. |
Yours sincerely |
|
Sir John Parker
Chairman |
Agreed and Accepted by |
|
Kenneth Harvey |
Exhibit 4.11
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 | ||||||||
London WC2N 5EH | F +44 (0) 20 7004 3004 | |||||||||
www.ngtgroup.com | ||||||||||
5 th June 2003 |
Sir John
Parker FREng
|
|||||||||
Chairman | ||||||||||
Professor Paul Joskow | D: +44 (0) 20 7004 3010 | |||||||||
7 Chilton Street | F: +44 (0) 20 7004 3012 | |||||||||
Brookline | M: +44 (0) 7831 496201 | |||||||||
MA 02446-3902 | john.parker@ngtgroup.com | |||||||||
Dear |
|
With reference to your letter of appointment dated 27 th March 2000 as amended by the letter dated 24 th October 2001, I am writing to confirm the terms of your appointment as a Non-Executive Director of National Grid Transco plc (the "Company") with effect from 1 April 2003. It is agreed that this is a contract for services and is not a contract of employment.
Appointment |
Your appointment, which commenced on 27 th March 2000, was for an initial term of three years, ending at the Company's AGM in 2003. The Board has agreed to extend the period of your appointment to the Company's AGM in 2005, unless otherwise terminated earlier in accordance with the Company's Articles of Association or by and at the discretion of either party upon one month's-written notice. Continuation of your contract of appointment is contingent on satisfactory performance and re-election at forthcoming AGMs. In the unlikely event that shareholders do not support your appointment or other shareholder action terminates your appointment before the 2005 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that Non-Executive Directors are typically expected to serve two three-year terms; any extension to this is subject to review by the Nominations Committee (prior to making recommendations to the Board) in the light of good corporate governance policy at the time. |
Time Commitment |
Overall we anticipate a time commitment of approximately 2-2½ days on average per month taking account of reading and preparation time for Board and Committee meetings. This will include attendance at Board meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary general meetings, 2 Board strategy sessions and at least one site visit per year. It is planned that certain Board meetings will be held out of London at the Company's operations (in the UK and USA). |
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company. |
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
Role |
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board: |
| provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: | |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as a Non-Executive Director of the Company. You have also been requested to serve on the Audit Committee and be chairman of the Finance Committee.
Fees
You will be paid an annual retainer fee of £30,000
gross per annum which will be paid monthly in arrears. You will also be entitled
to attendance fees of £1,500 for each Board meeting held in your country
of residence and £3,000
for each overseas meeting. This attendance fee is intended to cover your attendance
at any Committee meetings. For your chairmanship of the Finance Committee you
will receive £12,500 per annum. You will not receive any additional fees
for membership of, or attendance at, any Board Committee meetings. The Company
will reimburse you for all reasonable and properly documented expenses you incur
in performing the duties of your office. The Board shall review the above fees
from time to time and they are therefore subject to change. All fees and payments
will be made in US dollars at the rate of exchange applicable at the date of
payment and subject to any deductions required to be made by the Company.
Outside Interests |
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Chairman and/or Company Secretary as soon as apparent. |
The Board of the Company have determined you to be independent according to the provision of the Combined Code. |
Confidentiality |
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiary or associate companies which you obtained during your appointment or otherwise. |
You will be required to return all papers containing confidential information on termination of the appointment. |
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary. |
Induction |
You have already been provided with an introduction to the Company and its businesses and detailed information on a variety of areas plus a directors' information pack. We have also arranged for various site visits and meetings with senior and middle management and the Company's advisors. We will also arrange for you to meet major investors as appropriate. |
Review Process |
The performance of individual directors and the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate. |
Insurance |
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack. |
Independent Professional Advice |
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in accordance in respect of such advice. |
Indemnity |
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled. |
Governing Law |
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts. |
Entire Agreement |
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment and supersedes any previous agreement between yourself and the Company with respect thereto. |
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship. |
Yours sincerely |
|
Sir John Parker
Chairman |
Agreed and Accepted by |
|
Paul Joskow |
Exhibit 4.12
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 |
London WC2N 5EH | F +44 (0) 20 7004 3004 | |
www.ngtgroup.com |
12 January 2004
Sir John Parker
Kemendine
Court Wood
Newton Ferrers
Plymouth
PL8 1 BW
Dear Sir John
I am writing to confirm the amended terms of your appointment as Non-Executive Director and Chairman of National Grid Transco plc (the Company) a role which you took on from 21 October 2002 (the Merger effective date). It is agreed that this is a contract for services and is not a contract of employment. The terms contained within this letter replace those contained within your Contract of Service, dated 13 June 2002, which it is agreed are superseded in entirety by the terms of this letter and which take effect from 1 October 2003.
Appointment
You were appointed by the Board of the Company (the Board) as Non-Executive
Director and Chairman from 21 October 2002. As a Non-Executive Director your
appointment will continue for a period of three years ending at the Companys
Annual General Meeting (AGM) in 2006 unless otherwise terminated earlier in
accordance with the Companys Articles of Association, or by and at the
discretion of either party upon six months written notice. Continuation
of your appointment is contingent upon satisfactory performance and re-election
at AGMs. In the unlikely event that shareholders do not support your appointment
or other shareholder action terminates your appointment, you will not be entitled
to receive damages for breach of contract other than any payment in respect of
notice.
During your period of appointment you will comply with all relevant policies, rules and regulations issued by the Company.
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
National Grid Transco |
Time Commitment
We have agreed a time commitment of 2½ days per week.
The agreement of the Board should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director and Chairman of the Company.
You should also have regard to your duties as a Director in light of the UKLA Listing Rules and Combined Code and obligations arising as a result of the Companys shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors Information Pack which is attached. You will also be subject to the Companys Share Dealing Code as set out in the Directors Information Pack.
Role
Non-Executive Directors have the same general legal responsibilities to the
Company as any other Director. The Board as a whole is collectively responsible
for promoting the success of the Company by directing and supervising the
Companys affairs.
Your responsibilities as Chairman are required by the new Combined Code to be set out in writing and agreed by the Board. These responsibilities are now being discussed with you prior to such approval.
Committees
This letter refers to your appointment as a Non-Executive Director and Chairman of the Company. You will also continue to chair the Nominations Committee.
Fees and other Remuneration and Benefits
You will be paid an annual fee of £300,000 gross per annum which will
be paid monthly in arrears. You will not receive any additional fees for attendance
at any Board meeting, for membership of any Board Committee or attendance at
any Board Committee meetings. The Company will reimburse you for all reasonable
and properly documented expenses you incur in performing the duties of your
office. The Board shall review the above fees from time to time and they are
therefore subject to change. All fees and payments will be made in sterling
subject to any
deductions required to be made by the Company.
At the Companys discretion you will have the opportunity of participating in the Companys personal accident and private medical insurance schemes on the terms agreed by the Board for the Executive Directors. The Company may amend, suspend or terminate these schemes, or any part thereof, at any time in its absolute discretion and you shall have no continuing right to any continued participation in the same. Membership is subject to and in accordance with the rules of the relevant schemes as amended from time to time.
National Grid Transco |
Life assurance cover will be provided to you of an amount and on terms that would have been available had you been, throughout the period of your appointment as Chairman, a member of the Lattice Group Pension Scheme. The level of cover will be equivalent to four times your prevailing level of fees. In this connection, you will be required to have an initial medical assessment to establish the cost of cover, following which you may, from time to time, be requested to undergo further medical examinations.
The Company will provide you with a chauffeur, car and fuel expenses for all private and business use under the terms and conditions agreed by the Board, from time to time, to apply to Executive Directors. Provision of this benefit is discretionary and does not form part of your contractual terms and conditions.
Any income tax assessed on these benefits will be for your account.
The Company reserves the right to deduct from your fees any overpayment of fees or other payments, made by mistake or through misrepresentation or for any other reason. Upon termination of your appointment, the Company may deduct from your final payment, or any other termination payments due, an amount equal to any sums you owe to the Company and you hereby agree to any such deductions.
Outside Interests
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Group Company
Secretary and General Counsel as soon as apparent.
Confidentiality
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or
advantage any confidential information relating to the Company or any of its subsidiaries or associate companies which you obtained during your appointment or otherwise.
You will be required to return all papers containing confidential information on termination of the appointment.
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Group Company Secretary and General Counsel.
National Grid Transco |
Review Process
The performance of individual Directors, the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chief Executive, the Deputy Chairman or the Group Company
Secretary and General Counsel as soon as is appropriate.
Insurance
The Company has directors and officers liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your Directors Information
Pack.
Independent Professional Advice
Occasions
may arise when you consider that you need professional advice in the furtherance
of your duties as a Director. Circumstances may occur when it will be appropriate
for you to seek advice from independent advisors at the Companys expense.
Please advise the Group Company Secretary and General Counsel should you
seek such advice. The Company will reimburse the full cost of expenditure
incurred in respect of such advice.
Indemnity
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a Director of the Company, the Company shall
indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgements, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted
by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled.
Governinq Law
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts.
National Grid Transco |
Entire Aqreement
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment.
Yours sincerely
James Ross
Deputy Chairman
Agreed and Accepted by
Sir John Parker
Exhibit 4.13 |
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 |
London WC2N 5EH | F +44 (0) 20 7004 3004 | |
www.ngtgroup.com |
Dear |
|
With reference to the letter of appointment from National Grid Group plc dated 11 th June 2002, I am writing to confirm the terms of your appointment as a Non-Executive Director of National Grid Transco plc (the "Company") with effect from 1 April 2003. It is agreed that this is a contract for services and is not a contract of employment. |
Appointment
Your appointment, which commenced on 21 October 2002, will be for an initial term of three years, ending at the Company's AGM in 2006, unless otherwise terminated earlier in accordance with the Company's Articles of Association or by and at the discretion of either party upon one month's written notice. Continuation of your contract of appointment is contingent on satisfactory performance and re-election at forthcoming AGMs. In the unlikely event that shareholders do not support your appointment or other shareholder action terminates your appointment before the 2006 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that Non-Executive Directors are typically expected to serve two three-year
terms; any extension to this is subject to review by the Nominations Committee (prior to making recommendations to the Board) in the light of good corporate governance policy at the time.
Time Commitment
Overall we anticipate a time commitment of approximately 2-2½ days
on average per month, after the induction phase, taking account reading and preparation
time for Board and Committee meetings. This will include attendance at Board
meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will
be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary
general meetings, 2 Board strategy sessions and at least one site visit per year.
It is planned that certain Board meetings will be held out of London at the Company's
operations (in the UK and USA).
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate
National Grid Transco plc | |
Registered Office: 1-3 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company. You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
Role
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board:
| provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: | |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as a Non-Executive Director of the Company. You have also been requested to serve on the Finance and Risk and Responsibility Committees.
Fees
You
will be paid an annual retainer fee of £30,000 gross per annum which will be paid monthly in arrears. You will also be entitled to attendance fees of £1,500 for each Board meeting held in your country of residence and £3,000
for each overseas meeting. This attendance fee is intended to cover your
attendance at any Committee meetings. You will not receive any additional
fees for membership of, or attendance at, any Board Committee meetings. The Company will reimburse you for all reasonable and properly documented expenses you incur in performing the duties of your office. The Board shall review the above fees from time to time and they are therefore subject to change. All fees and payments will be made subject to any deductions required to be made by the Company. |
Outside Interests |
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Chairman and/or Company Secretary as soon as apparent. |
The Board of the Company have determined you to be independent according to the provision of the Combined Code. |
Confidentiality |
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiaries or associate companies which you obtained during your appointment or otherwise. |
You will be required to return all papers containing confidential information on termination of the appointment. |
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary. |
Induction |
You have already been provided with an introduction to the Company and its businesses and detailed information on a variety of areas plus a directors' information pack. We have also arranged for various site visits and meetings with senior and middle management and the Company's advisors. We will also arrange for you to meet major investors as appropriate. |
Review Process |
The performance of individual directors and the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate. |
Insurance |
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack. |
Independent Professional Advice |
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in accordance in respect of such advice. |
Indemnity |
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled. |
Governing Law |
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts. |
Entire Agreement |
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment and supersedes any previous agreement between yourself and the Company with respect thereto. |
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship. |
Yours sincerely |
|
Sir John Parker
Chairman |
Agreed and Accepted by |
|
Stephen Pettit |
Exhibit 4.14
National Grid Transco |
1-3 Strand
London WC2N 5EH |
T +44 (0) 20
7004 3000
F +44 (0) 20 7004 3004 www.ngtgroup.com |
30 September 2003 | Sir John Parker FREng | |
Chairman | ||
Ms Maria Richter
185 Park Avenue Apt 7C New York New York 10128 USA |
D: +44 (0) 20 7004 3010
F: +44 (0) 20 7004 3012 M: +44 (0) 7831 496201 john.parker@ngtgroup.com |
Dear Maria
I am writing to confirm the terms of your appointment as a Non-Executive Director of National Grid Transco plc (the "Company") with effect from 1st October 2003. It is agreed that this is a contract for services and is not a contract of employment.
Appointment
Upon
the recommendation of the Nominations Committee, the Board of the Company
(the "Board") appoints
you as a Non-Executive Director from 1st October 2003. Your appointment
will be for an initial period ending at the Company's Annual General Meeting
(AGM) in 2004. Contingent upon reelection by shareholders at the meeting,
your appointment will continue for a term of three years, ending at the Company's
AGM in 2007, unless otherwise terminated earlier in accordance with the Company's
Articles of Association or by and at the discretion of either party upon
one month's written notice. Continuation of your contract of appointment
is contingent on satisfactory performance and re-election at forthcoming
AGMs. In the unlikely event that shareholders do not support your appointment
or other shareholder action terminates your appointment, you will not be
entitled to receive damages for breach of contract. As you know, it is Board
policy that Non-Executive Directors are typically (subject to a review performance
towards the end of the first three year term) expected to serve two three-year
terms; any extension to this is subject to review by the Nominations Committee
(prior to making recommendations to the Board) in the light of good corporate
governance
policy at the time.
Time Commitment
Overall we anticipate a time commitment of approximately 2-2½% days on average per month, after the induction phase, taking into account reading and preparation time for Board and Committee meetings. This will include attendance at Board meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary general meetings, two Board strategy sessions and at least one site visit per year. It is planned that certain Board meetings will be held at various of the Company's operations throughout the UK and USA.
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company.
You should also have regard to your duties as a Director in light of the UKLA Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack which is attached. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
Role | provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as a Non-Executive Director of the Company. You have also been requested to serve on the Finance, and Risk and Responsibility Committees.
Fees
You
will be paid an annual retainer fee of £30,000 gross per annum which will be paid monthly in arrears. You will also be entitled to attendance fees of £1,500 for each Board meeting held in your country of residence and £3,000
for each overseas meeting. For these purposes it is assumed you are
resident in the USA. This attendance fee is also intended to cover your attendance at any Committee meetings. You will not receive any additional fees for membership of, or attendance at, any Board Committee meetings. The Company will reimburse you for all reasonable and properly documented expenses you incur in performing the duties of your office. The Board shall review the above fees from time to time and they are therefore subject to change. All fees and payments will be made in sterling subject to any deductions required to be made by the Company.
Outside Interests
It
is accepted and acknowledged that you have business interests other than
those of the Company and have declared any conflicts that are apparent at
present. In the event that you become aware of any potential conflicts of
interest, these should be disclosed to the Chairman and/or Group Company
Secretary as soon as apparent.
The Board of the Company have determined you to be independent according to the provision of the Combined Code.
Confidentiality
You
will, naturally, during your appointment and following its termination not
disclose or communicate to any person (except as required by law or in the
course of the proper performance of your duties, or with the consent of the
Board of Directors) nor use for your own account or advantage any confidential
information relating to the Company or any of its subsidiaries or associate
companies which you obtained during your appointment or otherwise.
You will be required to return all papers containing confidential information on termination of the appointment.
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Group Company Secretary.
Induction
You
have already been provided with an introduction to the Company and its businesses
and detailed information on a variety of areas plus a Directors' Information
Pack. We will also arrange for various site visits and meetings with senior
and middle management and the Company's advisors and for you to meet major
investors as appropriate.
Review Process
The performance of individual Directors, the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate.
Insurance
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your Directors' Information Pack.
Independent Professional Advice
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Group Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in respect of such advice.
Indemnity
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a Director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgements, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any
other rights to which you may be entitled.
Governing Law
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts.
Entire Agreement
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment.
On a personal level, I am delighted that you are joining the Board of National Grid Transco plc and I look forward to our building a good working relationship.
Yours sincerely
Sir John Parker
Chairman
Agreed and Accepted by
Maria Richter
Exhibit 4.15
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 | ||||||||
London WC2N 5EH | F +44 (0) 20 7004 3004 | |||||||||
www.ngtgroup.com | ||||||||||
5 th June 2003 |
Sir John
Parker FREng
|
|||||||||
Chairman | ||||||||||
Mr George Rose | D: +44 (0) 20 7004 3010 | |||||||||
Cravenfold | F: +44 (0) 20 7004 3012 | |||||||||
Moorside Lane | M: +44 (0) 7831 496201 | |||||||||
Wiswell | john.parker@ngtgroup.com | |||||||||
Clitheroe | ||||||||||
Lancashire | ||||||||||
BB7 9DB | ||||||||||
Dear |
|
With reference to the letter of appointment from National Grid Group plc dated 11 th June 2002, I am writing to confirm the terms of your appointment as a Non-Executive Director of National Grid Transco plc (the "Company") with effect from 1 April 2003. It is agreed that this is a contract for services and is not a contract of employment.
Appointment
Your appointment, which commenced on 21 October 2002, will be for an initial term of three years, ending at the Company's AGM in 2006, unless otherwise terminated earlier in accordance with the Company's Articles of Association or by and at the discretion of either party upon one month's written notice. Continuation of your contract of appointment is contingent on satisfactory performance and re-election at forthcoming AGMs. In the unlikely event that shareholders do not support your appointment or other shareholder action terminates your appointment before the 2006 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that Non-Executive Directors are typically expected to serve two three-year
terms; any extension to this is subject to review by the Nominations Committee (prior to making recommendations to the Board) in the light of good corporate governance policy at the time.
Time Commitment
Overall we anticipate a time commitment of approximately 2-2½ days on average per month, after the induction phase, taking account reading and preparation time for Board and Committee meetings. This will include attendance at Board meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary general meetings, 2 Board strategy sessions and at least one site visit per year. It is planned that certain Board meetings will be held out of London at the Company's operations (in the UK and USA).
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director of the Company. You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
National Grid Transco plc | |
Registered Office: 13 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
Role |
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board: |
| provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees |
This letter refers to your appointment as a Non-Executive Director of the Company. You have also been requested to serve on the Nominations and Remuneration Committees and be chairman of the Audit Committee. |
Fees |
You will be paid an annual retainer fee of £30,000 gross per annum which will be paid monthly in arrears. You will also be entitled to attendance fees of £1,500 for each Board meeting held in your country of residence and £3,000 for each overseas meeting. This attendance fee is intended to cover your attendance at any Committee meetings. For your chairmanship of the Audit Committee you will receive £12,500 per annum. You will not receive any additional fees for membership of, or attendance at, any Board Committee meetings. The Company will reimburse you for all reasonable and properly documented expenses you incur in performing the duties of your office. The Board shall review the above fees from time to time and they are therefore subject to change. All fees and payments will be made subject to any deductions required to be made by the Company. |
Outside Interests |
It is accepted and acknowledged that you have business interests other than those of the Company and have declared any conflicts that are apparent at present. In the event that you become aware of any potential conflicts of interest, these should be disclosed to the Chairman and/or Company Secretary as soon as apparent. |
The Board of the Company have determined you to be independent according to the provision of the Combined Code. |
Confidentiality |
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiary or associate companies which you obtained during your appointment or otherwise. |
You will be required to return all papers containing confidential information on termination of the appointment. |
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary. |
Induction |
You have already been provided with an introduction to the Company and its businesses and detailed information on a variety of areas plus a directors' information pack. We have also arranged for various site visits and meetings with senior and middle management and the Company's advisors. We will also arrange for you to meet major investors as appropriate. |
Review Process |
The performance of individual directors and the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate. |
Insurance |
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack. |
Independent Professional Advice |
Occasions may arise when you consider that you need professional advice in the furtherance of your duties as a director. Circumstances may occur when it will be appropriate for you to seek advice from independent advisors at the Company's expense. Please advise either the Chairman or the Company Secretary should you seek such advice. The Company will reimburse the full cost of expenditure incurred in accordance in respect of such advice. |
Indemnity |
In the event that you are made a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that you are or were a director of the Company, the Company shall indemnify you against expenses (including legal fees) actually and reasonably incurred by you in connection with such action, suit or proceeding and against judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding to the fullest extent permitted by the Companies Act 1985 as amended and any other applicable law or regulation, as from time to time in effect. Such right of indemnification shall be without prejudice to any other rights to which you may be entitled. |
Governing Law |
The agreement contained in this letter shall be governed by, and construed in accordance with, English law and shall be subject to the exclusive jurisdiction of the English courts. |
Entire Agreement |
This appointment letter represents the entire understanding, and constitutes the whole agreement, in relation to the Appointment and supersedes any previous agreement between yourself and the Company with respect thereto. |
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship. |
Yours sincerely |
|
Sir John Parker
Chairman |
Agreed and Accepted by |
|
George Rose |
Exhibit 4.16 |
National Grid Transco | 1-3 Strand | T +44 (0) 20 7004 3000 |
London WC2N 5EH | F +44 (0) 20 7004 3004 | |
www.ngtgroup.com |
5 th June 2003 | |
Sir John Parker
FREng
Chairman |
|
D: +44 (0 ) 20 7004 3010 | |
Mr James Ross | F: +44 (0 ) 20 7004 3012 |
Olive Hill | M: +44 (0 ) 7831 496201 |
Wyck Rissington
Near Cheltenham Gloucestershire GL54 2PW |
john.parker@ngtgroup.com |
Dear |
|
With reference to your letter of appointment dated 4 th March 1999 as amended by the letter dated 24 th October 2001, I am writing to confirm the terms of your appointment as a Non-Executive Director and Deputy Chairman of National Grid Transco plc (the "Company") with effect from 1 April 2003. You will also be the senior independent Non-Executive Director on the Board. It is agreed that this is a contract for services and is not a contract of employment. |
Appointment
Your appointment, which commenced on 1
st
March
1999, currently ends at the Company's AGM in 2004, unless otherwise terminated
earlier in accordance with the Company's Articles of Association or by and
at the discretion of either party upon one month's written notice. Continuation
of your contract of appointment is contingent on satisfactory performance
and reelection at forthcoming AGMs. In the unlikely event that shareholders do not support your appointment or other shareholder action terminates your appointment before the 2004 AGM, you will not be entitled to receive damages for breach of contract. As you know, it is Board policy that NonExecutive
Directors are typically expected to serve two three-year terms; any extension
to this is subject to review by the Nominations Committee (prior to making
recommendations to the Board) in the light of good corporate governance policy
at the time.
Time Commitment
Overall we anticipate a time commitment of approximately 1 day per week on average taking account reading and preparation time for Board and Committee meetings. This will include attendance at Board meetings (estimated 9 scheduled meetings per annum of which 2-3 per annum will be in the USA) plus ad hoc and emergency meetings, the AGM, any extraordinary general meetings, 2 Board strategy sessions and at least one site visit per year. It is planned that certain Board meetings will be held out of London at the Company's operations (in the UK and USA).
By confirming this appointment, you have agreed that you are able to allocate sufficient time to meet the expectations of your role including appropriate preparation time. The agreement of the Chairman should be sought before
National Grid Transco plc | |
Registered Office: 1-3 Strand, London WC2N 5EH | |
Registered in England and Wales, No 4031152 |
accepting additional commitments that might affect the time you are able to devote to your role as a Non-Executive Director and Deputy Chairman of the Company.
You should also have regard to your duties as a director in light of the UK Listing Rules and Combined Code and obligations arising as a result of the Company's shares being listed on the New York Stock Exchange, as set out in the relevant section in the Directors' Information Pack. You will also be subject to the Company's Share Dealing Code as set out in the Directors Information Pack.
Role
Non-Executive Directors have the same general legal responsibilities to the Company as any other director. The Board as a whole is collectively responsible for promoting the success of the Company by directing and supervising the Company's affairs. The Board: |
|
| provides effective business leadership of the Company within a framework of prudent and effective controls which enable risk to be assessed and managed; |
| sets the Company's strategic aims, ensures that the necessary financial and human resources are in place for the Company to meet its objectives, and reviews management performance; and |
| sets the Company's values and standards and ensures that its obligations to its shareholders and others are understood and met. |
In addition to these requirements of all directors, the role of the non-executive has the following key elements: | |
| Strategy: Non-Executive Directors should constructively challenge and contribute to the development of strategy; |
| Performance: Non-Executive Directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; |
| Risk: Non-Executive Directors should satisfy themselves that the financial function of the Company is professionally managed and that financial controls and systems of risk management are robust and defensible; and |
| People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. |
Committees
This letter refers to your appointment as a Non-Executive Director and Deputy Chairman of the Company. You have also been requested to serve on the Nominations Committee and be chairman of the Risk and Responsibility Committee.
Fees
You
will be paid an annual fee of £115,000 gross per annum which will be
paid monthly in arrears which includes fees for your chairmanship of the
Risk and Responsibility Committee. You will not receive any additional fees
for membership of, or attendance at, any Board Committee meetings. The Company
will reimburse you for all reasonable and properly documented
expenses you incur in performing the duties of your office. The Board shall review the above fees from time to time and they are therefore subject to change. All fees and payments will be made subject to any deductions required to be made by the Company.
Outside Interests
It is accepted and acknowledged
that you have business interests other than those of the Company and have
declared any conflicts that are apparent at present. In the event that you
become aware of any potential conflicts of interest, these should be disclosed
to the Chairman and/or Company Secretary as soon as apparent.
The Board of the Company have determined you to be independent according to the provision of the Combined Code.
Confidentiality
You will, naturally, during your appointment and following its termination not disclose or communicate to any person (except as required by law or in the course of the proper performance of your duties, or with the consent of the Board of Directors) nor use for your own account or advantage any confidential information relating to the Company or any of its subsidiary or associate companies which you obtained during your appointment or otherwise.
You will be required to return all papers containing confidential information on termination of the appointment.
Your attention is also drawn to the requirements under both legislation and regulation as to the disclosure of price sensitive information. Consequently you should avoid making any statements that might risk a breach of these requirements without prior clearance from the Chairman or Company Secretary.
Induction
You have already been provided with an introduction to the Company and its businesses and detailed information on a variety of areas plus a directors' information pack. We have also arranged for various site visits and meetings with senior and middle management and the Company's advisors. We will also arrange for you to meet major investors as appropriate.
Review Process
The performance of individual directors and the whole Board and its Committees is evaluated annually. If, in the interim, there are any matters which cause you concern about your role you should discuss them with the Chairman as soon as is appropriate.
Insurance
The Company has directors' and officers' liability insurance and it is intended to maintain such cover for the full term of your appointment. A summary of the cover is included in your directors' information pack.
Independent Professional Advice
Occasions may arise when you consider that
you need professional advice in the furtherance of your duties as a director.
Circumstances may occur when it will be appropriate for you to seek advice
from independent advisors at the Company's expense. Please advise either
the Chairman or the Company Secretary should you seek such advice. The Company
will reimburse the full cost of expenditure incurred in accordance in respect
of such advice.
Indemnity
In the event that you are made a
party or are threatened to be made a
.
party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that you are or were a director of
the Company, the Company shall indemnify you against expenses (including
legal fees) actually and reasonably incurred by you in connection with such
action, suit or proceeding and against judgments, fines and amounts paid
in settlement in connection with such action, suit or proceeding to the fullest
extent permitted by the Companies Act 1985 as amended and any other applicable
law or regulation, as from time to time in effect. Such right of indemnification
shall be without prejudice to any other rights to which you may be entitled.
Governing Law
The agreement contained in this letter shall
be governed by, and construed in accordance with, English law and shall be
subject to the exclusive jurisdiction of the English courts.
Entire Agreement
This appointment letter represents the entire
understanding, and constitutes the whole agreement, in relation to the Appointment
and supersedes any previous agreement between yourself and the Company with
respect thereto.
On a personal level, I am delighted that you are continuing to serve on the Board of National Grid Transco plc and I look forward to our continuing working relationship.
Yours sincerely
Sir John Parker
Chairman
Agreed and Accepted by
17.6.03
James Ross
Exhibit 4.19
NATIONAL GRID TRANSCO PLC
THE RULES OF
THE PERFORMANCE SHARE PLAN
Date approved by shareholders: | 23 July 2002 |
Date adopted by the Board: | 17 October 2002 |
Date amended by the Share Schemes Sub-Committee | 26 June 2003 |
Date amended by the Share Schemes Sub-Committee | 5 May 2004 |
The National Grid Transco Plc Performance Share Plan
1. | Definitions and Interpretation |
(1) | In this Plan, unless the context otherwise requires: |
ADS means an American depository share representing ordinary shares of the Company; | |
Award means a Share Right or an Option; | |
the Board means the board of directors of the Company; | |
the Committee means the Remuneration Committee of the Board, consisting exclusively of non-executive directors of the Company or if any of the events envisaged in Rules 7(1), 7(3) or 7(4) occurs then the Remuneration Committee as constituted immediately before such event occurred; | |
the Company means National Grid Transco plc (registered in England and Wales No. 4031152); | |
the Grant Date means in relation to an Award the date on which the Option or Share Right (as appropriate) was granted; | |
Group Member means: | |
(a) | a Participating Company or a body corporate which is (within the meaning of section 736 of the Companies Act 1985) the Companys holding company or a subsidiary of the Companys holding company; or | |
(b) | a body corporate which is (within the meaning of section 258 of the Companies Act 1985) a subsidiary undertaking of a body corporate within paragraph (a) above and has been designated by the Board for this purpose; | |
the Listing Rules means the listing rules made by the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000; | |
the London Stock Exchange means London Stock Exchange plc; | |
the Merger means the merger between the Company and Lattice Group plc; | |
the Model Code means the Model Code on directors dealings in securities as set out in the Appendix to Chapter 16 to the Listing Rules; | |
Option means an option to acquire (whether by subscription or purchase) Shares in the Company granted under the Plan; | |
Participant means a person who holds an Award; | |
Participating Company means the Company or any Subsidiary or any company which is not under the control of any single person, but is under the control of two persons (within the meaning of section 840 of the Taxes Act 1988), one of them being the Company, and to which the Board has resolved that this Plan shall for the time being extend; | |
Performance Condition means a condition related to performance which is specified by the Committee under Rule 3(1); | |
the PIan means the National Grid Transco plc Performance Share Plan as herein set out but subject to any alterations or additions made under Rule 10 below; |
|
A02838962/0.18/07 Jun 2004 |
1
|
Shares means ordinary shares in the capital of the Company or, as the context requires, ADSs; | |
Share Right means a conditional right to receive Shares in the Company upon the terms and conditions set out in the Plan; | |
Subsidiary means a body corporate which is a subsidiary of the Company (within the meaning of section 736 of the Companies Act 1985); | |
the Takeover Code means the Code on Takeovers and Mergers issued by the Panel on Takeovers and Mergers, as from time to time modified, extended or reissued; | |
the Taxes Act 1988 means the Income and Corporation Taxes Act 1988; and | |
the Trustees means the trustee or trustees for the time being of any trust established for the benefit of all or most of the employees of the Company and/or its Subsidiaries. | |
(2) | Any reference in this Plan to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted. |
(3) | Words of the feminine gender shall include the masculine and vice versa unless, in either case, the context requires otherwise or is otherwise stated. |
(4) | Expressions in italics are for guidance only and do not form part of this Plan. |
2. | Eligibility |
A person is eligible to be granted an Award if (and only if) he is an employee (including a director who is also an employee) of a Participating Company. | |
3. | Grant of Awards |
(1) | The Committee or the Trustees may by deed (but, in the case of the Trustees, only following a recommendation of the Committee) grant an Award over Shares upon the terms set out in this Plan and upon such other terms including Performance Conditions as the person granting the Award may specify to any person who is eligible to be granted an Award in accordance with Rule 2 above. |
(2) | Subject to sub-rules 5(5), 6(4) and 7(5), unless the Committee determines otherwise prior to or on the Grant Date, the Performance Condition shall be measured over a three year period ending on or before the third anniversary of the Grant Date. |
(3) | If, after the Committee or the Trustees (as the case may be) have imposed a Performance Condition, events happen which causes the Committee to consider that it is no longer appropriate the Committee may vary such condition provided always that any such amendment may only be one which the Committee reasonably considers will result in a fairer measure of the performance, will ensure that this Plan operates more effectively in the achievement of its purpose of providing share benefits for employees who contribute to the prosperity of the Company and its shareholders, and will be neither substantially more nor less difficult to satisfy than the original condition was intended to be at the time of its grant. |
|
A02838962/0.18/07 Jun 2004 |
2
|
(4) | Whether an Award is an Option, or a Share Right shall be determined by the Committee and stated at the Grant Date. The Committee may determine to grant an Award to acquire ADSs and references in these rules to Shares shall be construed accordingly. |
(5) | The price (if any) at which Shares may be acquired pursuant to an Award shall be determined by the Committee and stated at the Grant Date. |
(6) | An Award granted to any person: |
(a) | shall not be capable of being transferred by him, other than to his personal representatives following death; and | |
(b) | shall lapse forthwith if he is adjudged bankrupt. | |
(7) | An Award may only be granted: |
(a) | within the period of six weeks beginning with: | |
(i) | the completion of the Merger; or | ||
(ii) | the dealing day next following the date on which the Company announces its results for any period; or | ||
(b) | at any other time when the circumstances are considered by the Committee to be sufficiently exceptional to justify its grant; and | |
(c) | within the period of 10 years beginning with the date on which this Plan is adopted by the Company. | |
(8) | The grant of an Award shall be subject to the provisions of the Model Code and to obtaining any approval or consent required under the provisions of the Listing Rules or the Takeover Code, or of any other enactment or regulation applicable to such grant. |
4. | Limits |
(1) | No Awards shall be granted in any year which would, at the time they are granted, cause the number of Shares in the Company which shall have been or may be issued in pursuance of options granted in the period of 10 calendar years ending with that year, or been issued in that period otherwise than in pursuance of options, under this Plan or under any other executive share scheme adopted by the Company or a Subsidiary to exceed such number as represents 5 per cent. of the ordinary share capital of the Company in issue at that time. |
(2) | No Awards shall be granted in any year which would, at the time they are granted, cause the number of Shares in the Company which shall have been or may be issued in pursuance of options granted in the period of 10 calendar years ending with that year, or been issued in that period otherwise than in pursuance of options, under this Plan or under any other employees share scheme adopted by the Company or a Subsidiary to exceed such number as represents 10 per cent. of the ordinary share capital of the Company in issue at that time. |
(3) | No person shall be granted Awards which would, at the time they are granted, cause the aggregate market value of the Shares which he may acquire in pursuance of Awards granted to him under the Plan in any financial year of the Company to exceed 125 per cent. of the annual base salary of such person, and for the purposes of this sub-rule: |
|
A02838962/0.18/07 Jun 2004 |
3
|
(a) | a persons base salary shall be taken to be his current base salary (excluding benefits in kind) expressed as an annual rate in respect of the financial year of the Company in which the Grant Date of the Award falls; and | |
(b) | where a payment of remuneration is made otherwise than in sterling, the payment shall be treated as being of the amount of sterling ascertained by applying such rate of exchange as published in a national newspaper on the Grant Date as the Committee shall reasonably determine. | |
(4) | For the purposes of this Rule, the market value of the Shares in relation to which an Award was granted shall be calculated by reference to the market value of the Shares on the Grant Date. |
(5) | References in this Rule 4 to Shares being issued pursuant to the exercise of options shall include any Shares issued for the purpose of satisfying any such option. |
(6) | For the purposes of sub-rules (1) and (2) above, any shares in National Grid Holdings One plc (company number 2367004) which have been issued (or remain issuable) under any executive or employees share scheme (as the case may be) shall be treated as Shares in the Company, subject to the proviso that: |
(a) | any Shares issued or issuable pursuant to any options granted as Replacement Options under paragraph (f) of the Unapproved Appendix to the National Grid Executive Share Option Scheme (1990) shall be regarded as having been granted on the date that the 1998 Option (as that term is defined in such paragraph) to which they relate was granted; and | |
(b) | any Shares issued or issuable pursuant to any option granted under The National Grid Company PLCs 1995 Unapproved Savings Related Share Option Scheme and any corresponding option granted under The National Grid Company PLCs Savings Related Share Option Scheme established in 1990 shall be treated as a single option in recognition that only one or other, but not both, of such options may be exercised. | |
5. | Exercise of Options |
(1) | The exercise of any Option shall be effected in the form and manner prescribed by the Board. |
(2) | Subject to sub-rule (4) below and to Rules 7(1), 7(3) and 7(4) below, an Option may not be exercised before the fourth anniversary of the Grant Date and subject to sub-rule (10) below, an Option may be exercised in the three months following the fourth anniversary of the Grant Date. |
(3) | Subject to sub-rule (4) below and to Rule 7(5) below, an Option may not be exercised if the Performance Condition (if any) applicable to that Option is not satisfied. |
(4) | Subject to sub-rules (5) and (6) below, if any Participant ceases to be a director or employee of a Group Member, the following provisions apply in relation to any Option granted to him: |
(a) | if he so ceases by reason of death, unless the Committee determines otherwise, any Option granted to him may (and must, if at all) be exercised by his personal representatives within 12 months after the date of his death, provided that his death occurs at a time when either he is a director or employee of a Group Member or he is entitled to exercise the Option by virtue of this sub-rule 5(4); |
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(b) | if he so ceases by reason of injury, disability, pregnancy or redundancy (within the meaning of the Employment Rights Act 1996), or by reason only that his office or employment is in a company which ceases to be a Group Member, or relates to a business or part of a business which is transferred to a person who is not a Group Member, unless the Committee determines otherwise, the Option may (and subject to paragraph (a) above must, if at all) be exercised, within the exercise period; | |
(c) | if he so ceases by reason of retirement on reaching the age at which he is bound to retire in accordance with the terms of his contract of employment, unless the Committee determines otherwise, the Option may (and subject to paragraph (a) above must, if at all) be exercised within the exercise period; | |
(d) | if he so ceases for any other reason before the third anniversary of the Grant Date, the Option may not be exercised at all unless the Committee shall so permit, in which event it may (and subject to paragraph (a) above must, if at all) be exercised to the extent permitted by the Committee within the exercise period; | |
and in paragraphs (b), (c) and (d) of this sub-rule the exercise period is the period which shall expire 12 months in the cases where paragraphs (b) or (d) above apply or six months in cases where paragraph (c) above applies after his so ceasing, or such later date as the Committee may determine. | |
(5) | In relation to an Option which would be exercisable by virtue of an event mentioned in sub-rule (4) above, that Option shall become exercisable in respect of a number of Shares (if any) calculated on the following basis: |
(a) | by determining the extent to which the Performance Condition has been satisfied on the last occasion on which the Performance Condition was measured before the date on which such event occurs in respect of the Option; and | |
(b) | by applying a pro rata reduction of the number of Shares determined under paragraph (a) above on the basis of the number of complete months for which the Option has been subsisting bears to 36 months, | |
unless the Committee decides that this sub-rule (5) operates unfairly in the circumstances in which case it may, in its discretion, determine that the Option should be treated in such other manner as it so decides. | |
(6) | If any Participant ceases to be a director or employee between the third and fourth anniversaries of the Grant Date, the following provisions will apply in relation to any Option granted to him: |
(a) | if he so ceases for a reason specified in paragraphs (a), (b) or (c) of sub-rule (4) above, the provisions of those paragraphs will apply; | |
(b) | if he so ceases for any other reason (other than dismissal for misconduct), any Option in respect of which the Performance Condition has been satisfied may be exercised in accordance with sub-rule (2) above; and | |
(c) | if he so ceases by reason of dismissal for misconduct, the Option will lapse forthwith. |
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(7) | A Participant shall not be treated for the purposes of sub-rule (4) above as ceasing to be a director or employee of a Group Member until such time as he is no longer a director or employee of any Group Member. |
(8) | Notwithstanding any other provision of the Plan, an Option may not be exercised after the expiration of the period of 10 years (or such shorter period as the Committee may have determined before its grant) beginning with the Grant Date. |
(9) | Within 30 days after an Option has been exercised by any person, the grantor of the Option shall procure the transfer to him (or a nominee for him) of the number of Shares in respect of which the Option has been exercised, provided that: |
(a) | the Board considers that the transfer thereof would be lawful in all relevant jurisdictions; and | |
(b) | in a case where a Group Member or the Trustees is obliged to (or would suffer a disadvantage if they were not to) account for any tax (in any jurisdiction) and/or for any social security contributions recoverable from the person in question and/or any employers social security/National Insurance contributions which the person has agreed to pay (together, the Tax Liability ) for which the person in question is liable by virtue of the exercise of the Option, that person has either: | |
(i) | made a payment to the Group Member or the Trustees of an amount equal to the Tax Liability; or | ||
(ii) | entered into arrangements acceptable to that Group Member, the Trustees or another Group Member to secure that such a payment is made (whether by authorising the sale of some or all of the Shares on his behalf and the payment to the relevant person of the relevant amount out of the proceeds of sale or otherwise). | ||
(10) | The exercise of any Option and the transfer of Shares under the Plan shall be subject to the provisions of the Model Code and to obtaining any approval or consent referred to in Rule 3(8) above. Where the transfer of Shares pursuant to an Award is prohibited pursuant to the Model Code at any time, such transfer shall instead take place as soon as reasonably practicable after it is no longer prohibited by the Model Code. |
(11) | Any Shares issued under this Plan in respect of Options shall rank equally in all respects with Shares of the same class then in issue except for any rights attaching to those Shares by reference to a record date prior to the date of allotment. |
6. | Vesting of Share Rights |
(1) | Subject to sub-rules (3) below and to Rules 7(1), 7(3) and 7(4) below, the grantor of a Share Right (the Grantor) shall procure that the Shares subject to the Share Right are transferred to a Participant as soon as reasonably practicable after the fourth anniversary of the Grant Date. | |
(2) | Subject to sub-rule (3) below and to Rule 7(5) below, no Shares shall be transferred pursuant to sub-rule (1) above in respect of a Share Right unless the Performance Condition (if any) applicable to that Share Right is satisfied. |
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(3) | Subject to sub-rules (4) and (5) below, if any Participant ceases to be a director or employee of a Group Member, the following provisions apply in relation to any Share Right granted to him: |
(a) | if he so ceases by reason of death, unless the Committee determines otherwise, the Grantor will procure that Shares will be transferred to his personal representatives within 12 months after the date of his death, provided that his death occurs at a time when either he is a director or employee of a Group Member or he is entitled to receive a transfer of Shares by virtue of this sub-rule 6(3); | |
(b) | if he so ceases by reason of injury, disability, pregnancy or redundancy (within the meaning of the Employment Rights Act 1996), or by reason only that his office or employment is in a company which ceases to be a Group Member, or relates to a business or part of a business which is transferred to a person who is not a Group Member, unless the Committee determines otherwise, the Grantor will procure that Shares will be transferred to him (and subject to paragraph (a) above must, if at all) within the transfer period; | |
(c) | if he so ceases by reason of retirement on reaching the age at which he is bound to retire in accordance with the terms of his contract of employment, unless the Committee determines otherwise, the Grantor will procure that Shares will be transferred to him, (and subject to paragraph (a) above must, if at all) within the transfer period; | |
(d) | if he so ceases for any other reason before the third anniversary of the Grant Date, the Share Right will lapse unless the Committee determines otherwise, in which event the Grantor will procure that Shares will be transferred to him (and subject to paragraph (a) above must, if at all) within the transfer period to the extent permitted by the Committee; | |
and in paragraphs (b), (c) and (d) of this sub-rule the transfer period is the period which shall expire 12 months in the cases where paragraphs (b) or (d) above apply or six months in cases where paragraph (c) above applies after his so ceasing, or such later date as the Committee may determine. | |
(4) | In relation to Shares which would be transferred to a Participant by virtue of an event mentioned in sub-rule (3) above, the number of Shares (if any) which will be transferred will be calculated on the following basis: |
(a) | by determining the extent to which the Performance Condition has been satisfied on the last occasion on which the Performance Condition was measured before the date on which such event occurs in respect of the Share Right; and | |
(b) | by applying a pro rata reduction to the number of Shares determined under paragraph (a) above on the basis of the number of complete months for which the Share Right has been subsisting bears to 36 months, | |
unless the Committee decides that this sub-rule (4) operates unfairly in the circumstances in which case it may, in its discretion, determine that the Share Right should be treated in such other manner as it so decides. |
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(5) | If any Participant ceases to be a director or employee between the third and fourth anniversaries of the Grant Date, the following provisions apply in relation to any Share Right granted to him: |
(a) | if he so ceases for a reason specified in paragraphs (a), (b) or (c) of sub-rule (3) above, the provisions of those paragraphs will apply; | |
(b) | if he so ceases for any other reason (other than dismissal for misconduct), the Grantor will procure that Shares will be transferred to him in respect of a Share Right for which the Performance Condition has been satisfied in accordance with sub-rule (1) above; and | |
(c) | if he so ceases by reason of dismissal for misconduct, the Share Right shall lapse forthwith. | |
(6) | A Participant shall not be treated for the purpose of sub-rule (3) of this Rule as ceasing to be a director or employee of a Group Member until such time as he is no longer a director or employee of any Group Member. |
(7) | No transfer of Shares shall be made under the Plan if the Board considers that it would not be lawful or practicable in the relevant jurisdiction. |
(8) | Where the Grantor is required to procure a transfer of Shares comprised in a Share Right to a Participant pursuant to this Rule 6 and where the Trustees or a Group Member are obliged to (or would suffer a disadvantage if they were not to) account for any tax (in any jurisdiction) and/or for any social security contributions recoverable from the Participant and/or any employers social security/National Insurance Contributions which the Participant has agreed to pay (together, the Tax Liability ) and for which the Participant is liable by virtue of the transfer of the Shares, the Grantor shall be entitled to procure the sale of sufficient Shares combined in the Share Right to satisfy such Tax Liability unless they or a Group Member has received on or prior to the transfer of the Shares a payment from the Participant of an amount not less than the Tax Liability or unless the Participant has entered into arrangements acceptable to the Trustees or a Group Member to ensure that such a payment is made (whether by authorising the sale of some or all of the Shares on his behalf and the payment to the relevant person of the amount equal to the Tax Liability out of the proceeds of sale or otherwise). |
(9) | Notwithstanding any other provision of this Plan, if a Tax Liability has (as defined in sub-rule (8) above) arisen prior to a transfer of Shares to a Participant in respect of a Share Right then the Grantor shall have authority to procure the sale of sufficient of the Shares to discharge the Tax Liability and the number of Shares comprised in the Share Right shall be reduced accordingly. |
(10) | The transfer of Shares under the Plan shall be subject to the provisions of the Model Code and to obtaining any approval or consent referred to in Rule 3(8) above. Where the transfer of Shares pursuant to a Share Right is prohibited pursuant to the Model Code at any time, such transfer shall instead take place as soon as reasonably practicable after it is no longer prohibited by the Model Code. |
(11) | Any Shares issued under this Plan in respect of Share Rights shall rank equally in all respects with Shares of the same class then in issue except for any rights attaching to those Shares by reference to a record date prior to the date of allotment. |
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7. | Takeover, Reconstruction and Winding-up |
(1) | Subject to sub-rules (5) and (7) below, if any person obtains control of the Company (within the meaning of section 840 of the Taxes Act 1988) as a result of making a general offer to acquire Shares in the Company, or having obtained control makes such an offer, the Committee shall within seven days of becoming aware thereof notify every Participant thereof and, |
(a) | in respect of an Option, subject to earlier lapse under Rule 5(4), any Option may be exercised within one month (or such longer period up to a maximum of six months as the Committee may permit) of the notification but to the extent that it is not exercised within that period shall lapse on the expiry of that period; and | |
(b) | in respect of a Share Right, procure the transfer to a Participant of the Shares subject to a Share Right as soon as reasonably practicable even if no obligation to procure a transfer under Rule 6(1) above has arisen (but not if the Share Right has lapsed pursuant to Rule 6(3) above or the relevant Shares have already been transferred to the Participant). | |
(2) | For the purposes of sub-rule (1) above, a person shall be deemed to have obtained control of the Company if he and others acting in concert with him have together obtained control of it. |
(3) | Subject to sub-rules (5) and (7) below, if any person becomes bound or entitled to acquire Shares in the Company under sections 428 to 430F of the Companies Act 1985, or if the Company passes a resolution for voluntary winding up, or if an order is made for the compulsory winding up of the Company, then: |
(a) | in respect of an Option, the Committee shall forthwith notify every Participant thereof and, subject to earlier lapse under Rule 5(4), any Option may be exercised within one month of such notification, but to the extent that it is not exercised within that period shall (notwithstanding any other provision of this Plan) lapse on the expiration of that period; and | |
(b) | in respect of a Share Right, the Committee shall procure the transfer to a Participant of the Shares subject to a Share Right as soon as reasonably practicable even if no obligation to procure a transfer under Rule 6(1) above has arisen (but not if the Share Right has lapsed pursuant to Rule 6(3) above, or the relevant Shares have already been transferred to the Participant). | |
(4) | Subject to sub-rules (5) and (7) below, if a scheme of arrangement or compromise under section 425 of the Companies Act 1985 is proposed then: |
(a) | in respect of an Option, the Committee shall forthwith notify every Participant that, subject to earlier lapse under Rule 5(4) above, an Option may be conditionally exercised within the period commencing from the date of notification and ending on the day immediately preceding the date scheduled for the Court hearing or such later date up to a maximum of six months from the Court hearing as the Committee may determine. If the Court sanctions the scheme of arrangement or compromise: | |
(i) | any Option so conditionally exercised shall immediately become unconditionally exercised by the Participant; and | ||
(ii) | any Option not so conditionally exercised shall lapse on the expiration of that period. |
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However, if the Court declines to sanction the scheme of arrangement or compromise, the conditional exercise shall not be effective and the Option shall continue to subsist. | ||
(b) | in respect of a Share Right, if the scheme of arrangement or compromise is sanctioned by the Court, then the Committee shall procure the transfer to a Participant of the Shares subject to a Share Right as soon as reasonably practicable even if no obligation to procure a transfer under Rule 6(1) above has arisen (but not if the Share Right has lapsed pursuant to Rule 6(3) above, or the relevant Shares have already been transferred to the Participant). | |
(5) | In relation to an Award which would be exercisable or vest by virtue of an event mentioned in sub-rules (1), (3) or (4) above, the number of Shares (if any) in respect of which the Award will be exercisable or vest will be calculated on the following basis: |
(a) | by determining the extent to which the Performance Condition has been satisfied on the date on which such event occurs (as if that date were the end of the relevant performance period) in respect of the Award; and | |
(b) | by applying a pro rata reduction of the number of Shares determined under paragraph (a) above on the basis of the time which the Award has been subsisting bears to three years | |
unless the Committee decides that this sub-rule (5) operates unfairly in the circumstances in which case it may, in its discretion, determine that the Award should be treated in such other manner as it so decides. | |
(6) | If a demerger, special dividend or other event which, in the opinion of the Committee would affect the Share price to a material extent, is proposed then the Committee acting fairly and reasonably may at its discretion forthwith notify every Participant that, subject to earlier lapse under Rules 5 or 6 or the other provisions of this Rule 7, an Award may, subject to sub-rule (5) above be exercised (or Shares transferred to a Participant as appropriate) provided that if an Award is exercised in advance of and conditional upon such event and such event shall not occur then the conditional exercise shall not be effective and the Award shall continue to subsist. |
(7) | If: |
(a) | the events referred to in this Rule 7 are part of an arrangement which will mean that the company will be under the control of another company (within the meaning of Section 840 of the Taxes Act 1988) or the business of the Company is carried on by another company, and either the persons who owned the Shares in the Company immediately before the change of control will immediately afterwards own more than 50 per cent. of the Shares in that other company or the Committee in its discretion determines that such arrangement constitutes a merger (a Reorganisation ); and | |
(b) | an equivalent Award (as determined by the Committee) is offered to the Participant in consideration of the surrender of his existing Award under this Plan |
then an Award shall not become exercisable (or no Shares shall be transferred to a Participant in respect of a Share Right) as a result of the Reorganisation and, subject to earlier lapse under Rule 5(4), or 6(3), shall lapse three months following the notification of the Reorganisation to every Participant. |
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(8) | Unless the Committee determines otherwise, any equivalent Award offered to a Participant in the circumstances referred to in sub-rule (7) above shall be subject to the Performance Condition which applied to the original Award as varied by the Committee pursuant to sub-rule 3(3). |
8. | Variation of Capital |
(1) | Subject to sub-rule (3) below, in the event of any variation of the share capital of the Company, an increase in its share capital, the payment of a capital dividend, a demerger or similar event involving the Company, the Committee may make (or procure that the Trustees make) such adjustments as it considers appropriate under sub-rule (2) below. |
(2) | An adjustment made under this sub-rule shall be to one or more of the following: |
(a) | the number of Shares in respect of which any Option may be exercised; | |
(b) | where any Option has been exercised but no Shares have been transferred pursuant to the exercise, the number of Shares which may be so transferred; and | |
(c) | the number of shares in respect of which a Share Right subsists. | |
(3) | An adjustment of Shares pursuant to sub-rule (2) above can be effected through the grant of further Awards. |
9. | Dividends |
(1) | No Award shall confer any beneficial interest in any Share subject to it prior to the Participant (or his personal representatives, as appropriate) or his (or their) nominee being registered as the holder of the Share and, for the avoidance of doubt, no Participant (nor his personal representatives) shall be entitled to any dividends paid or any other distribution made, or to exercise or direct the exercise of any votes or any other rights, in respect of any such Share by reference to a record date before he (or they) or his (or their) nominee is registered as the holder of the Shares. |
(2) | Notwithstanding sub-rule (1) above, the Committee may, in its discretion, procure that the payment to a Participant of a sum equivalent to dividends (net of all deductions required by law and any applicable commissions or other charges) on all or part of those Shares subject to an Award which can be treated as having vested following the satisfaction of any Performance Condition applicable to that Award. |
(3) | Any amount referred to in sub-rule (2) above may, at the discretion of the Committee, be paid either |
(a) | between the third and fourth anniversaries of the Grant Date; or | |
(b) | as soon as reasonably practicable following the exercise of an Option or a transfer of Shares subject to a Share Right to a Participant. | |
(4) | Any amount referred to in sub-rule (2) above may, at the discretion of the Committee, be paid either in cash or in the form of Shares in the Company. |
10. | Alterations |
(1) | Subject to sub-rules (2) and (4) below, the Committee may at any time alter this Plan. |
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(2) | Subject to sub-rule (3) below, no alteration to the advantage of the persons to whom Awards have been or may be granted shall be made to any of Rules 2, 3(1), 3(2), 3(3), 3(5), 3(6) and 3(7), 4, 5(1), 5(2), 5(3), 5(4), 5(5), 5(6), 5(8), 5(9), 5(10), 5(11), 6(1), 6(2), 6(3), 6(4), 6(5), 6(7), 6(8), 6(9), 6(10), 6(11), 7, 8 and 9 without the prior approval by ordinary resolution of the members of the Company in general meeting. |
(3) | Sub-rule (2) above shall not apply to any minor alteration to benefit the administration of this Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Participants or any Group Member. |
(4) | No alteration to the disadvantage of any Participant shall be made under sub-rule (1) above unless: |
(a) | the Committee shall have invited every relevant Participant to give an indication as to whether or not he approves the alteration; and | |
(b) | the alteration is approved by a majority of those Participants who have given such an indication. | |
(5) | As soon as reasonably practical after any amendment under sub-rule (1) above, the Committee shall give written notice thereof to the Trustee and any Participant who in its opinion is materially affected thereby. |
11. | Cash Equivalent |
(1) | Where an Option granted under this Plan has been exercised by any person in respect of any number of Shares, or where Shares subject to a Share Right could be transferred to a person pursuant to Rules 6 or 7 above, and those Shares have not yet been transferred to him, the Committee may determine that, in substitution for his right to acquire such number of those Shares as the Committee may decide (but in full and final satisfaction of his said right), he shall be paid by way of additional emoluments a sum equal to the cash equivalent of that number of Shares. |
(2) | For the purposes of this Rule, the cash equivalent of any Shares is the amount by which the Committees opinion of the market value of those Shares on the day last preceding the date on which the Option was exercised, or the Shares subject to a Share Right would otherwise be transferred to a person pursuant to Rules 6 and 7 above, exceeds the amount (if any) payable by the Participant to acquire those Shares. If at the relevant time shares of the same class as those shares were listed in The Stock Exchange Daily Official List, market value should be the middle-market quotation of shares of that class, as derived from that List, on the dealing day last preceding that date. If the Shares are ADSs listed on the New York Stock Exchange the market value should be the closing price of ADSs on the New York Stock Exchange on the dealing day last preceding that date. |
(3) | As soon as reasonably practicable after a determination has been made under sub-rule (1) above that a person shall be paid a sum in substitution for his right to acquire any number of Shares: |
(a) | the Company shall pay to him or procure the payment to him of that sum in cash; and | |
(b) | if he has already paid the Company for those Shares, the Company shall return to him the amount so paid by him. |
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(4) | There shall be made from any payment under this Rule such deductions (on account of tax or similar liabilities) as may be required by law or as the Committee may reasonably consider to be necessary or desirable. |
12. | Miscellaneous |
(1) | The rights and obligations of any individual under the terms of his office or employment with any Group Member shall not be affected by his participation in this Plan or any right which he may have to participate in it, and an individual who participates in it and does not waive an Award within 30 days of its Grant Date shall and does by participating in the Plan waive any and all rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights under or be entitled to exercise or receive Shares under any Award as a result of such termination. |
(2) | In the event of any dispute or disagreement as to the interpretation of this Plan, or as to any question or right arising from or related to this Plan, the decision of the Committee shall be final and binding upon all persons. |
(3) | Any notice or other communication under or in connection with this Plan may be given either: |
(a) | by personal delivery or by sending it by post, in the case of a company to its registered office, and in the case of an individual to his last known address, or, where he is a director or employee of a Group Member, either to his last known address or to the address of the place of business at which he performs the whole or substantially the whole of the duties of his office or employment or in the absence of their being such a place, the place of business to which regular correspondence in connection with his employment is sent; and where a notice or other communication is given by first class post it shall be deemed to have been received 48 hours after it was put into the post properly addressed and stamped; or | |
(b) | in an electronic communication to an address for the time being notified for that purpose to the person giving the notice. | |
(4) | A Participating Company may provide money to the Trustees or to any other person to enable that person to acquire Shares to be held for the purposes of the Plan, or enter into any guarantee or indemnity for these purposes, or meet the expenses of the Trustees to the extent permitted by the Companies Act 1985. |
(5) | The Plan and all Awards granted under it shall be governed by the laws of England and any dispute arising under or in respect of this Plan or any such Award shall be subject to the exclusive jurisdiction of the Courts of England. |
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Exhibit 4.23
RULES OF THE LATTICE GROUP SHORT TERM INCENTIVE SCHEME
Approved by a resolution of the shareholders of BG Group plc effective on 23 October 2000
Approved by resolution of the Board of National Grid Transco plc on 30 April 2004
Amended by resolutions of the Board of Lattice Group plc effective on 21 October 2002 and 13 May 2004
Rules of the Short Term Incentive Scheme
1 |
Introduction
|
The Lattice Group Short Term Incentive Scheme (the
Scheme
) is an annual incentive scheme which includes only employees of National Grid Transco plc (
National
Grid Transco
) and any of its subsidiaries (the
National
Grid Transco Group
) who are active members
of the Defined Benefit Section of the Lattice Group Pension Scheme. The Scheme rewards employees for performance against key performance targets, so emphasising the link between performance and reward. These rules are an amendment to the Scheme.
|
The Scheme provides awards in the form of National Grid Transco shares, so as to encourage a community of interest between employees and National Grid Transcos shareholders although, subject to administrative conditions, participants may opt to receive payment in an
alternative form.
|
Eligible employees of any part of the National Grid Transco Group located in the United Kingdom can participate in the Scheme (
Participating
Unit
).
|
An award is based on the achievement of business performance targets and personal performance by a participant in his job over the period of a financial year of National Grid Transco (a
Performance
Year
).
|
The targets under the Scheme are set by:
|
(i) |
the Remuneration Committee, in relation to the executive directors of National Grid Transco and those employees whose remuneration is the direct responsibility of the Remuneration Committee; and
|
(ii) |
a designated person in each Participating Unit, in the case of any participant other than those referred to in (i) above,
|
Any person or committee who sets targets under this Scheme is referred to as a
Designated
Person
in these rules.
|
2 |
Eligibility
|
Any employee, including an executive director, of the National Grid Transco Group who is an active member of the Defined Benefit Section of the Lattice Group Pension Scheme can, at the discretion of a Designated Person, participate in the Scheme.
|
Employees seconded into a Participating Unit will be eligible to participate provided they have been within that unit for a minimum of three months in a single Performance Year and meet the other criteria for an award.
|
3 |
Performance Targets
|
Business performance targets for the purposes of awards are set annually by the Designated Person. These may be based on profit, cash flow, operating expenditure targets or any other appropriate measures as determined by the Designated Person.
|
The Designated Person will determine the relative weighting of each of the targets.
|
The Designated Person will also set personal performance targets for the purposes of a participants award.
|
4 |
Conditions for Awards
|
To be eligible to receive an award under the Scheme, a participant must normally be in the employment of a company in the National Grid Transco Group, and not under notice of termination, on the last day of the Performance Year.
|
A participant will also be eligible for an award, pro-rated if appropriate, in the event of the following good leaver reasons:
|
(i) |
death;
|
(ii) |
redundancy;
|
(iii) |
retirement, either at his contractual retirement date or any other date with the agreement of his National Grid Transco Group employing company; or
|
(iv) |
any other reason at the discretion of the Designated Person.
|
The Designated Person will determine the extent to which an award will be pro-rated for a participant who is a good leaver. The awards will be paid in non-pensionable cash when awards for continuing employees are normally made following the relevant Performance Year
or, at the discretion of the Designated Person, at an earlier date.
|
Subject to the good leaver reasons listed above applying, if any Participating Unit leaves the National Grid Transco Group during a Performance Year, if the performance targets and resulting awards for that Performance Year are not being continued following such cessation,
the Designated Person will, at its discretion, decide whether or not an award will be made to participants in that Participating Unit and, if so, the value of that award. The award will be paid in non-pensionable cash as soon as practicable following the Participating Unit leaving
the National Grid Transco Group.
|
5 |
Calculation of Awards
|
The maximum percentage of salary which may be used to determine the maximum value of an award will be decided by the Designated Person. Within this maximum, the Designated Person will determine the actual level of each award by reference to the achievement of the
performance targets for each award. This will take place within two months of the announcement of the annual results of National Grid Transco.
|
The value of awards may be subject to reduction by the Designated Person if overall Health, Safety and Environment targets and, where appropriate, Public or other Standards of Service are not achieved.
|
The annual rate of salary for the purposes of determining the maximum value of an award will be based on the annual rate of salary payable as at the last day of the relevant Performance Year, or the date on which a participant left employment but is eligible for an award
under the Scheme except that the Designated Person may, at its absolute discretion, use a different annual rate of salary for a Participant if any of the following events have occurred to a Participant during the Performance Year:
|
(i) |
a change in his contractual hours;
|
(ii) |
he becomes eligible for a different level of maximum award;
|
(iii) |
he changes Participating Unit during a Performance Year, such that different business performance targets apply to him during the Performance Year;
|
(iv) |
he is seconded from his Participating Unit;
|
(v) |
he is absent from work due to long-term sickness or disability, maternity leave or authorised unpaid leave.
|
Where a participant has been seconded into a Participating Unit for the first time during a Performance Year and is eligible for an award, the maximum value of his award will be based on his annual rate of salary as at the last day of the Performance Year and time apportioned
to reflect the period seconded to the Participating Unit.
|
6 |
Delivery of Awards
|
Awards will normally be delivered to participants in the form of National Grid Transco shares, unless any of the following circumstances apply:
|
(i) |
A participant eligible for an award has elected by notice to his employing company, in such form as required by that company, to receive his award (net of statutory deductions) as a non-pensionable cash payment by direct transfer to his nominated bank
account.
|
(ii) |
Subject to approval of a relevant Designated Person, a participant may, subject to the rules of his pension scheme and the relevant Inland Revenue limits applying to tax approved pension schemes, elect to have additional pension purchased in his pension
scheme.
|
(iii) |
Where a participant eligible for an award is no longer employed by a National Grid Transco Group company at the time his award is due, payment will be made in non-pensionable cash (net of statutory deductions).
|
Awards will be made on a date (the
Award
Date
) as soon as administratively practicable following the announcement of National Grid Transcos annual results.
|
The notional value of the award will be subject to statutory deductions, with the resulting net amount being converted into National Grid Transco shares based on the mid-market price at noon on the Award Date. A participant will acquire beneficial ownership of the shares
due to him on the Award Date.
|
The relevant number of National Grid Transco shares will be transferred to participants as soon as practicable after the Award Date with no retention period.
|
7 |
Trust Arrangements
|
National Grid Transco shares awarded under the Scheme will be delivered by a trust. Any member of the National Grid Transco Group may provide money to the trustee of any trust or any other person to enable the trustee or him to acquire shares to be held for the
|
purposes of the Scheme, or enter into any guarantee or indemnity for those purposes, to the extent permitted by Section 153 of the Companies Act 1985.
|
No National Grid Transco shares will be issued, or transferred from treasury, to the trustee of any trust for the purposes of the Scheme.
|
8 |
Administration
|
The Board of Lattice Group plc (the
Board
) may at any time alter or add to any provisions of the Scheme provided no alteration or addition to the advantage of present or future participants shall be made without prior approval of the member(s) of Lattice Group plc unless
such alterations or additions are to take account of or comply with any proposed or existing legislation or to obtain or maintain favourable tax treatment of any member of the National Grid Transco Group or any participant.
|
The decision of the Board in any dispute relating to the Scheme shall be final and conclusive.
|
The Board may, at its discretion, suspend or terminate the Scheme at any time.
|
9 |
Terms of employment
|
For the purposes of this rule 9, Employee means any employee of the National Grid Transco Group, any participant in the Scheme or any other person.
|
This rule 9 applies:
|
(i) |
whether National Grid Transco or the Board has full discretion in the operation of the Scheme, or whether National Grid Transco or the Board could be regarded as being subject to any obligations in the operation of the Scheme;
|
(ii) |
during an Employees employment or employment relationship; and
|
(iii) |
after the termination of an Employees employment or employment relationship, whether the termination is lawful or unlawful.
|
Nothing in the rules or the operation of the Scheme forms part of the contract of employment or employment relationship of an Employee. The rights and obligations arising from the employment relationship between the Employee and his employer in the National Grid
Transco Group are separate from, and are not affected by, the Scheme. Participation in the Scheme does not create any right to, or expectation of, continued employment or a continued employment relationship.
|
The making of awards under the Scheme on a particular basis in any year does not create any right to or expectation of the making of awards on the same basis, or at all, in any future year.
|
No Employee is entitled to participate in the Scheme, or be considered for participation in it, at a particular level or at all. Participation in one operation of the Scheme does not imply any right to participate, or to be considered for participation in any later operation of the
Scheme.
|
Without prejudice to an Employees right to receive an award subject to and in accordance with the express terms of the terms of the Scheme, no Employee has any rights in respect
|
of the exercise or omission to exercise any discretion, or the making or omission to make any decision, relating to an award. Any and all discretions, decisions or omissions relating to an award may operate to the disadvantage of the Employee, even if this could be regarded as
capricious or unreasonable, or could be regarded as in breach of any implied term between the Employee and his employer, including any implied duty of trust and confidence. Any such implied term is excluded and overridden by this rule.
|
No Employee has any right to compensation for any loss in relation to the Scheme, including:
|
(a) |
any loss or reduction of any rights or expectations under the Scheme in any circumstances or for any reason (including lawful or unlawful termination of employment or the employment relationship);
|
(b) |
any exercise of a discretion or a decision taken in relation to an award or to the Scheme, or any failure to exercise a discretion or take a decision;
|
(c) |
the operation, suspension,
termination or amendment of the Scheme.
|
Participation in the Scheme is permitted only on the basis that the participant accepts all the provisions of the rules, including in particular this rule. By participating in the Scheme, an Employee waives all rights under the Scheme, other than the right to receive an award
subject to and in accordance with the express terms of the Scheme, in consideration for, and as a condition of, the grant of an award under the Scheme.
|
Nothing in this Scheme confers any benefit, right or expectation on a person who is not an Employee. No such third party has any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Scheme. This does not affect any other right or remedy
of a third party which may exist.
|
Each of the provisions of this rule 9 is entirely separate and independent from each of the other provisions. If any provision is found to be invalid then it will be deemed never to have been part of these rules and to the extent that it is possible to do so, this will not affect the
validity or enforceability of any of the remaining provisions.
|
10 |
Governing law and jurisdiction
|
English law governs the Scheme and all awards and their construction. The English Courts have non-exclusive jurisdiction in respect of disputes arising under or in connection with the Scheme or any awards.
|
Exhibit 8.1
Subsidiaries
Name |
Jurisdiction of
Incorporation or Organization |
ADVANTICA CORPORATE VENTURES LIMITED | England and Wales |
ADVANTICA, INC. | Delaware |
ADVANTICA LIMITED | England and Wales |
ADVANTICA PTY LIMITED | Australia |
AEMC, L.L.C. | Delaware |
AERIAL GROUP LIMITED | England and Wales |
AERIAL UK LIMITED | England and Wales |
AGL SYSTEMS INTERNATIONAL LIMITED | England and Wales |
ARBUCKLE ACRES, INC | New York |
ATLANTIC WESTERN CONSULTING, INC. | Massachusetts |
BASSLINK PTY LIMITED | Australia |
BRITISH TRANSCO CAPITAL, INC. | Delaware |
BRITISH TRANSCO FINANCE (NO 1) LIMITED | Cayman Islands |
BRITISH TRANSCO FINANCE (NO 2) LIMITED | Cayman Islands |
BRITISH TRANSCO FINANCE (NO 3) LIMITED | England and Wales |
BRITISH TRANSCO FINANCE (NO 5) LIMITED | England and Wales |
BRITISH TRANSCO FINANCE, INC. | Delaware |
BRITISH TRANSCO INTERNATIONAL FINANCE BV | Netherlands |
BRITNED DEVELOPMENT LIMITED | England and Wales |
C4GAS SA | Belgium |
CEL POLSKA SP ZOO | Poland |
CITELEC S.A. | Argentina |
COGSYS LIMITED | England and Wales |
COPPERBELT ENERGY CORPORATION PLC | Zambia |
EASTLANDS (BENEFITS ADMINISTRATION) LIMITED | England and Wales |
ELEXON LIMITED | England and Wales |
ENERGIS POLSKA SP. Z O.O. | Poland |
EUA BIOTEN, INC. | Massachusetts |
EUA ENERGY INVESTMENT CORPORATION | Massachusetts |
FIRSTPOINT ENERGY CORPORATION | Delaware |
FULCRUM CONNECTIONS LIMITED | England and Wales |
GRAIN LNG LIMITED | England and Wales |
GRANITE STATE ELECTRIC COMPANY | New Hampshire |
GRIDAMERICA HOLDINGS INC. | Delaware |
GRIDAMERICA LLC | Delaware |
GRIDCOM (UK) LIMITED | England and Wales |
GRIDCOM AERIAL SITES PLC | England and Wales |
GRIDCOM LIMITED | England and Wales |
HOLDCO PARTICIPACOES LTDA | Brazil |
HUDSON POINTE, INC. | New York |
INTELIG TELECOMUNICACOES LTDA | Brazil |
INTEROTEX LIMITED | England and Wales |
INVERSIONES ABC LIMITADA | Chile |
JOINT RADIO COMPANY LIMITED | England and Wales |
JVCO PARTICIPACOES LTDA | Brazil |
KITECHNOLOGY HOLDINGS N.V. | Netherlands |
LAND MANAGEMENT AND DEVELOPMENT, INC. | New York |
LANDWEST, INC. | New York |
LATTICE ENERGY SERVICES LIMITED | England and Wales |
LATTICE GROUP HOLDINGS LIMITED | England and Wales |
LATTICE GROUP INTERNATIONAL HOLDINGS LIMITED | England and Wales |
LATTICE GROUP PLC | England and Wales |
LATTICE GROUP TRUSTEES LIMITED | England and Wales |
LATTICE GROUP US HOLDINGS, INC. | Delaware |
LATTICE INTELLECTUAL PROPERTY LIMITED | England and Wales |
LATTICE TELECOM FINANCE (NO 1) LIMITED | Isle of Man |
MASSACHUSETTS ELECTRIC COMPANY | Massachusetts |
METROWEST REALTY LLC | Delaware |
MOREAU PARK, INC. | New York |
NANTUCKET ELECTRIC COMPANY | Massachusetts |
NATGRID FINANCE HOLDINGS LIMITED | England and Wales |
NATGRID FINANCE LIMITED | England and Wales |
NATGRID INVESTMENTS LIMITED | England and Wales |
NATIONAL GRID (IOM) UK LTD | Isle of Man |
NATIONAL GRID (IRELAND) 1 LIMITED | Ireland |
NATIONAL GRID (IRELAND) 2 LIMITED | Ireland |
NATIONAL GRID (US) HOLDINGS LIMITED | England and Wales |
NATIONAL GRID (US) INVESTMENTS | England and Wales |
NATIONAL GRID (US) INVESTMENTS 2 | England and Wales |
NATIONAL GRID (US) INVESTMENTS 3 | England and Wales |
NATIONAL GRID (US) INVESTMENTS 4 | England and Wales |
NATIONAL GRID (US) PARTNER 1 LIMITED | England and Wales |
NATIONAL GRID (US) PARTNER 2 LIMITED | England and Wales |
NATIONAL GRID AUSTRALIA PTY LIMITED | Cayman Islands |
NATIONAL GRID BRAZIL B.V. | Netherlands |
NATIONAL GRID BRAZIL FINANCE | England and Wales |
NATIONAL GRID CHILE B.V. | Netherlands |
NATIONAL GRID COMMUNICATIONS HOLDINGS, INC. | Massachusetts |
NATIONAL GRID COMMUNICATIONS, INC. | Massachusetts |
NATIONAL GRID COMPANY PLC | England and Wales |
NATIONAL GRID EIGHT LIMITED | England and Wales |
NATIONAL GRID EIGHTEEN LIMITED | England and Wales |
NATIONAL GRID ELEVEN LIMITED | England and Wales |
NATIONAL GRID FIFTEEN LIMITED | England and Wales |
NATIONAL GRID FINANCE B.V. | Netherlands |
NATIONAL GRID FIVE LIMITED | England and Wales |
NATIONAL GRID FOUR LIMITED | England and Wales |
NATIONAL GRID FOURTEEN LIMITED | England and Wales |
NATIONAL GRID GENERAL PARTNERSHIP | Delaware |
NATIONAL GRID GOLD LIMITED | England and Wales |
NATIONAL GRID HOLDINGS B.V. | Netherlands |
NATIONAL GRID HOLDINGS INC. | Delaware |
NATIONAL GRID HOLDINGS LIMITED | England and Wales |
NATIONAL GRID HOLDINGS ONE PLC | England and Wales |
NATIONAL GRID HOLLAND LIMITED | England and Wales |
NATIONAL GRID INDUS B.V. | Netherlands |
NATIONAL GRID INTERNATIONAL LIMITED | England and Wales |
NATIONAL GRID IRELAND THREE | Ireland |
NATIONAL GRID JERSEY HOLDINGS FIVE LIMITED | Jersey |
NATIONAL GRID JERSEY HOLDINGS THREE LIMITED | Jersey |
NATIONAL GRID MANQUEHUE B.V. | Netherlands |
NATIONAL GRID MIDDLE EAST FZCO | United Arab Emirates |
NATIONAL GRID NETHERLANDS ONE BV | Netherlands |
NATIONAL GRID NETHERLANDS THREE BV | Netherlands |
NATIONAL GRID NETHERLANDS TWO BV | Netherlands |
NATIONAL GRID NINE LIMITED | England and Wales |
NATIONAL GRID NINETEEN LIMITED | England and Wales |
NATIONAL GRID ONE LIMITED | England and Wales |
NATIONAL GRID OVERSEAS LIMITED | England and Wales |
NATIONAL GRID OVERSEAS TWO LIMITED | England and Wales |
NATIONAL GRID POLAND B.V. | Netherlands |
NATIONAL GRID PROCUREMENT BV | Netherlands |
NATIONAL GRID PROPERTIES LIMITED | England and Wales |
NATIONAL GRID SEVEN LIMITED | England and Wales |
NATIONAL GRID SEVENTEEN LIMITED | England and Wales |
NATIONAL GRID SIX LIMITED | England and Wales |
NATIONAL GRID SIXTEEN LIMITED | England and Wales |
NATIONAL GRID TEN | England and Wales |
NATIONAL GRID THREE LIMITED | England and Wales |
NATIONAL GRID TRANSCO PLC | England and Wales |
NATIONAL GRID TRANSMISSION SERVICES CORPORATION | Massachusetts |
NATIONAL GRID TWELVE LIMITED | England and Wales |
NATIONAL GRID TWENTY LIMITED | England and Wales |
NATIONAL GRID TWENTY ONE LIMITED | England and Wales |
NATIONAL GRID TWO LIMITED | England and Wales |
NATIONAL GRID US 4 LP
(NB: FIRST INCORPORATED AS NATIONAL GRID US 4 INC.) |
Delaware |
NATIONAL GRID US LLC | Delaware |
NATIONAL GRID USA | Delaware |
NATIONAL GRID USA SERVICE COMPANY, INC. | Massachusetts |
NATIONAL GRID ZAMBIA B.V. | Netherlands |
NATIONAL GRID ZAMBIA LIMITED | England and Wales |
NEES COMMUNICATIONS, INC. | Massachusetts |
NEES ENERGY, INC. | Massachusetts |
NEES TELECOMMUNICATIONS CORP. | Massachusetts |
NETWORK MAPPING LIMITED | England and Wales |
NEW ENGLAND ELECTRIC TRANSMISSION CORPORATION | New Hampshire |
NEW ENGLAND ENERGY INCORPORATED | Massachusetts |
NEW ENGLAND HYDRO FINANCE COMPANY, INC. | Massachusetts |
NEW ENGLAND HYDRO-TRANSMISSION CORPORATION | New Hampshire |
NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY, INC. | Massachusetts |
NEW ENGLAND POWER COMPANY | Massachusetts |
NEW ENGLAND WHOLESALE ELECTRIC COMPANY | Massachusetts |
NEWHC, INC. | Massachusetts |
NG AUSTRALIA GP PTY LTD | Australia |
NG AUSTRALIA LLP | Australia |
NG JERSEY LIMITED | Jersey |
NG MALTA ONE LIMITED | Gibraltar |
NG MALTA TWO LIMITED | Malta |
NG PROCUREMENT HOLDINGS LIMITED | England and Wales |
NG PROPERTY DEVELOPMENTS LIMITED | England and Wales |
NGC DO BRASIL PARTICIPACOES LTDA | Brazil |
NGC LEASING LIMITED | England and Wales |
NGC TWO LIMITED | England and Wales |
NGC ZAMBIA LIMITED | England and Wales |
NGG (DELAWARE) LLC | Delaware |
NGG FINANCE (NO 1) LIMITED | England and Wales |
NGG FINANCE PLC | England and Wales |
NGG TELECOMS HOLDINGS LIMITED | England and Wales |
NGG TELECOMS INVESTMENT LIMITED | England and Wales |
NGG TELECOMS LIMITED | England and Wales |
NGT INSURANCE COMPANY (GUERNSEY) LIMITED | Isle of Man |
NGT INSURANCE COMPANY (IRELAND) LIMITED | Ireland |
NGT INSURANCE COMPANY (ISLE OF MAN) LIMITED | Isle of Man |
NGT NOMINEES LIMITED | England and Wales |
NGT TELECOM NO.1 LIMITED | England and Wales |
NGT UK LIMITED | England and Wales |
NIAGARA MOHAWK HOLDINGS, INC. | New York |
NIAGARA MOHAWK POWER CORPORATION | New York |
NM PROPERTIES, INC. | New York |
NM RECEIVABLES CORP. II | New York |
NM RECEIVABLES, LLC | New York |
OPINAC ENERGY CORPORATION | Ontario |
OPINAC NORTH AMERICA, INC. | Delaware |
OPROPCO, INC. | New York |
PORT GREENWICH LIMITED | England and Wales |
RISX LIMITED | Scotland |
RIVERVIEW, INC. | New York |
RT MASTS LIMITED | England and Wales |
SALMON SHORES, INC. | New York |
SECONDSITE LAND INVESTMENTS LIMITED | England and Wales |
SECONDSITE PROPERTY HOLDINGS LIMITED | England and Wales |
SECONDSITE PROPERTY PORTFOLIO LIMITED | England and Wales |
SST TOWERS COMMUNICATIONS SAS | France |
STC INTERNATIONAL HOLDINGS LIMITED | England and Wales |
STONER ASSOCIATES EUROPE LIMITED | England and Wales |
TELDATA INTERNATIONAL LIMITED | England and Wales |
TELECOM INTERNATIONAL HOLDINGS LIMITED | England and Wales |
TELINK LIMITED | England and Wales |
THE ELECTRICITY TRANSMISSION COMPANY LIMITED | England and Wales |
THE NARRAGANSETT ELECTRIC COMPANY | Rhode Island |
THE NATIONAL GRID INVESTMENTS COMPANY | England and Wales |
TOREN CV | Netherlands |
TRANSBA S.A. | Argentina |
TRANSCO HOLDINGS PLC | England and Wales |
TRANSCO METERING SERVICES LIMITED | England and Wales |
TRANSCO PLC | England and Wales |
TRANSENER S.A. | Argentina |
UPPER HUDSON DEVELOPMENT INC. | New York |
URBAND LIMITED | England and Wales |
UTILITY METERING SERVICES LIMITED D/B/A ONSTREAM | England and Wales |
VIAVERA GMBH | Germany |
WAYFINDER GROUP, INC. | Massachusetts |
Exhibit 12.1
Principal Executive Officer Certifications
I, Roger Urwin, certify that:
1. | I have reviewed this annual report on Form 20-F of National Grid Transco plc; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and | ||
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
June 16, 2004 |
/s/ Roger Urwin
Roger
Urwin
|
Exhibit 12.2
Principal Financial Officer Certifications
I, Stephen Lucas, certify that:
1. | I have reviewed this annual report on Form 20-F of National Grid Transco plc; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: | |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and | ||
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): | |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
June 16, 2004 |
/s/ Stephen Lucas
Stephen
Lucas
|
Exhibit 13.1
Certifications Pursuant to 18 U.S.C. Section 1350
In connection with the Annual Report of National Grid Transco plc (the Company) on Form 20-F for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350 that, to his knowledge:
(1) | The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
June 16, 2004 |
/s/ Roger Urwin
Roger Urwin Group Chief Executive |
June 16, 2004 |
/s/ Stephen Lucas
Stephen Lucas Group Finance Director |
Exhibit 14.1
Board of Directors
Sir John Parker
Chairman
(appointed October 2002) (Age 62)
Sir John Parker became Chairman of the Group following the Merger, having been Chairman of Lattice Group since its Demerger from BG Group in 2000. He had previously been a Non-executive Director of BG from 1997. Sir Johns career has encompassed the engineering, shipbuilding and defence industries. He is Chairman of RMC Group plc and a Non-executive Director of Carnival plc and Carnival Corporation, Inc. It has been announced that Sir John will be appointed as senior Non-executive Director designate of the Court of the Bank of England on 1 June 2004. Sir John is a former Chairman and Chief Executive of Harland & Wolff plc and Babcock International Group PLC and a former Non-executive Director of Brambles Industries plc, GKN plc and British Coal Corporation. He is a Fellow of the Royal Academy of Engineering.
James Ross
Deputy Chairman and Senior Independent
Director
(appointed March 1999) (Age 65)
James Ross was appointed as Non-executive Director and Deputy Chairman of National Grid in March 1999, becoming Chairman in July 1999. Following the Merger, he became Deputy Chairman and Senior Independent Director. He was appointed as a Non-executive Director of Prudential plc on 6 May 2004 and is Chairman of the Leadership Foundation for Higher Education. He is also a Non-executive Director of McGraw Hill and of Datacard, both based in the US, and of Schneider Electric based in France. He was Chairman of Littlewoods plc from 1996 to April 2002 and was Chief Executive of Cable and Wireless plc from 1992 to 1995. Previously, he was a Managing Director of the British Petroleum Company plc and Chairman and CEO of BP America. At BP he had responsibility for its activities in North and South America and Africa as well as the companys environmental policies.
Roger Urwin
Group Chief Executive
(appointed November 1995) (Age 58)
Roger Urwin was appointed as a Director of National Grid in November 1995, becoming Group Chief Executive in April 2001. He was previously Chief Executive of London Electricity plc. Earlier, he held a number of appointments within the Central Electricity Generating Board before joining the Midlands Electricity Board as Director of Engineering. He is a Non-executive Director of The Special Utilities Investment Trust PLC and is a Fellow of the Royal Academy of Engineering.
Steve Lucas
Group Finance Director
(appointed October 2002) (Age
50)
Steve Lucas joined the Board following the Merger in October 2002. He had been Executive Director, Finance of Lattice Group, since its Demerger from BG Group in 2000. Previously, he was Treasurer of BG Group having joined British Gas plc in 1994. A Chartered Accountant, he worked in private practice in the City of London until 1983. He then joined Shell International Petroleum Company, occupying a number of finance management positions and treasury roles, including seven years in Africa and the Far East.
Steve Holliday
Group Director
(appointed March 2001) (Age 47)
Steve Holliday joined National Grid as Group Director, UK and Europe at the end of March 2001. Following the Merger, he was responsible for the Groups electricity and gas transmission businesses and is now Group Director responsible for UK Gas Distribution and Business Services. He was formerly an Executive Director of British Borneo Oil and Gas. Previously, he spent 19 years with the Exxon Group, where he held senior positions in the international gas business and operational areas such as refining and shipping. His international experience includes a four-year spell in the US. He also worked developing business opportunities in countries as diverse as China, Australia, Japan, Brazil and the former Soviet Union.
Nick Winser
Group Director
(appointed April 2003) (Age 43)
Nick Winser joined the Board in April 2003 as Group Director responsible for UK and US Transmission operations. He was previously Chief Operating Officer of US Transmission for National Grid Transco. He joined National Grid Company in 1993, becoming Director of Engineering in 2001. Prior to this, he had been with PowerGen since 1991 as principal negotiator on commercial matters, having joined the Central Electricity Generating Board in 1983 where he served in a variety of technical engineering roles.
Edward Astle
Group Director
(appointed September 2001) (Age 50)
Edward Astle joined National Grid as Group Director, Telecommunications in September 2001 and is now Group Director responsible for Unregulated Business and leads the Groups Business Development and Strategy. He was Managing Director of BICC Communications from 1997 to 1999, and between 1989 and 1997 he held a variety of positions with Cable and Wireless. He was Regional Director Europe, CEO of its global networks and marine divisions, and in 1995 joined the Cable and Wireless Board as Executive Director Global Businesses. Edward was previously a Non-executive Director of Intec Telecom Systems plc.
Rick Sergel
Group Director
(appointed March 2000) (Age 54)
Rick Sergel was appointed as a Director of National Grid following the acquisition of New England Electric System (NEES) in March 2000. Following the Merger, Rick had Board responsibility for US Gas and Electricity Distribution. He was President, Chief Executive Officer and a Director of National Grid USA until October 2003, following which he remained Chief Executive Officer and a Director. Between February 1998 and March 2000 he served as President and Chief Executive Officer of NEES. His previous positions with NEES included Senior Vice President in charge of retail operations and unregulated ventures, Vice President and Treasurer. He is a Non-executive Director of State Street Corporation. Rick will retire from the Board at the 2004 Annual General Meeting.
Mike Jesanis
Group Director
(to be appointed July 2004) (Age 47)
Mike Jesanis will be appointed as Group Director effective from 26 July 2004. Following Rick Sergels retirement, he will be Group Director responsible for US Gas and Electricity Distribution. He became President of National Grid USA in November 2003, having been its Chief Operating Officer and responsible for the day-to-day operations since January 2001. He was Chief Financial Officer of National Grid USA and New England Electric System (NEES) between March 1998 and January 2001, having first joined NEES in July 1983.
18 National Grid Transco _Annual Report and Accounts 2003/04
John Grant
Non-executive Director
(appointed November 1995) (Age 58)
John Grant was appointed a Director of National Grid in November 1995. He is Chairman of Hasgo Group Limited, Peter Stubs Limited and Royal Automobile Club Motor Sports Association Limited and a Non-executive Director of Torotrak plc, Corac Group Plc and Cordex Plc. On 12 May 2004 John was appointed as a Non-executive Director of The Royal Automobile Club Limited. He was Chief Executive of Ascot Plc from 1997 to 2000 and Finance Director of Lucas Industries plc from 1992 to 1996. He previously held a number of senior executive positions during 25 years with Ford Motor Company.
Ken Harvey
Non-executive Director
(appointed October 2002) (Age 63)
Ken Harvey joined the Board following the Merger in October 2002, having been appointed to the Lattice Group Board in September 2000. He is Chairman of Pennon Group plc (which includes South West Water) and is also Non-executive Chairman of Beaufort Group plc. A Chartered Engineer, he is a former Chairman of Norweb plc, Comax Holdings Ltd and The Intercare Group plc.
Paul Joskow
Non-executive Director
(appointed March 2000) (Age 56)
Paul Joskow was appointed a Director of National Grid in March 2000 following the acquisition of New England Electric System (NEES). He is a Professor of Economics and Management at the Massachusetts Institute of Technology (MIT), Director of MIT Centre for Energy and Environmental Policy Research, Research Associate of the US National Bureau of Economic Research and a Fellow of the Econometric Society and of the American Academy of Arts and Sciences. He is also an independent Trustee of the Putnam Mutual Funds. Paul joined TransCanada as an independent Non-executive Director on 23 April 2004.
Stephen Pettit
Non-executive Director
(appointed October 2002) (Age 53)
Stephen Pettit was appointed to the Board following the Merger, having been appointed to the Lattice Group Board in 2001. He is a Non-executive Director of National Air Traffic Services, Halma plc, KBC Advanced Technologies plc and Norwood Systems. He is a former Executive Director of Cable and Wireless plc. Before joining Cable and Wireless, he was Chief Executive, Petrochemicals at British Petroleum.
Maria Richter
Non-executive Director
(appointed October 2003) (Age 49)
Maria Richter was appointed to the Board on 1 October 2003. Maria had worked for Morgan Stanley between 1993 and 2002, most recently as Managing Director of its Corporate Finance Retail Group. Prior to this, she was Managing Director of Investment Banking in the Southern Cone of Latin America, and Executive Director and Head of Independent Power and Structured Finance Business. Previous appointments include Vice-President of Independent Power Group for Salomon Brothers, and Vice-President of Prudential Capital Corporation and Power Funding Associates. Maria is also a Director of the Western Electricity Coordinating Council, one of 10 Councils in North America responsible for promoting electricity system reliability.
George Rose
Non-executive Director
(appointed October 2002) (Age 52)
George Rose was appointed to the Board following the Merger, having been appointed to the Lattice Group Board in September 2000. He has been Finance Director of BAe Systems plc (formerly British Aerospace plc) since 1998, having joined the company in 1992. He is a member of the shareholder committee of Airbus SAS and is also a Non-executive Director of SAAB AB, a Member of the Financial Reporting Review Panel and a former Non-executive Director of Orange plc.
Helen Mahy
Group Company Secretary and General
Counsel
(appointed October 2002) (Age 43)
Helen Mahy was appointed as Group Company Secretary following the Merger, having been Company Secretary at Lattice Group since March 2002. She was additionally appointed as General Counsel from October 2003. Previously, she was Group General Counsel and Company Secretary at Babcock International Group PLC. Helen was appointed a Non-executive Director of Aga Foodservice Group plc in March 2003. She is a barrister and an Associate of the Chartered Insurance Institute.
Annual Report and Accounts 2003/04_ National Grid Transco 19
Directors Report and Operating and Financial Review
Introduction
Overview of National Grid Transco
National Grid Transco is an international network
utility company with electricity and gas transmission and distribution interests
in the UK and US. We have also transferred our network skills to related markets
in the UK and US, including communications infrastructure, metering and liquefied
natural gas, and have interests in electricity interconnectors in the UK, US
and Australia.
National Grid Transco reports its operating results by segment, reflecting the management responsibilities and economic characteristics of the Groups business activities. The designation of segments was informed by the level of materiality of some of the Groups activities and to ensure that the disclosures are not overly detailed.
The business operations of the Group are divided into the following segments: UK gas distribution; UK electricity and gas transmission; US electricity transmission; US electricity distribution; and US gas distribution, with all other activities of the Group being reported as part of Other activities. Our Transmission business comprises high-voltage electricity transmission networks in the UK and US and the gas National Transmission System in the UK. Through GridAmerica, we also manage a range of electricity transmission operations for other utilities. Our US Distribution business provides electricity and gas distribution in New York and electricity distribution in New England. Our UK Gas Distribution business comprises the majority of Britains gas distribution system.
The Operating Review beginning on page 25 focuses on the performance of individual business segments, including a consideration of the business environment within which each of our businesses operates, the operational performance of that business and the financial performance of each business segment. In the opinion of management, it is appropriate to consider the financial performance of each business segment in the context of its operational performance and related business issues for the period concerned.
The Financial Review beginning on page 36 primarily focuses on the financial impact of matters that do not arise from operating performance or are better discussed in the wider Group context and is not intended to duplicate the Operating Review. Consequently, it focuses on items in our Group accounts which we believe are the most material, such as interest, taxation, exceptional items and cash flows.
The Operating Review and the Financial Review should be read together to obtain a complete understanding of our results of operations and financial condition during the years under review.
Adjusted profit measures
Management
uses adjusted
profit measures in considering the performance of the Groups operating
segments and businesses. References to adjusted operating profit,
adjusted profit
before taxation,
adjusted earnings and adjusted earnings per share are
stated before exceptional items and goodwill amortisation.
The Directors believe that the use of these adjusted measures better indicates the underlying business performance of the Group than the unadjusted measures because the exclusion of exceptional items and goodwill amortisation provides a clearer comparison of results from year to year for each of the years presented. This is because excluding exceptional items removes their distorting impact in order to enhance comparability from year to year, and excluding goodwill amortisation enhances comparability with the reporting practices of other UK companies.
Summary results
The following is a summary of the turnover of
the Group by segment:
Years ended 31 March | ||||||
2004 | 2003 | 2002 | ||||
(restated) | (restated) | |||||
Turnover | £m | £m | £m | |||
|
|
|
|
|
|
|
Continuing operations | ||||||
UK gas distribution | 2,245 | 2,089 | 2,013 | |||
UK electricity and gas transmission | 1,867 | 1,893 | 1,799 | |||
US electricity transmission | 318 | 407 | 278 | |||
US electricity distribution | 3,537 | 3,446 | 2,282 | |||
US gas distribution | 464 | 446 | 104 | |||
Other activities | 906 | 922 | 892 | |||
Sales between businesses | (462 | ) | (370 | ) | (290 | ) |
|
|
|
|
|
|
|
8,875 | 8,833 | 7,078 | ||||
Discontinued operations | ||||||
Other activities | 158 | 586 | 513 | |||
Sales between businesses | | (19 | ) | (37 | ) | |
|
|
|
|
|
|
|
158 | 567 | 476 | ||||
|
|
|
|
|
|
|
Turnover | 9,033 | 9,400 | 7,554 | |||
|
|
|
|
|
|
The following is a summary of adjusted operating profit and operating profit for Group undertakings by segment:
Years ended 31 March | ||||||||||||
Adjusted operating profit | Operating profit | |||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||
(restated) | (restated) | (restated) | (restated) | |||||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Group undertakings continuing operations | ||||||||||||
UK gas distribution | 729 | 554 | 548 | 640 | 443 | 504 | ||||||
UK electricity and gas transmission | 769 | 820 | 756 | 755 | 774 | 713 | ||||||
US electricity transmission | 133 | 128 | 87 | 105 | 103 | 64 | ||||||
US electricity distribution | 449 | 513 | 266 | 294 | 413 | 149 | ||||||
US gas distribution | 48 | 58 | 17 | 37 | 49 | 8 | ||||||
Other activities | 103 | 143 | 206 | 24 | 24 | 120 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2,231 | 2,216 | 1,880 | 1,855 | 1,806 | 1,558 | |||||||
Discontinued operations | | (26 | ) | (62 | ) | | (194 | ) | (498 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit of Group undertakings | 2,231 | 2,190 | 1,818 | 1,855 | 1,612 | 1,060 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
Comparative figures in the above tables have been restated to reflect minor changes to the presentation of segmental information as discussed in note 2 to the accounts on page 77.
Annual Report and Accounts 2003/04_ National Grid Transco 21
Introduction _ continued
Exceptional items, which are not included in the adjusted measures referred to above, are defined as material items that derive from events that fall within the ordinary activities of the Group, but that require separate disclosure on the grounds of size or incidence for the accounts to give a true and fair view. Such exceptional items include, for example, material restructuring costs and impairments. Pages 36 and 40 contain a discussion of the nature of these exceptional items for each period.
Other performance measures
The
Group uses a number of measures of operational and financial performance
relating to its various businesses. The Groups
core businesses are regulated utilities and therefore many of these targets
are determined by the relevant regulators. Much of the Groups performance
depends on meeting and exceeding those regulatory targets. Measures of operational
performance include the management of controllable costs in relation
to our UK and US regulated businesses; reliability of our energy delivery networks
and other service quality measures; and Lost Time Injuries for the Group.
Our ability to meet or outperform our regulatory targets depends in part on our ability to manage our costs. Of those costs, some are fixed or semi-fixed in nature and generally cannot be altered by management in the ordinary course. Examples of these include depreciation charges, replacement expenditure, goodwill amortisation and pension deficit related costs.
The Group is also allowed under the relevant licence or regulatory settlement to pass through certain costs to our customers. The costs that we pass through are reflected in our turnover, an important example of this being commodity cost. We are allowed to pass through to our customers most of the commodity cost of the gas and electricity to which we are exposed and, consequently, we currently assume only a limited amount of risk in respect of these costs.
Other costs are within managements ability to control. These include employment costs (excluding pension fund deficits in the UK) and other costs incurred in maintaining transmission and distribution systems. The manner in which we calculate controllable costs varies within the Group as a result of, among other things,
The following tables reconcile the statutory or unadjusted UK GAAP measure to the corresponding adjusted measure.
a) Reconciliation of total operating profit to adjusted operating profit
Years ended 31 March | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Total operating profit | 1,862 | 1,736 | 359 | |||
Operating exceptional items continuing operations | 277 | 308 | 285 | |||
Operating exceptional items discontinued operations | | 39 | 1,042 | |||
Goodwill amortisation | 99 | 102 | 97 | |||
|
|
|
|
|
|
|
Operating profit before exceptional items and goodwill amortisation (adjusted operating profit) | 2,238 | 2,185 | 1,783 | |||
|
|
|
|
|
|
The effect of the above reconciliation can be seen on the face of the profit and loss account on page 74, where adjusted operating profit is reconciled to total operating profit.
b) Reconciliation of profit/(loss) before taxation to adjusted profit before taxation
Years ended 31 March | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Profit/(loss) before taxation | 1,362 | 667 | (284 | ) | ||
Operating exceptional items continuing operations | 277 | 308 | 285 | |||
Operating exceptional items discontinued operations | | 39 | 1,042 | |||
Non-operating exceptional items continuing operations | (96 | ) | 31 | (125 | ) | |
Non-operating exceptional items discontinued operations | (226 | ) | 68 | (31 | ) | |
Exceptional financing charge | | 31 | 142 | |||
Goodwill amortisation | 99 | 102 | 97 | |||
|
|
|
|
|
|
|
Profit before taxation before exceptional items and goodwill amortisation (adjusted profit before taxation) | 1,416 | 1,246 | 1,126 | |||
|
|
|
|
|
|
A summary of the above reconciliation can be seen in note 11 to the accounts on page 87.
c) Reconciliation of earnings or profit/(loss) for the year to adjusted earnings
Years ended 31 March | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Earnings or profit/(loss) for the year | 1,099 | 391 | (321 | ) | ||
Operating exceptional items continuing operations | 277 | 308 | 285 | |||
Operating exceptional items discontinued operations | | 39 | 1,042 | |||
Non-operating exceptional items continuing operations | (96 | ) | 31 | (125 | ) | |
Non-operating exceptional items discontinued operations | (226 | ) | 68 | (31 | ) | |
Exceptional financing charge | | 31 | 142 | |||
Exceptional taxation | (89 | ) | (128 | ) | (166 | ) |
Exceptional minority interest | | 28 | (50 | ) | ||
Goodwill amortisation | 99 | 102 | 97 | |||
|
|
|
|
|
|
|
Earnings or profit/(loss) before exceptional items and goodwill amortisation (adjusted earnings) | 1,064 | 870 | 873 | |||
|
|
|
|
|
|
The effect of the above reconciliation can be seen on the face of the profit and loss account on page 74 where adjusted earnings are reconciled to earnings or profit/(loss). Note 11 to the accounts on page 87 shows a reconciliation of earnings to adjusted earnings on a per share basis.
22 National Grid Transco _Annual Report and Accounts 2003/04
Introduction _ continued
different regulatory regimes and the historical treatment of costs by our regulators. However, the underlying principle remains the same in that the expression controllable costs represents managements calculation of the costs that they can control. Moreover, the definition of controllable costs is consistent from year to year within a given part of the business. Our ability to reduce controllable costs is used by Ofgem to measure a number of our activities. We have extended controllable costs to our US regulated operations as an internal performance measure.
The Directors believe that employee and public safety is paramount and, as a fundamental part of this, that all work-related injuries and illnesses are preventable. Consequently, the level of Lost Time Injuries (LTIs) is measured as a key performance indicator of the Group. LTIs are injuries and illnesses that arise from a persons employment and cause that employee to be unable to attend the workplace and perform his or her duties. All our businesses are required to report on any LTIs suffered by their respective employees and any contractors.
Turnover
As noted above in the discussion of other performance
measures, the Group takes very limited commodity risk and certain categories
of costs are passed through to customers and, as such, are reflected in turnover.
As a result, movements from year to year in turnover do not necessarily have
an impact on the financial condition of the Group.
Cash flows from operating activities
Cash flows from our operations are largely
stable from year to year, although they do depend on the timing of customer
payments and exchange rate movements. The Groups gas and electricity
distribution and transmission operations in the UK and US are subject to multi-year
rate
agreements with regulators, which results in essentially stable cash flows
in local currency terms. However, weather conditions can affect cash flows
in those
businesses, with abnormally mild or extreme weather driving volumes down or
up respectively. In the US, the timing of recovery of commodity costs can influence
the timing of cash flows between financial years.
Exchange rates
As shown in the summary results
table on page 21, adjusted operating profit and operating profit from our US
businesses accounted for some 28% and 24% respectively of Group undertakings
for 2003/04. The functional currency for our US operations is US dollars, hence
our US results are denominated in US dollars and translated into sterling at
the average rate of exchange for the year for Group reporting purposes. Consequently,
to the extent that the US dollar to sterling exchange rate moves from year to
year, the sterling value of US dollar denominated results will also vary even
if the underlying US dollar values remain the same.
The Financial Review on pages 37 and 41 explains in more detail the financial impact of the movement in average US dollar to sterling exchange rates between years. In short, although during the periods under review there was a significant impact on operating profit and adjusted operating profit as a result of the movement in this exchange rate, this was substantially offset by the impact of the translation of US dollar denominated interest and taxation. As a consequence, in comparing the results of 2003/04 with 2002/03 and 2002/03 with 2001/02, the impact of currency translation on earnings or adjusted earnings was not significant.
Acquisitions, disposals and
mergers
There were no significant acquisitions,
disposals or mergers during 2003/04.
In October 2002, National Grid merged with Lattice and National Grid was renamed National Grid Transco. In accordance with UK GAAP, the Merger was accounted for using merger accounting principles such that the results of the Group under UK GAAP have been presented as if the Group had been in existence for all of the financial years presented. The results for all years are presented on the basis of uniform accounting policies.
Under US GAAP, the business combination of National Grid and Lattice was accounted for as an acquisition in accordance with US GAAP acquisition accounting principles (purchase accounting). Under US GAAP, Lattice was acquired for consideration of £6,598 million primarily satisfied by the issuance of shares.
This acquisition gave rise to goodwill amounting to £3,824 million. The US GAAP accounting of this business combination is described in more detail in the Financial Review on page 49.
The merger of National Grid and Lattice brought together two companies with substantial UK interests and has delivered significant integration savings. The combined Group has significant balance sheet strength and strong operational cash flows and allows the Group to take advantage of future opportunities as they arise.
In January 2002, the Group acquired Niagara Mohawk for consideration of £2,186 million comprising the issuance of shares which had a fair value at the date of acquisition of £1,270 million (based on the share price on the date of acquisition) and cash of £916 million, including £45 million relating to the costs of acquisition. The net assets acquired had a fair value of £1,294 million resulting in goodwill of £892 million being recognised and amortised over 20 years.
The acquisition of Niagara Mohawk was a further step in the Groups strategy of securing better returns outside of its UK regulated business. The existence and size of goodwill recognised as a result of this transaction reflects managements judgement that the returns to be generated from the investment were sufficient to justify paying in excess of the fair value attributable to the net assets of Niagara Mohawk.
In May 2003, we announced our plans to sell up to four of our UK gas distribution networks if this maximises value. Since then, plans have progressed and we are in discussions with a number of parties, with final bids expected this summer. The disposal of these businesses is likely to affect the Group significantly. The actual impact will depend on the number of networks sold, if any, the price received and the use of the proceeds of any sales.
Delivering integration
We continue to develop further integration opportunities
across the businesses to streamline our operations. In our Transmission business,
we are realising efficiencies in the UK across our electricity and gas operations
and in the US across our electricity networks, while we are also sharing best
practice between the UK and the US.
Annual Report and Accounts 2003/04_ National Grid Transco 23
Introduction _ continued
In order to maximise the benefits from the Merger, a UK business services organisation was established in Warwick. It provides shared services such as legal, procurement, finance, regulatory, information technology and human resources support to UK Transmission, UK Gas Distribution and the non-regulated businesses in the UK, ensuring a more efficient use of resources.
The information technology service provided to our UK businesses took an important step forward in December 2003 when an outsourcing contract with Computer Sciences Corporation (CSC) for the management and support of the Groups UK information technology infrastructure was agreed. Under the seven-year outsourcing agreement, CSC will manage and support National Grid Transcos data centres, desktop, telecommunications and helpdesk activities in the UK.
As a result of this contract, National Grid Transco will be able to benefit from CSCs skills, experience and best practice processes to drive down costs, to create a more flexible cost base for adapting to business change, to obtain continuous service improvements, and to gain access to technology, innovation and additional technical capability.
Across our US operations, we launched a new Enterprise Resource Planning (ERP) system in May 2004. ERP will address finance and accounting, supply chain and work management. Through automation and improved technology, the system will promote greater consistency in work practices. It will also improve our ability to collect and manage data on our operations, telling us where we are performing well and where we can improve. In the coming year, we will merge the remainder of the information technology systems across our New York and New England operations.
In another initiative that will use technology to synchronise our processes, we are planning a field force automation project for our New York and New England operations. By putting computers into the hands of our field workers, we will be able to distribute work assignments and monitor their status in real time. This will help us to optimise productivity and reduce paperwork while improving customer satisfaction. As we move forward with this project, we are building on the lessons learnt through similar initiatives undertaken across the Group.
In the US, we successfully reached agreement with our New England labour force in May 2003. The four-year labour contract with the New England field workers includes new work processes that will provide multiple benefits: improved employee safety; faster response to outages; improved productivity; and lower costs. In March 2004, we also reached a separate labour agreement in our New England customer service call centre, delivering equivalent benefits and improvements there. The contract with our New York labour force is up for renewal in September 2004.
Also in the US, the Group made voluntary early retirement offers to a subset of union employees and to non-union employees who met certain criteria based on age and length of service. The offers were made in areas including transmission, retail operations (in New England) and corporate administrative functions such as finance, human resources, legal and information technology. Management sets the actual retirement dates for individuals based on operational needs. The majority of those who accepted the offers will retire by 1 November 2004, with the remainder retiring by 1 January 2008. During 2003/04, we incurred approximately £70 million of exceptional costs related to this programme.
24 National Grid Transco _Annual Report and Accounts 2003/04
Directors Report and Operating and Financial Review
Operating Review
History and development of the business
In October 2002, National Grid Group plc merged with Lattice Group plc and was re-named National Grid Transco plc, bringing together substantial gas and electricity businesses.
When the electricity industry was restructured in England and Wales in 1990, National Grid Company (NGC) assumed ownership and control of the transmission network and certain interests in the interconnectors with Scotland and France from the Central Electricity Generating Board. The predominant shareholders in NGC were the 12 Regional Electricity Companies (RECs) which owned and operated the local distribution systems. In 1995, NGCs shares were listed on the London Stock Exchange and by 1996 each REC had disposed of substantially all of its respective shareholdings.
National Grid entered the US electricity market in 2000 with its acquisitions of New England Electric System (NEES) and Eastern Utilities Associates (EUA). National Grid expanded its operations in the US with the completion of its merger with Niagara Mohawk in January 2002. The Groups holding company for its US operations is called National Grid USA.
Lattice was one of the three successor companies to what was formerly British Gas plc. Its principal business was Transco, the owner and operator of the substantial majority of Britains gas transportation system.
Like the electricity industry, the UK gas industry was restructured. In 1986, British Gas was incorporated as a public limited company. In 1997, Centrica was demerged from British Gas which was re-named BG. In December 1999, BG completed a restructuring programme which resulted in the creation of a new parent company, BG Group, and involved separating its UK regulated business, Transco, from its other businesses. In October 2000, Lattice was demerged from BG Group and comprised Transco, together with start-up telecommunications and non-regulated infrastructure services businesses.
Regulatory environment
As a result of their position in and importance
to the economies they serve, the Groups transmission and distribution
businesses in the
UK and US are subject
to significant regulation. In the UK they are regulated by the Office of Gas
and Electricity Markets (Ofgem). Ofgem operates under the direction and governance
of the Gas and Electricity Markets Authority (GEMA), which makes all major decisions
and sets policy priorities for Ofgem.
NGC is the sole holder of an electricity transmission licence for England and Wales. Regulation of the company is provided in a number of ways. The transmission licence conditions set the regulatory framework under which NGC operates. Revenues relating to transmission assets are regulated through a price control that is expected to run until 31 March 2007. Annual charges are set out by NGC in a charging statement. The methodology for determining charges is subject to Ofgems approval. Finally, System Operator incentives are set by Ofgem, usually on an annual basis. These encourage efficiency in balancing the electricity system in real time.
The Energy Bill, which is currently progressing through the UK Parliament, contains powers to create a Great Britain electricity market. The UK Government announced that when it receives these powers NGC would become System Operator for England, Wales and additionally for Scotland.
Transco is the holder of a gas transporter licence for Britain in respect of the Groups gas transmission, distribution and metering businesses. The regulatory framework is set out in this licence. Transco is subject to two price controls for transmission activities that both run to 31 March 2007. The Transmission Owner price control covers assets and related expenditure. The System Operation price control covers the operation of the transmission system, including balancing of the transmission system and constraint management, providing incentives to promote efficiency. The actual balancing costs derive from services and actions set out in the Network Code. Distribution activities are also covered by price control regulation. From 1 April 2004, each of Transcos eight regional networks became subject to separate price controls covering their activities. Although these separate price control formulae were due to run to 31 March 2007, Ofgem has recently announced its intention to extend them by an additional year. The form of the price controls is discussed in more detail on page 32. The annual transportation charging statement sets out the transportation charges for market participants for both transmission and distribution. Again, Ofgem approves the methodology used to determine transportation charges.
Over the last year and as part of its consultations concerning network monopoly price controls and the electricity distribution price review, Ofgem has proposed changes to the regulatory framework that applies to all energy network monopolies. Proposed developments include the introduction of a five-year retention of benefits from savings in operating costs, capital expenditure efficiencies and asset disposals, irrespective of when they occur during a price control period (currently, the benefits of cost saving initiatives are returned to customers when a price control is reset). In respect of pension costs, Ofgem has indicated that it sees these as a normal operating cost of the business. Furthermore, Ofgem has suggested that, with effect from 1 April 2002, any efficiently incurred over or underfunding of pension schemes as compared to those assumptions made by Ofgem when its price controls were set, will ultimately be passed to consumers. It is expected that the details of how this mechanism will work, together with any adjustments that Ofgem may wish to make in respect of historic pensions issues, will be clarified later in 2004.
The Groups businesses are also affected by European Union legislation. The Electricity Regulation will mean that the UK will be expected to join the cross-border trading mechanism in 2005. The detailed rules will be adopted through secondary European legislation. This is expected to impact on the charging for transits of electricity and interconnector arrangements. A Directive concerning measures to safeguard security of natural gas supply is due for implementation in May 2006. This will ensure that Member States have in place, and publish, policies and standards on gas security of supply. However, the impact on Transcos activities is expected to be minimal. There are also a number of European Directives or Regulations in draft form or in development covering many issues including electricity security of supply, harmonisation of access to gas systems and infrastructure development, where the precise impact on the Group in the future is currently uncertain.
Annual Report and Accounts 2003/04_ National Grid Transco 25
Operating Review _ continued
In the US, transmission service is generally regulated by the Federal Energy Regulatory Commission and distribution service is regulated by the relevant states public utilities authority. Under rates approved by the applicable regulators, we generally recover our costs of providing service and earn a return on our assets. The rates are set based on certain historical or forecasted costs, and we may achieve extra earnings to the extent we outperform those benchmarks. Commodity costs are passed through directly to ratepayers. We earn a return on our investments, including on the stranded costs associated with the previous divestiture of our generating assets under deregulation. We may also earn incentives for meeting certain performance targets, such as for reliability and customer service, and are conversely subject to penalties if we miss certain targets.
As a result of our ownership of several US public utility companies, National Grid Transco is a registered public utility holding company under PUHCA the Public Utility Holding Company Act of 1935. The implications of registration as a holding company include, among other things, various conditions and limitations relating to financing, subsidiary company transactions, ownership of non-utility businesses and the requirement for SEC consent for further US utility acquisitions. The non-US operations of the Group are exempt from full regulation under PUHCA.
Transmission
Background information
Our
Transmission business includes National Grid Transcos high-voltage electricity
transmission networks in the UK and US, the gas National Transmission System
in the UK and, through GridAmerica in the US, it manages a range of electricity
transmission operations for other utilities.
The business is divided into two segments, UK electricity and gas transmission for our UK assets and US electricity transmission for our US assets.
Financial performance | |
Turnover for Transmission was as follows: | |
|
UK electricity and gas transmission:
£1,867 million for the year ended 31 March 2004 compared to £1,893 million in 2002/03 and £1,799 million in 2001/02; and |
|
US electricity transmission:
£318 million for the year ended 31 March 2004 compared to £407 million in 2002/03 and £278 million in 2001/02. |
Adjusted operating profit for Transmission was as follows: | |
|
UK electricity and gas transmission:
£769 million for the year ended 31 March 2004 compared to £820 million in 2002/03 and £756 million in 2001/02; and |
|
US electricity transmission:
£133 million for the year ended 31 March 2004 compared to £128 million in 2002/03 and £87 million in 2001/02. |
Operating profit for Transmission was as follows: | |
|
UK electricity and gas transmission:
£755 million for the year ended 31 March 2004 compared to £774 million in 2002/03 and £713 million in 2001/02; and |
|
US electricity transmission:
£105 million for the year ended 31 March 2004 compared to £103 million in 2002/03 and £64 million in 2001/02 |
A discussion of the movements in turnover and adjusted operating profit for each segment and the prior years is included in detail for the UK on page 27 and for the US on page 29.
Exceptional charges which explain the difference between adjusted operating profit and operating profit for UK electricity and gas transmission are discussed in the context of all exceptional items of the Group on pages 36 and 40. Exceptional charges and goodwill amortisation explain the difference between adjusted operating profit and operating profit for US electricity transmission. Goodwill amortisation is discussed in the context of the Group as a whole on pages 36 and 39.
Operating performance
Transmissions safety performance
has been strong this year. In the UK there was a 50% reduction in Lost Time
Injuries (LTIs) from 20 in 2002/03 to 10 in 2003/04 and a 93% fall in days
lost
for its employees from 351 to 26. In the US, Transmission had only one LTI
during the year for its employees. However, it is very regrettable that two
contractors
died while working for our US operations when the steel crossarm that they
were moving came into contact with a 115 kV overhead line. We continue, with
the
help of DuPont Safety Resources, to emphasise a safety culture focused
on world-class safety performance and achieving
an injury-free workplace.
UK Transmission
Background information
Our UK Transmission business comprises the high-voltage electricity transmission system in England and Wales and the gas National Transmission System in Britain.
It owns and operates electricity assets consisting of approximately 4,500 miles of overhead line, about 410 miles of underground cable and some 341 substations at around 243 sites. Day-to-day operation of the electricity transmission system involves the continuous matching of generation output with demand, ensuring the stability and security of the power system and the maintenance of satisfactory voltage and frequency.
The business also owns and operates the gas National Transmission System in Britain comprising approximately 4,200 miles of high pressure pipe and 24 compressor stations, connecting to eight distribution networks and third party independent systems for onward transportation of gas to end consumers. Day-to-day operation of the gas National Transmission System includes balancing supply with demand, maintaining satisfactory system pressures and ensuring gas quality standards are met.
Our UK Transmission business comprises four separately regulated activities: | |
| Electricity Transmission Owner; |
| Electricity System Operator; |
| Gas Transmission Owner; and |
| Gas System Operator. |
The Transmission Owner (TO) owns and maintains the physical assets, develops the networks to accommodate new connections/disconnections, and manages a programme of asset replacement and investment to ensure the long-term reliability of the systems.
The System Operator (SO) undertakes a range of activities necessary for the successful delivery in real time of secure, reliable and efficient energy and the continuous balancing of supply and demand. The electricity and gas System Operators are subject to regulatory incentive schemes.
26 National Grid Transco _Annual Report and Accounts 2003/04
Operating Review _ continued
The UK is entering a period of changing supply patterns for both gas and electricity. With decreasing UK continental shelf gas reserves, the UK will become a net importer of gas well within the next decade. We have seen increasing activity in providing the necessary import capability. This involves gas interconnectors and liquefied natural gas (LNG) importation facilities, such as the one on the Isle of Grain that the Group is developing, which will come onstream in 2005.
We continue to see a trend towards greater use of gas in power generation as the UK moves towards a low carbon economy. Alongside this, the Government is providing strong encouragement for renewable energy, particularly offshore wind farms. We are working with the Government and Ofgem to make possible the necessary investments in the electricity transmission network to support the development of such renewable energy projects.
The UK Government introduced the Energy Bill into the House of Lords in November 2003. Provisions of interest to National Grid Transco include the legislative frameworks for the British Electricity Trading and Transmission Arrangements (BETTA), for offshore wind farms and the associated offshore transmission infrastructure and for the introduction of a licensing regime for gas and electricity interconnectors. Another provision of interest includes a Special Administration Regime for electricity and gas networks.
The Energy Bill is expected to be granted Royal Assent by July 2004 and meeting this deadline is necessary if the implementation of BETTA is to be achieved by the Governments target date of April 2005.
Under BETTA, a Great Britain electricity market would be created. Our System Operator role would be extended to include managing the Scottish transmission networks in addition to our England and Wales network. The Scottish interconnectors (currently outside of the regulated business) would no longer be operated under the current commercial agreements but would form part of the regulated businesses of the current interconnector owners, NGC and Scottish Power. The method for recovering the costs associated with the establishment of BETTA has been agreed in principle with Ofgem.
We are in ongoing discussions with Ofgem regarding the detailed regulatory and commercial arrangements for BETTA.
Financial performance
UK electricity and gas transmission turnover for
the year ended 31 March 2004 was £1,867 million, compared with £1,893 million in 2002/03 and £1,799
million in 2001/02.
The £26 million reduction in UK electricity and gas transmission turnover from 2002/03 to 2003/04 was mainly due to the receipt of a £20 million one-off connection-related fee in 2002/03.
The £94 million increase in turnover comparing 2001/02 to 2002/03 was mainly as a result of £23 million additional gas Transmission Owner revenues, principally arising from the entry capacity auctions; a £47 million increase in external Balancing Services Incentive Scheme (BSIS) income (offset, however, by a similar movement in BSIS costs); and a £20 million one-off connection-related fee.
UK electricity and gas transmission adjusted operating profit for the year ended 31 March 2004 was £769 million, compared with £820 million in 2002/03 and £756 million in 2001/02.
UK electricity and gas transmission operating profit for the year ended 31 March 2004 was £755 million, compared with £774 million in 2002/03 and £713 million in 2001/02.
Exceptional charges which explain the difference between adjusted operating profit and operating profit are discussed in the context of all exceptional items of the Group on pages 36 and 40.
The £51 million decrease in adjusted operating profit in 2003/04 was mainly as a result of the following:
|
a £27 million increase in depreciation, reflecting our extensive investment in the UK electricity and gas transmission systems; |
|
a £22 million one-off charge relating to the 1 April 2004 introduction of Plugs charging methodology, which is described in more detail on page 28; |
|
the £20 million one-off connection-related fee income in 2002/03; and |
|
a reduction in incentive profits of £8 million. |
This was partly offset by: | |
|
a £9 million one-off benefit to gas shrinkage costs; |
|
a £4 million reduction in controllable costs; and |
| £13 million of other movements, mainly relating to timing. |
The £64 million increase in adjusted operating profit comparing 2002/03 with 2001/02 was mainly as a result of higher turnover (see earlier discussion), together with reductions in controllable costs and increased System Operator profits.
Investment in the network
Capital investment in the replacement, reinforcement
and extension of the UK electricity and gas transmission systems in 2003/04 was £584 million, compared with £567 million in 2002/03 and £613
million in 2001/02.
Investment in electricity and gas transmission systems is, by its nature, variable. The systems consist of large, long-lived assets that typically will be replaced simultaneously with adjacent assets to maximise system availability. In addition to this, the gas transporter and electricity transmission licences oblige us to provide connections upon request and capacity for users wishing to use the networks. For example, 2001/02 saw high levels of capital expenditure in our gas transmission network to support entry requirements at the St Fergus and Bacton beach terminals, and exit (demand) requirements in the South of England.
In 2003/04, 14% of electricity transmission capital expenditure was related to two major projects, the North Yorkshire line, which was commissioned in 2003/04, and the London Elstree Tunnel project.
UK electricity transmission
Regulation
NGC is the sole holder of an electricity transmission licence for England and Wales. It has a statutory duty under the Electricity Act 1989 (as amended) to develop and maintain an efficient, coordinated and economical
system of electricity transmission and to facilitate competition in the supply and generation of electricity.
Under the terms of the transmission licence, NGC receives income through charges to generators, distributors, suppliers and
Annual Report and Accounts 2003/04_ National Grid Transco 27
Operating Review _ continued
directly-connected customers for use of and connection to the transmission system. Use of system charges are levied in respect of the provision of transmission assets/infrastructure (the Transmission Owner activity) and for operating the system (the System Operator activity).
Transmission Owner
Revenue from charges for using the transmission
network and charges for connections made before March 1990 is controlled by a
revenue restriction condition set out in the transmission licence. This revenue
restriction, known as a price control, takes into account, among other factors,
operating expenditure, capital expenditure and cost of capital, which for the
current price control is at a real pre-tax rate of 6.25%. In addition, cost pass-through
is given in
respect of non-domestic rates and Ofgems licence fees attributable to the
electricity transmission business.
NGC is permitted to set charges for connections to the transmission system made since March 1990 to recover the costs directly or indirectly incurred in providing connections, together with a reasonable rate of return.
The current price control was introduced on 1 April 2001. It was expected to remain in force until 31 March 2006, but is likely to be extended to 31 March 2007. Negotiations on the detail of the extension to the price control are ongoing and are expected to conclude during 2005.
An amended charging methodology for the Transmission Owner, known as Plugs, was introduced from 1 April 2004. The total revenue recoverable by NGC under its licence remains unchanged. The changes modified the ownership boundary between what was part of the transmission network, shared by all users, and what were separate connection assets attributable to specific users. This required NGC to make repayments to connected parties associated with relevant assets that have been subject to capital contributions or other accelerated payment terms. In total, these repayments will be in the region of £70 million of which the majority will be treated as capital expenditure for regulatory purposes.
System Operator
As System Operator, NGC is responsible for the
operation of the high-voltage electricity
transmission system across England and Wales including
the procurement and use of balancing services to match supply and demand continuously.
Balancing services include commercial agreements with market participants that
enable the System Operator to vary their electricity demand or generation output.
Revenue
from charges for the provision of balancing services is regulated under an incentive
scheme, where benefits of cost savings in system operation compared to a target
are shared with customers. The incentive scheme for 2004/05 has been set with
a maximum benefit or loss of £40 million, consistent with 2003/04. As part
of the regulatory settlement, the sharing factor for the System Operator external
costs has reduced from 50% in 2003/04 to 40% for
2004/05.
Operating performance
The winter of 2003/04 saw demand for electricity
from the transmission network in England and Wales hit a peak of 52.97 GW on
8 December 2003. This compared to the previous years record-breaking peak
of 54.43 GW
that occurred on 10 December 2002.
Over the course of 2003/04, we have maintained our average annual availability of the electricity network at 95.2% compared to 95.8% in 2002/03, 95.4% in 2001/02 and our five-year average was 95.6% in 2003/04. System availability at winter peak demand was 98.0% in 2003/04 compared with 98.8% in 2002/03 and 98.3% in 2001/02 and our five-year average was 98.6% in 2003/04.
During 2003/04, 99.9997% of the energy demanded was delivered by the transmission system compared to our 10-year average of 99.9999%. There were two significant loss of supply incidents. One affected around 400,000 retail customers across parts of South London where restoration of the transmission system took 37 minutes; regrettably, however, disruption to rail services continued for some time afterwards. The second incident affected around 200,000 retail customers across parts of the West Midlands and restoration of the transmission system was completed within 42 minutes.
Following its investigation, the Department of Trade and Industrys Engineering Inspectorate considered prosecution was not appropriate, but made a number of recommendations which we have accepted and actions are well advanced to implement them.
Ofgem is also investigating the incidents to determine whether there was a breach of statutory or licence obligations by NGC. We expect the outcome during the summer.
UK gas transmission
Regulation
The UK gas transmission business is undertaken
under the terms of Transcos gas transporter licence and is subject to separate
revenue restrictions known as price controls in respect of its Transmission Owner
and
System Operator activities which will both last until March 2007.
Under the terms of the gas transporter licence, Transco receives income through charges to shippers for entry and exit capacity (Transmission Owner activity) and commodity charges (System Operator activity). The system entry capacity charges are set via auctions. The exit capacity charges and the entry capacity auction proceeds together recover the allowed revenue under the Transmission Owner price control in respect of the provision of the transmission assets.
Transmission Owner
The Transmission Owner price control takes into
account, among other factors, operating expenditure, capital expenditure and
cost of capital, which for the current control is set at a real pre-tax rate
of 6.25%. In addition, cost pass-through is provided in respect of prescribed
rates and Ofgems licence fees attributable to the gas transmission activity.
System Operator
The System Operator price control includes incentive arrangements such that if performance exceeds the targets set in the price control, Transco retains a share of the benefits, and vice versa. The incentives cover the
costs of investment for additional capacity, managing capacity constraints, the costs of purchasing shrinkage gas (gas that is either used in operating the system or lost from the system during transportation) and other System Operator costs.
Further detailed arrangements for the industry are provided through the Network Code, a legal document that defines the obligations, responsibilities and roles of the industry
28 National Grid Transco _Annual Report and Accounts 2003/04
Operating Review _ continued
participants. Under the Network Code, our UK Transmission business undertakes the role of Top-up manager. This requires the setting, monitoring and then the preservation of storage levels to protect gas stocks under prolonged and severe winter conditions. Under severe winter conditions this may entail the purchase of gas from the open market to maintain the prescribed levels of gas storage stocks. Where there is a shortage of gas available to the market this may lead the business to incur significant costs.
Our gas transporter licence has an Income Adjusting Event provision that may provide changes to our income to allow the recovery of significant increases in efficiently incurred costs.
Operating performance
The winter of 2003/04 saw a maximum demand for
gas of 444 mcm on 28 January 2004. This compared with the previous years
peak recorded on 7 January 2003 of 450 mcm.
The ability of the gas transmission system to transport the available gas is dependent on the performance of our compressor fleet. The performance of the compressor fleet is measured by the average time elapsed between breakdowns for the fleet; a longer time indicates better performance. Over 2003/04, the mean (or average) time between compressor failures was 11% above our five-year average, following on from an 18% increase in the mean time between failures in 2002/03.
US Transmission
Background information
In the US, we own and operate an electricity transmission network of approximately 14,000 miles. Our US Transmission business operates, at 69 kV and above, approximately 9,000 miles of overhead lines, underground
cables, a 139 mile direct current transmission line and 526 substations. We are the largest electricity transmission service provider in the northeastern US by reference to the length of these high-voltage transmission lines. The remainder is
operated as part of our US electricity distribution business.
US Transmission provides electricity transmission in New York through Niagara Mohawk Power Corporation and in New England principally through New England Power Company and The Narragansett Electric Company.
In addition, in the Midwest of the US, GridAmerica manages a range of electricity transmission operations on behalf of its three participant utilities. These include operational planning, outage management and scheduling of transmission service. It is the first multi-system independent transmission company and was formed under agreements with Ameren, First Energy, Northern Indiana Public Service Company and the Midwest Independent System Operator (MISO). The agreements have provisions that allow the participant utilities to sell their transmission assets to GridAmerica for cash and stock.
GridAmerica began operations in October 2003 with two out of the three participant companies before final approvals were received for Amerens participation on 1 May 2004. With the inclusion of Ameren, GridAmerica provides services in a geographic area which includes over 14,000 miles of transmission lines across five states.
Regulation
In New England, the electricity transmission revenues are collected under regional and local tariffs approved by the Federal Energy Regulatory Commission (FERC) which allow it to recover the costs of providing
transmission services, with a return on capital. In New York, the transmission business revenues are collected under FERC and state tariffs with state provisions similar to the distribution regulation discussed on page 30. GridAmerica revenues are
received from the MISO under a rate schedule approved by the FERC, along with management fees paid by the three participant utilities.
The transmission sector in the US is undergoing fundamental structural change. In its Order 2000, the FERC required electricity utilities to file proposals for transferring to Regional Transmission Organisations (RTOs) the management of transmission assets and the tariffs setting out the rates, terms and conditions of transmission service.
The US Transmission business currently operates within two independent system operators (ISOs), ISO New England Inc. and New York ISO, which administer the markets and provide oversight of transmission in their respective regions. The FERC issued an order on 24 March 2004 approving the proposal for an RTO by ISO New England and New England transmission owners including our subsidiary New England Power Company. The FERCs approval is subject to conditions and modifications. There are currently no active plans to create an RTO for New York.
GridAmerica and its participant companies are members of MISO which has been approved by FERC as an RTO.
Financial performance
For the average exchange rates used in translating the US financial results, please see pages 37 and 41 in the Financial Review.
US electricity transmission turnover for the year ended 31 March 2004 was £318 million, compared with £407 million in 2002/03 and £278 million in 2001/02.
The £89 million reduction in US electricity transmission turnover from 2002/03 to 2003/04, including an unfavourable exchange rate impact of £22 million, reflects a reclassification of New England Power Pool billings from transmission to distribution segments. This movement was offset by an equal movement in costs.
The £129 million increase in turnover comparing 2001/02 and 2002/03, including an unfavourable exchange rate impact of £26 million, was mainly as a result of the first full year results of Niagara Mohawk (acquired 31 January 2002).
US electricity transmission adjusted operating profit for the year ended 31 March 2004 was £133 million, compared with £128 million in 2002/03 and £87 million in 2001/02.
US electricity transmission operating profit for the year ended 31 March 2004 was £105 million, compared with £103 million in 2002/03 and £64 million in 2001/02.
Exceptional charges and goodwill amortisation explain the difference between adjusted operating profit and operating profit. These exceptional charges are discussed in the context of all exceptional items of the Group on pages 36 and 40. Goodwill amortisation is discussed in the context of the Group as a whole on pages 36 and 39.
The £5 millon increase in adjusted operating profit comparing 2003/04 with 2002/03,
Annual Report and Accounts 2003/04_ National Grid Transco 29
Operating Review _ continued
including an unfavourable exchange rate impact of £8 million, was primarily due to the pass-through allowance for certain of the exceptional reorganisation costs and the first six months profits from GridAmerica of £2 million.
The £41 million increase in adjusted operating profit comparing 2002/03 with 2001/02, including an unfavourable exchange rate impact of £8 million, was primarily due to the first full year results from the Niagara Mohawk acquisition.
Operating performance
The blackout in the northeastern US and Canada on 14 August 2003, which started in the Midwest and cascaded into our service area, caused a loss of power to more than 800,000 of our Niagara Mohawk customers in upstate
New York. Our staff and systems performed well and our customers were among the first to have their power restored after only seven hours.
In testimony before the US Congress about the blackout, Nick Winser, our Director of UK and US Transmission, highlighted the need to encourage the formation of independent transmission companies, to require the establishment of streamlined regional planning processes, to establish pricing policies that promote and reward investments in necessary grid upgrades, and to eliminate barriers to the siting of new transmission facilities.
Investment in the network
Capital
investment in the replacement, reinforcement and extension of the US electricity
transmission networks in 2003/04 was £53 million, compared with £49 million in 2002/03 and £38
million in
2001/02.
Investment in electricity transmission systems is, by its nature, variable. The systems consist of large, long-lived assets that typically will be replaced simultaneously with adjacent assets to maximise system availability.
The increase in capital expenditure in 2002/03 when compared to 2001/02 was mainly due to the inclusion of the first full year results of Niagara Mohawk (acquisition completed in January 2002). The summary above includes two months for Niagara Mohawk in 2001/02.
US Distribution
Background information
National Grid USA is one of the leading electricity distribution service providers in the northeastern US, as measured by energy delivered, and one of the largest utilities in the US, as measured by the number of
electricity distribution customers. US electricity distribution serves approximately 3.3 million customers over a network of 62,000 circuit miles. US gas distribution serves around 560,000 customers over a network of 8,000 miles.
The company provides electricity and gas distribution in New York through its subsidiary Niagara Mohawk Power Corporation. It provides electricity distribution in New England through its subsidiaries Massachusetts Electric Company, Nantucket Electric Company, The Narragansett Electric Company and Granite State Electric Company.
Regulation
Massachusetts distribution
rates (Massachusetts Electric Company and Nantucket Electric Company)
Under
the Massachusetts Electric distribution rate plan approved by the Massachusetts
Department of Telecommunications and
Energy, distribution rates were reduced by $10 million on 1 May 2000
and will remain frozen until the end of February 2005. From March 2005 to
the end of
December 2009, distribution rates will be indexed to the average of distribution
rates
of similarly unbundled investor-owned utilities in New England, New York,
New Jersey and
Pennsylvania. Massachusetts Electric has agreed that increases in its
distribution rates will initially be capped at 90% of the regional average.
Based on a predetermined
formula, annual savings related to Massachusetts Electrics acquisition
by National Grid that are achieved up to the end of 2009 will be calculated
and shared equitably with customers from January 2010 until May 2020.
Nantucket Electrics distribution rates are linked to Massachusetts Electrics rates and became effective on 1 May 2000.
Rhode Island distribution rates (The Narragansett
Electric Company)
Under the rate plan for Narragansett Electric, approved by the
Rhode Island Public Utilities Commission (RIPUC), distribution rates were
reduced by approximately $13 million on 1 May 2000 and will remain frozen until 31 December 2004. During the rate freeze, Narragansett Electric is permitted to retain earnings up to 12% return on equity. Any earnings
between 12% and 13% will be shared equally with customers. If earnings exceed 13%, the excess will be divided between customers and the company, with customers receiving 75%.
From 1 January 2005, distribution rates will generally be determined by the RIPUC in accordance with Narragansett Electrics cost of service. From that date, until the end of 2019, the company will be able to include in its cost of service half of any proven savings achieved since the merger of two former distribution companies that belonged to Eastern Utilities Associates (EUA which became part of the Group in 2000) with Narragansett Electric. Narragansett Electric has filed evidence of annual EUA merger savings of approximately $16 million, subject to approval by the RIPUC. Our potential share of these savings is about $8 million annually until 2019, provided we maintain our cost of service below certain thresholds. These savings will be subject to further verification by 2007.
New Hampshire distribution rates (Granite State Electric Company)
The current rates for Granite State Electric are subject to regulation by the New Hampshire Public Utilities Commission and became effective in July 1998. These rates reflect expenses for the year ended 31 December
1994 and a 10% allowed return on equity.
New York distribution rates
(Niagara
Mohawk Power Corporation)
Niagara Mohawks distribution rates are regulated
by the New York State Public Service Commission (NYPSC). As part of the regulatory
approval process for the acquisition of Niagara Mohawk, a 10-year rate plan was
approved by the NYPSC and became effective on 31 January 2002. Electricity delivery
rates were reduced by $152 million and are subject to only limited adjustments
for a period of 10 years. However, Niagara Mohawk will continue to be able to
adjust
rates to recover the full commodity costs of generation. Under the plan, after
reflecting its share of savings related to the acquisition, Niagara Mohawk may
earn a return on equity of up to 11.75%, or 12.0% if certain customer education
targets are
met.
30 National Grid Transco _Annual Report and Accounts 2003/04
Operating Review _ continued
Returns above this level are then subject to a sharing mechanism with customers.
The 10-year rate plan also provides for a freeze on gas delivery rates until the end of 2004, but permits Niagara Mohawk to pass through to customers gas commodity and transportation costs. Niagara Mohawk may earn a threshold return on equity of up to 10%, or 12% if certain customer migration and education goals are met, and is required to share with customers earnings above this threshold.
Financial performance
For the average exchange rates used in translating the US financial results, please see pages 37 and 41 in the Financial Review.
The US electricity distribution and US gas distribution segments are discussed together as US Distribution. The figures given for electricity distribution and stranded costs together constitute the US electricity distribution segment. Stranded costs are the costs associated with the divestment of generating assets. Our regulators allow us to recover these costs, along with a return, from ratepayers.
The summary includes two months of results for Niagara Mohawk (acquisition completed on 31 January 2002) in the comparative figures for the year ended 31 March 2002.
Turnover for US electricity distribution was as follows: | |
| electricity distribution: £3,030 million for the year ended 31 March 2004 compared to £2,860 million in 2002/03 and £1,962 million in 2001/02; and |
| stranded costs: £507 million for the year ended 31 March 2004 compared to £586 million in 2002/03 and £320 million in 2001/02. |
Turnover for US gas distribution was £464 million for the year ended 31 March 2004 compared to £446 million in 2002/03 and £104 million in 2001/02.
In 2003/04, turnover in electricity distribution increased by £170 million, notwithstanding an unfavourable exchange rate impact of £172 million. Sales volume growth, an increase in commodity costs and the reclassification of certain FERC-regulated tariff charges previously reported as transmission contributed to higher turnover, but the return to normal weather patterns, and hence lower energy usage, partially offset the increase. The increase in commodity costs and tariff charges were both offset by increased operating costs.
Stranded costs turnover decreased by £79 million in 2003/04, including an unfavourable exchange rate impact of £29 million. Most of this decrease was attributable to lower returns on the reducing stranded cost asset, which were expected, combined with the impact of weaker sales and reduced purchased power contract costs (these are included in our stranded cost recovery and are offset by a corresponding movement in operating cost).
Turnover for US gas distribution increased by £18 million in 2003/04, including an unfavourable exchange rate impact of £26 million. This increase was primarily due to higher commodity costs.
Turnover increased by £898 million, £266 million and £342 million for electricity distribution, stranded costs and gas distribution respectively in 2002/03. These increases reflect the acquisition of Niagara Mohawk in January 2002 and the first full year of results from it in the year ended 31 March 2003.
Electricity distribution deliveries grew in the US in 2003/04 by 0.8% and in 2002/03 by 0.6% after normalising for weather. Strong residential and small commercial and industrial sales were partially offset by continued weakness in the industrial sector. Weather had a positive impact of approximately £7 million, which was less significant than the previous year. In 2002/03, the Group was aided by weather that was hotter than normal during the summer and colder than normal during the winter, causing an increase in energy use to run air conditioning and heating systems. This amounted to £34 million more turnover than normal in the 2002/03 financial year.
Adjusted operating profit for US electricity distribution was as follows: | |
| electricity distribution: £315 million for the year ended 31 March 2004 compared to £343 million in 2002/03 and £187 million in 2001/02; and |
| stranded costs: £134 million for the year ended 31 March 2004 compared to £170 million in2002/03 and £79 million in 2001/02. |
Adjusted operating profit for US gas distribution was £48 million for the year ended 31 March 2004 compared to £58 million in 2002/03 and £17 million in 2001/02.
Operating profit for US electricity distribution was as follows: | |
| electricity distribution: £158 million for the year ended 31 March 2004 compared to £241 million in 2002/03 and £65 million in 2001/02; and |
| stranded costs: £136 million for the year ended 31 March 2004 compared to £172 million in 2002/03 and £84 million in 2001/02 |
Operating profit for US gas distribution was £37 million for the year ended 31 March 2004 compared to £49 million in 2002/03 and £8 million in 2001/02.
Exceptional charges and goodwill amortisation explain the difference between adjusted operating profit and operating profit. These exceptional charges are discussed in the context of all exceptional items of the Group on pages 36 and 40. Goodwill amortisation is discussed in the context of the Group as a whole on pages 36 and 39.
Electricity distribution adjusted operating profit decreased by £28 million in 2003/04 over 2002/03 and included an unfavourable exchange rate impact of £18 million. A return to normal weather combined with a one-off cost primarily related to storms was partially offset by growth in electricity deliveries and cost reductions.
Stranded costs adjusted operating profit decreased by £36 million, including an unfavourable exchange rate impact of £8 million. Lower returns, as expected, combined with the impact of weaker industrial sales made up the majority of this decrease.
US gas distribution adjusted operating profit decreased by £10 million and included an unfavourable exchange rate impact of £3 million. This decrease was primarily due to a one-off cost of £10 million related to the reversal of a previous over-collection of state income tax, which was partially offset by lower costs.
Annual Report and Accounts 2003/04_ National Grid Transco 31
Operating Review _ continued
Adjusted operating profit for US electricity distribution and US gas distribution increased by a total of £288 million in 2002/03 over 2001/02 primarily due to the first full year of results from the Niagara Mohawk acquisition. After excluding 10 months results relating to Niagara Mohawk from the 2002/03 results to place them on a basis comparable with 2001/02, the exchange rate impact on the 2002/03 results was a loss of £34 million based on the 2001/02 average exchange rate.
The Group previously announced a goal across its US Transmission and US Distribution operations to reduce controllable costs by 20% in real terms by the end of the 2004/05 financial year. By 31 March 2004, we had achieved a cumulative reduction of 10% in real terms from March 2002. This translates to an annualised rate of 15%.
Operating performance
We
work toward service quality standards that the state regulators expect us to
achieve. If we fall below a prescribed standard,
we can incur a penalty. If we do better than the standard, we can in certain
cases achieve an incentive. US Distribution met or exceeded almost all of its
standards and earned an aggregate net incentive of £0.8 million in calendar
year 2003, which was driven by very favourable performance in all customer
service-related measures.
The number of Lost Time Injuries in US Distribution increased by 14% in 2003/04. We are continuing to focus on identifying and addressing near misses as we believe this is an important investment in improving our long-term safety performance.
Investment in the networks | |
Capital investment in the replacement, reinforcement and extension of the US Distribution networks in 2003/04 was: | |
| US electricity distribution: £227 million, compared with £209 million in 2002/03 and £141 million in 2001/02; and |
| US gas distribution: £50 million, compared with £40 million in 2002/03 and £3 million in 2001/02. |
US electricity distribution spending increased by £18 million in 2003/04, including a favourable exchange rate impact of £13 million. US gas distribution spending increased by £10 million in 2003/04, including a favourable exchange rate impact of £3 million. US Distribution included spending to establish automated meter reading of £50 million in 2003/04 compared with £39 million in 2002/03 and £29 million in 2001/02. The £11 million increase in 2003/04 includes a favourable exchange rate impact of £3 million. The large increases from 2001/02 to 2002/03 reflect the acquisition of Niagara Mohawk in January 2002, with two months included in 2001/02 and a full year included for 2002/03.
UK Gas Distribution
Background information
The UK Gas Distribution business of National Grid
Transco is operated by Transco and comprises almost all of Britains gas
distribution system. The gas distribution system consists of approximately 170,000
miles of distribution pipelines and is the largest gas distribution system in
Europe. Gas is transported on behalf of approximately 70 active gas shippers
from the National Transmission System through the eight regional distribution
networks to around 21
million consumers.
As well as gas transportation, Transco is responsible for the safety, development and maintenance of the transportation system and operates the national gas emergency service.
Regulation
On 1 April 2002, the activities of Transcos distribution business became subject to a separate five-year price control formula (distribution price control formula). With effect from 1 April 2004, this
single price control formula was disaggregated into eight separate price control formulae (networks price control formulae)
to cover the activities of the eight regional distribution networks.
The new networks price control formulae take the same form as the distribution price control formula, with a maximum allowed revenue assigned to each network. Each formula retains the 65% fixed, 35% variable revenue associated with transportation volume changes, a mains replacement incentive mechanism and the pass-through of prescribed rates and gas transporter licence fees.
Each network has been allocated a regulatory value associated with its distribution assets, using an estimate of Transcos distribution business regulatory value as at 1 April 2002. The allocation was done in a manner to minimise unnecessary regional differentials in transportation charges. The networks price control formulae also incorporate the same cost of capital assumptions at a real pre-tax rate of 6.25%.
To set the new networks price control formulae it was also necessary to allocate allowances for operating costs, capital expenditure, replacement expenditure, regulatory depreciation and transportation volumes. Projected replacement expenditure continues to be divided 50:50 between regulatory capital and regulatory operating expenditure, thereby ensuring that the cost of the iron mains replacement programme does not fall wholly on todays customers but is shared with future customers. The regulatory treatment of replacement expenditure contrasts with the accounting treatment where all such costs are expensed (see critical accounting policies replacement expenditure on page 47).
Each network is subject to its own mains replacement incentive mechanism and retains 33% of any outperformance against Ofgems annual cost targets as additional profit, or alternatively, bears 50% of any overspend if it underperforms.
In 2003/04, operating under the distribution price control formula Transco made an estimated £10 million of additional profit from this mechanism.
Financial performance
UK Gas Distribution turnover for the year ended
31 March 2004 was £2,245 million, compared with £2,089 million in 2002/03 and £2,013
million in 2001/02.
Principal factors behind the £156 million increase in turnover comparing 2003/04 to 2002/03 were: | |
| an increase in revenue recovered under the distribution price control formula of £84 million, primarily because of a 5% price increase implemented in October 2003 which added £79 million, combined with an increase in underlying volumes which added £21 million, but offset by an £11 million reduction because of relatively mild weather; and |
| a £72 million increase in other, relatively low margin income, primarily because of |
32 National Grid Transco _Annual Report and Accounts 2003/04
Operating Review _ continued
increased work for the Groups other businesses, such as increased workload undertaken by Transcos emergency service on behalf of the Groups regulated and non-regulated metering businesses. |
Principal factors behind the £76 million increase in turnover comparing 2002/03 to 2001/02 were an increase in revenue recovered under the distribution price control formula of £33 million, of which £23 million was due to an increase in underlying volumes, while £10 million was the result of relatively cold weather. In addition, there was an increase of £43 million in other income primarily because of increased work for the Groups other businesses.
UK Gas Distribution adjusted operating profit for the year ended 31 March 2004 was £729 million, compared with £554 million in 2002/03 and £548 million in 2001/02.
UK Gas Distribution operating profit for the year ended 31 March 2004 was £640 million, compared with £443 million in 2002/03 and £504 million in 2001/02.
Exceptional charges which explain the difference between adjusted operating profit and operating profit are discussed in the context of all exceptional items of the Group on pages 36 and 40.
The £175 million increase in adjusted operating profit comparing 2003/04 to 2002/03 was mainly a result of an £84 million increase in formula income, a £103 million reduction in controllable operating costs and a £17 million reduction in replacement expenditure. This was offset by a net increase in depreciation and amortisation of capital contributions of £11 million and a £23 million charge for UK Gas Distributions share of the Lattice pensions deficit.
Principal factors behind the £6 million increase in adjusted operating profit comparing 2002/03 to 2001/02 were an increase in revenue recovered under the distribution price control formula of £33 million, combined with a £26 million reduction in controllable operating costs, offset by increased depreciation of £9 million and an increase in replacement expenditure of £37 million (see critical accounting policies replacement expenditure on page 47).
UK Gas Distributions replacement expenditure (repex) for the year ended 31 March 2004 was £388 million, compared with £405 million in 2002/03 and £368 million in 2001/02.
The £37 million increase in repex in 2002/03 compared with 2001/02 was due to the completion of the Medium Pressure Ductile Iron replacement programme in 2002/03. The £17 million reduction comparing 2003/04 to 2002/03 was associated with the start of the iron mains replacement programme with 2003/04 representing the lowest year of expenditure planned until 2007.
UK Gas Distributions controllable costs in 2003/04 were £103 million lower than 2002/03 and 7% lower than the 2003/04 allowance agreed with Ofgem as part of the five-year distribution price control formula agreed in April 2002. The reduction was a direct result of the implementation of restructuring plans announced in September 2002, coupled with continued investment in technology and the centralisation of activities, and aided by synergies from the merger of National Grid and Lattice.
Operating performance
Gas throughput was 706 TWh in 2003/04, compared with 708 TWh in 2002/03 and 697 TWh in 2001/02. If the weather had corresponded to seasonal normal temperatures, it is estimated that gas throughput would have been 732
TWh in 2003/04, compared with 730 TWh in 2002/03 and 727 TWh in 2001/02.
While there has been underlying growth of 1.9% in demand from small users (2002/03 2.0% demand growth), 2003/04 saw a 3.5% reduction in underlying demand from business and other large users (2002/03 1.6% reduction), which can be attributed to higher gas prices, power stations being off-line and recession in a number of manufacturing sectors.
Standards of service
Over
the past few months we have been working with Ofgem and the wider industry to
implement plans to improve the standards
of service provided by Transco in relation to its connections activities. While
Ofgem has recognised that the performance of the connections service provided
by Transco has improved, in May 2004 it confirmed a financial penalty of £1
million in relation to earlier performance problems.
The problems we have had with our connections operations have adversely impacted our overall standards of service performance and as a result there is some room for improvement. Despite this we have once again exceeded our safety-related standards of service targets with more than 98% of uncontrolled gas escapes (where the gas leak cannot be controlled by turning the gas supply off at the meter) attended within one hour, and more than 99% of controlled gas escapes (where the gas leak can be controlled at the meter) attended within two hours.
Safety
Using DuPont Safety Resources, we have been working to improve our overall safety, health and environmental performance through the implementation of best practice in UK Gas Distribution. Over the last 12 months, we
have demonstrated a continued improvement with a 22% reduction in employee Lost Time Injuries (LTIs). By working closely with our supply chain partners to share best practice, we have also made significant steps in improving their performance
resulting in a 43% reduction in their LTIs. We have initiated new training, which we believe will educate and change behaviours to drive improved safety performance further towards our goal of zero injuries.
Investment in the network
Capital
expenditure in the reinforcement and extension of Transcos gas distribution network was £293 million in 2003/04, compared with £380 million in 2002/03 and £455 million in 2001/02. The
reductions in capital expenditure comparing 2003/04 to 2002/03 and 2002/03 to 2001/02 were principally due to the fact that investment in the high pressure pipelines in the distribution networks incorporates a number of large projects and is
dependent on forecasts of future demand. The profile of expenditure over time is stepped with the commencement and completion of projects to expand the network. As a result of the level of project activity, expenditure in 2001/02 was particularly
high due to a number of large projects being undertaken. It fell by £75 million in 2002/03 and then by a further £87
million in 2003/04 with the completion of these projects.
During the year ended 31 March 2004, Transco made over 100,000 new connections to its network. The total number of new connections to Britains network, taking into account other
Annual Report and Accounts 2003/04_ National Grid Transco 33
Operating Review _ continued
connections made by third parties, is estimated to be in excess of 200,000.
Network sales
Plans
for the possible sale of up to four of Transcos
eight distribution networks, announced in May 2003, have progressed steadily
over the past year. A large number of indicative bids for the five networks
potentially identified for sale (Scotland, Wales and West, North of England,
North West and
South of England) were received and discussions have continued with a number
of parties. It is expected that the results of the sales process will be
announced this summer with any sales due for completion in early 2005.
National Grid Transco has been discussing its plans with Ofgem and the wider industry through industry workstreams. In April 2004, Ofgem gave approval for the next phase of work to consider the implications of the proposed network sales on the basis that it is in consumers interests. Completion of this phase of work is expected by the end of July and Ofgems final consent to specific sales is expected in the second half of 2004.
The HSE has been kept appraised of all developments and will need to approve new safety cases and any changes proposed by National Grid Transco before the sales can complete. The 0800 111 999 national gas emergency service number will remain the same and will continue to be managed by National Grid Transco. The emergency engineers who are currently dispatched to attend public reported gas escapes and gas emergencies within each network will be included as part of any network sale.
Although we may sell up to four networks, if this maximises value, we remain committed to a substantial gas distribution business in Britain and we will continue to be the largest operator of gas distribution assets in the country.
The Way Ahead for our retained distribution networks
We
have begun our Way Ahead restructuring programme in the networks
that we will retain. This involves a move to a more centralised structure that
will enable us to place increased emphasis on safety and efficiency, the deployment
of best practice across the organisation, and facilitate our aim to be the
best in the world at balancing cost, performance and risk. Any network that is currently part of the sale process, but is not subsequently sold, will be incorporated into the Way Ahead programme later this year.
This should enable us to deliver major reductions in controllable operating expenditure.
Other businesses
Progress continues to be made by the Group to re-focus the portfolio of other businesses to the provision of infrastructure and related services where we can exploit our core skills and assets to create value.
The adjusted operating profit for Group undertakings within other activities for the year ended 31 March 2004 was £103 million, compared with £143 million in 2002/03 and £206 million in 2001/02.
Operating profit for Group undertakings within other activities for the year ended 31 March 2004 was £24 million, compared with £24 million in 2002/03 and £120 million in 2001/02.
Exceptional charges and goodwill amortisation explain the difference between adjusted operating profit and operating profit. These exceptional charges are discussed in the context of all exceptional items of the Group on pages 36 and 40. Goodwill amortisation is discussed on pages 36 and 39.
The £40 million reduction in adjusted operating profit in 2003/04 was mainly a result of a £29 million improvement in the profitability of Gridcom, offset by an increased depreciation charge in the Transco metering business, increased losses at Fulcrum Connections, increased pension costs, and start-up costs in OnStream and Isle of Grain import facility.
Included within the other activities are the businesses described below.
Gridcom
Gridcom provides communications infrastructure solutions to fibre and wireless network operators in the UK and northeastern US.
Gridcom builds, leases and operates sites for the base stations and radio masts needed by mobile operators, exploiting the Groups project management skills and electricity and gas infrastructure. In the US, it also offers dark fibre and related facilities to telecoms operators. In the UK, demand for Gridcoms services was static for most of 2003/04 as mobile operators delayed the roll-out of their 3G (third generation) platforms. However, significant operational improvements have been made in the UK business to reduce costs, improve safety, reducing employee Lost Time Injuries by 76%, and provide a profitable foundation to meet the expected growth in demand.
In the US, demand for Gridcoms services from mobile operators has increased during 2003/04 and improvements have been made to the profitability of the dark fibre business.
Metering
Our
two UK metering businesses the Transco metering business and OnStream, our competitive metering business provide
installation, maintenance and meter reading services to gas shippers, including
British Gas Trading. During 2003/04, we have continued to focus on the challenges
and opportunities of competition, which Ofgem is introducing in the UK metering
market.
Transco metering business
The priority of the Transco metering business continues to be the provision of services for our currently installed base of approximately 20 million domestic gas meters. In the last quarter of 2003/04, we successfully
secured long-term usage contracts, including a new pricing structure, with gas suppliers, covering substantially all of our meters, to secure a long-term revenue stream for current, new and replacement meters.
OnStream
We created OnStream to take advantage of the opportunities in the emerging competitive market for new gas and electricity meters. During the year, the business mobilised for its first contracts with British Gas Trading
to provide service in four regions of the UK, representing a customer base of around 11 million gas and electricity meters.
Interconnectors
We operate electricity interconnectors between England and Scotland and England and France which provide access to alternative
34 National Grid Transco _Annual Report and Accounts 2003/04
Operating Review _ continued
wholesale electricity markets and additional sources of supply.
The Basslink project, to build, own and operate a 600 MW interconnector linking the electricity network on the island state of Tasmania to the transmission network on the Australian mainland has continued on schedule and is still due for completion in late 2005.
Capital expenditure on this project was £78 million in 2003/04, compared with £50 million in 2002/03 and £6 million in 2001/02.
Total project costs remain on budget and the total cost to completion, excluding capitalised finance costs, is expected to be approximately £300 million.
Liquefied Natural Gas
Our Liquefied Natural Gas business continues to provide gas storage facilities to Transco to help meet its security of supply obligations.
During 2003/04, we commenced work on a £130 million project to develop an LNG import facility on the Isle of Grain, and have signed a 20-year contract to sell the capacity to BP and Sonatrach following its scheduled completion date in early 2005. In 2003/04, we have incurred capital expenditure of £58 million, compared with £2 million in 2002/03, and transferred £20 million of assets from the existing LNG business. The facility will have the capacity to import, store and supply 4 bcm of LNG into the UK market from 2005 representing approximately 4% of UK demand. The UK market is expected to require new and increasing volumes of imported gas from 2005 to supplement the UKs existing indigenous supplies.
Fulcrum Connections
During 2003/04, Fulcrum Connections provided, on behalf of Transco, 130,000 new gas connections and gas meter alterations to domestic and industrial customers, a similar number to last year. The business worked hard
during the year to improve customer service. By 31 March 2004, Fulcrum had made substantial improvements in the number of standards of service achieved and enjoyed increased levels of customer satisfaction compared to 2002/03. This was recognised by
Ofgem when it confirmed its fine on Transco in relation to earlier performance problems in the business. Fulcrum also made impressive improvements in its safety performance, with an 88% reduction in the number of employee Lost Time Injuries.
SecondSite Property
SecondSite
Propertys principal activity
is the management, clean up and disposal of surplus non-operational properties
(including former Transco and National Grid sites in the UK), largely comprising
contaminated former gas works. SecondSite Property aims to tackle the historic
legacy of gas manufacture on our sites so that they can be reclaimed and returned
to beneficial community use.
During the year ended 31 March 2004, SecondSite Property disposed of 91 properties and generated £154 million in disposal proceeds, compared with 74 properties and £89 million in 2002/03 and 74 properties and £128 million in 2001/02. These disposals contributed profit on the disposal of fixed assets of £88 million in 2003/04 compared with £54 million in 2002/03 and £100 million in 2001/02.
Advantica
Advantica provides technology-based solutions to Transco, other utilities and pipeline operators worldwide and operates in Europe and the US. The company has been defined as non-core and was restructured in March 2004
to reduce operating costs and respond to market conditions.
Discontinued operations
During the year, we have continued our exit from our non-core businesses. We completed the sale of Lattice Energy Services and also sold our interests in Bulldog Communications and EnMO. We have also agreed the sale of
our interests in Citelec (which holds 65% of Transener, our electricity transmission joint venture in Argentina) and viavera, the former subject to appropriate regulatory and government approvals.
We are currently in the process of selling our investments in Intelig and Urband. We will not provide any additional funding to the remaining altnet (alternative telecoms network) businesses over and above existing provisions and remain confident that we will complete our exit from them within the provisions that we announced in November 2001.
Annual Report and Accounts 2003/04_ National Grid Transco 35
Directors Report and Operating and Financial Review
Financial Review
Segmental reporting
The
presentation of segment information is based on the management responsibilities
that existed at 31 March 2004.
Minor changes
to the definition of segments were made during 2003/04, the principal effect
of which was to reclassify the results of the UK Interconnectors and LNG
Storage businesses from UK electricity and gas transmission to Other activities. Comparative figures for 2002/03 and 2001/02 were restated accordingly. The result of
the restatement was to reclassify £26 million and £25 million of operating and adjusted operating profit from UK electricity and gas transmission to Other activities for
2002/03 and 2001/02 respectively.
A review of the operational and financial performance of the reporting segments is contained on pages 25 to 35 together with additional financial and performance information relating to the segments.
Financial year ended 31 March 2004 (2003/04) compared with financial year ended 31 March 2003 (2002/03)
Group turnover
Group
turnover decreased from £9,400 million in 2002/03 to £9,033 million in 2003/04, a fall of £367 million, primarily reflecting a reduction in turnover relating to discontinued operations which
dropped from £567 million in 2002/03 to £158 million in 2003/04.
The vast majority of the discontinued turnover related to EnMO, which provides the on-the-day commodity market for gas trading in Great Britain, and was disposed of by the Group during 2003/04.
Group operating profit
Group
total operating profit rose by £126 million to £1,862 million in 2003/04. This reflected an increase in adjusted operating profit of £53 million and a reduction in net operating exceptional
charges of £70 million as compared with 2002/03. The main reason for
the increase in adjusted operating profit was the strong performance of UK
gas distribution.
On pages 25 to 35, we explain the improvement in adjusted operating profit
performance for UK gas distribution and movements for the other businesses.
Net operating
exceptional items included within total operating profit that related to both
continuing and discontinued operations
moved from a net charge of £347 million in 2002/03 to a net charge of £277
million in 2003/04. A separate discussion of operating and non-operating exceptional
items for 2003/04, 2002/03 and 2001/02 is
included below.
Joint ventures
On 15 March 2004, National Grid Transco agreed to sell its 42.5% stake in Citelec, the holding company of Transener, which owns and operates a transmission system in Argentina.
National Grid Transco continued to account for Citelecs results under hyper-inflationary accounting principles during 2003/04. The application of these principles had no material impact on the results for the year ended 31 March 2004 and Citelec had no impact on earnings during the year.
Goodwill amortisation
Goodwill
amortisation for 2003/04 fell from £102 million to £99
million. The reduction reflected the reduced sterling cost of US dollar denominated
goodwill amortisation as a result of the weakening of the
US dollar during 2003/04.
Exceptional items 2003/04
The
results for the year ended 31 March 2004 included
total net exceptional pre-tax credits of £45 million. Pre-tax net credits
were made up of pre-tax net charges of £277 million of operating exceptional
charges (restructuring and environmental costs) relating to continuing operations
offset by £322 million of non-operating exceptional credits. The net £45
million credits comprised:
| restructuring costs which consisted of £24 million of costs associated with the proposed disposal of UK-based distribution networks (see page 34 for a further discussion of the proposed disposal) and other costs of £225 million, totalling £249 million (£170 million after tax). The other costs primarily related to planned cost reduction programmes which comprised: £100 million for US distribution businesses and US transmission; £77 million for UK distribution; £14 million for UK transmission; and £34 million for other businesses; |
| £28 million of environmental costs (£28 million after tax). Following the completion of an investigative site survey in the UK, the estimate of environmental liabilities was altered to reflect the best estimate of these liabilities having regard to relevant legislation. This has resulted in an additional charge being reflected in the profit and loss account; |
| £226 million gain on assets held for exchange (£226 million after tax) relating to the profit recognised on Energis shares, with a carrying value of £17 million, delivered to Equity Plus Income Convertible Securities (EPICs) bondholders on 6 May 2003 in settlement of all EPICs outstanding at that date that had a carrying value of £243 million. This transaction represented the culmination of a deferred sale arrangement entered into in February 1999; and |
| £96 million gain on sales of property and other tangible fixed assets (£96 million after tax). |
Interest
Net
interest fell from £970 million in 2002/03 to £822 million in 2003/04. In 2002/03, exceptional financing costs relating to a joint venture of £31 million were incurred. A separate discussion of
exceptional financing costs for 2002/03 is contained in Exceptional items on
page 40, when comparing the results for 2002/03 with those of 2001/02.
Net interest, excluding exceptional items, fell from £939 million in 2002/03 to £822 million in 2003/04. This reduction was primarily explained by: the refinancing of debt in the UK and US; lower short-term interest rates; the weaker US dollar; and a lower level of Group net debt. In addition, there was a higher level of capitalised interest as a result of financing costs incurred in respect of ongoing capital expenditure programmes and a reduction in interest cost from former joint ventures. These impacts more than offset a net increase of £55 million in pension interest costs (net of capitalised interest) principally arising from the recognition of additional net interest from the actuarial valuation of the Lattice pension scheme undertaken at 31 March 2003. This is discussed further under Retirement arrangements and Pension accounting on page 37.
Taxation
The
net tax charge rose from £245 million in 2002/03 to £261 million in 2003/04. The tax charge for 2003/04 of £261 million included net exceptional tax credits amounting to £89 million
(2002/03: £128 million). Excluding the
36 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
exceptional tax items and current tax adjustments for prior years, the effective tax rate for 2003/04 based on adjusted profit before taxation was 25.1% (2002/03: 29.9%) compared with the standard corporation tax rate in the UK of 30%. The effective tax rate for 2003/04 based on profit before taxation after exceptional items was 19.1% (2002/03: 36.7%).
A reconciliation of the main components giving rise to the difference between the relevant effective tax rate and the UK standard corporation tax rate is shown in note 9 to the accounts on page 86.
Exchange rates
The
Group has used the weighted average exchange rate to translate all US dollar
results into sterling for 2003/04 and 2002/03,
being £1.00 = $1.68 and £1.00 = $1.59 for each year respectively. The balance
sheets at 31 March 2004 and 31 March 2003 have been translated at £1.00 = $1.83 and £1.00
= $1.58 respectively.
Exchange rate movements had an adverse effect on the translation of US dollar denominated operating profit and adjusted operating profit for 2003/04 compared with 2002/03. If the rate that applied during 2002/03 had been used, sterling operating profit and adjusted operating profit for 2003/04 would have been higher by around £24 million and £36 million respectively, giving a sterling operating profit and adjusted operating profit of approximately £1,886 million and £2,274 million respectively.
The effect of movements in the US dollar exchange rate on adjusted operating profit and operating profit was largely offset by the reduced sterling cost of US dollar debt taken out to finance US dollar denominated investments and the reduced sterling cost of US taxes. As a result, the impact of the higher US dollar rate on results arising in the US did not have a significant effect on adjusted earnings per share or earnings per share.
Retirement arrangements
The
Group operates two major UK occupational pension schemes the National
Grid Company Group of the Electricity Supply Pension Scheme (the National Grid
Scheme) and the Lattice Group Pension Scheme (the Lattice
Scheme). The National Grid Scheme is a defined benefit pension scheme. The
Lattice Scheme has a
defined benefit section that is effectively closed to new entrants and a defined contribution section. There are no current plans to merge the two schemes.
In addition to the UK schemes, employees of National Grid USA companies are eligible to receive retirement income benefits primarily through defined benefit arrangements. Post-retirement healthcare and life insurance benefits are also provided to qualifying retirees.
An actuarial valuation of the Lattice Scheme was carried out at 31 March 2003, while the National Grid Scheme actuarial valuation is being carried out at 31 March 2004 and has not yet been completed.
In respect of the US-based pension and other post-retirement schemes, the latest full actuarial valuations were carried out at 1 April 2003. These valuations were updated using assumptions and market values at 31 March 2004.
In August 2003, the New York State Public Service Commission approved a settlement with Niagara Mohawk, a Group undertaking, following an audit that identified reconciliation issues between the rate allowance and actual costs of Niagara Mohawks pension and other post-retirement benefits. The settlement resolved all issues associated with those obligations for the period prior to its acquisition by the Group and, among other things, covered the funding of Niagara Mohawks pension and post-retirement benefit plans. As part of the settlement, the Group provided $132 million (£83 million) of tax-deductible funding during 2002/03 and provided an additional $177 million (£105 million), on a tax-deductible basis, during 2003/04. Under the terms of the settlement, the Group will earn a rate of return of at least 6.60% (nominal) on $209 million of this funding through to 31 December 2011. In addition, the Group is eligible to earn 80% of the amount by which the rate of return on the pension and post-retirement benefit funds exceeds 5.34% (nominal) measured at 31 December 2011.
In addition to the funding provided in respect of the Niagara Mohawk settlement referred to above, other contributions made in respect of US-based pension and other post-retirement schemes were higher in 2003/04 than 2002/03. This arose primarily because the Group was able to make more efficient tax-deductible funding payments in 2003/04 than were possible in 2002/03, together with higher contributions in 2003/04 associated with the Groups early retirement programmes.
The actuarial valuation of the Lattice Scheme at 31 March 2003, covering current and former UK gas employees and other former Lattice businesses, was completed during the year ended 31 March 2004. This revealed that the pre-tax deficit was £879 million (£615 million net of tax) in the defined benefit section on the basis of the funding assumptions adopted by the actuary. It is intended that there will be annual assessments of the Lattice Scheme with the next assessment being conducted at 31 March 2004. This assessment is in the process of being carried out and therefore the outcome is currently unknown.
It has been agreed that no funding of the deficit identified in the 2003 actuarial valuation will need to be provided to the scheme until the outcome of the actuarial valuation at 31 March 2007 is known. At this point, the Group will pay the gross amount of any deficit up to a maximum amount of £520 million (£364 million net of tax) into the scheme. Until the 31 March 2007 actuarial valuation has been completed, the Group has arranged for banks to provide the trustees of the Lattice Scheme with letters of credit. The main conditions under which these letters of credit could be drawn relate to events which would imperil the interests of the scheme, such as Transco plc, a Group undertaking, becoming insolvent or the Group failing to make agreed payments into the fund. Cash contributions for the ongoing cost of the Lattice Scheme are currently being made at a rate of 22.3% of pensionable payroll.
Pension accounting
The Group continues to account for pensions under UK GAAP in accordance with Statement of Standard Accounting Practice 24 (SSAP 24) and, consistent with that statement, the Group had been spreading pension surpluses
and deficits over the remaining service lives of employees based on the information contained in the last formal actuarial valuations.
As referred to on page 41 under Pension accounting, during 2002/03, the Group made a decision to suspend the recognition of any
Annual Report and Accounts 2003/04_ National Grid Transco 37
Financial Review _ continued
further pension surplus during 2002/03 in respect of the UK pension schemes.
During 2003/04, the actuarial funding and SSAP 24 valuations of the Lattice Scheme undertaken at 31 March 2003 were completed. The charge for 2003/04 under SSAP 24 in respect of this scheme amounted to £144 million compared with £78 million for 2002/03. Of this charge, £80 million related to the ongoing cost (2002/03: £97 million), £33 million related to the spreading of the deficit (2002/03: £19 million credit), and £31 million related to the net interest charge (2002/03: £8 million credit). The ongoing SSAP 24 cost represents 23.0% (21.4% excluding administrative costs) of pensionable payroll.
As the 31 March 2004 actuarial valuation of the National Grid Scheme has not been completed, there has been no further amortisation in 2003/04 of any surplus arising from the previous formal actuarial valuation undertaken at 31 March 2001. This is consistent with the approach adopted during 2002/03.
The Group does not account for pension costs under Financial Reporting Standard (FRS) 17 Retirement benefits, but provides the necessary disclosures required by this standard. Substantially as a result of the improvement in world stock markets, the Groups net FRS 17 deficit fell from £2,262 million at 31 March 2003 to £1,563 million at 31 March 2004.
Further disclosures relating to pensions consistent with the requirements of UK GAAP are given in note 7 to the accounts on page 82.
Earnings per share
Adjusted basic earnings per share for 2003/04 were 34.7 pence compared with 28.3 pence for 2002/03. Basic earnings per share for 2003/04 rose from 12.7 pence in 2002/03 to earnings of 35.8 pence per share, reflecting a
movement from net exceptional charges in 2002/03 to net exceptional credits in 2003/04 and an increase in adjusted operating profit.
The reconciliation from basic earnings per share of 35.8 pence (2002/03: 12.7 pence) to adjusted earnings per share of 34.7 pence (2002/03: 28.3 pence) involves adjusting for goodwill amortisation of 3.2 pence (2002/03: 3.3 pence) and net exceptional credits, including the effect of tax, amounting to 4.3 pence (2002/03: 12.3 pence (net exceptional charges)).
Ordinary dividends
The
total ordinary dividend for 2003/04 (£609 million) amounted to 19.78 pence per ordinary share and represented an increase of 15% over the previous years ordinary dividend per share. The total ordinary
dividend per share was covered 1.8 times by both adjusted and basic earnings per ordinary share. The table below shows the ordinary dividends paid or payable by National Grid Transco or National Grid, as appropriate (see Dividend policy below),
for the last five financial years. These dividends do not include any associated
UK tax credit in respect of such dividends.
Dividends expressed in US dollars per ADS in the table below reflect the actual amount paid to ADS holders, expressed to two decimal places, with respect to all amounts with the exception of the final ordinary dividend for 2003/04. The final ordinary dividend per ADS for 2003/04 reflects the declared US dollar amount expressed to two decimal places.
Dividend policy
As announced on 20 November 2003, the Board has recommended a 15% increase in its dividend per share for the year ended 31 March 2004. Going forward, the Board has declared its dividend policy is to aim to increase
dividends per ordinary share, expressed in sterling, by 7% nominal in each financial year to 31 March 2008.
Prior to the announcement on 20 November 2003, the Group had adopted at the date of the merger of National Grid and Lattice, National Grids dividend policy, which had been to aim to increase dividends per share (as expressed in pounds sterling) by a real rate of 5% in each of the financial years to 31 March 2006.
Reporting the Lattice dividend history is complicated by the fact that Lattice only demerged from BG Group from 23 October 2000 and therefore only paid dividends in respect of periods after that date. In addition, prior to 31 March 2002, Lattice had a 31 December financial year end. As a consequence, any historical comparison of dividends paid or payable by National Grid Transco in 2002/03 should be made by reference to National Grids dividends, which is the basis upon which the table below is presented.
Dividends |
2003/04
|
|
2002/03
|
|
2001/02
|
|
2000/01
|
|
1999/00
|
|
p
|
|
p
|
|
p
|
|
p
|
|
p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim |
7.91 |
6.86 |
6.46 |
6.05 |
5.59 |
|||||
Final | 11.87 | 10.34 | 9.58 | 9.03 | 8.35 | |||||
|
|
|
|
|
|
|
|
|
|
|
Total ordinary dividends | 19.78 | 17.20 | 16.04 | 15.08 | 13.94 | |||||
|
|
|
|
|
|
|
|
|
|
|
US dollar per ADS | 2003/04 | 2002/03 | 2001/02 | 2000/01 | 1999/00 | |||||
$ | $ | $ | $ | $ | ||||||
|
|
|
|
|
|
|
|
|
|
|
Interim | 0.67 | 0.54 | 0.47 | 0.45 | 0.46 | |||||
Final | 1.05 | 0.84 | 0.73 | 0.65 | 0.63 | |||||
|
|
|
|
|
|
|
|
|
|
|
Total ordinary dividends | 1.72 | 1.38 | 1.20 | 1.10 | 1.09 | |||||
|
|
|
|
|
|
|
|
|
|
Application of UK GAAP accounting policies
As explained above, the application of UK GAAP to the business combination of Lattice and National Grid resulted in the transaction being treated as a merger. As a result, the financial information presented for all
years has been prepared on the basis of common accounting policies as if the Group had always applied those accounting policies.
The Group has adopted the provisions of Urgent Issues Task Force (UITF) 38 Accounting for ESOP trusts during 2003/04. This pronouncement requires the following accounting: | |
| Shares held by employee share trusts, previously reported as part of Fixed asset investments own shares, are now reported as a deduction from shareholders funds at the amount paid for those shares. This has resulted in the recognition of a prior year adjustment and corresponding restatement of prior years accounts. The net impact of this restatement was to reduce Fixed asset investments own shares and equity shareholders funds at 31 March 2003 by £39 million. There was no impact on the profit and loss account. |
On 8 April 2004, the Accounting Standards Board issued FRS 20 Share based payment. It is the intention of the Group to adopt the
38 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
provisions of FRS 20 with effect from 1 April 2004. The standard requires the following accounting: | |
| Where shares or rights to shares are granted to third parties, including employees, a charge should be recognised in the profit and loss account based on the fair value of the shares at the date the grant of shares or right to shares is made. If this accounting policy had been adopted for this report and accounts, it is estimated that in respect of 2003/04, 2002/03 and 2001/02 adjusted operating profit would have been reduced by £25 million, £37 million and £18 million respectively and that adjusted basic earnings per share would have been reduced by 0.8 pence, 1.2 pence and 0.6 pence. Operating profit for these years would have been reduced by £25 million, £40 million and £18 million and basic earnings per share would have been reduced by 0.8 pence, 1.3 pence and 0.6 pence. |
Financial year ended 31 March 2003 (2002/03) compared with financial year ended 31 March 2002 (2001/02)
Group turnover
Group
turnover for 2002/03 increased by £1,846 million over 2001/02 to £9,400 million, reflecting a full
years turnover being recorded in respect of Niagara Mohawk, which was
acquired by the Group on 31 January 2002. Therefore this only affected the
results
of 2001/02 for two months while impacting on the results for 2002/03 for the
full year.
Group operating profit
Group
total operating profit rose by £1,377
million to £1,736 million in 2002/03, primarily reflecting a movement
in total operating exceptional net charges relating to both continuing and discontinued
operations, which fell from £1,327 million in 2001/02 to £347 million
in 2002/03.
Niagara Mohawk contributed £83 million to adjusted operating profit and £2 million to operating profit in 2001/02 for the period from the date of acquisition to 31 March 2002.
A separate discussion of exceptional items relating to 2002/03 and 2001/02 is given on page 40.
Group total adjusted operating profit rose by £402 million to £2,185 million, primarily reflecting increased adjusted operating profit from US electricity transmission and US electricity distribution which reported a full years contribution from the acquisition of Niagara Mohawk. As a result, the contribution of US electricity transmission and US electricity distribution rose from £353 million in 2001/02 to £641 million in 2002/03, an increase of £288 million, accounting for 72% of the total increase.
Total operating profit from Group undertakings included losses of £194 million relating to discontinued operations compared with £496 million for 2001/02, as a result of the sale of, or exit by the Group from, certain business activities during the year. The principal businesses exited during 2002/03 included The Leasing Group and 186k, a UK-based fibre optic telecommunications company.
Group operating profit also included a profit of £109 million compared with losses of £672 million in 2001/02 relating to the discontinued activities of joint ventures and the associate. A discussion of the impact the activities of discontinued joint ventures and the associate have had on the results is given below.
Joint ventures and associate
On
16 July 2002, Energis plc (Energis)
went into administration. As a direct result of this event, Energis ceased to
be an associate of the Group from that date. The results for 2002/03 were not
affected by this change in status, because the Groups investment in Energis
had been fully written down during 2001/02 and Energis had not publicly declared
any results since reporting its results for the six months ended 30 September
2001.
The Group ceased equity accounting for Intelig, its Brazilian telecoms joint venture, with effect from 30 September 2002. This arose as a result of the Groups share of net assets falling to zero and the Group declaring its intention not to fund this business any further while pursuing a withdrawal strategy.
During 2002/03, the Groups interests in Energis Polska, Manquehue net and Silica Networks were disposed of or, in the case of Energis Polska, the interest reduced to a level where the Group had no significant influence on the activities of this business. As a result, these entities are no longer equity accounted for, and any loss arising from the disposal or reduction in interest has been reflected in exceptional items.
As explained in Exceptional items 2002/03 on page 40, the total operating profit for 2002/03 of joint ventures (discontinued operations) included an exceptional pre-tax credit amounting to £129 million. The £129 million credit represented the partial release of impairment provisions charged in the year ended 31 March 2002 to match the recognition of retained losses arising from these joint ventures, and is recorded within the net £109 million credit relating to the Groups share of joint ventures and associates operating profit/(loss) discontinued operations.
The retained losses of the joint ventures against which the provisions were being released were reflected in the profit and loss account according to their nature, for example: share of operating loss; share of net interest; and share of tax. However, the principal element was an exceptional net interest charge of £92 million (before and after tax) relating to the Groups share of exchange losses incurred on foreign exchange borrowings denominated in US dollars reported by Intelig.
Operating losses of £672 million recorded in 2001/02 in respect of the discontinued activities of share of joint ventures and associates operating profit/(loss) reflect the very significant level of impairment charges incurred during that year.
Operating results for all the above associate and joint ventures have been reflected in the accounts within share of joint ventures and associates operating profit/(loss) discontinued operations.
Goodwill amortisation
Goodwill amortisation for 2002/03 rose from £97 million to £102 million. This increase reflected a full years amortisation of goodwill relating to the prior years acquisition of Niagara Mohawk, partially offset by the following: |
|
| no recognition of the Groups share of goodwill amortisation in 2002/03 in respect of Energis; and |
| the reduced sterling cost of US dollar denominated goodwill amortisation as a result of the weakening of the US dollar. |
Annual Report and Accounts 2003/04_ National Grid Transco 39
Financial Review _ continued
Exceptional
items 2002/03
The results for 2002/03 included total net exceptional pre-tax charges of £477 million (£349 million post-tax). Pre-tax charges were made up of pre-tax net charges of £308 million and £39 million of operating exceptional items relating to continuing and discontinued operations respectively; £99 million of non-operating exceptional items; and £31 million of financing exceptional charges. In addition, the Group recorded £28 million of exceptional minority interest charge. These net charges comprised: |
|
| costs arising from the Merger of £184 million (£147 million after tax) related to transaction costs of the Merger, together with related employee share scheme costs amounting to £79 million and other property and employee costs of £105 million; |
| restructuring costs principally arising from business-related efficiency programmes of £209 million (£165 million after tax). These costs were mainly severance-related; |
| an impairment charge related to the Groups telecoms assets held by 186k of £168 million (£143 million after tax). The Group wrote down the assets of 186k consistent with its announced intention to withdraw from the altnet sector. Subsequent to the impairment charge, the majority of the assets relating to 186k were sold for a nominal sum to a third party; |
| a £135 million credit (£155 million after tax) in respect of Intelig and other telecoms joint ventures of which £129 million was reflected in share of joint ventures and associates operating profit/(loss) discontinued operations see Joint ventures and associate on page 39; |
| an exceptional net interest loss of £31 million (before and after tax). This related to the Groups share of exchange losses incurred on foreign exchange borrowings of £98 million (£92 million of which related to Intelig as referred to in Joint ventures and associate on page 39) partially offset by a gain on net monetary liabilities of £67 million as a result of the adoption of hyper-inflationary accounting, under UK GAAP, relating to Citelec, the Groups Argentinian joint venture see Exchange rates and hyper-inflation on page 41; |
| a £28 million minority interest charge, being their share of the £61 million net exceptional credit related to the Argentinian joint venture (Citelec) see Exchange rates and hyper- inflation on page 41; |
| a £68 million loss (before and after tax) arising from the sale of the Groups leasing business, The Leasing Group, and the termination of 186ks operations following the sale of 186ks assets for a nominal amount to a third party as referred to above; and |
| a net profit on the disposal of tangible fixed assets of £48 million (£50 million after tax). |
Exceptional items 2001/02
The
results for 2001/02 included net exceptional pre-tax charges of £1,313 million (£1,147
million post-tax).
Pre-tax net exceptional charges were made up of £285 million and £1,042 million of operating exceptional items relating to continuing and discontinued operations respectively and £142 million of financing exceptional charges, partially offset by non-operating exceptional credits of £156 million. In addition, the Group recorded £50 million of exceptional minority interest credit. The net charges comprised: | |
| £792 million impairment of the Groups joint venture and associate investments (£775 million after tax) primarily arising from the decision to exit from its Latin American telecoms investments and the full impairment of the investment in Energis, following the collapse in the associates share price. The impairment charges resulted in writing down the value of these investments to £nil and the recording of associated liabilities; |
| £250 million impairment of assets in 186k (£175 million after tax). The basis of this charge was to write down these assets to their estimated recoverable amounts; |
| the Groups share of the pre- and post-tax exceptional charge of a telecoms joint venture (SST) amounting to £48 million, reflecting the write down of an investment and goodwill in that joint venture, prior to the acquisition of all the issued ordinary share capital of this entity by the Group; |
| an impairment of the Groups LNG storage assets of £50 million (£35 million after tax), reflecting a reduction in the expected future cash flows under the current regulatory arrangements; |
| restructuring and integration costs within the UK businesses and the integration of Niagara Mohawk, which amounted to £187 million (£130 million after tax); and |
| the Groups share of Citelecs foreign exchange pre- and post-tax financing charge which amounted to £142 million relating to the devaluation of the Argentine peso. |
These exceptional losses were partially offset by: | |
| pre-tax profits amounting to £94 million (£96 million after tax) relating to the sale of tangible fixed assets; |
| a £31 million pre- and post-tax gain on the sale of BG Group shares by the Lattice All Employee Share Ownership Plan; |
| an exceptional pre- and post-tax profit of £31 million relating to the gain on disposal of investments; and |
| a credit of £50 million relating to the Groups share of the minority interests share of the foreign exchange financing charge referred to above. |
Interest
Net
interest rose from £799 million in
2001/02 to £970 million in 2002/03. Both years included exceptional financing
costs amounting to £142 million and £31 million in 2001/02 and 2002/03
respectively. A separate discussion of exceptional financing costs is contained
in Exceptional items 2002/03 and Exceptional items
2001/02 as shown above.
Net interest, excluding exceptional items, rose from £657 million in 2001/02 to £939 million for 2002/03. This increase is explained by a full years interest charge in respect of the acquisition of Niagara Mohawk and foreign exchange movements.
Taxation
The
net tax charge rose to £245 million
in 2002/03 from £85 million in 2001/02 and included an exceptional tax
credit on pre-tax exceptional items amounting to £128 million and £166
million in 2002/03 and 2001/02 respectively, giving rise to effective tax rates
of 36.7% and 29.9% (negative) for these years.
Excluding the exceptional tax items and current tax adjustments to prior years, the effective tax rate for 2002/03 and 2001/02 based on adjusted profit before taxation was 29.9% and 29.0% respectively, compared with the standard corporation tax rate in the UK of 30% for both years. The effective tax rate for 2002/03 and 2001/02 based on profit before taxation and before exceptional items was 32.6% and 24.4% respectively.
40 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
A reconciliation of the main components giving rise to the difference between the relevant effective tax rate and the UK standard corporation tax rate is shown in note 9 to the accounts on page 86.
Exchange rates and hyper-inflation
The
Group has used the weighted average exchange rate to translate all US dollar
results into sterling for 2002/03 and 2001/02,
being £1.00 = $1.59 and £1.00 = $1.44 respectively.
Exchange rate movements had an adverse effect on the translation of US dollar denominated operating profit and adjusted operating profit for 2002/03 compared with 2001/02. If the exchange rate that applied during 2001/02 had been used, sterling operating profit and adjusted operating profit for 2002/03 would have been higher by around £57 million and £74 million respectively, giving a sterling operating and adjusted operating profit of approximately £1,793 million and £2,259 million.
The above analysis does not take into account the fact that Niagara Mohawk only impacted on Group results for two months in 2001/02. On the basis of excluding 10 months results relating to Niagara Mohawk from the 2002/03 results, to place them on a basis comparable with 2001/02, it is estimated that on this pro forma basis adjusted operating profit would have been higher by around £34 million.
The effect of exchange rate movements on adjusted operating profit and operating profit were largely offset by the reduced sterling cost of US dollar debt taken out to finance US dollar denominated investments and the reduced sterling cost of US taxes. As a result, the impact of the higher US dollar rate on results arising in the US did not have a significant effect on adjusted earnings per share or earnings per share.
Exchange rate movements only marginally affected the Groups recognition of operating losses that arose in respect of Intelig, the Groups Brazilian telecoms joint venture, during 2002/03. This reflected sterling strengthening against the Brazilian currency during the period that the Group equity accounted for Intelig see Joint ventures and associate on page 39. The Group estimated that, compared with the average exchange rate for 2001/02, this effect reduced our share of operating losses by around £2 million.
The Groups joint venture in Argentina, Citelec, operated within a hyper-inflationary economy. In accordance with UK GAAP, the accounts of the joint venture, which included Transener, a transmission company, were prepared using hyper-inflationary accounting principles. This resulted in all entries in the joint ventures accounts being measured at the current purchasing price.
The fall in the Argentinian exchange rate gave rise to the recognition of the Groups share of exchange losses arising on this joint ventures US dollar denominated debt, that amounted to £6 million. This loss was more than offset by the Groups share of a gain on net monetary liabilities of £67 million, as a result of inflating the liabilities as part of the hyper-inflationary adjustments referred to above. Together with the minority interests share of these items, all these effects were reflected as exceptional in the profit and loss account.
Pension accounting
During 2002/03, while valuations
of the UK pension schemes had not been carried out, the Board considered that
such valuations would, in all likelihood, reveal a deficit in both the UK schemes.
The continuing recognition of a surplus relating to previous actuarial valuations
was considered incompatible with this position, and until the next actuarial
valuations were undertaken or completed, the decision was taken to suspend the
recognition of any further pension surplus in respect of both schemes. Consequently,
with effect from 1 October 2002, the spreading of pension surpluses in respect
of the UK defined benefit schemes, based on their last formal actuarial valuations
at 31 March 2001, was suspended.
Operating profit and net interest in 2001/02 included £21 million and £12 million credits respectively in respect of the recognition of the UK pension schemes surplus up to 30 September 2002, and totalled £33 million (£23 million net of tax). As a result of the suspension of the recognition of any further pension surplus since that date, adjusted operating profit and net interest were reduced and increased by £21 million and £10 million respectively compared with the ongoing recognition of a surplus. Accordingly, adjusted profit before tax was reduced by around £31 million (£22 million net of tax).
Earnings per share
Adjusted basic earnings per share for 2002/03
were 28.3 pence compared with 30.8 pence for 2001/02. Basic earnings per share
for 2002/03 rose from a loss per share of 11.3 pence in 2001/02 to earnings
of 12.7 pence per share, reflecting a reduction in net exceptional charges between
the two years. The reconciliation from basic earnings per share of 12.7 pence
(2001/02: loss of 11.3 pence) to adjusted earnings per share of 28.3 pence (2001/02:
30.8 pence) involved adjusting for goodwill amortisation of 3.3 pence (2001/02:
3.4 pence) and net exceptional charges, including the effect of tax, amounting
to 12.3 pence (2001/02: 38.7 pence).
Ordinary dividends
The
total ordinary dividend for 2002/03 (£530
million) amounted to 17.20 pence per ordinary share. This represented an increase
of 7.2% (5% in real terms) over the previous years National Grid ordinary
dividend per share, as this was the most appropriate dividend comparison for
the reason explained in Dividend policy on page 38. The total ordinary
dividend per share was covered 1.6 times by adjusted earnings per ordinary
share
and 0.7 times by basic earnings per ordinary share.
Liquidity, resources and capital expenditure
Cash flow
Net
cash inflow from operations in 2003/04 was £2,810 million compared with £2,826 million in 2002/03 and £2,291
million in 2001/02. Included within net cash inflow from operations were exceptional
cash outflows of £248 million, £328 million, and £103 million
in 2003/04, 2002/03 and 2001/02 respectively.
Net cash inflow from operations before exceptional items was £3,058 million in 2003/04 compared with £3,154 million in 2002/03 and £2,394 million in 2001/02. The net cash inflow from operations before exceptional items in 2003/04 was £96 million lower than 2002/03, reflecting higher US related pension payments, adverse exchange rate variancies, and higher commodity costs that are expected to be recovered next year, partially offset by other favourable movements in working capital.
Annual Report and Accounts 2003/04_ National Grid Transco 41
Financial Review _ continued
The 2002/03 increase in net cash flow from operations before exceptional items reflected the first full-year contribution from Niagara Mohawk. Exceptional cash flows in 2003/04 and 2001/02 related principally to cash flows that arose from restructuring initiatives and environmental expenditure while those relating to 2002/03 also included Merger-related costs.
Payments to the providers of finance, in the form of dividends and interest, totalled £1,252 million (net) in 2003/04 compared with £1,483 million in 2002/03 and £1,183 million in 2001/02. Net interest cash outflows increased from £696 million in 2001/02 to £901 million in 2002/03 and fell to £686 million in 2003/04. The increase between 2001/02 and 2002/03 primarily reflected the additional net interest expense incurred for a full year following the acquisition of Niagara Mohawk. The reduction in 2003/04 reflected the beneficial impact of refinancing debt, lower short-term interest rates and the weaker US dollar.
Net corporate tax payments amounted to £18 million in 2003/04 compared with £112 million in 2002/03 and £212 million in 2001/02. Net corporate tax payments in 2003/04 were lower than in 2002/03, primarily as a result of: | |
| the cessation of trade of 186k, referred to below, also reduced corporation tax payments in 2003/04; and |
| a repayment of corporate tax arising from the settlement of tax liabilities of around £44 million. |
Net corporate tax payments in 2002/03 were lower than in 2001/02, mainly as a result of: | |
| the cessation of trade of 186k which created balancing allowances that reduced UK corporation tax payable in 2002/03 by around £60 million; and |
| the interaction of the timing of UK corporation tax payments on account and the Lattice Group post-tax exceptional charge in 2002/03, that resulted in a reduction of around £40 million compared with 2001/02. |
Purchases of tangible and intangible fixed assets net of disposal proceeds absorbed cash of £1,254 million compared with £1,407 million in 2002/03 and £1,543 million in 2001/02.
The reduction of £153 million in purchases of tangible and intangible fixed assets net of disposal proceeds from 2002/03 to 2003/04 reflected lower purchases of fixed assets amounting to £118 million, primarily related to reduced capital expenditure by UK gas distribution and discontinued operations. This reduction has been partially offset by increased purchases in relation to the construction of the Basslink Interconnector and Isle of Grain LNG projects which are discussed on page 35. In addition, there was an increase in disposal proceeds of £35 million, mainly linked to the sale of property. Discontinued operations capital expenditure for 2002/03 related primarily to 186k and The Leasing Group, which were disposed of during 2002/03.
The reduction in net cash outflow between 2001/02 and 2002/03 primarily reflected: reductions in UK gas distribution, UK electricity and gas transmission; the disposal of The Leasing Group which previously purchased commercial vehicles and other assets for the Group; and reduced expenditure on 186k assets; partially offset by increased capital expenditure arising from the acquisition of Niagara Mohawk.
Cash outflow in 2003/04 relating to the acquisition of Group undertakings and other investments amounted to £26 million compared with £165 million and £1,006 million in 2002/03 and 2001/02 respectively. Cash outflow in 2002/03 included £153 million related to the expected contractual funding obligations in respect of joint ventures. Cash outflows in 2001/02 of £1,006 million included £932 million (including overdrafts acquired) connected to the acquisition of Niagara Mohawk.
Cash inflow from the disposal of investments in 2003/04 amounted to £33 million compared with 2002/03 of £328 million and £37 million in 2001/02. The 2002/03 inflow related primarily to the receipt of £157 million in respect of the full settlement of deferred payment arrangements arising from the sale of nuclear plant conducted before the completion of the acquisition of Niagara Mohawk, £53 million from the sale of other nuclear assets and £92 million from the sale of The Leasing Group.
During 2003/04, the Group terminated some cross currency swaps, resulting in a cash inflow of £148 million. As a result of this transaction, the underlying borrowing which had been hedged by these swaps was translated to sterling, at the prevailing spot rate, resulting in an increase in net sterling borrowing of £140 million. Consequently, the impact of the termination of cross currency swaps on net debt was insignificant.
During 2002/03, the Group purchased for cancellation 24.2 million shares resulting in a cash outflow of £97 million.
Equity shareholders funds
Equity
shareholders funds rose from £1,113 million (restated) at 31 March 2003 to £1,213 million at 31 March 2004. This increase was mainly explained by the retained profit for the year of £490
million, partially offset by net foreign exchange adjustments amounting to £417
million, primarily related to the retranslation of US dollar denominated net
assets and associated hedges.
Capital expenditure
Capital expenditure in 2003/04 was
£1,481 million compared with £1,520 million in 2002/03 and £1,847 million in 2001/02. The total level of capital expenditure for continuing operations of £1,481 million in 2003/04 was higher
than capital expenditure for 2002/03 (continuing operations) by £56 million,
this reflected higher capital expenditure: in constructing the Basslink Interconnector
and Isle of Grain LNG; within US electricity distribution; and within UK electricity
and gas transmission. The higher capital expenditure was partially offset by
a fall in capital expenditure within UK gas distribution.
The lower level of capital expenditure for 2002/03 compared with 2001/02 reflected a lower level of capital expenditure relating to UK gas distribution and UK electricity and gas transmission and reduced capital expenditure relating to discontinued operations.
The operating review on pages 25 to 35 contains a discussion of any significant variance between years relating to capital expenditure by reporting segment and provides details of any material capital expenditure programmes.
Net debt and gearing
Net
debt fell from £13,878 million at 31 March 2003 to £12,632
million at 31 March 2004, primarily as a result of: the impact of the depreciation
of the US dollar against sterling on
42 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
US dollar denominated net debt (excluding the impact of cross currency swaps £140 million loss) amounting to £674 million; cash flows (excluding the impact of cross currency swaps £148 million) of £339 million; and the settlement of the EPICs bond on 6 May 2004 amounting to £243 million.
The composition of net debt at 31 March 2004 is shown in note 27 to the accounts on page 102.
Gearing at 31 March 2004, calculated as net debt at that date expressed as a percentage of net debt plus net assets shown by the balance sheet, amounted to 91%, compared with 92% at 31 March 2003. By comparison, the gearing ratio, adjusted for the inclusion of UK regulated businesses at their estimated regulatory asset values (adjusted gearing ratio), amounted to 55% at 31 March 2004 compared with 59% at 31 March 2003.
The Group believes this adjusted ratio is a more relevant measure of gearing than one based on book values alone, because the book values do not reflect the economic value of the UK regulated business assets. A reconciliation of the adjustments necessary to calculate adjusted net assets is shown in the table below:
Adjustment to net assets | 2004 | 2003 | ||
(restated) | ||||
£m | £m | |||
|
|
|
|
|
Net assets per balance sheet | 1,263 | 1,197 | ||
Adjustment for increase in UK business regulatory values | 8,900 | 8,570 | ||
|
|
|
|
|
Adjusted net assets | 10,163 | 9,767 | ||
|
|
|
|
As a registered holding company, under the US Public Utility Holding Company Act of 1935 (PUHCA), National Grid Transco operates under certain regulatory restrictions applied by the SEC. As a result, the scope of the financing activity of the Group is limited to specific areas that are authorised from time to time, such authorisation being currently set sufficient to cover all normal requirements. In addition, the Company is required to maintain its consolidated common stock equity as a percentage of its total consolidated capitalisation (defined in general as common stock equity plus preferred stock plus gross debt) measured on a book value (US GAAP) basis at 30% or above. At 31 March 2004, this ratio stood at 41.3%.
Cash flow forecasting
Both short- and long-term cash flow forecasts are produced frequently to assist in identifying the liquidity requirements of the Group.
These forecasts are supplemented by a financial headroom position that is supplied to the Finance Committee of the Board regularly to demonstrate funding adequacy for at least a 12-month period. The Group also maintains a minimum level of committed facilities in support of that objective.
Credit facilities and unutilised Commercial Paper and Medium Term Note Programmes
The Group has both committed and uncommitted facilities that are available for general corporate purposes.
At 31 March 2004, National Grid Transco had a US$2.0 billion US Commercial Paper Programme (US$1.35 billion unutilised); National Grid Company plc had a US$1.0 billion US Commercial Paper Programme (unutilised) and a US$1.0 billion Euro Commercial Paper Programme (unutilised); and National Grid Transco and National Grid Company plc had a joint Euro Medium Term Note Programme of 6 billion ( 3.8 billion unissued). Transco plc had a US$2.5 billion US Commercial Paper Programme (unutilised) and a US$1.25 billion Euro Commercial Paper Programme (US$0.9 billion unutilised); and Transco plc and Transco Holdings plc had a joint Euro Medium Term Note Programme of 7.0 billion ( 2.6 billion unissued).
At 31 March 2004, the Group in the UK had £1.22 billion and $1.49 billion of short-term (364 day) committed facilities (undrawn), £0.58 billion of long-term committed facilities (undrawn) and £1.0 billion of uncommitted borrowing facilities (undrawn). The short-term committed facilities include an option to extend these facilities.
The National Grid USA Group had committed facilities of $439 million, all of which were undrawn at 31 March 2004. These facilities provide liquidity support for the subgroup New England Power Companys tax-exempt debt programme.
In addition to the above facilities, at 31 March 2004, Basslink had a A$630 million loan facility (A$362 million undrawn) and Isle of Grain LNG had a £30 million facility of which £15 million remained undrawn.
Note 21 to the accounts on page 95 shows the maturity profile of all undrawn committed borrowing facilities of the Group in sterling at 31 March 2004.
Treasury policy
The funding and treasury risk management of the Group is carried out by a central department operating under policies and guidelines approved by the Board. The Finance Committee, a committee of the Board, is
responsible for regular review and monitoring of treasury activity and for approval of specific transactions, the authority for which may be delegated. The Group has a Treasury function that raises all the funding for the Group and manages interest
rate and foreign exchange rate risk.
The Group has separate financing programmes for each of the main Group companies. The Finance Committee of the Board and the Finance Committee of the appropriate Group undertaking approve all funding programmes.
The Treasury function is not operated as a profit centre. Debt and treasury positions are managed in a non-speculative manner, such that all transactions in financial instruments or products are matched to an underlying current or anticipated business requirement.
The use of derivative financial instruments is controlled by policy guidelines set by the Board. Derivatives entered into in respect of gas and electricity commodities are used in support of the business operational requirements and the policy regarding their use is explained on page 45.
As a result of PUHCA and other US regulatory limits applicable to certain US companies in the Group, the freedom of these companies to provide financing among themselves is restricted. Nevertheless, external financings or other arrangements are in place to ensure that Group companies have adequate access to short-term liquidity.
The Group had borrowings outstanding at 31 March 2004 amounting to £13,248 million. The table on page 46 shows the expected maturity of these and other contractual obligations.
Annual Report and Accounts 2003/04_ National Grid Transco 43
Financial Review _ continued
The Group has in place appropriate committed facilities, and believes that the maturing amounts in respect of its contractual obligations as shown on page 46 can be met from these facilities, operating cash flows and other refinancings that it reasonably expects to be able to secure in the future. The Groups financial position enables it to borrow on the wholesale capital and money markets and most of its borrowings are through public bonds and commercial paper.
The Group places surplus funds on the money markets usually in the form of short-term fixed deposits that are invested with approved banks and counterparties. Details relating to the Groups cash, short-term investments and other financial assets at 31 March 2004 are shown in note 21 to the accounts on page 94.
There exists within the Group different credit rated entities. For example, National Grid Company plc has a credit rating of A2/A. Transco plc has a credit rating of A2/A. Transco Holdings plc has been separately rated A3/A-. National Grid Transco has a credit rating of Baa1/A-.
It is a condition of the regulatory ring-fences around National Grid Company plc, Transco plc and Transco Holdings plc that they use reasonable endeavours to maintain an investment grade credit rating. It is also an SEC requirement that National Grid Transco maintains an investment grade credit rating. At these ratings, the principal borrowing entities of the Group should have ready access to the capital and money markets for future funding when necessary.
The main risks arising from the Groups financing activities are set out below. The Board and the Finance Committee review and agree policies for managing each risk and they are summarised below.
Refinancing risk management
The Board mainly controls refinancing risk by limiting the amount of financing obligations (both principal and interest) arising on borrowings in any 12-month and 36-month period. This policy restricts the Group from
having an excessively large amount of debt to refinance in a given time-frame. During the year, a mixture of short-term and long-term debt was issued.
Interest rate risk management
The
interest rate exposure of the Group arising from its borrowings and deposits
is managed by the use of fixed and floating
rate debt, interest rate swaps, swaptions and forward rate agreements. The
Groups
interest rate risk management policy is to seek to minimise total financing
costs (ie interest costs and changes in the market value of debt) subject to
constraints
so that, even with large movements in interest rates, neither the interest
cost nor
the total financing cost can exceed pre-set limits. Some of the bonds in issue
from National Grid Company plc and Transco Holdings plc are index-linked, ie
their cost is linked to changes in the UK Retail Price Index (RPI). The Group
believes these bonds provide a good hedge for revenues that are also RPI-linked
under the price control formula.
The performance of the Treasury function in interest rate risk management is measured by comparing the actual total financing costs of its debt with those of a passively-managed benchmark portfolio.
Foreign exchange risk management
The Group has a policy of hedging certain contractually committed foreign exchange transactions over a prescribed minimum size. It covers 75% of such transactions expected to occur up to six months in advance and 50%
of transactions in the six to 12-month period in advance. Cover generally takes the form of forward sale or purchase of foreign currencies and must always relate to underlying operational cash flows.
The principal foreign exchange risk to which the Group is exposed arises from assets and liabilities not denominated in sterling. In relation to these risks, the objective is to match the US dollar proportion of the Groups financial liabilities to the proportion of its cash flow that arises in dollars and is available to service those liabilities.
Foreign exchange fluctuations will affect the translated value of overseas earnings. This translation has no impact on the cash flows of the Group, and accordingly is not hedged other than indirectly through the natural hedge of having foreign currency interest expense arising on currency denominated liabilities. Dividend flows may be hedged through matching with interest flows or by forward foreign exchange deals and options.
The currency and average interest rate composition of the Groups financial liabilities and assets is shown in note 21 to the accounts on pages 93 and 94 respectively.
Counterparty risk management
Counterparty risk arises from the investment of surplus funds and from the use of derivative instruments. The Finance Committee has agreed a policy for managing such risk, which is controlled through credit limits,
approvals and monitoring procedures.
Derivative financial instruments held for purposes other than trading
As
part of its business operations, the Group is exposed to risks arising from fluctuations
in interest rates and exchange
rates. The Group uses off balance sheet derivative financial instruments (derivatives)
to manage exposures of this type and as such they are a useful tool in reducing
risk. The Groups policy is not to use derivatives for trading purposes.
Derivative transactions can, to varying degrees, carry both counterparty and
market
risk.
The Group enters into interest rate swaps to manage the composition of floating and fixed rate debt and so hedge the exposure of borrowings to interest rate movements. In addition, the Group enters into bought and written option contracts on interest rate swaps. These contracts are known as swaptions. The Group also enters into foreign currency swaps to manage the currency composition of borrowings and so hedge the exposure to exchange rate movements. Certain agreements are combined foreign currency and interest rate swap transactions. Such agreements are known as cross currency swaps.
The Group enters into forward rate agreements to hedge interest rate risk on short-term debt and money market investments. Forward rate agreements are commitments to fix an interest rate that is to be paid or received on a notional deposit of specified maturity, starting at a future specified date.
Valuation and sensitivity analysis
The Group calculates the fair value of debt and derivative instruments by discounting all future cash flows by the market yield curve at the balance sheet date. The market yield curve for each currency is obtained from
the Reuters or
44 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
Bloomberg screen notes for interest and foreign exchange rates. In the case of instruments with optionality, the Blacks variation of the Black-Scholes model is used to calculate fair value.
The valuation techniques described above for interest rate swaps and currency swaps are a standard market methodology. These techniques do not take account of the credit quality of either party but this is not considered to be a significant factor unless there is a material deterioration in the credit quality of either party.
In relation to swaptions, the Group only uses swaptions for hedging purposes with a European style exercise. As a consequence, the Blacks variation of the Black-Scholes model is considered to be sufficiently accurate for the purpose of providing fair value information in relation to these types of swaptions. More sophisticated valuation models exist but the Group does not believe it is necessary to employ these models, given the extent of its activities in this area.
The valuations obtained using the techniques described above are used for the purpose of disclosure of fair value information under UK GAAP as shown in note 21 to the accounts on page 95 and for recognition, where appropriate, under US GAAP as shown in notes 31 and 32 to the accounts commencing on page 105.
For debt and derivative instruments held, the Group utilises a sensitivity analysis technique to evaluate the effect that changes in relevant rates or prices will have on the market value of such instruments.
At 31 March 2004, the potential change in the fair value of the aggregation of long-term debt and derivative instruments, assuming an increase or decrease of 10% in the level of interest rates and exchange rates, was £(169) million and £174 million for interest rates and £(362) million and £443 million for exchange rates respectively.
Commodity price hedging
In the normal course of business, the Group
is party to commodity derivatives. These have included indexed swap contracts,
gas futures, electricity swaps, gas options, gas forwards and gas basis swaps
that are principally used to manage commodity prices associated with its
gas and electricity delivery operations. This
includes the buying back of capacity rights already sold in accordance with
the Groups UK gas transporter licence and Network Code obligations.
These financial exposures are monitored and managed as an integral part of the Groups financial risk management policy. At the core of this policy is a condition that the Group will engage in activities at risk only to the extent that those activities fall within commodities and financial markets to which it has a physical market exposure in terms and volumes consistent with its core business. The Group does not issue or intend to hold derivative instruments for trading purposes, and holds such instruments consistent with its various licence and regulatory obligations in the UK and US.
As a result of the restructuring of the electricity industry in New York State during 1998, Niagara Mohawk replaced existing power purchase agreements with indexed swap contracts that expire in June 2008. The indexed swaps and fossil fuel plant swaps are the subject of regulatory rulings that allow the gains and losses to be passed on to customers.
At 31 March 2004, the Group had liabilities of £391 million in respect of the indexed swap contracts and has recorded a corresponding regulatory asset. The asset and liability will be amortised over the remaining term of the swaps as nominal energy quantities are settled and will be adjusted as periodic reassessments are made of energy prices. A 10% movement in the market price of electricity would result in a £37 million movement in the value of the indexed linked swap contracts assuming the US dollar to sterling exchange rate of $1.83 to £1.00. There would be no impact on earnings as there would be a corresponding movement in the book value of the related regulatory asset.
The fair value of the indexed linked swap contracts is based on the difference between projected future market prices and projected contract prices as applied to the notional quantities stated in the contracts and discounted using a US LIBOR rate curve to the current present value.
Payments made by Niagara Mohawk under indexed swap contracts are affected by the price of natural gas. Niagara Mohawk uses New York Mercantile Exchange (NYMEX) gas futures as hedges to mitigate this impact. The futures contracts are derivative instruments with gains and losses deferred as an offset to the corresponding increases and decreases in the swap payments. As at 31 March 2004, the last options to which Niagara Mohawk was counterparty expired and there were no open option positions outstanding at this date. Niagara Mohawk is not currently using options to hedge its gas commodity. Gains relating to gas futures at 31 March 2004 were not material and, as a result of regulatory treatments, have no impact on earnings.
Niagara Mohawks gas rate agreement allows for collection of the commodity cost of natural gas sold to customers. The regulator also requires that actions be taken to limit the volatility in gas prices passed on to customers. Niagara Mohawk meets this requirement through the use of NYMEX gas futures and combinations of NYMEX call and put options structured as collars. These contracts are hedges of Niagara Mohawks natural gas purchases. Gains and losses are deferred until the month that the hedged contract settles. At 31 March 2004, deferred gains on these contracts were immaterial in the context of the Group as a whole.
The UK gas transmission operation is obliged to offer for sale through a series of auctions (both short- and long-term) a pre-determined quantity of entry capacity for every day in the year at predefined locations. Where, on the day, the gas transmission systems capability is constrained, such that gas is prevented from entering the system for which entry capacity rights have been sold, then UK gas transmission is required to buy back those entry capacity rights sold in excess of system capability. Forward and option contracts are used to reduce the risk and exposure to on-the-day entry capacity prices.
UK electricity transmission operations have also entered into electricity options, pursuant to the requirement to stabilise the electricity market in England and Wales through the operation of the New Electricity Trading Arrangements (NETA). The options are for varying terms and have been entered into so that the Group has the ability to
Annual Report and Accounts 2003/04_ National Grid Transco 45
Financial Review _ continued
deliver electricity as required to meet its obligations under the electricity transmission licence. The Group has not and does not expect to enter into any significant derivatives in connection with its NETA role.
Commitments, contingencies and litigation
Commitments and contingencies
The Groups commitments and
contingencies outstanding at 31 March are summarised in the table below:
Commitments and contingencies | 2004 | 2003 | ||
£m | £m | |||
|
|
|
|
|
Future capital expenditure contracted for but not provided | 448 | 664 | ||
Total operating lease commitments | 478 | 476 | ||
Power commitments | 5,555 | 6,675 | ||
Other commitments, contingencies and guarantees | 263 | 221 | ||
|
|
|
|
Pages 37 and 38 give information regarding the Groups obligations under pension and other post-retirement benefits.
The power commitments shown in the Commitments and contingencies table above reflect the Groups obligation to purchase energy under long-term contracts. To the extent that power commitment obligations exceed the above market values that are attributable to these contracts, the net present value of these amounts is reflected in creditors and is not shown in this table. At 31 March 2004, the component of power commitments representing the above market value amounts included within creditors, amounts falling due within one year and amounts falling due after more than one year totalled £57 million (31 March 2003: £68 million) and £149 million (31 March 2003: £253 million) respectively.
The Group proposes to meet all of its commitments from operating cash flows, existing credit facilities, and future facilities and other financing that it reasonably expects to be able to secure in the future.
Contractual obligations at
31 March 2004
The table of contractual
obligations shown below analyses the long-term contractual obligations of the
Group according
to its payment period. Purchase obligations reflect the Groups commitments
under power commitments (excluding the above market amounts) and future capital
expenditure contracted for but not provided. The other long-term liabilities
reflected in the balance sheet at 31 March 2004 comprise the net present value
of purchase power obligations in respect of above market amounts; liability
for indexed linked swap contracts; and other creditors that represent contractual
obligations falling due after more than one year.
Off balance sheet arrangements
With the exception of derivative
financial instruments used for the purpose of managing risks associated with
fluctuations in interest rates, exchange rates, and commodity prices, described
on pages 44 to 46, the Group does not have any other off balance sheet arrangements
that have or are likely to have any current or future effect on the financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are material.
Note 21 to the accounts on page 95 provides fair value information in relation to all off balance sheet derivative financial instruments used by the Group.
Contractual obligations | Less than | More than | ||||||||
Total | one year | 1-3 years | 3-5 years | 5 years | ||||||
|
|
|
|
|
|
|
|
|
|
|
Total borrowings | 13,248 | 1,706 | 2,920 | 2,033 | 6,589 | |||||
Operating lease commitments | 478 | 59 | 85 | 63 | 271 | |||||
Purchase obligations | 6,003 | 1,389 | 1,345 | 1,134 | 2,135 | |||||
Other long-term liabilities
reflected in the balance sheet at 31 March 2004
|
699 | 199 | 298 | 154 | 48 | |||||
|
|
|
|
|
|
|
|
|
|
|
Total | 20,428 | 3,353 | 4,648 | 3,384 | 9,043 | |||||
|
|
|
|
|
|
|
|
|
|
Details of material litigation to which
the Group was a party at 31 March 2004
Following
a fatal accident in Larkhall, Lanarkshire in December 1999 in which four people
died, Transco faces charges alleging breaches
of sections 3 and 33 of the Health & Safety at Work Act 1974. The case
is currently listed for trial in Edinburgh commencing on 27 September 2004.
The
maximum penalty for breach of either of the above sections is an unlimited
fine.
Regulatory authorities from Rhode Island, New Hampshire and Massachusetts have expressed an intent to challenge the reasonableness of a transaction entered into by National Grid USA, in connection with the sale of its interest in the Millstone 3 nuclear unit in 2001.
The Group has received notification of violations of US air pollution laws relating to the operation of two coal-fired generation plants, formerly owned by Niagara Mohawk. As a consequence, the State of New York is seeking substantial fines against the Group and the current owners of these generation plants. The Group is resisting these claims and is pursuing a related dispute between it and the purchaser of these plants.
Further details of litigation and other material disputes are contained within note 29 to the accounts on page 104.
Critical accounting policies
The
Group accounts are prepared in accordance with UK GAAP. The Groups
accounting policies are described on pages 71 to 73 of the accounts.
Management is required to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenue, expenses and the disclosure of contingent assets and liabilities in the accounts. For example, the estimates and judgements used to calculate the provision for doubtful debts will impact on the carrying value of debtors and on the charge for bad debt expense. The following matters are considered to have a critical impact on the accounting policies adopted by the Group.
Estimated asset economic lives
The adoption of particular asset economic lives
in respect of goodwill and tangible fixed assets can materially affect the reported
amounts for goodwill amortisation and depreciation of tangible fixed assets.
46 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
Goodwill, under UK GAAP, is principally being amortised over 20 years, and the economic lives of tangible fixed assets are disclosed in Accounting policies e) Tangible fixed assets and depreciation on page 71. The adoption of particular economic lives involves the exercise of judgement and can materially affect the profit and loss account. For the year ended 31 March 2004, the Group profit and loss account reflected goodwill amortisation and depreciation of tangible fixed assets amounting to £99 million and £866 million respectively.
In businesses such as ours, which are capital intensive in nature and have long tangible fixed asset lives, goodwill is similarly expected to have a long asset life. Therefore, goodwill is amortised over a long life, typically 20 years. If goodwill were amortised over 10 or 30 years, the impact on goodwill amortised would be to increase or reduce goodwill amortisation by approximately £100 million and £30 million per annum respectively. This sensitivity assumes the average UK/US exchange rate as applied in 2003/04. Goodwill is not amortised under US GAAP but is subject to regular impairment reviews.
Because of the different accounting that applied to the National Grid and Lattice merger under UK and US GAAP, no goodwill was created in respect of this transaction under UK GAAP. Conversely, under US GAAP, the Merger was accounted for as an acquisition and goodwill was recognised. This accounting is explained further see US GAAP reporting on page 49.
Impairment of fixed assets
Goodwill, fixed asset investments and tangible
fixed assets are reviewed for impairment in accordance with UK GAAP. Future
events could cause these assets to be impaired, resulting in an adverse effect
on the future results of the Group.
Reviews for impairments are carried out under UK GAAP in the event that circumstances or events indicate the carrying value of fixed assets may not be recoverable. Examples of circumstances or events that might indicate that impairment had occurred include: a pattern of losses involving the fixed asset; a decline in the market value for a particular fixed asset; and an adverse change in the business or market in which the fixed asset is involved.
When a review for impairment is carried out under UK GAAP, the carrying value of the asset, or group of assets if it is not reasonably practicable to identify cash flows arising from an individual fixed asset, is compared with the recoverable amount of that asset or group of assets. The recoverable amount is determined as being the higher of the expected net realisable value or the present value of the expected cash flows attributable to that asset or groups of assets. The discount rate used to determine the present value is an estimate of the rate the market would expect on an equally risky investment and is calculated on a pre-tax basis. Estimates of future cash flows relating to particular assets or groups of assets involve exercising a significant amount of judgement.
During the year ended 31 March 2004, reviews for impairments were carried out in respect of goodwill in general, and other assets attributable to Advantica, telecoms, metering, interconnectors and LNG. With the exception of Advantica and some telecoms related assets, which recorded impairment charges of £20 million within restructuring costs, no other impairment charges have been recorded.
For US GAAP reporting purposes goodwill is reviewed for impairment on an annual basis, including the goodwill recognised in respect of the Lattice acquisition. Some goodwill has been impaired relating to Advantica, which was acquired as part of the Lattice acquisition, and this is referred to further under US GAAP reporting on page 50.
Replacement expenditure
This
expenditure represents the cost of planned maintenance on gas mains and services
assets, the vast majority
of which relate to the Groups UK gas distribution business. This expenditure
is principally undertaken to maintain the safety of the gas network in the
UK
and is written off to the profit and loss account as incurred, as such expenditure
does not enhance the economic performance of those assets. If such expenditure
in the future were considered to enhance these assets, it would be capitalised
and treated as an addition to tangible fixed assets, thereby significantly
affecting
the reporting of future results.
The total amount charged to the profit and loss account in respect of replacement expenditure during the year ended 31 March 2004 was £388 million. This accounting policy only materially affects the results of the UK gas distribution segment.
Under US GAAP, this expenditure is capitalised and depreciated over its expected useful life. The US GAAP accounting policy is shown in note 32 to the accounts Fixed assets impact of Lattice purchase accounting and replacement expenditure on page 116.
Regulatory assets
These
assets are recorded in the accounts under UK GAAP in accordance with the
principles of SFAS 71 Accounting for the
Effects of Certain Types of Regulation, a US GAAP accounting standard.
If the principles of SFAS 71 were not applicable, it is likely that this would
result in the full or partial non-recognition of these assets, and thereby
materially
alter the view given by the accounts.
In applying the principles of SFAS 71, UK GAAP measurement principles are followed in the preparation of the Groups UK GAAP results. Regulatory assets under UK GAAP are only recognised if a US GAAP regulatory asset has already been recognised, but UK GAAP measurement principles are followed with only those regulatory assets arising as a result of a past transaction or event being recorded. Regulatory assets are only recognised in respect of US activities and primarily relate to the US electricity distribution segment.
The total carrying value of regulatory assets, under UK GAAP, at 31 March 2004 amounted to £3,111 million.
Turnover
Turnover includes an assessment of energy and
transportation services supplied to customers between the date of the last meter
reading and the year end. Changes to the estimate of the energy or transportation
services supplied during this period would have an impact on the reported results
of the Group.
Estimates of energy supplied are based on a combination of known energy purchases and the historical pattern of billings information. These estimates only affect US electricity transmission, US electricity distribution and US gas activities.
Annual Report and Accounts 2003/04_ National Grid Transco 47
Financial Review _ continued
Turnover in respect of transportation services supplied comprises amounts invoiced to shippers plus an estimate for transportation services supplied but not yet invoiced, which substantially represent the transportation services supplied in respect of the last month of the year. The estimated element of turnover is determined as the total of commodity services supplied, calculated from the actual volume of gas transported at estimated weighted average prices, based on recent history and the value of capacity services supplied, which are contracted amounts. This estimate affects the UK gas distribution and UK electricity and gas transmission segments.
Under UK GAAP, the Group is not permitted to recognise and has not recognised any liability for amounts received or receivable from customers in excess of the maximum amount allowed for the year under regulatory agreements that will result in an adjustment to future prices. Under US GAAP, such liabilities are recognised.
Pensions and other post-retirement benefits
The cost of providing pensions and other post-retirement
benefits is charged to the profit and loss account on a systematic basis over
the service lives of the employees in the scheme in accordance with SSAP 24.
A new UK accounting standard (FRS 17) will eventually replace existing UK GAAP
and significantly change the measurement and disclosure of pension and other
post-retirement costs in the Group accounts.
Pension and other post-retirement benefits are inherently long term, and future experience may differ from the actuarial assumptions used to determine the net charge for pension and other post-retirement charges. Note 7 to the accounts on page 82 describes the principal assumptions that have been used to determine the pension and post-retirement charges in accordance with current UK GAAP. The calculation of any charge relating to pensions and other post-retirement benefits is clearly dependent on the assumptions used, which reflects the exercise of judgement. Management exercises that judgement having regard to independent actuarial advice.
As shown in note 7 to the accounts on pages 83 and 84, the application of the measurement principles of FRS 17 would significantly affect the results of the Group, reducing the pre exceptional net charge for pensions and other post-retirement benefits by £72 million (pre-tax).
Restructuring costs
The application of UK GAAP measurement principles
results in the recognition of restructuring costs, mainly redundancy related,
when the Group is irrevocably committed to the expenditure, with the main features
of any restructuring plan being communicated to affected employees. If material,
these costs are recognised as exceptional.
Restructuring costs recognised by the Group are referred to in Exceptional items for each year and are discussed earlier in this Financial Review.
Under US GAAP, redundancy costs arising from the Groups voluntary severance arrangements are only recognised when the employee accepts the voluntary severance offer. As a result, there is a difference in timing in the recognition of these costs between UK and US GAAP.
Derivative financial instruments
Derivatives are used by the Group to manage
its interest rate, foreign currency and commodity price risks in respect of
expected energy usage. All such transactions are undertaken to provide a commercial
hedge of risks entered into by the Group.
UK GAAP applies an historical cost and hedge accounting model to these derivatives. Substantially, this model results in gains and losses arising on derivatives being recognised in the profit and loss account or statement of total recognised gains and losses at the same time as the gain or loss on the item being hedged is recognised. Indexed linked swap contracts are carried in the UK GAAP balance sheet within creditors, with a total liability amounting to £391 million at 31 March 2004. The best estimate of this liability was the estimated market value of the swaps at 31 March 2004 determined on the basis of the technique discussed on page 45.
The application of a fair value model would result in derivatives being marked to market. Gains or losses relating to these derivatives may or may not be recognised in the profit and loss account or statement of total recognised gains and losses at the same time as any related gains or losses on underlying economic exposures, depending upon whether the derivatives are deemed to have a hedging relationship.
Note 21 to the accounts on pages 93 to 95 gives a significant amount of detail relating to the Groups financial instruments. This includes the identification of the difference between the carrying value and fair value of the Groups financial instruments, including derivatives.
International Financial Reporting Standards and US GAAP both apply a fair value model to the recognition of gains and losses on derivatives.
The discussion on pages 44 and 45 dealing with derivatives (including commodity derivatives) refers to the manner in which fair values are established and used for the purposes of disclosure under UK GAAP and recognition under US GAAP.
Environmental liabilities
Provision
is made for liabilities arising from environmental restoration and remediation
costs relating to various sites owned
by the Group. The calculation of this provision is based on estimated cash
flows relating to these costs discounted at an appropriate rate where the
impact of
discounting is material. The total costs and timing of cash flows relating
to environmental liabilities are based on management estimates supported
by the
use of external consultants. There may be variances from these amounts that
could materially affect future results as demonstrated by the recognition
of
additional exceptional environmental costs during 2003/04, which arose as a
result of a UK site investigation see Exceptional items 2003/04 on
page 36.
International Financial Reporting Standards
An International Accounting Standards
Regulation was adopted by the Council of the European Union (EU) in June
2002. This regulation requires all EU companies listed on an EU stock exchange
to use endorsed International Financial Reporting Standards (IFRS),
published by the International Accounting Standards Board (IASB), in drawing
up their financial statements for accounting periods beginning on or after
1
January 2005. The IASB published 15 revised standards in December 2003 and
issued four new standards and two revised standards in the first quarter of
2004.
48 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
This completes the set of standards which are likely to be required to be adopted in 2005. A process of endorsement of IFRSs has been established by the EU for completion in sufficient time to allow adoption by companies in 2005. The Groups first full financial statements to be produced under IFRS will be for the year ending 31 March 2006.
The Group has established a plan to achieve a smooth transition to IFRS. This plan involves examining all implementation aspects, including changes to accounting policies, systems impacts and the wider business issues that arise from such a change. We expect that the Group will be fully prepared for the transition in 2005. However, the adoption of particular standards is dependent upon the completion of the standard-setting process by the IASB and the endorsement of such standards by the EU.
The Group has not yet determined the full effects of adopting IFRS. Our preliminary view is that the major differences between our current accounting practice and IFRS will be in respect of hedge accounting, accounting for business combinations (including the accounting treatment of goodwill) and share-based payments. In addition, the Group is still evaluating the impact of adopting IFRS with regard to the accounting for regulatory assets, pensions, taxation and replacement expenditure.
Related party transactions
The
Group provides services to and receives services from its related parties.
In the year ended 31 March 2004, the Group
charged £6 million and received charges of £25 million from its
related parties. Further information relating to related party transactions
is contained within note 28 to the accounts on page 102.
Changes and developments
Any significant changes and developments that
have occurred since 31 March 2004 have been noted in this Annual Report and
Accounts 2003/04.
Going concern
Having made enquiries, the Directors consider
that the Company and the Group have adequate resources to continue in business
for the foreseeable future and that it is therefore appropriate to adopt the
going concern basis in preparing the accounts.
US GAAP reporting
The accounts have been prepared
in accordance with UK GAAP, which differs in certain significant respects from
US GAAP. The US GAAP accounting information in note 32 to the accounts on pages
112 to 120 gives a summary of the main differences between the amounts determined
in accordance with the Groups accounting policies (based on UK GAAP) and
those determined in accordance with US GAAP. In addition, summary income statements,
summary balance sheets, summary cash flows and a reconciliation of net income
and equity shareholders funds from UK to US GAAP are provided in note
31 to the accounts on pages 105 to 112.
The comparative figures for discontinued operations and continuing operations have been restated for 2001/02 for US GAAP reporting purposes. This restatement does not affect UK GAAP reported figures. This restatement arises because the results of operations relating to joint ventures and associate, from which the Group has now exited and which were treated as discontinued operations under UK GAAP, were reported as part of discontinued operations under US GAAP. This treatment is not permitted under US GAAP as these results should have been reported as part of the interest in equity accounted affiliates. The net loss or income reported under US GAAP for 2001/02 was not affected by this restatement.
The effect of this restatement is to reclassify an amount of net loss of £857 million for 2001/02 from discontinued operations to continuing operations through a restatement of the interest in equity accounted affiliates. Earnings per share for continuing and discontinued operations have similarly been restated. The discussion of results relating to 2001/02 has been amended to reflect this restatement.
As referred to earlier, UK GAAP merger accounting principles have been adopted in accounting for the business combination of National Grid and Lattice. Under US GAAP, acquisition accounting principles were applied to the business combination, which is a fundamentally different method of accounting from merger accounting. Under US GAAP, National Grid is viewed as the acquirer of Lattice, and as a result the separately identifiable net assets attributable to Lattice were fair valued at the date of acquisition on 21 October 2002.
A further consequence of acquisition accounting, in contrast to merger accounting, is that the results of the Group under US GAAP only include the results of Lattice with effect from the date of acquisition. Therefore, under US GAAP, in respect of the Group results for the three years ended 31 March 2004, Lattice results only feature in the period from 21 October 2002 to 31 March 2004. In addition, because fair values were attributed to Lattices separately identifiable net assets, rather than the book values as used in merger accounting, goodwill was recognised.
Final goodwill amounting to £3,824 million was recognised under US GAAP relating to the acquisition of Lattice by National Grid. No goodwill was recognised under UK GAAP. The methodology for determining goodwill involved attributing fair values to separately identifiable net assets and valuing the consideration, primarily National Grid Transco shares, at fair value. This process is described in note 32 to the accounts on page 112.
Individually, the most significant adjustment to establish the fair value of the net assets acquired were the fair values attributed to property, plant and equipment (PPE). Within this adjustment, the most significant element accounting for 94% of the total adjustment to PPE related to Transco. Management determined the appropriate adjustment to be made and no external specialists were used. Management believes that its knowledge of the UK regulatory environment within which Transco operates is superior to that of external specialists and therefore it was better qualified to estimate the relevant fair values.
Net income from continuing operations for 2003/04 under US GAAP was £998 million (2002/03: £790 million; 2001/02: £152 million (net loss)). The US GAAP results for 2003/04, 2002/03 and 2001/02 included losses relating to discontinued operations amounting to £nil; £39 million; and £1 million respectively. Consequently, net income for 2003/04 under US GAAP was £998 million (2002/03: £751 million; 2001/02: £167 million (net loss)). This compared with the net income/(loss) under UK GAAP for 2003/04, 2002/03 and 2001/02 of £1,099 million; £391 million; and £321 million (net loss) respectively.
Equity shareholders funds under US GAAP at 31 March 2004 were £9,821 million (31 March
Annual Report and Accounts 2003/04_ National Grid Transco 49
Financial Review _ continued
2003: £9,426 million) compared with £1,213 million (31 March 2003: £1,113 million (restated)) under UK GAAP.
Because the application of merger accounting principles under UK GAAP has fundamentally affected the comparison of UK GAAP results with US GAAP results, the following is a discussion of the impact the application of US GAAP has had on the results, which should be read in conjunction with the Operating Review on pages 25 to 35 and the rest of this Financial Review.
The treatment of Lattice as an acquisition under US GAAP has significantly affected the UK electricity and gas transmission segment, UK gas distribution segment, and Other, as compared with the treatment under UK GAAP. The remaining segments are unaffected by differences between merger and acquisition accounting principles. Consequently, this has impacted on the results of the segments, as follows: | |
| the results of the UK electricity and gas transmission segment for 2001/02 under US GAAP relate solely to UK electricity activities, excluding the impact of any gas transmission activity, which is shown under UK GAAP. UK gas transmission impacted on the UK electricity and gas transmission from the date of acquisition on 21 October 2002 and contributed £94 million to operating profit for 2002/03. In 2003/04, the UK electricity and gas transmission segment contributed £686 million to operating profit; |
| UK gas distribution is a segment that was created following the acquisition of Lattice. As a result, there is no effect on the operating result of UK gas distribution for 2001/02 but the segment contributed £567 million and £771 million to operating profit for 2002/03 and 2003/04 respectively; and |
| similarly, the operating loss of £5 million for Other in respect of 2001/02 relates solely to the activities of National Grid, which related primarily to the activities of Interconnectors, contracting and other costs incurred that were not attributable to business segments. In 2003/04 and 2002/03, the operating loss of Other amounted to £8 million and £37 million respectively. |
Note 31 to the accounts on pages 105 to 112 show a summary income statement for 2003/04, 2002/03 and 2001/02 under US GAAP. These statements have reconciled the impact that material US GAAP adjustments have had on the UK GAAP income statement, including the impact of the elimination of all merger accounting (pooling of interests) adjustments under UK GAAP, and the inclusion of acquisition (purchase accounting) adjustments under US GAAP. The adjustments eliminating the pre-acquisition UK GAAP results affecting turnover and operating costs are much larger in 2001/02 than in 2002/03 or 2003/04, reflecting the fact that Lattice was acquired on 21 October 2002.
Some of the adjustments included within the US GAAP summary income statements and balance sheet substantially reflect reclassifications of items that are treated differently under UK GAAP and US GAAP, but that do not significantly impact on net income or net assets.
Under UK GAAP, the operating results of discontinued operations of Group undertakings are classified as part of total operating profit, whereas under US GAAP these amounts are shown net of any related interest and tax and shown as net loss from discontinued operations. In respect of the discontinued activities of joint ventures, under UK GAAP these activities are also classified as part of total operating profit, whereas under US GAAP these amounts are accounted for within interest in equity accounted affiliates. The share of equity affiliates operating profit/(loss), net interest, taxation, and minority interests are disclosed separately under UK GAAP, whereas under US GAAP, all these amounts are accounted for within interest in equity accounted affiliates.
Under UK GAAP, the results of Citelec, an equity accounted affiliate, is accounted for under hyper-inflationary accounting rules. Under US GAAP, the results of Citelec are not accounted for under hyper-inflationary accounting rules, but this does not give rise to any significant difference to the UK GAAP accounting, as Citelec has been impaired under US GAAP and is carried at £nil under US GAAP, as it is under UK GAAP.
The principal adjustments to UK GAAP net income that have had a net impact in arriving at US GAAP net income mainly relate to adjustments arising from the treatment of the Lattice business combination as an acquisition under US GAAP; the capitalisation of replacement expenditure under US GAAP; the adoption of a fair value model for the recognition of derivative financial instruments under US GAAP; and the non-amortisation of goodwill under US GAAP. There are other adjustments, and these are explained in more detail in note 31 and note 32 to the accounts on pages 105 to 120.
US GAAP applies a fair value model for the purposes of accounting for derivative financial instruments, and the Group applies a hedging strategy which meets UK GAAP requirements, but does not meet US GAAP hedge accounting requirements. This results in a much greater volatility in the US GAAP income statements.
The treatment of the business combination of Lattice as an acquisition by National Grid resulted in the recognition of provisional goodwill amounting to £3,813 million which, as a result of the finalisation of the fair value adjustments during 2003/04, was subsequently revised to £3,824 million, as referred to on page 49. The acquisition of Lattice required an allocation of the purchase price to the acquired assets and liabilities of Lattice. Final changes to the provisional fair values attributed to the net assets of Lattice at 31 March 2003 arose from amendments to PPE fair values and tax balances (discussed further in note 32 to the accounts on page 113), which were completed within one year of the date of acquisition. It is the application of these acquisition accounting adjustments that explains the vast majority of the increase in equity shareholders funds at 31 March 2004 from £1,213 million under UK GAAP to £9,821 million under US GAAP.
During 2003/04, the additional minimum pension liability recognised as required by SFAS 87 fell by £743 million to £840 million. Of this total movement of £743 million, £633 million has been recorded through other comprehensive income.
Following a review of goodwill and other long-lived assets for impairment during 2003/04, evidence of impairment of goodwill and other intangible assets relating to Advantica was revealed. This resulted in an additional impairment charge relating to these assets being incurred under US GAAP amounting to £31 million. These charges are recorded in respect of Other.
During 2001/02, the Group adopted SFAS 133 Accounting for Derivative Instruments and Hedging Activities. The impact of adopting this
50 National Grid Transco _Annual Report and Accounts 2003/04
Financial Review _ continued
standard is shown in the 2001/02 summary income statement prepared under US GAAP on page 108.
During 2002/03, the Group adopted SFAS 148 Accounting for Stock-Based Compensation Transition and Disclosure an amendment of FASB Statement No 123. Prior to the adoption of this standard, the Group had accounted for stock compensation in accordance with APB 25. The Group adopted the retrospective method of accounting as permitted by this standard.
During 2003/04, the Group adopted the following US GAAP accounting standards to the extent necessary to comply with its reporting obligations in respect of this annual report: | |
| SFAS 132 Employers Disclosures about Pensions and Other Post-Retirement Benefits an amendment of FASB Statements No 87, 88 and 106 (SFAS 132); |
| SFAS 143 Accounting for Asset Retirement Obligations (SFAS 143); |
| SFAS 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150); |
| FIN 46 Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) 51 . |
The impact of SFAS 132, SFAS 143 and SFAS 150 is discussed in note 32 on page 120.
FIN 46 addresses the consolidation of entities for which control is achieved through means other than through voting rights (variable interest entities or VIE) by clarifying the application of ARB 51 Consolidated Financial Statements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which business enterprise (the primary beneficiary) should consolidate the VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures.
FIN 46 was revised in December 2003, following the issuance by the FASB of certain modifications to the original FIN 46. The disclosure provisions of FIN 46 are effective in all financial statements initially issued after 31 January 2003. FIN 46 is required to be immediately applied by all entities with a variable interest in a VIE created after 31 January 2003. A public foreign private issuer with a variable interest in a VIE created before 1 February 2003 is required to apply FIN 46 to that entity from 1 April 2004.
There have been no entities created since 31 January 2003 which fall within the scope of FIN 46 and therefore the application of FIN 46 has not had any material impact on the results or the financial condition of the Group. The impact of FIN 46 on future results is still being assessed in respect of the as yet unapplied provisions of the standard.
In January 2004, the FASB issued FASB Staff Position (FSP) 106-1 Accounting and Disclosure Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). This FSP addresses the accounting implications of the newly issued Act to an entity that sponsors a post-retirement healthcare plan that provides prescription drug benefits. This Act, signed into law in December 2003 in the United States, introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of certain retiree healthcare benefit plans. The FSP includes an election to defer accounting for the implications of this new law until specific authoritative guidance to address the accounting treatment has been issued. As such, as a result of the lack of the existence of such guidance, any measure included in these accounts of the accumulated post-retirement benefit obligation (APBO) or net periodic post-retirement benefit cost in the accounts or accompanying notes do not reflect the effect of the Act on the plan. Authoritative guidance, when issued, could require a change in previously reported information.
Other matters
Inflation
In
the UK, the Groups operating
costs may be affected by inflation both in terms of potential cost increases
and in terms of the regulatory revenue control, which is influenced by, among
other things, movements in the UK Retail Price Index. While higher inflation
would tend to increase the Groups cost base, this impact would be more
than offset by increased revenue allowed under the Groups regulated revenue
controls.
Higher inflation would increase the cost base of the Groups US businesses. However, if there is a significant change in the rate of inflation, as measured by the change in the Gross Domestic Product Implicit Price Deflator, the regulatory settlements in Massachusetts, Rhode Island and New York allow for additional distribution revenue to be recovered from customers. In recent years, inflation in the UK and US has been relatively stable and has not significantly affected the period under review.
Seasonality
Although
demand for electricity and gas can vary on a seasonal basis, the Groups UK transmission turnover
and adjusted earnings are not, generally speaking, subject to substantial seasonal
variations, because the largest elements of UK transmission turnover relate
to customers use of the transmission systems. Customers are charged for
these services in a number of ways, some giving rise to variation in income
over a financial year, but overall this typically provides for a relatively
constant revenue stream over the course of the financial year.
UK gas distribution is subject to regulatory agreements governing the maximum revenue that should be billed in a financial year. The timings of the recognition of these revenues are such that typically 60% of total revenue would be recognised in the second half of the year.
US electricity transmission would normally provide for a relatively constant revenue stream over the course of a financial year. US electricity distribution and US gas would usually expect total revenues in the second half of the financial year to be higher than the first half, as a result of a higher demand for energy in the winter months.
Euro
In January 2002, the euro was introduced
as the cash currency in 12 European Union countries. This has had a minimal
impact on the operations of the Group.
Annual Report and Accounts 2003/04_ National Grid Transco 51
Directors Report and Operating and Financial Review
Corporate Governance and Risk Factors
Corporate governance
Combined Code statement of compliance
National Grid Transco is subject to the Combined
Code on Corporate Governance that is appended to the Listing Rules of the UK
Listing Authority. The Combined Code sets out principles and provisions relating
to the good governance of companies.
The Combined Code has recently been subject to review (the Higgs Review of the role and effectiveness of non-executive directors) which resulted in the publication of a new Combined Code, applicable to financial years starting on or after 1 November 2003.
Throughout the year, National Grid Transco has complied with all of the relevant provisions set out in the Combined Code as applicable for financial years starting prior to 1 November 2003. Additionally, as at the date of this report, the Company complies with the relevant provisions of the new Combined Code as applicable for financial years starting on or after 1 November 2003. The following information is compiled in accordance with the new Combined Code.
The Board
The Board currently consists of 14 Directors
comprising the Chairman, six Executive Directors (including the Group Chief
Executive) and seven Non-executive Directors (including the Deputy Chairman
and Senior Independent Director). Short biographical details of each of the
Directors are included on pages 18 and 19.
There were two changes to the Executive Directors on the Board during the year. Nick Winser was appointed on 28 April 2003 as Group Director responsible for UK and US Transmission. John Wybrew retired on 30 November 2003, having previously been Group Corporate Affairs Director. His role was divided between the remaining Executive Directors and certain senior managers.
There were also two changes to the Non-executive members of the Board. Bonnie Hill retired on 21 July 2003 and Maria Richter was appointed on 1 October 2003.
It has been announced that Rick Sergel will retire at this years Annual General Meeting (AGM) being replaced on the Board by Mike Jesanis.
All Directors are required to be re-elected by shareholders at the AGM following their appointment by the Board and then at least once every three years. To ensure that a representative number of Directors are re-elected each year, one-third of Directors (excluding new appointments) must stand for re-election at each AGM.
In the opinion of the Board each of the Non-executive Directors is currently independent under the guidelines set out in the new Combined Code. This opinion is based on current participation and performance on both the Board and Board Committees including consideration of the length of service at National Grid Transco together with that at either Lattice or National Grid.
The main duties of the Chairman outside of the Group are included in his biography on page 18. During the year, the Chairman resigned as a Non-executive Director of Brambles Industries plc (October 2003). It has been announced that as from 1 June 2004 Sir John Parker will become the senior Non-executive Director designate of the Court of the Bank of England, taking over the chair in February 2005.
The Board is led by the Chairman whose role, along with that of the Group Chief Executive, has been set out and approved by the Board.
In order to ensure effective control of the Group the Board restricts certain decisions to itself. | |
These matters reserved to the Board include: | |
| establishing Board Committees, setting terms of reference, reviewing activities and where appropriate ratifying decisions; |
| internal control arrangements; |
| results announcements to stock exchanges where National Grid Transco shares are traded and the approval of the Annual Report and Accounts (in conjunction with the Audit Committee); |
| approval of the Groups business plan; |
| overall Group business strategy; |
| approval of Group financial policy; and |
| matters of strategic importance likely to impact the Group. |
The Board manages these matters at its regular Board meetings and strategy days. It also receives reports and presentations from each of the operating divisions, key central functions and minutes and/or oral reports of Board Committee meetings. This ensures that all Directors are aware of, and are in a position to monitor effectively, Group operations and current issues.
The Chairman meets the Non-executive Directors at least twice per year in formal session (once with the Group Chief Executive present). These meetings and other regular informal discussions create the opportunity for valuable input from the Non-executive Directors.
The Board is also ultimately responsible for the Groups system of internal control and for reviewing its effectiveness. National Grid Transcos system of internal control helps to safeguard the Groups assets and is designed to manage, rather than eliminate, material risks to the achievement of the Groups business objectives. The review of internal control recognises that any such system can provide only reasonable, and not absolute, assurance against material misstatement or loss.
The Board, together with the Executive, Audit and Risk & Responsibility Committees, is central to the internal control process. Throughout the year the Board receives reports from each of these Committees and as part of the year-end process receives the Group Chief Executives Letter of Assurance. This process seeks to confirm compliance with all major internal and external requirements along with the existence of appropriate controls and processes to manage risks and to provide details of material risks and control weaknesses. The Board additionally conducts a formal review of the effectiveness of internal controls based on the information and assurances provided to it directly and via the Committees mentioned.
In response to Section 406 of the US Sarbanes-Oxley Act 2002, the Board has adopted a Code of Ethics for senior financial professionals. This code is available on the Group website at www.ngtgroup.com/about/mn_corp_govern.html (where any amendments or waivers will also be posted).
52 National Grid Transco _Annual Report and Accounts 2003/04
Corporate Governance and Risk Factors _ continued
Board Committees
To
ensure that the broad range of responsibilities that fall to the Board are
managed effectively and in an appropriate manner,
it has established a number of Committees. These are the Audit, Executive,
Finance, Nominations, Remuneration, and Risk & Responsibility Committees.
Each Committee has established terms of reference, agreed by both the Committee and by the Board. The terms of reference for each of these Committees are published on the Group website at www.ngtgroup.com/about/mn_corp_govern.html.
Audit Committee
The members of the Audit Committee are John Grant,
Ken Harvey and Paul Joskow. The Committee is chaired by George Rose. Each of
these Non-executive Directors is independent. The Board has determined that George
Rose is
an audit committee financial expert as required by the Audit Committee
terms of reference and pursuant to Section 407 of the Sarbanes-Oxley Act (for
his biographical details see page 19).
The Chairman, Deputy Chairman, Group Chief Executive, Group Finance Director, external auditors, Group Head of Audit, and Group Company Secretary and General Counsel are invited to attend most meetings.
The Audit Committees main responsibilities are: | |
| reviewing and reporting to the Board on the effectiveness of the Groups financial reporting and internal control policies (including risk and compliance management); |
| approving the terms of reference of the internal audit function and ensuring resource requirements are adequate for effective performance; |
| approving, appointing, setting the compensation for and the oversight of the Groups external auditors; |
| reviewing the integrity of the Groups financial statements; and |
| reviewing the Annual Report and Accounts, Annual Review, Annual Report on Form 20-F and other reports filed with the SEC containing financial statements and reviewing reports of, and discussing issues raised by, the Disclosure Committee in connection with these disclosures. |
During the year, the Audit Committee met separately with the external auditors without management being present.
Expanding on the Audit Committees role with respect to the external auditors the Committee is responsible for managing the relationship which includes (but is not limited to): | |
| ensuring the independence and objectivity of the external auditors and the adequacy of the audit procedures; |
| consideration of the audit fees paid and the approval in advance of all non-audit fees paid to the external auditors; and |
| discussions with the external auditors concerning compliance with accounting standards. |
Details of both the audit and non-audit fees paid to the auditors during the year are set out in note 3 to the accounts on page 79.
Executive Committee
The Board has essentially delegated the
day-to-day running of the Group to the Executive Committee which is made up of
each of the Executive Directors, the Group Company Secretary and General Counsel
and Mike Jesanis as Chief Operating Officer of National Grid USA. The Executive
Committee is chaired by the Group Chief Executive.
The Executive Committee is responsible for managing and safeguarding the interests of the Group. In managing the Group the Committee is responsible for furthering Group strategy, business objectives and other targets established by the Board.
The Executive Committees key tasks include keeping under review the adequacy of reporting arrangements and the effectiveness of internal control and risk management. At its regular meetings it considers safety and environmental performance reports and operational business performance reports. The Executive Committee also considers the Groups annual business plan, the capital allocation programme and the annual operating budget.
On behalf of the Board the Executive Committee receives and considers half yearly due diligence and certifications by the operating businesses and corporate centre functions in connection with the completeness and accuracy of financial statements and associated disclosures. The Committee also receives regular reports on the results of internal audits and, on an exception basis, on safety and environmental audits and occupational health reviews.
Finance Committee
The Finance Committee is chaired by Paul Joskow, the other members being Roger Urwin, Steve Lucas, Stephen Pettit and Maria Richter (who joined the Committee following her appointment to the Board in October
2003).
The Finance Committee is responsible for setting investment and financing policy decisions including items such as bank accounts, guarantees and treasury management. The Finance Committee also provides recommendations to the Board in respect of tax, pensions and insurance strategy.
Nominations Committee
The members of the Nominations Committee are James Ross, John Grant, Ken Harvey and George Rose, each of whom is independent. Sir John Parker chairs the Committee.
The main responsibility of the Nominations Committee is to keep under review the size, structure and composition of the Board. When necessary it is the responsibility of the Committee to identify and nominate for appointment Board Directors and direct reports to the Group Chief Executive. The Nominations Committee must also consider the annual reappointment of Directors, proposing which Directors should retire and seek reappointment by shareholders, having first considered the effectiveness and independence of any Non-executive Directors.
The Nominations Committee is also responsible for reviewing the leadership needs of the Group and for co-ordinating the review of the Board and Committees as well as Director independence each year.
Remuneration Committee
The Remuneration Committee members are Ken Harvey, Stephen Pettit (who was appointed to the Committee in November 2003) and George Rose. The Committee chairman is John Grant. Bonnie Hill was a member of the Committee
until her retirement from the Board in July 2003. Each of these Non-executive Directors is independent.
Annual Report and Accounts 2003/04_ National Grid Transco 53
Corporate Governance and Risk Factors _ continued
The Chairman, Deputy Chairman, Group Chief Executive and the Group Human Resources Director are invited to attend meetings as appropriate.
The responsibilities of the Remuneration Committee are to: | |
| determine remuneration policy and packages for the Chairman, Deputy Chairman, Executive Directors and direct reports to the Group Chief Executive; and |
| determine policy on share schemes and awards under these schemes to Executive Directors and direct reports to the Group Chief Executive. |
The Committee is also responsible for ensuring that the employee pay and benefit structures are aligned throughout the Group and for compiling and recommending to the Board for approval the Directors Remuneration Report on pages 58 to 67.
The Remuneration Committee has authority to obtain the advice of outside independent remuneration consultants and, where appointed, is solely responsible for their retention, termination, approval of fees and other terms.
Risk & Responsibility Committee
James Ross chairs the Risk & Responsibility
Committee, its other members being Stephen Pettit and Maria Richter (who joined
the Committee following her appointment to the Board in October 2003). Bonnie
Hill had been a member of the Committee until her retirement from the Board in
July 2003.
The Group Chief Executive, two external specialists (advisors on safety and environmental affairs), the Group Corporate Responsibility Director and the Group Company Secretary and General Counsel are expected to attend meetings.
The responsibility of the Committee is to review the strategies, policies, management, initiatives, targets and performance of the Group, and where appropriate its suppliers and contractors, in the following areas: | |
| occupational and public safety; |
| environment; |
| occupational health; |
| equality and diversity; |
| human rights; |
| business ethics; and |
| the role of the Group in society. |
The Risk & Responsibility Committee is involved in the internal control process as it considers and provides reports to the Audit Committee on reputational risks and other risks of a non-financial nature including safety, health and environmental risks.
Board and Board Committee attendance
The following table indicates the number of meetings of the Board and each of its Committees held during the year and the number of those meetings that each of the Directors attended as a member:
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Sir John Parker (Chairman) | 11 | | | | 8 | | | |||||||
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Roger Urwin (Group Chief Executive) | 11 | | 14 | 7 | | | | |||||||
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Edward Astle | 11 | | 13 | | | | | |||||||
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Steve Holliday | 10 | | 13 | | | | | |||||||
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Mike Jesanis (i) | | | 14 | | | | | |||||||
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Steve Lucas | 10 | | 12 | 7 | | | | |||||||
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Rick Sergel | 11 | | 13 | | | | | |||||||
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Nick Winser (ii) | 9 | | 11 | | | | | |||||||
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John Wybrew (iii) | 7 | | 10 | | | | | |||||||
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James Ross (Deputy Chairman and Senior
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John Grant | 10 | 5 | | | 8 | 8 | | |||||||
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Ken Harvey | 10 | 4 | | | 7 | 7 | | |||||||
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Bonnie Hill (iv) | 3 | | | | | 3 | 1 | |||||||
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Paul Joskow | 11 | 5 | | 7 | | | | |||||||
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Stephen Pettit (v) | 10 | | | 6 | | 2 | 4 | |||||||
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Maria Richter (vi) | 6 | | | 3 | | | 2 | |||||||
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George Rose | 10 | 5 | | | 8 | 7 | | |||||||
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(i) | Mike Jesanis was not attending the Executive Committee as a member of the Board but as Chief Operating Officer of National Grid USA. |
(ii) | Nick Winser was appointed to the Board on 1 May 2003. |
(iii) | John Wybrew resigned from the Board on 30 November 2003. |
(iv) | Bonnie Hill resigned from the Board on 21 July 2003. |
(v) | Stephen Pettit was appointed to the Remuneration Committee on 18 November 2003. |
(vi) | Maria Richter was appointed to the Board on 1 October 2003. |
54 National Grid Transco _Annual Report and Accounts 2003/04
Corporate Governance and Risk Factors _ continued
Disclosure committees
In response to the requirements of the Sarbanes-Oxley Act, National Grid Transco constituted several disclosure committees across the Group. The Group Finance Director chairs the Group disclosure committee. The main
purpose of this committee is to ensure that when disclosing information the Company represents itself completely, fairly and accurately to its security holders and that it complies with applicable laws and stock exchange requirements. The committee
is also responsible for reviewing the evaluation of disclosure controls.
Board effectiveness
The effectiveness of the Board, its Committees and each of the Directors is important to the operation of the Group. A formal evaluation process has been established to address this issue. This process is in the form
of a questionnaire used to assess the effectiveness of the Board, the Chairman and each of the Committees. The questionnaire is supplemented by one-to-one meetings between the Chairman and each of the Directors where individual performance is openly
discussed. The Non-executive Directors also meet separately to discuss the performance of the Chairman. Based on the output of the questionnaire and the one-to-one meetings, an action plan is drawn up to ensure continuous improvement in Board
processes and procedures. This evaluation process highlighted several areas where improvements have been made to processes and Board Committee terms of reference, particularly in terms of interaction between the Committees.
Communication with shareholders
During the year the Group Chief Executive and Group Finance Director have regular meetings with institutional investors, fund managers and analysts to discuss information made public by the Group. In addition the
Chairman reminds major shareholders, in writing, of his availability (along with that of the Senior Independent Director or Non-executive Directors where required) should there be issues which shareholders may wish to raise.
To ensure that the Board is effectively informed of shareholder views it receives regular presentations, in particular twice a year following the publication of results. Feedback on major shareholders views is provided by the Companys brokers and supplemented by the Group Head of Investor Relations. This ensures that all Board members, including the Non-executive Directors, are aware of the views of major shareholders and of any outstanding issues that they may have.
The principal method of communicating with the majority of shareholders is via the Annual Review. All shareholders also have the opportunity to attend the Companys AGM and to question Directors on any issues relating to the management of the Company. The Group also has in place a Shareholder Networking Programme, which allows a small number of shareholders to visit operational sites and meet with senior managers and Directors. More details of the Shareholder Networking Programme are on page 135.
Corporate governance practices: differences to New York Stock Exchange (NYSE) listing standards
The corporate governance practices of the Group substantially conform to those required of US companies listed on the NYSE. The principal area of difference is that governance issues are not considered by a separate
committee of independent Non-executive Directors, but by the Board as a whole, as is usual practice in the UK.
Risk management overview | |
In the course of 2003/04 and in close collaboration with our operating businesses and Corporate Centre functions, we have developed a best practice Group-wide risk management process to replace the respective processes that both National Grid and Lattice had in place at the time of Merger. The new enhanced process requires us to define our Group objectives and then consider the key risks that may prevent us from achieving those objectives. For the purposes of this exercise five Group objectives, considered fundamental to the success of National Grid Transco, have been set. These are as follows: | |
| to continue to earn the right to operate our regulated businesses; |
| to conduct effective regulatory management; |
| to deliver top quartile financial performance; |
| to identify, pursue and successfully develop new business opportunities; and |
| to continue to earn the respect and support of key stakeholders and employees. |
Risk factors
As a consequence of operating its risk management
process, the Group has identified the following risk factors that could have
a materially adverse effect on its business, turnover, profits, assets, liquidity,
resources and/or reputation. Not all these factors are within the Groups
control. Other factors besides those listed below may adversely affect the Group.
Any forward-looking statements in this document or otherwise made by the Group
should be considered in light of these risk factors and the cautionary statement
set out on the inside front cover.
Changes in law or regulation in the countries and states in which we operate could have an adverse effect on the Groups results of operations.
Many
of the Groups businesses are utilities that are subject to the laws of and regulation by governments and/or regulatory authorities. Consequently, changes in law or regulation in the countries and/or states
in which those businesses operate could have an adverse effect on the Group. Decisions by regulators concerning, for example, whether licences or approvals to operate are renewed or not, whether there has been breach of the terms of any licence or
approval, the level of permitted revenues for those businesses and proposed business development activities, could have an adverse impact not only on results of operations, but also on cash flows, financial condition and the ability to develop those
businesses in the future. For further information on this subject please see the Operating Review and Financial Review sections of this document and in particular, the Regulatory environment section
on pages 25 and 26.
Breaches of environmental and health and safety laws or regulations could expose the Group to claims for financial compensation, adverse regulatory consequences and/or otherwise damage relationships with the
Groups stakeholders.
Aspects of the
Groups activities are inherently dangerous, such as the operation and maintenance
of electricity lines and the transmission and distribution of natural gas. Electricity
and gas utilities also typically use and generate in their operations a range
of potentially hazardous products and by-products. The Group is subject to laws
and regulations
Annual Report and Accounts 2003/04_ National Grid Transco 55
Corporate Governance and Risk Factors _ continued
relating to pollution, the protection of the environment, and how it uses and disposes of hazardous substances and waste materials. In addition, there may be other aspects of operations that are not currently regarded or proved to have adverse effects but could become so, for example, the effects of electric and magnetic fields (EMFs). The Group is subject to numerous and ever increasing laws and regulations governing health and safety and environmental matters, protecting both the public and its employees. Any breach of these requirements or regulations, or even incidents relating to the environment or health and safety that do not amount to a breach, could adversely affect the results of operations and/or the Groups reputation. For further information about environmental and safety matters relating to Group businesses, please see the Responsibility section of the website at www.ngtgroup.com/responsibility.
Network failure or the inability to carry out critical non-network operations may cause the Group significant adverse consequences to both financial position and reputation.
The Group may suffer a major network failure and/or
may not be able to carry out critical non-network operations. Risks to operational
performance could arise from a failure to maintain the health of the system or
network, inadequate forecasting of demand or inadequate record keeping. Any failure
that arises out of any action or omission by any of the Groups businesses could cause that business to be in breach of a licence or approval as well as
potentially causing harm to the Groups reputation and significant adverse financial consequences. In addition to these risks, Group businesses are subject to risks that are largely outside of their control such as the weather or security
breaches. Weather conditions can affect financial performance, particularly in the US, and severe weather that causes outages or damages infrastructure will adversely affect both operational and business performance. Terrorist attack or sabotage may
also physically damage the Groups businesses or otherwise significantly affect corporate activities and as a consequence impact the results of the Groups
operations.
The Groups results of operations are dependent on a number of factors relating to business performance including ability to outperform regulatory targets and reach anticipated cost and efficiency savings
targets.
Earnings maintenance and growth from UK regulated
gas and electricity businesses will be affected by the Groups ability to
outperform regulatory efficiency targets set by Ofgem. The Group has also published
cost and efficiency savings targets for its regulated businesses in the UK and
the US. To meet these targets, it must continue to improve management and operational
performance. In the US, under the state rate plans, earnings from US regulated
businesses
will be affected by their ability to deliver integration and efficiency savings.
US earnings are also dependent on meeting service quality standards set by state
regulators. To meet such standards, the Group must improve service reliability
and customer service. If the Group does not meet the targets and standards referred
to above, both its results of operations and its reputation may be adversely
affected.
Fluctuations in the value of the US dollar could have a significant impact on results of operations because of the material nature of the Groups businesses in the US, and the proportion of the Groups debt
that is denominated in dollars.
The Group has significant operations in the US.
These operations are subject to the risks normally associated with such businesses,
including the need to translate US assets and profits into the Groups primary
reporting currency, sterling. Results of operations may be similarly impacted because the Group holds a significant proportion of borrowings in US dollars. For further information related to this see Foreign exchange risk management on
page 44.
The nature and extent of the Groups borrowings mean that an increase in interest rates could have an adverse impact on the financial position of National Grid Transco.
A significant proportion of the Groups borrowings are subject to variable interest rates that may fluctuate with changes to prevailing interest rates. Increases in these interest rates could therefore result in
reduced levels of profit for the Group. For further information see Interest rate risk management on
page 44.
The Groups overall financial position may be adversely affected by a number of factors including restrictions in borrowing and debt arrangements, changes to credit ratings and effective tax rates.
The Group is subject to certain covenants and
restrictions in relation to its listed debt securities and its bank lending facilities.
Such restrictions may hinder the Group in servicing the financial requirements
of its current businesses or the financing of newly acquired or developed businesses.
The debt of National Grid Transco and certain of its subsidiaries is rated by
credit rating agencies and changes in these ratings may affect both the borrowing
capacity of the Group as a whole and the cost of those borrowings. The effective
rate of tax paid by the Group may be influenced by a number of factors including
changes in law and regulation and the Groups overall approach to such matters,
the results of which could increase or decrease that rate.
Changes to the regulatory treatment of commodity costs may have an adverse effect on the results of operations.
The costs incurred by the Groups electricity businesses in purchasing electricity are subject to movements in underlying commodity prices, particularly those of oil and gas. Current regulatory arrangements in the
UK and US provide the ability to pass through virtually all of the increased costs related to commodity prices by way of higher prices. If regulators in the UK or the US limit or remove the Groups
ability to pass through commodity costs to customers it may have a material effect
on operating results. For more information, see the Operating Review section
of this document.
56 National Grid Transco _Annual Report and Accounts 2003/04
Corporate Governance and Risk Factors _ continued
The Group may suffer a loss of reputation if consumers of energy suffer a disruption to their supply even if this disruption is outside of its control.
The Groups network businesses are responsible for transporting the available electricity and gas. Where there is insufficient electricity or gas, the Groups
role is to manage the systems safely, which in extreme circumstances may require
the Group to disconnect customers. The Group may as a result suffer a negative
impact to its reputation if consumers of electricity and/or gas suffer disruption
to their supply.
The Group is subject to the risk that business development activity, such as a significant acquisition or disposal, will be based on incorrect assumptions or conclusions or that substantial liabilities will be
overlooked.
In any acquisition or disposal process the Group evaluates its anticipated level of return; however, unforeseen circumstances or unreliable assumptions may adversely impact the level of return actually generated.
Development of alternative energy sources and new technologies may adversely affect the Groups results of operations if it is unable to respond to any changes.
The Groups businesses that are involved
in the transmission and distribution of energy are vulnerable to certain types
of technological changes. Examples of possible changes are the growth in distributed
generation, renewable energy sources, fuel cells and the introduction of an alternative
power carrier. Adapting to technological changes may be costly and there is no
guarantee that the Group may foresee or be able to respond adequately to such
changes.
Risk and compliance management process
The
risk factors set out above were identified by the Groups best practice
risk management process which facilitates the identification, assessment, management
and reporting of material risks in a visible,
structured, consistent and continuous manner. Like the predecessor
systems in place in National Grid and Lattice,
the new process is compliant with the Turnbull working party guidance (published
September 1999) and the ABI Disclosure Guidelines on Socially Responsible Investment
(published October 2001) which focus on social, ethical and environmental risks.
In addition, the process helps to address compliance obligations arising from
the Sarbanes-Oxley Act, which requires the principal executive and principal
financial
officer of the Company to certify the accuracy and fair representation of the
Annual Report on Form 20-F and the adequacy of the Groups disclosure
controls and internal control over financial reporting.
Consistent with last year, the risk management process adopted has promoted both a bottom-up and top-down assessment of key risks. The bottom-up assessment, undertaken in accordance with risk assessment and reporting guidance, has resulted in the detailed analysis of risks by the individual businesses and Corporate Centre functions captured in the form of risk registers. The top-down assessment has involved a number of senior managers from the businesses and Corporate Centre and has resulted in a balanced and robust identification and consideration of business-critical, including cross-organisation, risks. Subsequently, both elements have been pulled together through the production of two new streamlined Board-level risk reports/graphics.
The first report highlights the key changes to the Groups risk profile and specifies actions designed to improve controls or alter the level of residual risk. The second report aligns those bottom-up risks that have the potential to impact significantly the Groups reputation to the top-down risks, presenting the information in the form of an impact/probability graphic.
Both these reports are presented to the Executive Committee for its review and challenge. They enable the Executive Directors to assess, at the highest level, the completeness and quality of risk reporting and the appropriateness and timeliness of actions being taken to manage the key risks. Updated versions, incorporating all feedback received from the Executive Directors, are subsequently presented to and discussed with both the Audit Committee and the Risk & Responsibility Committee.
Any material changes to the risks and associated controls and actions contained in the Board-level risk reports/graphics and business risk registers are reported through the monthly operational business performance reports. In addition, the Executive Directors review and discuss key changes in risk profiles on a regular basis.
Last year, the Group reported that it had begun to introduce a compliance management process that seeks to raise awareness around its ever-expanding compliance obligations and helps to ensure that it takes all reasonable steps to comply with relevant obligations. The Executive Committee has now approved a new compliance management process. That process is consistent with and complementary to the risk management process. Through the compliance management process, the Group has identified those current and anticipated compliance obligations where the actual or perceived impact of non-compliance on the Group is considered greatest. Going forward, the businesses and Corporate Centre functions will provide assurance, where relevant, that robust compliance programmes are in place or are being developed for all key obligations.
National Grid Transco recognises that risk and compliance management is an iterative process and subject to continuing improvement. The Group is committed to building on the progress achieved this year. The businesses and Corporate Centre will further raise risk and compliance awareness, embed good practice and challenge the effectiveness of key control frameworks.
Annual Report and Accounts 2003/04_ National Grid Transco 57
Directors Report and Operating and Financial Review
Directors Remuneration Report
Remuneration Committee
Role of the Remuneration Committee and its Terms of Reference
The
Remuneration Committee is responsible for developing Group policy on executive
remuneration, and for determining the
remuneration of Executive Directors and the executives below Board level
who report directly
to the Group Chief Executive. It also monitors the remuneration of other
senior employees of the Group and has oversight of the operation of all the
Groups share and share option plans. The Committee operates within terms of reference agreed by
the Board, which are available on the Groups website or on request
from the Group.
The Board has accepted all the recommendations made by the Committee during the year.
Composition of the Remuneration Committee | |
The Remuneration Committee is made up entirely of independent Non-executive Directors. The members of the Committee have been as follows: | |
| John Grant (Committee Chairman); |
| Ken Harvey; |
| Bonnie Hill (until 21 July 2003); |
| Stephen Pettit (from 18 November 2003); and |
| George Rose. |
The Group Chairman, Deputy Chairman, Group Chief Executive and Group Human Resources Director (Pat Fulker) are invited to attend meetings to provide advice on remuneration policies and practices. No Director participates in any discussion on his or her own remuneration.
The Committee appointed Ernst & Young LLP in February 2003 as independent remuneration advisors to the Committee. During the year, the Group appointed Linklaters, with the agreement of the Committee, to provide advice to the Committee on Directors service contracts.
In the year to 31 March 2004, these advisors provided other services to the Group in the UK as follows: | |
| Ernst & Young LLP: technical accounting advice and corporate finance services; and |
| Linklaters: general legal advice. |
Remuneration
policy
The Remuneration Committee determines remuneration policies and practices with the aim of attracting, motivating and retaining high calibre Directors who will deliver success for shareholders and high levels of customer service, safety and environmental performance. It is intended that remuneration policies and practices should conform to best practice standards in the markets in which the Group operates. The policies that applied in 2003/04 will also apply in 2004/05 and are currently intended to be applied in subsequent years. Remuneration policy is framed around the following key principles: |
|
| total rewards should be set at levels that are competitive in the relevant market; |
| a significant proportion of the Executive Directors total rewards will be performance-based. These will be earned through the achievement of demanding targets for short-term business performance and long-term shareholder value creation, consistent with the Groups Framework for Responsible Business (available on the website); |
| for higher levels of performance, rewards should be substantial but not excessive; and |
| incentive plans, performance measures and targets should be structured to operate soundly throughout the business cycle. They should be prudent and not expose shareholders to unreasonable risk. |
Excluding pensions and non-cash benefits, the remuneration package is structured such that for Executive Directors achieving target performance, performance-related remuneration represents an average of 51% of the total package, while at stretch performance, these elements represent approximately 69% of the total.
The policies relating to each element of remuneration are summarised below.
Salary
Salaries are reviewed annually and targeted at
the median position against the relevant market. In determining the relevant
market, the Remuneration Committee takes account of the regulated nature of the
majority of
the Groups operating activities, along with the size, complexity and international scope of the business. For UK-based Executive Directors a UK market is used, while for US-based Executive Directors a US market is used. In setting individual
salary levels the Committee takes into account business performance, the individuals
experience in the role and the employment and salary practices prevailing for
other employees in the Group.
Annual bonus and Share Matching Plan
Annual bonuses are based on achievement of a combination of demanding Group, individual and, where applicable, divisional targets. The principal measures of Group performance are based on earnings per share (EPS) and
cash flow; the main divisional measures are based on divisional operating profit and divisional cash flow. Individual targets are set in relation to key operating and strategic objectives and include overriding measures of safety and customer
service performance. The Remuneration Committee reviews performance against targets at the end of the year and may use its discretion to adjust measures and payments in view of operating circumstances during the year. For the financial year 2004/05,
the target and maximum bonus levels for UK-based Executive Directors are 50% and 75% of salary respectively.
US-based Executive Directors have lower target and maximum bonus levels of 41.7% and 62.5% respectively. US-based Executive Directors also participate in the USA Goals Program, an all-employee bonus plan that can pay up to 4.5% of salary on the achievement of certain earnings and performance targets. In line with US market practice, US-based Executive Directors cash bonuses are pensionable.
A predetermined part of each Directors bonus entitlement is automatically deferred (net of tax) into National Grid Transco shares, and a matching award may be made under the Share Matching Plan. Currently, UK-based Executive Directors are required to defer one third of any cash bonus into shares. At the end of three
58 National Grid Transco _Annual Report and Accounts 2003/04
Directors Remuneration Report
_
continued
years, provided the Director is still employed by the Group, additional matching shares equal in value at the date of deferral to the pre-tax value of the amount of bonus deferred are released to the individual. US-based Executive Directors do not participate in this plan. However, each year an award, calculated as a proportion (currently 60%) of their annual bonus, is paid in National Grid Transco shares or American Depositary Shares (ADSs) and is subject to a minimum three-year holding period. Alternatively, recipients may defer the 60% award as a monetary amount into a deferred compensation plan available after retirement. The value within this plan tracks the value of the Groups ADSs. The total target and maximum values of the annual bonus plan, including deferral and share matching, are therefore 67% and 100% of salary respectively for all Executive Directors. The participant also receives a cash payment equal to the dividends that have been paid on the matching shares over the three-year holding period.
The Remuneration Committee believes that operation of the Share Matching Plan as part of the annual bonus plan allows National Grid Transco to maintain competitiveness in annual bonus levels, while ensuring that Executive Directors hold a significant proportion of their remuneration in shares. Requiring Executive Directors to invest in the Group increases the proportion of rewards linked to both short-term performance and longer-term total shareholder returns. The bonus deferral and share match also acts as a retention tool and ensures that Executive Directors share a significant level of personal risk with the Groups shareholders.
Long-term incentives
The long-term incentive plans currently approved by shareholders, in addition to the Share Matching Plan described above, are the National Grid Transco Performance Share Plan (PSP) and the National Grid Executive Share
Option Plan (ESOP). National Grid Transco has made a commitment to shareholders to make grants under no more than two discretionary share incentive plans to any one Director in any year. For the year to 31 March 2005, the Remuneration Committee has
decided to make grants under the PSP and the Share Matching Plan, as in the previous year.
Under the PSP, Executive Directors and approximately 350 other senior employees who have significant influence over the Groups ability to meet its strategic objectives receive notional allocations of shares worth up to a maximum of 125% of salary. Shares vest after three years, subject to the satisfaction of the relevant performance criterion, which is set by the Committee at the date of grant. Shares must then be held for a further year, after which they are released, subject to the Executives continuing employment with the Group or at the Committees discretion.
The performance criterion for grants in the year to 31 March 2005 is based on the Groups Total Shareholder Return (TSR) performance over a three-year period, relative to the TSR performances of the following group of comparator companies:
Ameren Corporation
AWG plc
Centrica plc
Consolidated
Edison, Inc.
Dominion Resources, Inc.
E.ON AG
Electrabel SA
Endesa SA
Enel SpA
Exelon Corporation
FirstEnergy Corporation
FPL Group,
Inc.
Gas Natural SDG SA
Iberdrola SA
International Power plc
Kelda Group plc
Pennon Group plc
RWE AG
Scottish Power plc
Scottish & Southern
Energy plc
Severn Trent plc
The Southern
Company, Inc.
Suez SA
United Utilities plc
Viridian Group plc
This comparator group, which is unchanged from the year to 31 March 2004, has been selected to include companies in the energy distribution sector, against which National Grid Transco benchmarks its performance for business purposes, and other UK and international utilities. The Committee believes that this comparator group represents a relevant target for the long-term performance of the Group. The Committee may amend the list of comparator companies if circumstances make this necessary (eg as a result of takeovers or mergers of comparator companies). Under the terms of the PSP, the Committee may allow shares to vest early to departing executives to the extent that the performance condition has been met and pro-rating the number of shares that vest to reflect the proportion of the performance period that has elapsed at the executives date of departure.
TSR has been chosen as the performance criterion as it provides a direct measure of shareholder value creation. In calculating TSR, it is assumed that all dividends are reinvested. In assessing whether this performance condition has been met, data purchased from Alithos Limited is used. No shares will be released if the Groups TSR over the three-year performance period, when ranked against that of each of the comparator companies, falls below the median. For TSR at the median, 30% of the shares awarded will be released. 100% of the shares awarded will be released for TSR ranking at the upper quartile or above. For performance between median and upper quartile against the comparator group, the number of shares released is calculated on a straight-line basis. No retesting of performance is permitted for any shares that do not vest after the initial three-year performance period and any such shares will lapse. The Committee believes that these criteria represent stretching performance targets for the release of shares.
There are no plans to make grants under the ESOP in 2004/05, unless required for recruitment purposes.
All-employee share plans | |
| Sharesave: Executive Directors resident in the UK are eligible to participate in UK Inland Revenue approved all-employee Sharesave schemes (subject to eligibility based on service). Under these schemes, participants may contribute between £5 and £250 in total each month for a fixed period of three years, five years or both. Contributions are taken from net salary, and at the end of the savings period these contributions can be used to buy ordinary shares in National Grid Transco at a discounted price, set when contributions began, with the discount capped at 20% of the market price at that time. |
Annual Report and Accounts 2003/04_ National Grid Transco 59
Directors Remuneration Report _ continued
| US Incentive Thrift Plan: Employees resident in the US, including Executive Directors, are eligible to participate in the Thrift Plan, a tax-advantaged savings plan (commonly referred to as a 401(k) plan) provided for employees of National Grid USA companies. It is a defined contribution pension plan that gives participants the opportunity to invest a maximum of 50% of salary (pre-tax) and/or up to 15% of salary (post-tax) up to applicable Federal salary limits ($205,000 in the year in question). The company then matches 100% of the first 2% and 75% of the next 4% of salary contributed, resulting in a maximum matching contribution of 5% of salary up to the Federal salary cap. The employee may invest both the employee and company contributions in Group shares or various mutual fund options. |
| Share Incentive Plan (SIP): The Group implemented a UK Inland Revenue approved SIP during the year to 31 March 2004. Employees resident in the UK, including Executive Directors, are eligible to participate in the SIP (subject to eligibility based on service). Under the SIP, contributions of up to £125 are taken from participants gross salary and used to buy ordinary shares in National Grid Transco each month. The shares are placed in trust and if they are left in trust for at least five years they can be removed free of UK Income Tax and National Insurance contributions. |
Pensions
Following the Merger, legacy pension arrangements have remained in place for
Executive Directors. Pension policy for UK-based Executive Directors is being reviewed following the recently announced UK Government reform of pensions.
UK-based Executive Directors who previously were directors or employees of National Grid are members of the National Grid Company Group of the Electricity Supply Pension Scheme, which is a tax-approved pension scheme. Only base salary is pensionable. The provisions for participating Executive Directors are designed to give a pension at normal retirement age (60) of two thirds of final salary subject to completion of 20 years service (although participating Executive Directors may retire early from age 55 with a reduction in pension). A spouses pension is payable on the death in service of a participating Executive Director equal to two thirds of that payable to the participating Executive Director based on potential service to normal retirement age. On death in retirement, a spouses pension is payable equal to two thirds of the participating Executive Directors pension on death. Pensions in payment are increased by price inflation up to a maximum of 5% per annum. For participating Executive Directors affected by the earnings cap, a restriction on the amount of pay which can be used to calculate pensions due from a tax-approved pension scheme, the Company provides benefits on salary above the cap on a partially-funded basis.
US-based former National Grid Executive Directors participate in a qualified pension plan and an executive supplemental retirement plan provided through National Grid USA. These plans are non-contributory defined benefit arrangements. The qualified plan is directly funded, while the supplemental plan is indirectly funded through a rabbi trust. Participating Executive Directors benefits are calculated using a formula based on years of service and highest average compensation over five consecutive years. In line with many US plans, the calculation of benefits under the arrangements takes into account salary, bonuses and incentive share awards but not share options. Normal retirement age is 65. The executive supplemental plan, however, provides unreduced pension benefits from age 55. The plans also provide for a spouses pension of at least 50% of that accrued by the participating Executive Director. Benefits under these arrangements do not increase once in payment.
UK-based Executive Directors who previously were directors or employees of Lattice Group plc participate in the defined benefit section of the Lattice Group Pension Scheme, which is a tax-approved pension scheme. Only base salary is pensionable. The participating Executive Director (Steve Lucas) is subject to the earnings cap. He also participates in the Lattice Group Supplementary Benefits Scheme, an unfunded unapproved arrangement that increases retirement benefits to at least the level which would otherwise have been provided in the Lattice Group Pension Scheme, had he not been subject to the earnings cap. The provisions are designed to give two thirds of final salary (which may be restricted by remuneration averaged over three years) at normal retirement age (65), inclusive of any pension rights earned in previous employment. With the employers consent, provided 10 years service has been completed with National Grid Transco (which includes pensionable service transferred from previous employment), the accrued pension can be paid from age 55 with no actuarial reduction in benefit. A dependants pension is payable on death in service of a participating Executive Director based on potential service to normal retirement age. On death in retirement, a dependants pension is payable equal to two thirds of the participating Executive Directors pension, prior to exchanging any of it for a cash lump sum. Pensions in payment are increased in line with price inflation.
Provision has been made in the accounts in respect of unfunded obligations for post-retirement benefits.
Non-cash benefits
The Group provides competitive benefits to Executive Directors, such as a fully expensed car or cash alternative in lieu of car and fuel, use of a driver when required, private medical insurance and life assurance.
UK-based Executive Directors with less than five years continuous service, who were previously directors of National Grid, are provided with long-term ill health insurance. Business expenses incurred are reimbursed in such a way as to give rise to
no material benefit to the Director.
Share ownership guidelines
Executive Directors are encouraged to build up and retain a shareholding of at least 100% of annual salary. As a minimum, this should be achieved by retaining 50% of the after-tax gain on any options exercised or
shares received through the long-term incentive or all-employee share plans.
Share dilution through the operation of share-based incentive plans
Where shares may be issued or treasury shares reissued to satisfy incentives, the aggregate dilution resulting from executive incentives will not exceed 5% in any 10-year period, and dilution resulting from all
incentives, including all-employee incentives, will not exceed 10% in any 10-year period. The Remuneration Committee reviews dilution against these limits regularly.
60 National Grid Transco _Annual Report and Accounts 2003/04
Directors Remuneration Report _ continued
Non-executive Directors remuneration
Non-executive Directors fees are determined by the Executive Directors, or by a Committee authorised by the Board, subject to the limits applied by National Grid Transcos articles of association.
Non-executive Directors remuneration comprises an annual fee and a fee for each Board meeting attended (with a higher fee for meetings held outside the Directors country of residence), with an additional fee payable for chairmanship of a
Board Committee. The Chairmans letter of appointment allows his participation in the Companys
personal accident and private medical insurance schemes and states that the Company
will provide life assurance cover, a car (with driver when appropriate) and fuel
expenses.
Executive Directors service contracts
Service contracts for Executive Directors are
set at one years notice. The application of longer contract periods at
appointment, reducing after an initial period, may be used in exceptional circumstances
if
considered appropriate by the
Remuneration Committee to recruit certain key
executives. The Committee has introduced a policy on mitigation of losses in
the event of an Executive Directors employment being terminated by the Group. If this
occurs, the departing Executive would be expected to mitigate any losses incurred as a result of the termination. Therefore, entitlement to the payment of 12 months remuneration on early termination will no longer be automatic but will instead
be based on the circumstances of the termination. Steve Lucass contract provides for a liquidated damages payment of one years salary plus a credit of one years
pensionable service if the contract is terminated within one year of a change
of control of the Group.
The Committee, in determining any other such payments, will give due regard to the comments and recommendations of the UK Listing Authoritys Listing Rules (including the Combined Code) and associated guidance and other requirements of legislation, regulation and good governance.
Directors contracts and letters of appointment | Date of contract | Notice period (i) | ||
|
||||
Executive Directors | ||||
Roger Urwin | 17 November 1995 | 12 months | ||
Steve Lucas | 13 June 2002 | 12 months | ||
Edward Astle | 27 July 2001 | 12 months | ||
Steve Holliday | 6 March 2001 | 12 months | ||
Rick Sergel | 22 March 2000 | 12 months | (ii) | |
Nick Winser | 28 April 2003 | 12 months | (iii) | |
John Wybrew (retired 30 November 2003) | ||||
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Notice period/ | ||||
Date of letter | end of period | |||
of appointment | of appointment | |||
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Non-executive Directors | ||||
Sir John Parker (Chairman) | 12 January 2004 | 6 months | (iv) | |
James Ross (Deputy Chairman) | 5 June 2003 | 2004 AGM | ||
John Grant | 5 June 2003 | 2004 AGM | ||
Ken Harvey | 5 June 2003 | 2006 AGM | ||
Paul Joskow | 5 June 2003 | 2005 AGM | ||
Stephen Pettit | 5 June 2003 | 2006 AGM | ||
Maria Richter | 30 September 2003 | 2007 AGM | (v) | |
George Rose | 5 June 2003 | 2006 AGM | ||
Bonnie Hill (resigned 21 July 2003) | ||||
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(i) | The contracts for all current Executive Directors are for rolling 12-month periods. |
(ii) | Rick Sergels retirement during the summer of 2004 was announced on 27 October 2003. |
(iii) | Nick Winsers appointment as a Director commenced with effect from 28 April 2003. |
(iv) | During the year, the notice period for the Chairman, Sir John Parker, was reduced from a rolling 12-month period |
to a rolling 6-month period. | |
(v) | Subject to reappointment by shareholders at the 2004 AGM. |
The retirement of Rick Sergel in the summer of 2004 was announced in October 2003. Although Ricks retirement decision coincided with a voluntary early retirement offer (VERO) made to the Groups non-unionised US employees in the autumn of 2003, he will not be receiving additional pension value under the VERO. Also, under these circumstances, no severance payments will be triggered under Ricks employment contract.
Non-executive Directors letters of appointment
The Chairmans letter of appointment provides for a period of six months notice
in order to give the Group reasonable security with regard to his service. The
terms of engagement of Non-executive Directors other than the Chairman are also
set out in letters of appointment; their initial appointment and any subsequent
reappointment is subject to election or re-election by shareholders. The letters
of appointment do not contain provision for termination
payments.
External appointments and retention of fees
With the approval of the Board in each case, Executive Directors may normally accept an external appointment as a Non-executive Director of another company and retain any fees received.
Roger Urwin served as a Non-executive Director of the Special Utilities Investment Trust plc and retained fees of £9,442.31 paid to him for this service in the year ended 31 March 2004.
Edward Astle served as a Non-executive Director of Intec Telecom Systems plc and retained fees of £25,000 paid to him for these services in the year ended 31 March 2004.
Rick Sergel served as a Non-executive Director of State Street Corporation. He deferred the compensation to which he became entitled in respect of these services, which consisted of an annual retainer of $50,000 (deferred in shares), a deferred share award of $90,000 and meeting attendance fees of $19,500 ($1,500 each for 13 meetings attended, deferred in cash).
Annual Report and Accounts 2003/04_ National Grid Transco 61
Directors Remuneration Report _ continued
National Grid Transco/National Grid TSR vs FTSE 100
Performance graph
The graph above represents the comparative TSR performance of the Group from 31 March 1999 to 31 March 2004. For the period before the Merger the TSR shown is that of National Grid Group.
This graph shows the Groups performance against the performance of the FTSE 100 index, which is considered suitable for this purpose as it is a broad equity market index of which National Grid Transco is a constituent. This graph has been produced in accordance with the requirements of Schedule 7A to the Companies Act 1985.
In drawing this graph it has been assumed that all dividends paid have been reinvested. The TSR level shown at 31 March each year is the average of the closing daily TSR levels for the 30-day period up to and including that date.
Remuneration outcomes during the year ended 31 March 2004
Tables 1A, 1B, 2, 3, 4 and 5 comprise the auditable part of the Directors Remuneration
Report, being the information required by part 3 of Schedule 7A to the Companies
Act 1985.
1. Directors emoluments
The following tables set out an analysis
of the pre-tax emoluments during the years ended 31 March 2004 and 2003, including
bonuses but excluding pensions, for individual Directors who held office in National
Grid
Transco during the year ended 31 March 2004.
Year ended | ||||||||||||
31 March | ||||||||||||
Table 1A | Year ended 31 March 2004 | 2003 | ||||||||||
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Annual | Expense | Benefits | ||||||||||
Salary | bonus | allowances | in kind (i) | Total | Total | |||||||
£000s | £000s | £000s | £000s | £000s | £000s | |||||||
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Executive Directors | ||||||||||||
Roger Urwin (ii) | 635 | 395 | | 21 | 1,051 | 924 | ||||||
Steve Lucas (ii) | 375 | 217 | | 19 | 611 | 497 | ||||||
Edward Astle (iii) | 350 | 202 | 12 | 4 | 568 | 606 | ||||||
Steve Holliday (ii) | 375 | 240 | | 18 | 633 | 517 | ||||||
Rick Sergel (iv) | 488 | 228 | | 19 | 735 | 755 | ||||||
Nick Winser (ii), (v) | 275 | 172 | 27 | 128 | 602 | | ||||||
John Wybrew (vi) | 278 | 123 | | 11 | 412 | 564 | ||||||
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Total | 2,776 | 1,577 | 39 | 220 | 4,612 | 3,863 | ||||||
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(i) | Benefits in kind comprise benefits such as a fully expensed car, chauffeur, private medical insurance and life assurance. |
(ii) | The bonus of each of these Directors has been reduced by an amount equal to 7.5% of salary (10% of salary including matching awards under the Share Matching Plan) to reflect the UK power outages described elsewhere in this report. |
(iii) | Edward Astles expense allowances relate to cash received in lieu of car and fuel benefit entitlements. |
(iv) | Rick Sergels bonus includes payments in the US worth £14,643 in respect of his participation in the USA Goals Program (described on page 58). |
(v) | Nick Winser was appointed to the Board on 28 April 2003. Had he served on the Board for the whole of the year ended 31 March 2004, his salary and annual bonus would have been 12 / 11 of the reported figures. Nick was on assignment in the US when he was appointed to the Board. His benefits include expatriate benefits provided while he remained in the US, in line with the Groups standard expatriate assignment policy, and relocation benefits provided on his return to the UK. The expense allowances shown relate to relocation allowances paid to Nick on his repatriation back to the UK from the US and relocation in the UK. |
(vi) | John Wybrew retired on 30 November 2003. |
Year ended | ||||||||
31 March | ||||||||
Table 1B | Year ended 31 March 2004 | 2003 | ||||||
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Other | ||||||||
Fees | emoluments | Total | Total | |||||
£000s | £000s | £000s | £000s | |||||
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|
Non-executive Directors | ||||||||
Sir John Parker | 300 | 26 | (i) | 326 | 412 | |||
James Ross | 115 | | 115 | 175 (ii) | ||||
John Grant | 59 | | 59 | 38 | ||||
Ken Harvey | 44 | | 44 | 30 | ||||
Paul Joskow | 67 | | 67 | 50 | ||||
Stephen Pettit | 47 | | 47 | 25 | ||||
Maria Richter (iii) | 29 | | 29 | | ||||
George Rose | 59 | | 59 | 30 | ||||
Bonnie Hill (iv) | 19 | | 19 | 32 | ||||
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Total | 739 | 26 | 765 | 792 (ii) | ||||
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(i) | Sir John Parkers other emoluments comprise benefits in kind such as a fully expensed car and private medical insurance. |
(ii) | In the previous years Directors Remuneration Report, the reported emoluments for James Ross included Other emoluments of £22,000. This figure was overstated and should have been reported as £nil. The comparative figures provided above reflect the amended total for the year ended 31 March 2003. |
(iii) | Maria Richter was appointed to the Board on 1 October 2003. |
(iv) | Bonnie Hill resigned from the Board with effect from 21 July 2003. |
62 National Grid Transco _Annual Report and Accounts 2003/04
Directors Remuneration Report _ continued
2. Directors pensions
The table below gives details of the Executive
Directors pension benefits in accordance with both Schedule 7A of the Companies
Act and the Listing Rules.
Transfer value of | ||||||||||||||
increase in | ||||||||||||||
Additional | accrued benefit | |||||||||||||
benefit earned | in the year | |||||||||||||
in the year | ended | |||||||||||||
Additional benefit | Accrued | Transfer value of | ended | 31 March 2004 | ||||||||||
earned during | entitlement | accrued benefits | Increase in | 31 March 2004 | (excluding | |||||||||
the year ended | as at | as at 31 March (i) | transfer value | (excluding | Directors | |||||||||
31 March 2004 | 31 March 2004 |
|
|
|
less Directors | inflation) | contributions | |||||||
Pension | Pension | 2004 | 2003 | contributions | Pension | and inflation) | ||||||||
Table 2 | £000s | £000s | £000s | £000s | £000s | £000s | £000s | |||||||
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Roger Urwin | 33 | 403 | 7,353 | 6,291 | 1,024 | 22 | 367 | |||||||
Steve Lucas | 27 | 126 | 1,566 | 951 | 604 | 25 | 303 | |||||||
Edward Astle | 13 | 30 | 366 | 189 | 155 | 13 | 131 | |||||||
Steve Holliday | 16 | 38 | 404 | 214 | 169 | 15 | 141 | |||||||
Rick Sergel (ii) | 3 | 31 | 2,527 | 2,259 | 268 | 3 | 285 | |||||||
Nick Winser (iii) | 32 | 81 | 821 | 454 | 351 | 31 | 294 | |||||||
John Wybrew (iv) | 12 | 117 | 2,230 | 1,981 | 242 | 12 | 228 | |||||||
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(i) | The transfer values shown at 31 March 2003 and 2004 represent the value of each Executive Directors accrued benefits based on total service completed to the relevant date. The transfer values for the UK Executive Directors have been calculated in accordance with guidance note GN11 issued by the Institute of Actuaries and the Faculty of Actuaries. The transfer values for Rick Sergel have been calculated using discount rates based on high yield US corporate bonds and associated yields at the relevant dates. |
(ii) | Through his participation in the Thrift Plan in the US, described on page 60, the Group also made contributions worth £6,101 to a defined contribution pension arrangement in respect of Rick Sergel. |
(iii) | Nick Winser was appointed as an Executive Director with effect from 28 April 2003. The above information allows for the accrual of a pension benefit of two thirds of salary at age 60 taking into account standard benefits earned prior to 1 September 1998. This means that, as well as the pension stated above, Nick Winser has an accrued lump sum entitlement of £151,000 as at 31 March 2004. The increase to the accumulated lump sum including inflation was £53,000 in the year to 31 March 2004. The transfer value information above includes the value of the pension equivalent of the lump sum. |
(iv) | No enhancements were made to John Wybrews pension benefits in respect of his retirement being earlier than his normal retirement age of 65. Johns pension benefits are a combination of Inland Revenue approved benefits under the Lattice Group Pension Scheme and unfunded unapproved benefits provided separately. He has elected to draw his approved benefits as a pension and has taken the unapproved benefits as a taxable commutation lump sum, thereby absolving the Group of any future liability with regard to this part of his pension benefits. The transfer value as at 31 March 2004 for John, who retired on 30 November 2003, has been calculated as at the date of retirement but is based on market conditions as at 31 March 2004. The transfer value of accrued benefits shown above includes the commutation lump sum of £1,979,525 in respect of his and his dependants unfunded benefits above those to be provided from the Lattice Group Pension Scheme. |
3. Directors interests in share options
The table below gives details of the Executive
Directors holdings of share options awarded under the ESOP, the Share Matching
Plan and Sharesave schemes.
Options held | Options held | ||||||||||||
at 1 April 2003 | Options exercised | at 31 March 2004 | Exercise price | ||||||||||
or, if later, | or lapsed | Options granted | or, if earlier, | per share | |||||||||
Table 3 | on appointment | * | during the year | during the year | on retirement | | (pence) | Normal exercise period | |||||
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Roger Urwin | |||||||||||||
ESOP | 169,340 | | | 169,340 | 280.50 | Sep 2000 | Sep 2007 | ||||||
91,656 | | | 91,656 | 375.75 | June 2001 | June 2008 | |||||||
22,098 | | | 22,098 | 455.25 | June 2002 | June 2009 | |||||||
33,867 | | | 33,867 | 531.50 | June 2003 | June 2010 | |||||||
133,214 | | | 133,214 | 563.00 | June 2004 | June 2011 | |||||||
186,915 | | | 186,915 | 481.50 | June 2005 | June 2012 | |||||||
Share Match | 4,047 | | | 4,047 | 100 in total | June 2001 | June 2005 | ||||||
3,884 | | | 3,884 | 100 in total | Jan 2002 | June 2006 | |||||||
3,859 | | | 3,859 | 100 in total | Jan 2002 | June 2007 | |||||||
5,635 | | | 5,635 | 100 in total | June 2004 | June 2008 | |||||||
18,644 | | | 18,644 | 100 in total | June 2005 | June 2012 | |||||||
| | 25,000 | 25,000 | 100 in total | June 2006 | June 2013 | |||||||
Sharesave | 3,692 | (i) | 3,692 | 2,910 | (i) | 2,910 | 317.00 | Apr 2007 | Sep 2007 | ||||
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Total | 676,851 | 3,692 | 27,910 | 701,069 |
(i) | During the year, Roger Urwin elected to cancel his Sharesave option over 3,692 shares at an option price of 457p. He was granted a new Sharesave option over 2,910 shares. |
Edward Astle | |||||||||||||
ESOP | 193,952 | | | 193,952 | 479.50 | Sep 2004 | Sep 2011 | ||||||
101,246 | | | 101,246 | 481.50 | June 2005 | June 2012 | |||||||
112,262 | | | 112,262 | 434.25 | Dec 2005 | Dec 2012 | |||||||
| | 131,086 | (ii) | 131,086 | 400.50 | June 2006 | June 2013 | ||||||
Share Match | 6,553 | | | 6,553 | 100 in total | June 2005 | June 2012 | ||||||
| | 13,812 | 13,812 | 100 in total | June 2006 | June 2013 | |||||||
Sharesave | 2,392 | | | 2,392 | 397.00 | Sep 2005 | Feb 2006 | ||||||
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Total | 416,405 | | 144,898 | 561,303 |
(ii) | This grant of options satisfied an outstanding commitment to Edward Astle, as described in last years Directors Remuneration Report. |
Annual Report and Accounts 2003/04_ National Grid Transco 63
Directors Remuneration Report _ continued
3. Directors interests in share options continued
Options held | Options held | ||||||||||||
at 1 April 2003 | Options exercised | at 31 March 2004 | Exercise price | ||||||||||
or, if later, | or lapsed | Options granted | or, if earlier, | per share | |||||||||
on appointment | * | during the year | during the year | on retirement | | (pence) | Normal exercise period | ||||||
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Steve Lucas | |||||||||||||
ESOP | 54,404 | | | 54,404 | 434.25 | Dec 2005 | Dec 2012 | ||||||
Sharesave | 2,700 | | | 2,700 | 350.00 | Mar 2006 | Aug 2006 | ||||||
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Total | 57,104 | | | 57,104 | |||||||||
Steve Holliday | |||||||||||||
ESOP | 150,000 | | | 150,000 | 540.00 | Mar 2004 | Mar 2011 | ||||||
71,936 | | | 71,936 | 563.00 | June 2004 | June 2011 | |||||||
101,246 | | | 101,246 | 481.50 | June 2005 | June 2012 | |||||||
Share Match | 10,350 | | | 10,350 | 100 in total | June 2005 | June 2012 | ||||||
| | 14,083 | 14,083 | 100 in total | June 2006 | June 2013 | |||||||
Sharesave | 4,692 | | | 4,692 | 350.00 | Mar 2008 | Aug 2008 | ||||||
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Total | 338,224 | | 14,083 | 352,307 | |||||||||
Rick Sergel | |||||||||||||
ESOP | 201,845 | | | 201,845 | 566.50 | Mar 2003 | Mar 2010 | ||||||
134,321 | | | 134,321 | 563.00 | June 2004 | June 2011 | |||||||
172,836 | | | 172,836 | 481.50 | June 2005 | June 2012 | |||||||
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Total (shares) | 509,002 | | | 509,002 | |||||||||
Phantom shares (iii) | 4,347 | | | 4,347 | | June 2004 | |||||||
5,332 | | | 5,332 | | June 2005 | ||||||||
| | 5,938 | 5,938 | | June 2006 | ||||||||
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Total (phantom shares) | 9,679 | | 5,938 | 15,617 |
(iii) | In place of participation in the Share Matching Plan, Rick Sergel elected to defer the ADS component of his bonus into a deferred compensation plan. He was awarded 5,938 phantom ADSs in June 2003 (at a base price of $32.32), 5,332 phantom ADSs in June 2002 and 4,347 phantom ADSs in June 2001. The value of ADSs at 31 March 2004 was $40.22. For a phantom award under a deferred compensation plan the ADS market value is tracked, additional value is accrued for dividends and the value is delivered, net of normal US deductions, after retirement. In the previous years Directors Remuneration Report, the phantom ADS award made in 2001 was disclosed in error as being over 4,240 ADSs. |
64 National Grid Transco _Annual Report and Accounts 2003/04
Directors Remuneration Report _ continued
Executive Share Option Plan (ESOP)
Under the ESOP, awards of options were made
over shares worth up to 300% of Executive Directors salaries. An option
will normally be exercisable between the third and tenth anniversaries of its
date of grant, subject to performance conditions. The performance conditions
attaching to outstanding ESOP options are set out below. If the performance condition
is not satisfied after the first three years then it will be re-tested as indicated.
Options granted to Directors in June 1999 and March 2000 became exercisable in full during the financial year as a result of the satisfaction of the performance condition, based on fully diluted earnings per share (EPS) growth (subject to adjustment to exclude exceptional items and other significant non-recurring items as the Remuneration Committee may consider appropriate), applying to those options. This condition required the EPS growth of the Group to exceed the growth in the UK Retail Price Index by at least 3% per annum over a three-year period. This was achieved over the three financial years 2001/02 to 2003/04. As a result of the Merger, the performance condition was tested by using National Grid Group plc EPS for the financial years 2000/01 to 2002/03 and National Grid Transco plc EPS for the financial year 2003/04. The EPS for National Grid Group plc for the financial year 2002/03 were reconstructed as though the Merger had not taken place. EPS growth was selected as an appropriate performance metric as it is a market-recognised measure of underlying financial performance.
For options granted from June 2000, options worth up to 100% of an optionholders base salary will become exercisable in full if Total Shareholder Return (TSR), measured over the period of three years beginning with the financial year in which the option is granted, is at least median compared with a comparator group of companies (such comparator group being in compliance with the performance condition). Grants in excess of 100% of salary vest on a sliding scale, becoming fully exercisable if the Groups TSR is in the top quartile. The performance condition attaching to options granted in June 2000 is tested annually throughout the lifetime of the option. For options granted from March 2001, the same TSR test is used but the performance condition can only be re-tested in years four and five.
The comparator group was revised in June 2002 to reflect changes including consolidation in the marketplace, the acquisition of Niagara Mohawk and the proposed Merger. The revised comparator group was used for options granted in June and December 2002 and is set out below:
Allegheny Energy, Inc. | Energy East Corporation | NSTAR Corporation | Scottish Power plc |
BG Group plc | Exelon Corporation | Potomac Electric Power Company | The Southern Company, Inc. |
British Energy plc | FirstEnergy Corporation | Powergen plc | TXU, Inc. |
Centrica plc | FPL Group, Inc. | Progress Energy, Inc. | United Utilities plc |
Consolidated Edison, Inc. | International Power plc | Public Service Enterprise Group, Inc. | Xcel Energy, Inc. |
Duke Energy Corporation | Northeast Utilities Corporation | Scottish & Southern Energy plc |
Details of the 1999 Lattice Long Term Incentive Scheme (LTIS) awards rolled over into options over or awards of National Grid Transco shares are set out in table 5 below. Details of the closing price of National Grid Transco shares as at 31 March 2004 and the high and low prices during the year are shown below table 6.
4. Directors interests in the Performance
Share Plan
The table below gives details of the Executive
Directors holdings of conditional shares awarded under the National Grid
Transco Performance Share Plan (PSP).
Conditional | Conditional | ||||||||||||||
shares at | Market | Lapsed | shares at | ||||||||||||
1 April 2003 | price at | without | 31 March 2004 | ||||||||||||
or, if later, | Awarded | award | Date | Vested | vesting | or, if earlier, | Release | ||||||||
Table 4 | on appointment | * | in year | (i) | (pence) | of award | in year | in year | on retirement | | date | ||||
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Roger Urwin | 0 | 195,866 | 405.25 | June 2003 | 0 | 0 | 195,866 | June 2007 | |||||||
Edward Astle | 0 | 107,958 | 405.25 | June 2003 | 0 | 0 | 107,958 | June 2007 | |||||||
Steve Holliday | 0 | 115,669 | 405.25 | June 2003 | 0 | 0 | 115,669 | June 2007 | |||||||
Steve Lucas | 0 | 115,669 | 405.25 | June 2003 | 0 | 0 | 115,669 | June 2007 | |||||||
Rick Sergel | 0 | 152,063 | 405.25 | June 2003 | 0 | 0 | 152,063 | June 2007 | |||||||
Nick Winser | 0 | * | 92,535 | 405.25 | June 2003 | 0 | 0 | 92,535 | June 2007 | ||||||
John Wybrew | 0 | 114,127 | 405.25 | June 2003 | 0 | 0 | 114,127 | | June 2007 | ||||||
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(i) | The performance criterion for PSP awards in the year to 31 March 2004 is based on the Groups Total Shareholder Return (TSR) performance over a three-year period. Further details can be found on page 59. |
Annual Report and Accounts 2003/04_ National Grid Transco 65
Directors Remuneration Report _ continued
5. Directors interests under the Lattice
Long Term Incentive Scheme
The following table shows awards under the Lattice
Long Term Incentive Scheme (LTIS) that were rolled over at the time of the Merger
by John Wybrew and Steve Lucas and that were still held at 31 March 2003. The
market value of National Grid Transco shares on Merger (21 October 2002) was
459.625p.
Table 5 | Award held at | Shares resulting | Award | Market price | Award held | Date award | |||||||||
Original | 1 April 2003 | Exercise price | from dividend | exercised/ | at date of | at 31 March | released/option | ||||||||
award | including dividend | per share | reinvestment | lapsed | exercise | 2004 or on | becomes | ||||||||
date | reinvestment shares | (pence) | in year | during year | (pence) | retirement | exercisable | ||||||||
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John Wybrew | Oct 1999 | 116,179 | 100 in total | 2,980 | | | 119,159 | (i) | Oct 2003 | ||||||
Nov 2000 | 95,597 | n/a | | | | 95,597 | | Nov 2004 | |||||||
Nov 2001 | 112,687 | n/a | | | | 112,687 | | Nov 2005 | |||||||
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Total | 324,463 | 2,980 | | 327,443 | | ||||||||||
Steve Lucas | Oct 1999 | 31,728 | 100 in total | 813 | 32,541 | (ii) | 396.75 | 0 | Oct 2003 | ||||||
Nov 2000 | 79,902 | n/a | 1,590 | | | 81,492 | Nov 2004 | ||||||||
Nov 2001 | 96,589 | n/a | | | | 96,589 | Nov 2005 | ||||||||
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Total | 208,219 | 2,403 | 32,541 | 178,081 |
(i) | The options comprising John Wybrews rolled-over 1999 LTIS award became exercisable at the normal date prior to his retirement and were exercised subsequent to his leaving the Group. |
(ii) | The options comprising Steve Lucass rolled-over 1999 LTIS award became exercisable at the normal date and were exercised on 20 November 2003, realising a gain of £129,105. |
Lattice LTIS
Under
the terms of the Lattice LTIS, notional allocations of shares were made to
key individuals. The allocations were subject to a performance condition
over three
years as set out below and a further retention period of one year. The number
of shares actually released to participants depends on the Groups TSR
compared with that of other regulated utility companies operating in a similar
environment.
Pursuant to the Merger process, John Wybrew and Steve Lucas agreed to roll
over their existing LTIS awards, which were over Lattice Group shares, for
LTIS awards
or options over National Grid Transco shares.
For the roll-over of the 1999 LTIS award, John Wybrew and Steve Lucas were each granted a £1 option by the Trustee of the Lattice Group Employee Share Trust over the number of shares which would otherwise have been subject to their 1999 awards. From the date of roll-over, the arrangement was for the options to become exercisable on 1 October 2003, when the shares subject to the original 1999 awards would have been released to the holder of the LTIS interests.
The 2000 and 2001 LTIS awards held by John Wybrew and Steve Lucas continued over a number of National Grid Transco shares shown above and remain subject to the rules of the LTIS except that (i) since 21 October 2002, the performance target measures the Groups TSR against the original comparator group of each award; and (ii) the awards will not be forfeit on ceasing employment unless the Committee decides otherwise.
The comparator group for the 2000 and 2001 LTIS awards is set out below:
No awards will vest if the Groups TSR over the performance period, when compared with that of the other companies in the comparator group, falls below median. For TSR between that of the median and upper quartile of comparator group constituent companies the proportion of shares that vests is calculated on a straight-line basis between 40% and 100%, and for TSR performance at or above upper quartile the awards vest in full.
66 National Grid Transco _Annual Report and Accounts 2003/04
Directors Remuneration Report _ continued
6. Directors beneficial interests
The Directors beneficial interests (which include those of their families) in the ordinary shares of National Grid Transco of 10p each are shown below.
Table 6 | Options/awards over | Options/awards over | ||||||
Ordinary shares at | Ordinary shares at | ordinary shares at | ordinary shares at | |||||
31 March 2004 | (i) | 1 April 2003 | 31 March 2004 | 1 April 2003 | ||||
or, if earlier, | or, if later, | or, if earlier, | or, if later, | |||||
on resignation | on appointment* | on resignation | on appointment* | |||||
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Sir John Parker | 40,229 | 17,429 | | | ||||
James Ross | 19,000 | 19,000 | | | ||||
Roger Urwin (ii), (iii), (iv) | 231,292 | 159,518 | 896,935 | 676,851 | ||||
Edward Astle (ii), (iii) | 11,973 | 3,932 | 669,261 | 416,405 | ||||
John Grant | 10,000 | 10,000 | | | ||||
Ken Harvey | 1,874 | 1,874 | | | ||||
Bonnie Hill | 2,930 | | 2,930 | | | |||
Steve Holliday (ii), (iii), (iv) | 14,629 | 6,210 | 467,976 | 338,224 | ||||
Paul Joskow | 5,000 | 5,000 | | | ||||
Steve Lucas (iii), (v), (vi), (vii) | 42,961 | 23,789 | 350,854 | 265,323 | ||||
Stephen Pettit | 1,875 | 1,875 | | | ||||
Maria Richter | | * | | | ||||
George Rose | 5,025 | 5,025 | | | ||||
Rick Sergel (ii), (iii) | 3,058 | 2,928 | 661,065 | 509,002 | ||||
Nick Winser (ii), (iii) | 19,781 | 17,489 | * | 246,697 | 150,225 | * | ||
John Wybrew (iii), (v), (vi), (vii) | 62,344 | | 62,344 | 506,910 | | 389,803 | ||
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(i) | There has been no other change in the beneficial interests of the Directors in the ordinary shares of National Grid Transco between 1 April 2004 and 19 May 2004 except in respect of routine monthly purchases under the SIP (see note (iv) below). |
(ii) | Each of the Executive Directors of National Grid Transco, with the exception of Steve Lucas and Rick Sergel, was, for Companies Act 1985 purposes, deemed to be a potential beneficiary under the National Grid Qualifying Employee Share Ownership Trust (QUEST) and, with the sole exception of Steve Lucas, in the National Grid 1996 Employee Benefit Trust and thereby to have an interest in the 7,759,944 National Grid Transco shares held by the QUEST and the 131,862 National Grid Transco shares held by the 1996 Employee Benefit Trust as at 31 March 2004. |
(iii) | Including the PSP award detailed in Table 4 above. |
(iv) | Beneficial interest includes shares purchased under the monthly operation of the SIP in the year to 31 March 2004. Further shares were purchased in April and May on behalf of Steve Holliday (59 shares) and Roger Urwin (59 shares). |
(v) | The former Lattice Executive Director of National Grid Transco (Steve Lucas) was, for Companies Act 1985 purposes, deemed to be a potential beneficiary in the 395,402 National Grid Transco shares, held by Mourant and Co. Trustees as Trustee of the Lattice Group Employee Share Trust operated in conjunction with the Lattice LTIS, and the 17,647 National Grid Transco shares, held by Lattice Group Trustees Limited as Trustee of the Lattice Group Employee Share Ownership Trust, as at 31 March 2004. |
(vi) | Beneficial interest includes shares acquired pursuant to the Lattice All Employee Share Ownership Plan and the BG Group Employee Profit Sharing Scheme. |
(vii) | Including the Lattice LTIS awards detailed in Table 5 above. |
The closing price of a National Grid Transco share on 31 March 2004 was 430.00p. The range during the year was 438.00p (high) and 374.75p (low). Please note that the Register of Directors Interests contains full details of shareholdings and options/awards held by Directors as at 31 March 2004.
On behalf of the Board
Helen Mahy
Group Company Secretary and General Counsel
19 May 2004
Annual Report and Accounts 2003/04_ National Grid Transco 67
Directors Report and Operating and Financial Review
Directors Report
Incorporation
National Grid Transco plc is incorporated in England and Wales (No. 4031152) with its registered office at 1-3 Strand, London WC2N 5EH (telephone +44 (0)20 7004 3000). The Company was first incorporated on 11 July
2000.
Directors
Details of the Directors serving during the year and their interests in shares are on page 67.
Group activities
An
outline of the Groups businesses, their activities during the year and possible future developments are contained in the Chief Executives Review on pages 4 to 17 and on pages 21 to 51 of the
Directors Report and Operating and Financial Review.
Post balance sheet events
There have been no material post balance sheet events.
Dividends
An interim dividend of 7.91 pence per share (US$0.6690 per ADS) was paid on 21 January 2004.
The Directors are recommending a final dividend of 11.87 pence per share (US$1.0500 per ADS) be paid on 23 August 2004. The payment of the final dividend is subject to shareholder approval at the Annual General Meeting. This would bring the total dividend for 2003/04 to 19.78 pence per share (US$1.7190 per ADS).
Research and development
Expenditure
on research and development in 2003/04 was £10 million, compared with £18.2 million in 2002/03 and £16.0
million in 2001/02.
Share buy-back
National Grid Transco has authority from shareholders to repurchase up to 10% of its own shares. This authority was not used during 2003/04, nor in the period up to the publication of this report.
The Board intends to seek shareholder approval to renew this authority at the Annual General Meeting.
Companies are now permitted to hold repurchased shares as treasury shares rather than cancelling them.
The Board has no current intention to hold repurchased shares as treasury shares, other than as required for share schemes.
Political donations
The Group made no political donations in the UK or EU during the year (including donations as defined for the purposes of the Political Parties, Elections and Referendums Act 2000).
National Grid USAs political action committees, funded entirely by voluntary employee contributions, gave US$71,000 (£42,262) to US state and national political and campaign committees in 2003/04. As of the date of this report, our US businesses contibuted a total of US$50,000 (£29,762) in connection with the Democratic and Republican national conventions being held this summer in Massachusetts and New York. All of these contributions are in compliance with US state and Federal law.
Charitable donations
During
2003/04 charitable donations of £1,227,877 were made in the UK (£1,209,500
in 2002/03).
During 2003/04, charitable donations of approximately US$3,139,000 (£1,868,452) million were made in the US (approximately US$3.0 million (£1.9 million) in 2002/03).
Policy on payment of creditors
National Grid Transco is a signatory to the Better Payment Practice Code, details of which can be found at www.payontime.co.uk.
The average creditor payment period at 31 March 2004 for the Groups principal operations in the UK was 26 days.
Substantial shareholders
As at 19 May 2004, National Grid Transco had been notified of the following beneficial interests in 3% or more of its issued share capital:
% of | |
issued | |
share | |
capital | |
|
|
The Capital Group Companies, Inc. | 10.0 |
Legal and General Investment Management Ltd | 3.6 |
Barclays plc | 3.1 |
Franklin Resources, Inc. | 3.0 |
|
|
No further notifications have been received.
Employment policy
Information
on National Grid Transcos employee policies is included on pages 16 and 17 under the heading Our People.
Employee share ownership
The Group facilitates share ownership amongst its employees by the operation of both sharesave and share incentive plans in the UK.
In the US, employees are able to invest in the Group through employee incentive thrift plans.
Annual General Meeting
National
Grid Transcos Annual General Meeting will be held on Monday 26 July 2004.
Details are set out in a separate Notice of Annual General Meeting.
On behalf of the Board
Helen Mahy
Group Company Secretary and General Counsel
19 May 2004
National Grid Transco plc
Registered office:
1-3 Strand, London WC2N 5EH
Registered in England and Wales: No. 4031152
68 National Grid Transco _Annual Report and Accounts 2003/04
Statement of Directors Responsibilities for Preparing the Accounts
The Directors are required by the Companies Act 1985 to prepare accounts for each financial year which give a true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year and of the profit or loss of the Group for the financial year.
The Directors consider that in preparing the accounts (detailed in the following sections: Principal Accounting Policies, Accounts and Notes to the Accounts) the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates and all applicable accounting standards have been followed.
The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Company and of the Group and which enable them to ensure that the accounts comply with the Companies Act 1985. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and to detect fraud and other irregularities.
The Directors, having prepared the accounts, have requested the Auditors to take whatever steps and to undertake whatever inspections they consider to be appropriate for the purposes of enabling them to give their audit report.
The Directors confirm that the Audit Committee continues to review the adequacy of the system of internal financial controls adopted by the Group.
Annual Report and Accounts 2003/04_ National Grid Transco 69
Accounting Policies
a) Basis of preparation of accounts
The accounts are prepared under the historical
cost convention and in accordance with applicable UK accounting and financial
reporting standards.
The accounts have been prepared in accordance with UK GAAP, which differs in certain respects from US GAAP. A summary of the results under US GAAP is shown in note 31 to the accounts and an explanation of the main differences between UK and US GAAP is set out in note 32.
The preparation of accounts in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
The Group has adopted Urgent Issues Task Force (UITF) 38 Accounting for ESOP trusts during the year. The impact of the adoption is shown in note 1.
The Group is following the transitional arrangements of Financial Reporting Standard (FRS) 17 Retirement Benefits. The required disclosures are shown in note 7.
b) Basis of consolidation
The
Group accounts include the accounts of the Company and all its subsidiary
undertakings (Group undertakings),
together with the Groups share of the results and net assets of its associate
and joint ventures (associated undertakings), less any provision
for impairment. An associated undertaking is an entity in which the Group has
a participating interest and over which it exercises a significant influence.
The accounts of Group and associated undertakings used for consolidation are
generally made up to 31 March. However, where this has not been practical,
the
results of certain Group and associated undertakings have been based on their
accounts to 31 December.
The results of newly acquired Group and associated undertakings are included in the Group accounts from the date the Group acquires control or, in respect of associated undertakings, an equity interest which enables it to exercise a significant influence. The results of Group and associated undertakings are included in the Group accounts up to the date that control or the exercise of significant influence, as appropriate, is relinquished.
In translating into sterling the Groups share of the net assets and results of a joint venture operating in a hyper-inflationary economy for the years ended 31 March 2003 and 2004, adjustments have been made to reflect current price levels. Such adjustments have been reflected through the Group profit and loss account or statement of total recognised gains and losses as appropriate. The Groups share of the gain on net monetary liabilities has been credited to the Group profit and loss account through net interest, and where the effect is material is shown as part of the Groups exceptional financing costs (see note 4(c)).
The 21 October 2002 business combination of National Grid and Lattice met the merger accounting criteria under UK GAAP and the Companies Act 1985 and therefore the transaction was accounted for as a merger. The consolidated accounts have been prepared as if National Grid and Lattice had always comprised the Group. The combined accounts were adjusted for the issue on Merger of 1,323m shares with a nominal value of £132m and for the elimination of balances between the former groups.
c) Goodwill
Goodwill, representing the excess
of the fair value of the consideration given over the fair value of the identifiable
net assets acquired, is capitalised and amortised on a straight-line basis,
through the profit and loss account over its estimated useful economic life,
principally 20 years.
d) Foreign currencies
The
results of the Groups
overseas operations are generally translated into sterling at weighted average
rates of exchange for the period the overseas operations are included within
the Group accounts. In certain limited circumstances, where the use of a
weighted
average rate would distort material transactions, those transactions are separately
translated at the rates of exchange relevant to the dates on which the transactions
occurred.
Exchange differences arising on the translation of the opening net assets of overseas operations, the re-translation of the retained earnings of overseas operations from average to closing rates of exchange and the translation of foreign currency borrowings or derivatives taken to hedge overseas assets are taken directly to reserves. Tax charges or credits arising on such items are also taken directly to reserves.
Assets and liabilities in foreign currencies are generally translated at the rates of exchange ruling at the balance sheet date. In respect of certain assets or liabilities that are matched by an exact and directly related forward exchange derivative, the relevant asset or liability is translated at the rate of exchange under the related derivative.
All other exchange differences and related tax charges or credits are taken to the profit and loss account and disclosed separately where deemed exceptional.
e) Tangible fixed assets and depreciation
Tangible fixed assets are included in the balance sheet at their cost less accumulated depreciation. Cost includes payroll and finance costs incurred which are directly attributable to the construction of tangible fixed assets.
Tangible fixed assets include assets in which the Groups interest comprises legally protected statutory or contractual rights of use.
Depreciation periods for categories of tangible fixed assets
|
Years |
|
|
Plant and machinery | |
Electricity transmission plant | 15 to 60 |
Electricity distribution plant | 15 to 60 |
Interconnector plant | 15 to 60 |
Gas plant mains, services and regulating equipment | 30 to 65 |
Gas plant storage | 40 |
Gas plant meters | 10 to 33 |
Freehold and leasehold buildings | up to 65 |
Motor vehicles and office equipment | up to 10 |
|
72 National Grid Transco _Annual Report and Accounts 2003/04
Accounting Policies _continued
Additions represent the purchase or construction of new assets and extensions to or significant increases in the capacity of tangible fixed assets. Contributions received towards the cost of tangible fixed assets are included in creditors as deferred income and credited on a straight-line basis to the profit and loss account over the estimated economic lives of the assets.
No depreciation is provided on freehold land and assets in the course of construction. Other tangible fixed assets are depreciated, principally on a straight-line basis, at rates estimated to write off their book values over their estimated useful economic lives. In assessing estimated useful economic lives, which are reviewed on a regular basis, consideration is given to any contractual arrangements and operational requirements relating to particular assets. Unless otherwise determined by operational requirements, the depreciation periods for the principal categories of tangible fixed assets are, in general, as shown on the previous page.
During 2004, the Group modified some depreciation periods to more accurately reflect the economic lives of the assets. There has not been any significant change to the depreciation charged in the year as a result of the modification.
f) Impairment of fixed assets
Impairments of fixed assets are calculated as the difference between the carrying values of the net assets of income generating units, including, where appropriate, investments and goodwill, and their recoverable
amounts. Recoverable amount is defined as the higher of net realisable value or estimated value in use at the date the impairment review is undertaken. Net realisable value represents the net amount that can be generated through sale of the assets.
Value in use represents the present value of expected future cash flows discounted on a pre-tax basis, using the estimated cost of capital of the income generating unit.
Impairment reviews are carried out if there is some indication that an impairment may have occurred, or where otherwise required, to ensure that fixed assets are not carried above their estimated recoverable amounts.
Impairments are recognised in the profit and loss account, and where material are disclosed as exceptional.
g) Replacement expenditure
Replacement
expenditure represents the cost of planned maintenance of the UKs
gas mains and services assets by replacing or lining sections of pipe.
This expenditure
is principally undertaken to repair and to maintain the safety of the network
and is written off as incurred. Expenditure that enhances the performance
of the mains and services assets is treated as an addition to tangible
fixed assets.
h)
Deferred taxation and investment tax credits
Deferred taxation is provided in full on all material timing differences, with certain exceptions. No provision for deferred taxation is made for any timing differences on non-monetary assets arising from fair value
adjustments, except where there is a binding agreement to sell the assets concerned. However, no provision is made where it is more likely than not that any taxable gain will be rolled over into replacement assets.
Deferred tax assets are only recognised to the extent that they are considered recoverable.
Deferred tax balances have not been discounted.
Investment tax credits are amortised over the economic life of the asset giving rise to the credits.
i)
Stocks
Stocks are carried at cost less provision for deterioration and obsolescence.
j)
Regulatory
assets
The US Statement of Financial
Accounting Standards 71 Accounting for the Effects of Certain Types of Regulation (SFAS
71) establishes US GAAP for utilities whose regulators have the power to
approve and/or regulate rates that may be charged to customers. Provided
that through the regulatory process the utility is substantially assured
of recovering its allowable costs by the collection of revenue from its customers,
such costs not yet recovered are
deferred as regulatory assets. Due to the different regulatory environment, no
equivalent accounting standard applies in the UK.
Under UK GAAP, regulatory assets established in accordance with the principles of SFAS 71 are recognised in debtors where they comprise rights or other access to future economic benefits which arise as a result of past transactions or events which have created an obligation to transfer economic benefit to a third party. Measurement of the past transaction or event and hence of the regulatory asset is determined in accordance with UK GAAP.
k)
Decommissioning and environmental costs
Decommissioning and environmental costs, based on discounted future estimated expenditures, are provided for in full and where appropriate a corresponding tangible fixed asset or regulatory asset is also recognised.
The unwinding of the discount is included within the profit and loss account as a financing charge net of the unwinding of the discount on any related regulatory asset.
l)
Turnover
Turnover primarily represents the amounts derived from the supply, transmission and distribution of energy and the provision of related services, including the recovery of stranded costs. Turnover includes an
assessment of energy and transportation services supplied to customers between the date of the last meter reading and the year end, excludes inter-business and inter-company transactions, and is stated net of value added tax and similar sales-based
taxes. Where revenues received or receivable exceed the maximum amount permitted by regulatory agreement and adjustments will be made to future prices to reflect this over-recovery, no liability is recognised.
m)
Pensions and other post-retirement benefits
The cost of providing pensions and other post-retirement benefits is charged to the profit and loss account on a systematic basis over the service lives of the employees in the schemes. Variations from the regular
pension cost are allocated over the estimated average remaining service lives of current employees, with the interest component of any variation being reflected in net interest and the other component reflected through staff costs.
n)
Leases
Operating lease payments are charged to the profit and loss account on a straight-line basis over the term of the lease.
Annual Report and Accounts 2003/04_ National Grid Transco 72
Accounting Policies _continued
o) Financial instruments
All transactions are undertaken with a view to, or maintained to, provide a commercial hedge of the interest, currency or commodity price risks associated with the Groups underlying business activities and the financing of those activities. Amounts payable or receivable in respect of interest rate swaps are recognised in the profit and loss account over the economic lives of the agreements or underlying position being hedged, either within net interest or disclosed separately where deemed exceptional.
Termination payments made or received in respect of derivatives are spread over the shorter of the life of the original instrument or the life of the underlying exposure in cases where the underlying exposure continues to exist. Where the underlying exposure ceases to exist, any termination payments are taken to the profit and loss account.
Those derivatives, relating both to interest rates and/or currency exchange, that are directly associated with a specific transaction and exactly match the underlying cash flows relating to the transaction are accounted for on the basis of the combined economic result of the transaction including the related derivative.
All other currency swaps and forward currency agreements are translated at the rate of exchange prevailing at the balance sheet date with the corresponding exchange adjustment being dealt with in reserves or the profit and loss account as appropriate.
Liabilities recognised in respect of index-linked swap contracts relating to the purchase of energy are measured on the basis of their estimated market value. In addition, a corresponding movement in the value of a related regulatory asset is also recognised.
p) Restructuring costs73 National Grid Transco _Annual Report and Accounts 2003/04
Group Profit and Loss Account for the years ended 31 March
2004 | 2003 | 2002 | ||||||||
Notes | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
Turnover, including share of joint ventures | 9,104 | 9,566 | 7,821 | |||||||
Less: share of joint ventures turnover continuing operations | (71 | ) | (99 | ) | (141 | ) | ||||
Less: share of joint ventures turnover discontinued operations | | (67 | ) | (126 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
Group turnover continuing operations | 8,875 | 8,833 | 7,078 | |||||||
Group turnover discontinued operations | 158 | 567 | 476 | |||||||
Group turnover | 2 | (a) | 9,033 | 9,400 | 7,554 | |||||
Operating costs | 3 | (7,178 | ) | (7,788 | ) | (6,494 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
Operating profit of Group undertakings continuing operations | 2 | (b) | 1,855 | 1,806 | 1,558 | |||||
Operating loss of Group undertakings discontinued operations | 2 | (b) | | (194 | ) | (498 | ) | |||
1,855 | 1,612 | 1,060 | ||||||||
Share of joint ventures operating profit/(loss) continuing operations | 2 | (b) | 7 | 15 | (29 | ) | ||||
Share of joint ventures and associates operating profit/(loss) discontinued operations | 2 | (b) | | 109 | (672 | ) | ||||
7 | 124 | (701 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
Operating profit | ||||||||||
Before exceptional items and goodwill amortisation | 2 | (b) | 2,238 | 2,185 | 1,783 | |||||
Exceptional items continuing operations | 4 | (a) | (277 | ) | (308 | ) | (285 | ) | ||
Exceptional items discontinued operations | 4 | (a) | | (39 | ) | (1,042 | ) | |||
Goodwill amortisation | (99 | ) | (102 | ) | (97 | ) | ||||
Total operating profit | 2 | (b) | 1,862 | 1,736 | 359 | |||||
Gain on assets held for exchange discontinued operations | 4 | (b) | 226 | | | |||||
Profit on disposal of tangible fixed assets continuing operations | 4 | (b) | 96 | 48 | 94 | |||||
Loss on sale or termination of operations discontinued operations | 4 | (b) | | (68 | ) | | ||||
Merger costs continuing operations | 4 | (b) | | (79 | ) | | ||||
Gain on sale of shares by employee share plan continuing operations | 4 | (b) | | | 31 | |||||
Profit on disposal of investments discontinued operations | 4 | (b) | | | 31 | |||||
Net interest | ||||||||||
Excluding exceptional items | 8 | (822 | ) | (939 | ) | (657 | ) | |||
Exceptional items | 4 | (c),8 | | (31 | ) | (142 | ) | |||
Total interest | 8 | (822 | ) | (970 | ) | (799 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) on ordinary activities before taxation | 1,362 | 667 | (284 | ) | ||||||
Taxation | ||||||||||
Excluding exceptional items | 9 | (350 | ) | (373 | ) | (251 | ) | |||
Exceptional items | 4 | (d),9 | 89 | 128 | 166 | |||||
Total taxation | 9 | (261 | ) | (245 | ) | (85 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) on ordinary activities after taxation | 1,101 | 422 | (369 | ) | ||||||
Minority interests | ||||||||||
Excluding exceptional items | (2 | ) | (3 | ) | (2 | ) | ||||
Exceptional items | 4 | (e) | | (28 | ) | 50 | ||||
Total minority interests | (2 | ) | (31 | ) | 48 | |||||
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year | ||||||||||
Before exceptional items and goodwill amortisation | 1,064 | 870 | 873 | |||||||
Exceptional items operating | 4 | (a) | (277 | ) | (347 | ) | (1,327 | ) | ||
Exceptional items non-operating | 4 | (b) | 322 | (99 | ) | 156 | ||||
Exceptional items financing | 4 | (c) | | (31 | ) | (142 | ) | |||
Exceptional items taxation | 4 | (d) | 89 | 128 | 166 | |||||
Exceptional items minority interests | 4 | (e) | | (28 | ) | 50 | ||||
Goodwill amortisation | (99 | ) | (102 | ) | (97 | ) | ||||
Profit/(loss) for the year | 1,099 | 391 | (321 | ) | ||||||
Dividends | 10 | (609 | ) | (530 | ) | (580 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) transferred to/(from) profit and loss account reserve | 24 | 490 | (139 | ) | (901 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per ordinary share | ||||||||||
Basic, including exceptional items and goodwill amortisation | 11 | 35.8 | p | 12.7 | p | (11.3 | )p | |||
Adjusted basic, excluding exceptional items and goodwill amortisation | 11 | 34.7 | p | 28.3 | p | 30.8 | p | |||
Diluted, including exceptional items and goodwill amortisation | 11 | 35.7 | p | 12.8 | p | (10.1 | )p | |||
Adjusted diluted, excluding exceptional items and goodwill amortisation | 11 | 34.6 | p | 27.9 | p | 30.2 | p | |||
|
|
|
|
|
|
|
|
|
|
The notes on pages 77 to 128 form part of the Accounts.
Annual Report and Accounts 2003/04_ National Grid Transco 74
Balance Sheets at 31 March
Group
|
Company
|
||||||||||||
2004
|
2003
|
2004
|
2003
|
||||||||||
(restated)
|
|||||||||||||
Notes
|
£m
|
£m
|
£m
|
£m
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets | |||||||||||||
Intangible assets |
12
|
1,537 | 1,893 | | | ||||||||
Tangible assets |
13
|
16,706 | 16,847 | | | ||||||||
Investments in joint ventures | |||||||||||||
Share of gross assets | 395 | 542 | | | |||||||||
Share of gross liabilities | (376 | ) | (498 | ) | | | |||||||
Share of net assets | 19 | 44 | | | |||||||||
Other investments | 132 | 170 | 2,225 | 2,225 | |||||||||
Total investments |
14
|
151 | 214 | 2,225 | 2,225 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,394 | 18,954 | 2,225 | 2,225 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | |||||||||||||
Stocks |
15
|
91 | 126 | | | ||||||||
Debtors (amounts falling due within one year) |
16
|
1,588 | 1,811 | 3,884 | 2,664 | ||||||||
Debtors (amounts falling due after more than one year) |
16
|
2,708 | 3,395 | | | ||||||||
Assets held for exchange |
17
|
| 17 | | | ||||||||
Current asset investments | 520 | 482 | 6 | 123 | |||||||||
Cash at bank and in hand | 96 | 119 | | 1 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,003 | 5,950 | 3,890 | 2,788 | ||||||||||
Creditors (amounts falling due within one year) | |||||||||||||
Borrowings | (1,706 | ) | (2,246 | ) | (388 | ) | (557 | ) | |||||
Other creditors | (2,807 | ) | (2,800 | ) | (2,056 | ) | (1,764 | ) | |||||
18
|
(4,513 | ) | (5,046 | ) | (2,444 | ) | (2,321 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets | 490 | 904 | 1,446 | 467 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities | 18,884 | 19,858 | 3,671 | 2,692 | |||||||||
Creditors (amounts falling due after more than one year)
|
|||||||||||||
Convertible bonds | | (502 | ) | | | ||||||||
Other borrowings | (11,542 | ) | (11,731 | ) | (746 | ) | | ||||||
Other creditors | (1,922 | ) | (2,022 | ) | (13 | ) | | ||||||
19
|
(13,464 | ) | (14,255 | ) | (759 | ) | | ||||||
Provisions for liabilities and charges |
22
|
(4,157 | ) | (4,406 | ) | | | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets employed | 1,263 | 1,197 | 2,912 | 2,692 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves | |||||||||||||
Called up share capital |
23
|
309 | 308 | 309 | 308 | ||||||||
Share premium account |
24
|
1,280 | 1,247 | 1,280 | 1,247 | ||||||||
Other reserves |
24
|
(5,131 | ) | (5,131 | ) | 2 | 2 | ||||||
Profit and loss account |
24
|
4,755 | 4,689 | 1,321 | 1,135 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders funds | 1,213 | 1,113 | 2,912 | 2,692 | |||||||||
Minority interests | |||||||||||||
Equity | 12 | 15 | | | |||||||||
Non-equity |
25
|
38 | 69 | | | ||||||||
50 | 84 | | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,263 | 1,197 | 2,912 | 2,692 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies are shown in note 29.
The notes on pages 77 to 128 inclusive form part of the accounts which were approved by the Board of Directors on 19 May 2004 and were signed on its behalf by:
Sir John Parker Chairman
Steve Lucas Group Finance Director
75 National Grid Transco _Annual Report and Accounts 2003/04
Group Cash Flow Statement for the years ended 31 March
2004 | 2003 | 2002 | ||||||||
Notes | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities before exceptional items | 27 | (a) | 3,058 | 3,154 | 2,394 | |||||
Expenditure relating to exceptional items | (248 | ) | (328 | ) | (103 | ) | ||||
Net cash inflow from operating activities | 2,810 | 2,826 | 2,291 | |||||||
Dividends from joint ventures | 8 | 11 | 13 | |||||||
Returns on investments and servicing of finance | ||||||||||
Interest received and similar income | 137 | 56 | 88 | |||||||
Interest paid and similar charges | (823 | ) | (957 | ) | (784 | ) | ||||
Dividends paid to minority interests | (6 | ) | (11 | ) | (9 | ) | ||||
Net cash outflow for returns on investments and servicing of finance | (692 | ) | (912 | ) | (705 | ) | ||||
Taxation | ||||||||||
Net corporate tax paid | (18 | ) | (112 | ) | (212 | ) | ||||
Capital expenditure and financial investment | ||||||||||
Net payments to acquire intangible and tangible fixed assets | (1,400 | ) | (1,518 | ) | (1,734 | ) | ||||
Receipts from disposals of tangible fixed assets | 146 | 111 | 191 | |||||||
Receipts from disposals of shares by an employee share plan | | | 50 | |||||||
Other | | | 10 | |||||||
Net cash outflow for capital expenditure and financial investment | (1,254 | ) | (1,407 | ) | (1,483 | ) | ||||
Acquisitions and disposals | ||||||||||
Payments to acquire investments | (26 | ) | (165 | ) | (56 | ) | ||||
Receipts from disposals of investments | 27 | (b) | 33 | 328 | 37 | |||||
Acquisition of Group undertaking | 27 | (c) | | | (950 | ) | ||||
Net cash inflow/(outflow) for acquisitions and disposals
|
7 | 163 | (969 | ) | ||||||
Equity dividends paid | (560 | ) | (571 | ) | (478 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before the management of liquid resources and financing
|
301 | (2 | ) | (1,543 | ) | |||||
Management of liquid resources | ||||||||||
(Increase)/decrease in short-term deposits | (48 | ) | (138 | ) | 347 | |||||
Net cash (outflow)/inflow from the management of liquid resources
|
27 | (d),(e) | (48 | ) | (138 | ) | 347 | |||
Financing | ||||||||||
Issue of ordinary shares | 38 | 4 | 12 | |||||||
Payments to repurchase ordinary shares | | (97 | ) | | ||||||
Termination of cross currency swaps | 27 | (d) | 148 | | | |||||
(Decrease)/increase in borrowings | 27 | (d),(e) | (426 | ) | 267 | 1,206 | ||||
Net cash (outflow)/inflow from financing | (240 | ) | 174 | 1,218 | ||||||
|
|
|
|
|
|
|
|
|
|
|
Movement in cash and overdrafts | 27 | (d),(e) | 13 | 34 | 22 | |||||
|
|
|
|
|
|
|
|
|
|
|
Included in the cash flows above are cash flows for discontinued operations as set out below: | ||||||||||
2004 | 2003 | 2002 | ||||||||
£m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) from operating activities | 5 | (70 | ) | 53 | ||||||
Net cash outflow for returns on investments and servicing of finance | (2 | ) | (14 | ) | (3 | ) | ||||
Net cash (outflow)/inflow for taxation | | (1 | ) | 13 | ||||||
Net cash outflow for capital expenditure and financial investment | (1 | ) | (123 | ) | (344 | ) | ||||
Net cash outflow for acquisitions and disposals | | (3 | ) | (12 | ) | |||||
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Net cash inflow/(outflow) before the management of liquid resources and financing
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2 | (211 | ) | (293 | ) | |||||
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Liquid resources comprise money market deposits, equities and gilts.
Group Statement of Total Recognised Gains and Losses for the years ended 31 March
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
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Profit/(loss) for the year | 1,099 | 391 | (321 | ) | ||
Exchange adjustments | (417 | ) | (322 | ) | (58 | ) |
Tax on exchange adjustments | (12 | ) | 12 | 21 | ||
Reduction in revaluation reserve on reclassification of investment properties
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| | (50 | ) | ||
Unrealised gain on transfer of fixed assets to a joint venture (net of tax)
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| 6 | 7 | |||
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Total recognised gains and losses | 670 | 87 | (401 | ) | ||
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The notes on pages 77 to 128 form part of the Accounts.
Annual Report and Accounts 2003/04_ National Grid Transco 76
Notes to the Accounts
1. Adoption of UITF 38Segmental information is presented in accordance with the management responsibilities and economic characteristics of the Groups business activities. Management responsibilities changed during the year ended 31 March 2004. Segmental reporting has been aligned to reflect the changes in responsibilities, resulting in a restatement of segmental results for the years ended 31 March 2003 and 31 March 2002. The principal effect of this is to reclassify the results of the UK Interconnectors and LNG Storage businesses from UK electricity and gas transmission to Other activities.
The US electricity distribution segment shown below includes the recovery of stranded costs.
Continuing operations Other activities primarily relates to: gas metering activities; liquefied natural gas storage activities; the UK electricity interconnector business; Advantica the energy technology and systems solutions business; and Gridcom which provides telecommunications infrastructure to operators in the UK and the US.
Discontinued operations comprise activities formerly within Other activities. Discontinued operations primarily include EnMO for all years presented, The Leasing Group and 186k Limited for 2003 and 2002 in Group undertakings, and telecom joint ventures and an associate in 2003 and 2002.
In the 2002 segmental analysis of turnover and operating profit, the repayment of £267m of surplus entry capacity auction revenue, that was rebated to shippers through distribution tariffs, has been reported within the UK electricity and gas transmission segment.
a) Turnover
Sales | Sales | Sales | Sales | Sales | Sales | |||||||||||||
Total | between | to third | Total | between | to third | Total | between | to third | ||||||||||
sales | businesses | parties | sales | businesses | parties | sales | businesses | parties | ||||||||||
2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | ||||||||||
(restated) | (restated) | (restated) | (restated) | (restated) | (restated) | |||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||
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Turnover, including share of joint ventures | ||||||||||||||||||
continuing operations | 9,408 | 462 | 8,946 | 9,302 | 370 | 8,932 | 7,509 | 290 | 7,219 | |||||||||
discontinued operations | 158 | | 158 | 653 | 19 | 634 | 639 | 37 | 602 | |||||||||
Less: share of joint ventures turnover | ||||||||||||||||||
continuing operations | (71 | ) | | (71 | ) | (99 | ) | | (99 | )) | (141 | ) | | (141 | ) | |||
discontinued operations | | | | (67 | ) | | (67 | ) | (126 | ) | | (126 | ) | |||||
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Group turnover | 9,495 | 462 | 9,033 | 9,789 | 389 | 9,400 | 7,881 | 327 | 7,554 | |||||||||
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Continuing operations | ||||||||||||||||||
UK gas distribution | 2,245 | 120 | 2,125 | 2,089 | 47 | 2,042 | 2,013 | | 2,013 | |||||||||
UK electricity and gas transmission | 1,867 | 35 | 1,832 | 1,893 | 29 | 1,864 | 1,799 | 45 | 1,754 | |||||||||
US electricity transmission | 318 | 48 | 270 | 407 | 5 | 402 | 278 | 1 | 277 | |||||||||
US electricity distribution | 3,537 | 1 | 3,536 | 3,446 | 1 | 3,445 | 2,282 | 5 | 2,277 | |||||||||
US gas distribution | 464 | | 464 | 446 | | 446 | 104 | | 104 | |||||||||
Other activities | 906 | 258 | 648 | 922 | 288 | 634 | 892 | 239 | 653 | |||||||||
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9,337 | 462 | 8,875 | 9,203 | 370 | 8,833 | 7,368 | 290 | 7,078 | ||||||||||
Discontinued operations | 158 | | 158 | 586 | 19 | 567 | 513 | 37 | 476 | |||||||||
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Group turnover | 9,495 | 462 | 9,033 | 9,789 | 389 | 9,400 | 7,881 | 327 | 7,554 | |||||||||
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UK | 4,736 | 5,096 | 4,865 | |||||||||||||||
US | 4,297 | 4,304 | 2,689 | |||||||||||||||
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9,033 | 9,400 | 7,554 | ||||||||||||||||
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The analysis of turnover by geographical area is on the basis of origin. Turnover on a destination basis would not be materially different. There is no turnover between the UK and US geographical areas.
Approximately 15% (2003: 16%) of the Groups turnover for the year ended 31 March 2004 amounting to approximately £1.4bn (2003: £1.5bn) derives from a single customer, the Centrica Group. The majority of this turnover is in the UK gas distribution segment with lesser amounts in other activities and the UK electricity and gas transmission segment.
77 National Grid Transco_ Annual Report and Accounts 2003/04
Notes to the Accounts _continued
2. Segmental analysis
(continued)
b) Operating
profit
Operating profit | |||||||||||||
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Before exceptional items | After exceptional items | ||||||||||||
and goodwill amortisation | and goodwill amortisation | ||||||||||||
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|||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||
(restated) | (restated) | (restated) | (restated) | ||||||||||
£m | £m | £m | £m | £m | £m | ||||||||
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Group undertakings continuing operations | |||||||||||||
UK gas distribution | 729 | 554 | 548 | 640 | 443 | 504 | |||||||
UK electricity and gas transmission | 769 | 820 | 756 | 755 | 774 | 713 | |||||||
US electricity transmission | 133 | 128 | 87 | 105 | 103 | 64 | |||||||
US electricity distribution | 449 | 513 | 266 | 294 | 413 | 149 | |||||||
US gas distribution | 48 | 58 | 17 | 37 | 49 | 8 | |||||||
Other activities | 103 | 143 | 206 | 24 | 24 | 120 | |||||||
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2,231 | 2,216 | 1,880 | 1,855 | 1,806 | 1,558 | ||||||||
Group undertakings discontinued operations | | (26 | ) | (62 | ) | | (194 | ) | (498 | ) | |||
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Operating profit of Group undertakings | 2,231 | 2,190 | 1,818 | 1,855 | 1,612 | 1,060 | |||||||
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Joint ventures and associate continuing operations | |||||||||||||
Electricity activities | 7 | 15 | 36 | 7 | 15 | 36 | |||||||
Other activities | | | (17 | ) | | | (65 | ) | |||||
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7 | 15 | 19 | 7 | 15 | (29 | ) | |||||||
Joint ventures and associate discontinued operations | | (20 | ) | (54 | ) | | 109 | (672 | ) | ||||
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Operating profit/(loss) of joint ventures and associate | 7 | (5 | ) | (35 | ) | 7 | 124 | (701 | ) | ||||
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Total operating profit | 2,238 | 2,185 | 1,783 | 1,862 | 1,736 | 359 | |||||||
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UK | 1,600 | 1,481 | 1,420 | 1,440 | 1,051 | 440 | |||||||
US | 632 | 704 | 377 | 416 | 549 | 224 | |||||||
Latin America | | (7 | ) | (19 | ) | | 128 | (310 | ) | ||||
Rest of the World | 6 | 7 | 5 | 6 | 8 | 5 | |||||||
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2,238 | 2,185 | 1,783 | 1,862 | 1,736 | 359 | ||||||||
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c) Total and net assets
Total assets | Net assets | ||||||||
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|||
2004 | 2003 | 2004 | 2003 | ||||||
(restated) | (restated) | ||||||||
£m | £m | £m | £m | ||||||
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Group undertakings continuing operations | |||||||||
UK gas distribution | 4,928 | 4,998 | 3,403 | 3,480 | |||||
UK electricity and gas transmission | 6,284 | 5,737 | 5,472 | 4,994 | |||||
US electricity transmission | 1,539 | 1,736 | 1,465 | 1,656 | |||||
US electricity distribution | 7,200 | 8,507 | 5,548 | 6,405 | |||||
US gas distribution | 821 | 930 | 734 | 778 | |||||
Other activities | 1,890 | 2,189 | 940 | 1,359 | |||||
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|
|
22,662 | 24,097 | 17,562 | 18,672 | ||||||
Group undertakings discontinued operations | | 109 | (7 | ) | (2 | ) | |||
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Group undertakings | 22,662 | 24,206 | 17,555 | 18,670 | |||||
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Joint ventures continuing operations | |||||||||
Electricity activities | 19 | 42 | 19 | 42 | |||||
Other activities | | 2 | | 2 | |||||
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Joint ventures | 19 | 44 | 19 | 44 | |||||
Unallocated | 716 | 654 | (16,311 | ) | (17,517 | ) | |||
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|
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23,397 | 24,904 | 1,263 | 1,197 | ||||||
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UK | 12,846 | 12,974 | 9,565 | 9,774 | |||||
US | 9,679 | 11,209 | 7,854 | 8,873 | |||||
Rest of the World | 156 | 67 | 155 | 67 | |||||
Unallocated | 716 | 654 | (16,311 | ) | (17,517 | ) | |||
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23,397 | 24,904 | 1,263 | 1,197 | ||||||
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The analysis of total assets and net assets by business segment includes all attributable goodwill and excludes inter-business balances. Unallocated total assets include current asset investments, cash, taxation and taxation related regulatory assets. Unallocated net liabilities include net borrowings, taxation, interest, dividends and taxation related regulatory assets.
Annual Report and Accounts 2003/04_ National Grid Transco 78
Notes to the Accounts _continued
2.
Segmental
analysis
(continued)
d) Other
segmental information
Capital expenditure | Depreciation and amortisation | ||||||||||||
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|
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|
|
|||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||
(restated) | (restated) | (restated) | (restated) | ||||||||||
£m | £m | £m | £m | £m | £m | ||||||||
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Group undertakings continuing operations | |||||||||||||
UK gas distribution | 293 | 380 | 455 | 195 | 185 | 176 | |||||||
UK electricity and gas transmission | 584 | 567 | 613 | 276 | 243 | 233 | |||||||
US electricity transmission | 53 | 49 | 38 | 67 | 71 | 46 | |||||||
US electricity distribution | 227 | 209 | 141 | 365 | 359 | 192 | |||||||
US gas distribution | 50 | 40 | 3 | 32 | 34 | 6 | |||||||
Other activities | 274 | 180 | 204 | 182 | 170 | 173 | |||||||
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1,481 | 1,425 | 1,454 | 1,117 | 1,062 | 826 | ||||||||
Group undertakings discontinued operations | | 95 | 393 | | 26 | 50 | |||||||
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Group undertakings | 1,481 | 1,520 | 1,847 | 1,117 | 1,088 | 876 | |||||||
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UK | 1,071 | 1,172 | 1,638 | 644 | 613 | 619 | |||||||
US | 332 | 298 | 203 | 473 | 475 | 257 | |||||||
Rest of the World | 78 | 50 | 6 | | | | |||||||
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1,481 | 1,520 | 1,847 | 1,117 | 1,088 | 876 | ||||||||
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Capital expenditure comprises additions to tangible and intangible fixed assets (excluding goodwill) amounting to £1,479m (2003: £1,519m; 2002: £1,840m) and £2m (2003: £1m; 2002: £7m) respectively.
Depreciation and amortisation includes depreciation of tangible fixed assets, amortisation of intangible fixed assets and amortisation of regulatory assets.
3. Operating costs
Continuing operations | Discontinued operations | Total | |||||||||||||||||
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||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||
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Total operating costs | 7,020 | 7,027 | 5,521 | 158 | 780 | 1,011 | 7,178 | 7,807 | 6,532 | ||||||||||
Charged from: | |||||||||||||||||||
continuing operations | | | | | | (1 | ) | | | (1 | ) | ||||||||
discontinued operations | | (19 | ) | (37 | ) | | | | | (19 | ) | (37 | ) | ||||||
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External operating costs | 7,020 | 7,008 | 5,484 | 158 | 780 | 1,010 | 7,178 | 7,788 | 6,494 | ||||||||||
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Depreciation | 866 | 825 | 700 | | 26 | 50 | 866 | 851 | 750 | ||||||||||
Payroll costs (note 5(a)) | 1,020 | 1,093 | 907 | | 14 | 39 | 1,020 | 1,107 | 946 | ||||||||||
Other operating charges: | |||||||||||||||||||
Purchases of electricity | 1,998 | 1,901 | 1,410 | | | | 1,998 | 1,901 | 1,410 | ||||||||||
Purchases of gas | 371 | 357 | 171 | | | | 371 | 357 | 171 | ||||||||||
Rates and property taxes | 516 | 537 | 422 | | | 2 | 516 | 537 | 424 | ||||||||||
Electricity transmission services scheme | |||||||||||||||||||
direct costs | 277 | 252 | 204 | | | | 277 | 252 | 204 | ||||||||||
EnMO direct costs | | | | 158 | 530 | 395 | 158 | 530 | 395 | ||||||||||
Replacement expenditure | 388 | 405 | 368 | | | | 388 | 405 | 368 | ||||||||||
Exceptional operating items (note 4) | 277 | 308 | 237 | | 168 | 436 | 277 | 476 | 673 | ||||||||||
Other non-exceptional operating charges | 1,307 | 1,330 | 1,065 | | 42 | 88 | 1,307 | 1,372 | 1,153 | ||||||||||
5,134 | 5,090 | 3,877 | 158 | 740 | 921 | 5,292 | 5,830 | 4,798 | |||||||||||
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7,020 | 7,008 | 5,484 | 158 | 780 | 1,010 | 7,178 | 7,788 | 6,494 | |||||||||||
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Operating costs (except where otherwise noted) include: | |||||||||||||||||||
Research and development costs | 10 | 18 | 16 | ||||||||||||||||
Operating lease rentals | |||||||||||||||||||
Plant and machinery | 27 | 16 | 8 | ||||||||||||||||
Other | 45 | 52 | 22 | ||||||||||||||||
Amortisation of intangible fixed assets (i) | 101 | 105 | 91 | ||||||||||||||||
Amortisation of regulatory assets | 150 | 132 | 35 | ||||||||||||||||
Auditors remuneration (ii) | |||||||||||||||||||
Statutory audit services | |||||||||||||||||||
Annual audit (audit fee for the Company was £8,700 (2003: £8,500; 2002: £8,000)) | 4 | 3 | 4 | ||||||||||||||||
Regulatory reporting | 1 | 1 | 1 | ||||||||||||||||
Further audit related services (iii) | 2 | 3 | 2 | ||||||||||||||||
Tax compliance and advisory services | 1 | 3 | 1 | ||||||||||||||||
Other non-audit services (iv) | 2 | 3 | 6 | ||||||||||||||||
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(i) | Includes the amortisation of goodwill amounting to £99m (2003: £102m; 2002: £85m) and negative goodwill of £nil (2003: £4m; 2002: £nil) but excludes the amortisation of goodwill of £nil (2003: £nil; 2002: £12m) related to joint ventures and associate. |
(ii) | In addition to the fees included above, fees of £nil (2003: £nil; 2002: £2m) incurred in respect of acquisitions have been capitalised. |
(iii) | £1.5m of assurance services were provided in respect of the separation of UK-based distribution networks. Also included are £nil (2003: £2m) of fees related to the Merger which were reflected within non-operating exceptional items. |
(iv) | Other non-audit services, in the current year, related to vendor due diligence work associated with the potential gas distribution network sales. For the years ended 31 March 2003 and 2002, other non-audit services included £2m and £6m respectively in relation to services provided by the consulting business unit of PricewaterhouseCoopers which was sold to IBM United Kingdom Limited on 30 September 2002. |
79 National Grid Transco_ Annual Report and Accounts 2003/04
Notes to the Accounts _continued
4.
Exceptional
items
The Group has categorised the following items as exceptional items under UK GAAP because, by either their size, incidence or because they are specifically prescribed, they need to be separately disclosed for the
accounts to show a true and fair view.
Paragraph 20 of FRS 3, requires that certain items should be disclosed after operating profit and are shown below as non-operating exceptional items. These items comprise: a) costs associated with a fundamental reorganisation which in the case of the Group relate to the transaction costs relating to the Merger; b) profit on disposal of fixed assets (including the gain on sale of shares by an employee share plan, gain on assets held for exchange and other fixed asset investments); and c) profit or loss on the sale or termination of operations.
Other exceptional items are shown below as operating exceptional items. The Directors believe these items require separate disclosure, as permitted by FRS 3, within operating profit to show a true and fair view. These items include: restructuring costs; costs arising from the recognition of employee and property costs arising as a direct result of the Merger; share of exceptional operating items of a joint venture; impairment of business; impairment of investments in joint ventures and associate; impairment of assets; and environmental provision which are all disclosed by virtue of their size.
a) Operating
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
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|
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|
|
Continuing operations | ||||||
Restructuring costs (i) | 249 | 203 | 187 | |||
Environmental provision (ii) | 28 | | | |||
Impairment of assets (iii) | | | 50 | |||
Merger costs (iv) | | 105 | | |||
Share of exceptional operating items of joint venture (v) | | | 48 | |||
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|
277 | 308 | 285 | ||||
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Discontinued operations | ||||||
Restructuring costs (i) | | 6 | | |||
Impairment of investments in joint ventures and associate (vi) | | (135 | ) | 792 | ||
Impairment of business (vii) | | 168 | 250 | |||
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| 39 | 1,042 | ||||
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|
Total operating exceptional items | 277 | 347 | 1,327 | |||
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|
(i) | The 2004 restructuring costs consist of £24m of costs associated with the proposed disposal of UK-based distribution networks and other charges of £225m. The other charges primarily related to planned cost reduction programmes in the UK and US businesses. The 2003 and 2002 charges primarily related to costs incurred in reorganisations in the UK and US businesses (2004: £170m after tax; 2003: £165m after tax; 2002: £130m after tax). |
(ii) | Following completion of site investigations in the UK, the environmental obligations in respect of those sites was adjusted resulting in the recognition of an additional charge of £28m (£28m after tax). |
(iii) | The impairment charge for 2002 related to a review of the carrying value of LNG storage assets, which resulted in a charge to operating profit amounting to £50m (£35m after tax). In the LNG review, future cash flows were determined based on a five-year business plan projected out to 20 years and discounted at a pre-tax rate of 6.25%. |
(iv) | Represented employee and property costs associated with the Merger (£76m after tax). |
(v) | Share of exceptional operating items of a joint venture in 2002 represented the Groups share of the write-off of an investment and the write-down of goodwill in a joint venture prior to it becoming a wholly-owned subsidiary of the Group (£48m after tax). The write-down of goodwill followed an impairment review which applied a discount rate of 15%. The review used growth rates over a plan period covering nine years. The assumptions of the plan were consistent with managements views of the market and the joint ventures performance therein. |
(vi) | The 2003 credits related to Intelig and other telecoms joint ventures (£155m after tax). The exceptional credits arising in 2003 substantially represented the reversal of the Groups share of retained losses incurred by these joint ventures during the period from 1 April 2002 to the date of disposal or the date that equity accounting ceased. £129m of the pre-tax exceptional credits were reflected in Share of joint ventures and associates operating profit/(loss) discontinued operations . The 2002 exceptional charge of £792m (£775m after tax) related to the write-down of the Groups investment in its joint ventures and associate. This charge comprised a write-down of the carrying value of the investments of £606m (£589m after tax) to their estimated recoverable amounts, and the recognition of related liabilities of £186m (£186m after tax). |
(vii) | In 2002 and 2003, following a review of the carrying value of certain of the Groups telecoms assets, the Group incurred impairment charges that resulted in the write-down of those assets to their estimated recoverable amounts and the recognition of other related costs (2003: £143m after tax; 2002: £175m after tax). |
b) Non-operating
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Continuing operations | ||||||
Profit on disposal of tangible fixed assets (viii) | (96 | ) | (48 | ) | (94 | ) |
Merger costs (ix) | | 79 | | |||
Gain on sale of shares by an employee share plan (x) | | | (31 | ) | ||
|
|
|
|
|
|
|
(96 | ) | 31 | (125 | ) | ||
|
|
|
|
|
|
|
Discontinued operations | ||||||
Gain on assets held for exchange (xi) | (226 | ) | | | ||
Loss on sale or termination of operations (xii) | | 68 | | |||
Profit on disposal of investments (xiii) | | | (31 | ) | ||
|
|
|
|
|
|
|
(226 | ) | 68 | (31 | ) | ||
|
|
|
|
|
|
|
Total non-operating exceptional items | (322 | ) | 99 | (156 | ) | |
|
|
|
|
|
|
|
(viii) | The after tax profit on disposal of tangible fixed assets was £96m (2003: £50m; 2002: £96m). |
(ix) | The 2003 after tax transaction cost of the Merger was £71m. |
(x) | The 2002 after tax gain on sale of shares by an employee share plan was £31m. |
(xi) | The gain on assets held for exchange related to the profit recognised on Energis shares delivered to Equity Plus Income Convertible Securities (EPICs) bondholders on 6 May 2003 in settlement of all EPICs outstanding at that date that had a carrying value of £243m. This transaction represented the culmination of a deferred sale arrangement entered into in February 1999. The after tax gain on assets held for exchange was £226m. |
(xii) | The charges for 2003 related to losses on the sale of The Leasing Group of £45m and loss on closure of 186k of £23m. The after tax loss relating to the 2003 sale and closure amounted to £68m. |
(xiii) | The after tax profit on disposal of investments was £nil (2003: £nil; 2002: £31m). |
Annual Report and Accounts 2003/04_ National Grid Transco 80
Notes to the Accounts _continued
4. Exceptional items (continued)
c) Financing costs
For 2003 and 2002, the exceptional net interest
cost (2003: £31m; 2002: £142m) (2003: £31m after tax; 2002: £142m after tax) related to the Groups share of foreign exchange losses incurred
on foreign currency borrowings by joint ventures (2003: £98m; 2002: £142m), partially offset by the Groups share of a gain on net monetary liabilities (2003: £67m; 2002: £nil).
The gain on the net monetary liabilities related to Citelec, a joint venture
operating in Argentina, and reflected the net gain that arose on net monetary
liabilities that were financing the operation in a hyper-inflationary economy.
d) Taxation
The exceptional tax credit for 2004 of £89m included a net credit amounting to £10m
relating to investments disposed of in prior periods.
e) Minority interests
The 2003 exceptional minority interest charge
of £28m related to the Groups share of the minority interest in the after taxation exceptional items of Citelec, a joint venture, and primarily reflected the
minority interests share of the gain on net monetary liabilities referred
to in note 4(c).
The 2002 exceptional minority interest credit of £50m related to the Groups share of the minority interest in the after taxation exceptional items of Citelec, a joint venture, and primarily related to foreign exchange losses incurred on foreign currency borrowings.
5. Payroll costs and employees | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
a) Payroll costs | ||||||
Wages and salaries | 1,025 | 1,124 | 940 | |||
Social security costs | 79 | 84 | 73 | |||
Other pension costs | 150 | 117 | 90 | |||
|
|
|
|
|
|
|
1,254 | 1,325 | 1,103 | ||||
Less: Amounts capitalised | (175 | ) | (158 | ) | (129 | ) |
Payroll costs included in replacement expenditure | (59 | ) | (60 | ) | (28 | ) |
|
|
|
|
|
|
|
1,020 | 1,107 | 946 | ||||
|
|
|
|
|
|
31 March | Average | Average | Average | |||||
2004 | 2004 | 2003 | 2002 | |||||
Number | Number | Number | Number | |||||
|
|
|
|
|
|
|
|
|
b) Number of employees | ||||||||
UK | 15,498 | 16,241 | 18,399 | 19,227 | ||||
US | 9,018 | 9,402 | 10,120 | 5,094 | ||||
Rest of the World | 11 | 10 | 14 | 25 | ||||
|
|
|
|
|
|
|
|
|
Continuing operations | 24,527 | 25,653 | 28,533 | 24,346 | ||||
Discontinued operations | | 5 | 407 | 768 | ||||
|
|
|
|
|
|
|
|
|
24,527 | 25,658 | 28,940 | 25,114 | |||||
|
|
|
|
|
|
|
|
The vast majority of employees in: | |
| the UK are either directly or indirectly employed in the transmission and distribution of gas or the transmission of electricity. |
| the US are either directly or indirectly employed in the transmission and distribution of electricity or the distribution of gas. |
In addition to the payroll costs shown above, there were restructuring costs of £249m (2003: £209m; 2002: £187m), primarily in respect of severance costs, which have been included as part of restructuring costs within other operating charges exceptional items. |
6.
Directors emoluments
Details of Directors emoluments are contained
in the auditable part of the Directors Remuneration Report on pages 58
to 67.
81 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
7.
Pensions and post-retirement benefits
UK post-retirement schemes
Substantially all the Groups UK employees
are members of either the Electricity Supply Pension Scheme or the Lattice Group
Pension Scheme.
Electricity Supply Pension Scheme
The Electricity Supply Pension Scheme provides
final salary defined benefits on a funded basis. The assets of the scheme are
held in a separate trustee administered fund. The scheme is divided into sections,
one of
which is the Groups section. It is subject to independent valuations at least every three years, on the basis of which the qualified actuary certifies the rate of employers contributions which, together with the specified contributions
payable by the employees and proceeds from the schemes assets, are expected to be sufficient to fund the benefits payable under the scheme. The latest full actuarial valuation of the Groups section of the scheme was carried out by Bacon
& Woodrow, Consulting Actuaries (now Hewitt, Bacon and Woodrow), at 31 March
2001.
The projected unit method was used for the last valuation of the pension scheme and for the purposes of accounting under Statement of Standard Accounting Practice (SSAP) 24 Accounting for Pension Costs and the principal actuarial assumptions adopted were that the real annual rates of return on investments held in respect of pre-retirement members would average 4.5% and on investments held in respect of post-retirement members would average 3.5%; that the annual rate of inflation would average 2.3%; that the real annual increase in salary would average 1.0%; and that pensions would increase at a real annual rate of 0.2%. The market value of the assets relating to the Groups section of the scheme at 31 March 2001 was £1,336m and the actuarial value of the assets represented approximately 118.3% of the actuarial value of the benefits that had accrued to members measured on a past service basis. The current agreed employers and employees contribution rates for the forthcoming year are 12% and 6% respectively. These contribution rates will be reviewed when the next independent actuarial valuation is completed based on the position at 31 March 2004. The valuation is in the process of being carried out and therefore the outcome is currently unknown.
Lattice Group Pension Scheme
The Lattice Group Pension Scheme provides final
salary defined benefits for employees who joined the Lattice Group prior to 31
March 2002. A defined contribution section was added to the scheme from 1 April
2002 for employees joining Lattice Group from that date. The scheme is funded
with assets held in a seperate trustee administered fund. It is subject to independent
valuations at least every three years, on the basis of which the qualified actuary
certifies
the rate of employers contributions which, together with the specified contributions payable by the employees and proceeds from the schemes
assets, are expected to be sufficient to fund the benefits payable under the
scheme.
The latest full actuarial valuation of the scheme was carried out by Watson Wyatt LLP at 31 March 2003. The projected unit method was used and the principal actuarial assumptions adopted were that the annual rate of inflation would be 2.50% and that future real increases in pensionable earnings would be 1.5%. Investments held in respect of pensions before they become payable would average 4.9% real annual rate of return and investments held in respect of pensions after they become payable would average 2.6% real annual rate of return and that pensions would increase at a real annual rate of 0.05%. The aggregate market value of the schemes assets was £10,141m and the value of the assets represented approximately 92% of the actuarial value of benefits due to members calculated on the basis of pensionable earnings and service at 31 March 2003 on an ongoing basis and allowing for projected increases in pensionable earnings and pensions.
The results of the actuarial valuation carried out at 31 March 2003 showed that based on long-term financial assumptions the contribution rate required to meet the future benefit accrual was 23.7% of pensionable earnings (20.7% employers and 3% employees). Employers contributions were increased from 8.5% to 20.7% with effect from 1 April 2003. This contribution rate will be reviewed when the next independent actuarial valuation is carried out, which will be no later than 31 March 2006. The ongoing contribution rate does not include an allowance for administration expenses. These contributions are reviewed annually. From 1 April 2003 the rate used for the recovery of administration costs was 1.4% of salary, from 1 April 2004 the rate was 1.6% of salary. Employers are currently, therefore, paying a total contribution rate of 22.3%. The actuarial valuation revealed a deficit of £879m gross (£615m net of tax) in the defined benefit section on the basis of the assumptions adopted by the actuary. It has been agreed that no funding of the deficit identified in the 2003 actuarial valuation will need to be provided to the scheme until the outcome of the actuarial valuation at 31 March 2007 is known. At this point, the Group will pay the gross amount of any deficit up to a maximum amount of £520m (£364m net of tax) into the scheme. For the period prior to these lump sum deficiency contributions being paid, the Group has arranged for banks to provide the trustees of the Lattice Scheme with letters of credit. The main conditions under which these letters of credit could be drawn relate to events which would imperil the interests of the scheme, such as Transco plc becoming insolvent or the Group failing to make agreed payments into the fund.
A further valuation was carried out at 31 March 2003, to calculate the charge in accordance with SSAP 24. The principal assumptions adopted were: price inflation of 2.5%; pension increases in payment of 2.55%; general pensionable pay escalation of 3.5%; and a discount rate of 6%. The principal results of this valuation were the need to recognise a regular cost based on 21.4% of salary (excluding administration costs) and a deficit of £468m, which is being spread over the average expected future service lives of employees in the Lattice scheme amounting to 14.1 years.
US post-retirement schemes
Pension
Substantially all the Groups US
employees are members of defined benefit plans. The assets of the plans are held
in separate trustee administered funds. The latest full actuarial valuations
of these plans were carried out by Hewitt Associates LLC at 1 April 2003 and
these valuations were used to calculate the pension cost for the year ended 31
March 2004 (in compliance with SSAP 24). These valuations have been updated using
assumptions and market values
at 31 March 2004. The projected unit method was used for the updated valuations
and the principal actuarial assumptions adopted were: that the real annual rate
of return on investments would average 4.25%; that real annual increases in salary
would average nil for New York schemes and 1.45% for other US schemes; that
inflation would average 3.25% for New York schemes and 3.5% for other US schemes;
and that nominal increases in pensions would be nil. The market value of the
assets relating to
the Groups US defined benefit plans at 31 March 2004 totalled US$1,945m
and the actuarial value of the assets represented 75% of the actuarial value
of the benefits that had accrued to members, after allowing for future salary
increases. There
are no formally agreed contribution rates for the US plans.
Healthcare and life insurance retirees
In the US, the Group provides healthcare and life insurance to eligible retired US employees. Eligibility is based on certain age and length of service requirements and in some cases retirees must contribute to the
cost of their coverage. The latest full actuarial valuations were carried out at 1 April 2003. These valuations have been updated using assumptions and market values at 31 March 2004. The principal assumptions adopted were a discount rate of 5.75%
and that medical costs would increase by 10.0% per annum, decreasing to 5.0% by 2009 and remain at this rate thereafter.
The cost of providing healthcare and life insurance to retired US employees for the year ended 31 March 2004 amounted to £31m net of capitalised amounts (2003: £37m; 2002: £9m).
Annual Report and Accounts 2003/04_ National Grid Transco 82
Notes to the Accounts _continued
7.
Pensions and post-retirement benefits
(continued)
Pension cost, prepayment and provisions for liabilities and charges
The pension cost charged to operating profit for
the year ended 31 March 2004 was £150m (2003: £117m; 2002: £90m). This represented defined contribution scheme costs of £2m (2003: £1m;
2002: £nil), defined benefit regular pension costs of £106m (2003: £136m; 2002: £127m) and a variation from the regular pension cost totalling £42m (2003: £20m credit; 2002: £37m credit), of which £2m
(2003: £2m; 2002: £2m) related to the partial release of a pension provision. In addition, net interest included a charge of £56m (2003: £3m credit; 2002: £30m
credit) in respect of the notional interest element of the variation from the
regular pension cost.
Included in debtors at 31 March 2004 was a pension prepayment of £19m (2003: £37m).
Included within provisions for liabilities and charges at 31 March 2004 was a pension and other post-retirement benefits provision of £464m (2003: £551m) see note 22.
FRS 17 Retirement Benefits
On 20 November 2000, the Accounting Standards
Board introduced a new accounting standard, FRS 17 Retirement Benefits, replacing SSAP 24. FRS 17 is fully effective for periods beginning on or after 1 January
2005, though disclosures are required in the financial years prior to its full implementation. Disclosures showing the impact on the Groups
profit and loss account and balance sheet, together with other disclosures required
by FRS 17, are set
out below.
The disclosures have been prepared by updating the results of the aforementioned valuations by independent qualified actuaries using the projected unit method of valuation on the basis of the following assumptions:
2004 | 2003 | 2002 | ||||||||||||||||
|
|
|
|
|||||||||||||||
US | US | US | ||||||||||||||||
Other post- | Other post- | Other post- | ||||||||||||||||
UK | US | retirement | UK | US | retirement | UK | US | retirement | ||||||||||
Pensions | Pensions | benefits | Pensions | Pensions | benefits | Pensions | Pensions | benefits | ||||||||||
% | % | % | % | % | % | % | % | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||
Rate of increase in salaries (i) | 3.9 | 3.8 | | 3.5 | 4.0 | | 4.7 | 4.0 | | |||||||||
Rate of increase in pensions in payment | ||||||||||||||||||
and deferred pensions | 3.0 | | | 2.6 | | | 2.8 | | | |||||||||
Discount rate for liabilities | 5.5 | 5.8 | 5.8 | 5.4 | 6.3 | 6.3 | 5.8 | 7.5 | 7.5 | |||||||||
Rate of increase in Retail Price Index or equivalent | 2.9 | 3.3 | | 2.5 | 3.2 | | 2.8 | 3.5 | | |||||||||
Initial healthcare cost trend rate | | | 10.0 | | | 10.0 | | | 10.0 | |||||||||
Ultimate healthcare cost trend rate | | | 5.0 | | | 5.0 | | | 5.0 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | A promotional age-related scale has also been used where appropriate. |
An analysis of the assets held in the various pension and other post-retirement benefit schemes and the expected rates of return at 31 March 2004, 31 March 2003 and 31 March 2002 were as follows:
US Other post- | |||||||||||||
UK Pensions | US Pensions | retirement benefits | |||||||||||
|
|
|
|
||||||||||
Long-term | Long-term | Long-term | |||||||||||
rate of return | rate of return | rate of return | |||||||||||
expected at | Value at | expected at | Value at | expected at | Value at | ||||||||
31 March | 31 March | 31 March | 31 March | 31 March | 31 March | ||||||||
2004 | 2004 | 2004 | 2004 | 2004 | 2004 | ||||||||
% | £m | % | £m | % | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities | 8.0 | 5,260 | 10.8 | 685 | 10.8 | 309 | |||||||
Bonds | 4.9 | 5,896 | 4.0 | 360 | 4.0 | 180 | |||||||
Property | 6.5 | 913 | 8.0 | 6 | | | |||||||
Other | 4.0 | 300 | 12.0 | 12 | 0.9 | 7 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market value of assets | 12,369 | 1,063 | 496 | ||||||||||
Present value of scheme liabilities | (13,790 | ) | (1,488 | ) | (1,002 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit in schemes | (1,421 | ) | (425 | ) | (506 | ) | |||||||
Related deferred tax asset | 426 | 166 | 197 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability | (995 | ) | (259 | ) | (309 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
US Other post- | |||||||||||||
UK Pensions | US Pensions | retirement benefits | |||||||||||
|
|
|
|
||||||||||
Long-term | Long-term | Long-term | |||||||||||
rate of return | rate of return | rate of return | |||||||||||
expected at | Value at | expected at | Value at | expected at | Value at | ||||||||
31 March | 31 March | 31 March | 31 March | 31 March | 31 March | ||||||||
2003 | 2003 | 2003 | 2003 | 2003 | 2003 | ||||||||
% | £m | % | £m | % | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities | 8.5 | 4,590 | 11.0 | 586 | 11.0 | 158 | |||||||
Bonds | 4.6 | 5,436 | 5.1 | 395 | 5.0 | 157 | |||||||
Property | 6.5 | 901 | 9.0 | 8 | | | |||||||
Other | 4.0 | 171 | 6.8 | 28 | 3.5 | 58 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market value of assets | 11,098 | 1,017 | 373 | ||||||||||
Present value of scheme liabilities | (13,269 | ) | (1,617 | ) | (1,003 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit in schemes | (2,171 | ) | (600 | ) | (630 | ) | |||||||
Related deferred tax asset | 651 | 238 | 250 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability | (1,520 | ) | (362 | ) | (380 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
83 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
7. Pensions and post-retirement benefits (continued)
US Other post- | |||||||||||||
UK Pensions | US Pensions | retirement benefits | |||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Long-term
|
Long-term
|
Long-term
|
|||||||||||
rate
of return
|
rate
of return
|
rate
of return
|
|||||||||||
expected
at
|
Value
at
|
expected
at
|
Value
at
|
expected
at
|
Value
at
|
||||||||
31
March
|
31
March
|
31
March
|
31
March
|
31
March
|
31
March
|
||||||||
2002
|
2002
|
2002
|
2002
|
2002
|
2002
|
||||||||
%
|
£m
|
%
|
£m
|
%
|
£m
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities | 7.5 | 7,462 | 10.2 | 902 | 10.3 | 236 | |||||||
Bonds | 5.4 | 4,115 | 6.4 | 476 | 5.0 | 160 | |||||||
Property | 6.5 | 852 | 8.0 | 11 | | | |||||||
Other | 4.4 | 520 | 5.6 | 48 | 5.9 | 1 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market value of assets | 12,949 | 1,437 | 397 | ||||||||||
Present value of scheme liabilities | (12,642 | ) | (1,623 | ) | (884 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/(deficit) in schemes | 307 | (186 | ) | (487 | ) | ||||||||
Related deferred tax asset | (93 | ) | 74 | 193 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset/(liability) | 214 | (112 | ) | (294 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The net liability for UK Pensions comprises net pension liabilities relating to funded schemes in deficit of £976m (2003: £1,503m), and net pension liabilities relating to unfunded schemes of £19m (2003: £17m).
The net liability for US Pensions comprises net pension liabilities relating to funded schemes in deficit of £221m (2003: £319m), and net pension liabilities relating to unfunded schemes of £38m (2003: £43m).
The net liability for US Other post-retirement benefits relates to funded schemes for both years presented.
At 31 March 2004, an increase of 0.1% in the discount rate would decrease the present value of liabilities for all schemes by around £241m and decrease the liability net of deferred tax by £169m and vice versa.
If the FRS 17 position had been recognised in the Groups accounts, the Groups net assets employed at 31 March would have been as follows:
2004
|
2003
|
|||
(restated) | ||||
£m
|
£m | |||
|
|
|
|
|
Net assets employed excluding net SSAP 24 liabilities and related impact on regulatory assets | 1,482 | 1,442 | ||
Net FRS 17 liabilities | (1,563 | ) | (2,262 | ) |
|
|
|
|
|
Net liabilities including net FRS 17 liabilities | (81 | ) | (820 | ) |
|
|
|
|
The impact of the implementation of FRS 17 on net assets employed, as shown above, would be reflected within the profit and loss account reserve.
The pension and other post-retirement deficit has moved during the year ended 31 March 2003 and 31 March 2004 as set out below:
2004
|
2003
|
|||
£m
|
£m
|
|||
|
|
|
|
|
At 1 April | (3,401 | ) | (366 | ) |
Current service cost | (215 | ) | (171 | ) |
Past service cost | (3 | ) | (8 | ) |
Net loss on settlements or curtailments | (61 | ) | (118 | ) |
Contributions | 393 | 317 | ||
Other financial income | (43 | ) | 89 | |
Actuarial gains/(losses) | 822 | (3,208 | ) | |
Exchange adjustments | 156 | 64 | ||
|
|
|
|
|
At 31 March | (2,352 | ) | (3,401 | ) |
|
|
|
|
If FRS 17 had been implemented for the years ended 31 March 2003 or 31 March 2004, the following amounts would have been charged to the profit and loss account in respect of pensions and other post-retirement benefits for the year.
2004
|
2003
|
|||
£m
|
£m
|
|||
|
|
|
|
|
Operating charge | ||||
Current service cost | 146 | 171 | ||
Past service cost | 3 | 8 | ||
Net loss on settlements or curtailments | 130 | 118 | ||
|
|
|
|
|
Total charge to operating profit | 279 | 297 | ||
|
|
|
|
|
Other financial (income)/costs | ||||
Expected return on scheme assets | (806 | ) | (977 | ) |
Interest on scheme liabilities | 849 | 888 | ||
|
|
|
|
|
Impact on financial income | 43 | (89 | ) | |
|
|
|
|
|
Net profit and loss charge before taxation | 322 | 208 | ||
|
|
|
|
As the Lattice scheme is a closed scheme, under the projected unit method of valuation, the current service cost will increase as the members of the scheme approach retirement.
If the Group were to prepare its accounts under FRS 17, the net loss on settlements or curtailments above would be reported as part of exceptional items. The net FRS 17 profit and loss account impact before tax excluding these exceptional items amounted to £192m (2003: £90m) and compares with the current UK GAAP charge in respect of pensions and other post-retirement benefits amounting to £264m (2003: £151m). The FRS 17 pre-exceptional profit and loss account charge (pre-tax) would therefore be £72m lower (2003: £61m lower) than the SSAP 24 charge.
Annual Report and Accounts 2003/04_ National Grid Transco 84
Notes to the Accounts _continued
7.
Pensions and post-retirement benefits
(continued)
The following pre-tax amounts would have been recognised in the statement of total recognised gains and losses:
2004
|
2003
|
||||
£m
|
£m
|
||||
|
|
|
|
||
Difference between actual and expected return on scheme assets | 1,310 | (2,529 | ) | ||
Experience gains arising on scheme liabilities | 51 | 11 | |||
Changes in assumptions | (539 | ) | (690 | ) | |
|
|
|
|
||
Actuarial gains/(losses) | 822 | (3,208 | ) | ||
Exchange adjustments | (156 | ) | 64 | ||
|
|
|
|
||
Net credit/(charge) to the statement of total recognised gains and losses | 666 | (3,144 | ) | ||
|
|
|
|
||
History of experience gains and losses that would be recognised on an FRS 17 basis is set out below: | |||||
|
|
|
|
||
Difference between actual and expected return on scheme assets (£m) | 1,310 | (2,529 | ) | ||
percentage of scheme assets | 9% | (20% | ) | ||
Experience gains arising on scheme liabilities (£m) | 51 | 11 | |||
percentage of present value of scheme liabilities | | | |||
Actuarial gains/(losses) (£m) | 822 | (3,208 | ) | ||
percentage of present value of scheme liabilities | 5% | (20% | ) | ||
|
|
|
|
8. Net interest | ||||||||
2004
|
2003
|
2002
|
||||||
(restated)
|
(restated)
|
|||||||
£m
|
£m
|
£m
|
||||||
|
|
|
|
|
|
|
|
|
Bank loans and overdrafts | 51 | 36 | 63 | |||||
Other | 869 | 945 | 692 | |||||
|
|
|
|
|
|
|
|
|
Interest payable and similar charges | 920 | 981 | 755 | |||||
Unwinding of discount on provisions | 11 | 13 | 17 | |||||
Interest capitalised | (55 | ) | (28 | ) | (38 | ) | ||
|
|
|
|
|
|
|
|
|
Interest payable and similar charges net of interest capitalised | 876 | 966 | 734 | |||||
Interest receivable and similar income | (58 | ) | (55 | ) | (123 | ) | ||
|
|
|
|
|
|
|
|
|
818 | 911 | 611 | ||||||
Joint ventures (including exceptional net interest of £nil (2003: £31m; 2002: £142m),
net of interest capitalised £nil (2003: £1m; 2002: £10m)) |
4
|
59
|
172
|
|||||
Associate | | | 16 | |||||
4 | 59 | 188 | ||||||
|
|
|
|
|
|
|
|
|
Net interest | 822 | 970 | 799 | |||||
|
|
|
|
|
|
|
|
|
Comprising: | ||||||||
Net interest, excluding exceptional net interest | 822 | 939 | 657 | |||||
Exceptional net interest (note 4(c)) | | 31 | 142 | |||||
|
|
|
|
|
|
|
|
|
Net interest, including exceptional net interest | 822 | 970 | 799 | |||||
|
|
|
|
|
|
|
|
Interest on the funding attributable to assets in the course of construction was capitalised during the year at a rate of 5.7% (2003: 5.9%; 2002: 6.2% to 7.0%).
Interest payable and similar charges includes £4m (2003: £12m; 2002: £3m) relating to the loss incurred on the repurchase of debt during the year.
The comparatives for prior years have been restated resulting in a reclassification of interest from bank loans and overdrafts to other amounting to £221m and £80m for 2003 and 2002 respectively.
9. Taxation | ||||||||
2004
|
2003
|
2002
|
||||||
£m
|
£m
|
£m
|
||||||
|
|
|
|
|
|
|
|
|
United Kingdom | ||||||||
Corporation tax at 30% | 193 | 12 | 153 | |||||
Adjustment in respect of prior years (i) | (35 | ) | | (78 | ) | |||
Deferred tax | (15 | ) | 107 | (22 | ) | |||
|
|
|
|
|
|
|
|
|
143 | 119 | 53 | ||||||
|
|
|
|
|
|
|
|
|
Overseas | ||||||||
Corporate tax | 16 | 27 | 73 | |||||
Adjustment in respect of prior years | | | 1 | |||||
Deferred tax | 99 | 94 | (48 | ) | ||||
|
|
|
|
|
|
|
|
|
115 | 121 | 26 | ||||||
|
|
|
|
|
|
|
|
|
258 | 240 | 79 | ||||||
Joint ventures | 3 | 5 | 6 | |||||
|
|
|
|
|
|
|
|
|
Taxation | 261 | 245 | 85 | |||||
|
|
|
|
|
|
|
|
|
Comprising: | ||||||||
Taxation excluding exceptional items | 350 | 373 | 251 | |||||
Taxation exceptional items (note 4(d)) | (89 | ) | (128 | ) | (166 | ) | ||
|
|
|
|
|
|
|
|
|
261 | 245 | 85 | ||||||
|
|
|
|
|
|
|
|
(i) | The UK corporation tax adjustment in respect of prior years includes £29m (2003: £nil; 2002: £75m) that relate to exceptional items. |
The comparatives have been re-presented to accord with the analysis of the current year tax charge.
85 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
9.
Taxation
(continued)
A reconciliation of the UK corporation tax rate to the effective tax rate of the Group is as follows:
% of profit before taxation | ||||||
2004
|
|
2003
|
|
2002
|
||
|
|
|
|
|
|
|
UK corporation tax rate | 30.0 | 30.0 | 30.0 | |||
Effect on tax charge of: | ||||||
Origination and reversal of timing differences | (8.1 | ) | (12.3 | ) | (4.6 | ) |
Permanent differences | (7.5 | ) | 2.1 | 1.2 | ||
Overseas income taxed at other than UK statutory rate | 3.3 | (2.5 | ) | (5.2 | ) | |
Other | (0.1 | ) | 0.3 | 2.6 | ||
|
|
|
|
|
|
|
Current tax charge | 17.6 | 17.6 | 24.0 | |||
Deferred taxation | 7.5 | 12.3 | 5.0 | |||
|
|
|
|
|
|
|
Effective tax rate before goodwill amortisation, prior year adjustments in respect of current tax
and exceptional items |
25.1
|
29.9
|
29.0
|
|||
Effect of goodwill amortisation | 1.9 | 2.7 | 2.7 | |||
|
|
|
|
|
|
|
Effective tax rate before prior year adjustments in respect of current tax and exceptional items | 27.0 | 32.6 | 31.7 | |||
Current tax adjustment in respect of prior years | (0.5 | ) | | (7.3 | ) | |
|
|
|
|
|
|
|
Effective tax rate after adjustments in respect of prior years and before exceptional items | 26.5 | 32.6 | 24.4 | |||
Exceptional items | (7.4 | ) | 4.1 | (54.3 | ) | |
|
|
|
|
|
|
|
Effective tax rate after exceptional items | 19.1 | 36.7 | (29.9 | ) | ||
|
|
|
|
|
|
Factors that may affect future tax charges
The Group has brought forward non-trading debits
of £75m (2003: £75m; 2002: £75m), which may reduce taxable
profits in future years.
No provision has been made for deferred tax arising on gains recognised in respect of the sale of properties where potentially taxable gains have been rolled over into replacement assets. Such tax would become payable only if the replacement assets were sold without it being possible to claim roll-over relief. The total amount unprovided for at 31 March 2004 was £58m (2003: £58m; 2002: £56m). At present, it is not envisaged that any tax on amounts rolled over will become payable in the foreseeable future.
10. Dividends
The following table shows the dividends
paid or proposed by National Grid Transco for the year ended 31 March 2004:
2004
|
2003
|
|||||||
pence
|
pence
|
|||||||
(per
ordinary
|
2004
|
(per
ordinary
|
2003
|
|||||
share)
|
£m
|
share)
|
£m
|
|||||
|
|
|
|
|
|
|
|
|
National Grid Transco | ||||||||
Ordinary dividends | ||||||||
Interim | 7.91 |
243
|
6.86 | 213 | ||||
Proposed final | 11.87 |
366
|
10.34 | 317 | ||||
|
|
|
|
|
|
|
|
|
19.78 |
609
|
17.20 | 530 | |||||
|
|
|
|
|
|
|
|
|
The following disclosures relate to National Grid and Lattice prior to the Merger: | ||||||||
2002
|
||||||||
pence
|
||||||||
(per ordinary
|
2002
|
|||||||
share)
|
£m
|
|||||||
|
|
|
|
|
|
|
|
|
National Grid | ||||||||
Ordinary dividends | ||||||||
Interim | 6.46 | 96 | ||||||
Final | 9.58 | 169 | ||||||
|
|
|
|
|
|
|
|
|
16.04 | 265 | |||||||
|
|
|
|
|
|
|
|
|
Lattice | ||||||||
Ordinary dividends | ||||||||
Interim | 3.60 | 126 | ||||||
Second interim | 5.40 | 189 | ||||||
Final | | | ||||||
|
|
|
|
|
|
|
|
|
9.00 | 315 | |||||||
|
|
|
|
|
|
|
|
|
Total pre-Merger dividends | n/a | 580 | ||||||
|
|
|
|
|
|
|
|
Annual Report and Accounts 2003/04_ National Grid Transco 86
Notes to the Accounts _continued
11. Earnings per share and adjusted
profit on
ordinary activities before taxation
a) Earnings per share |
|||||||||||||||||
Weighted | Weighted | (Loss)/ | (Loss)/ | Weighted | |||||||||||||
Earnings | Profit | average | Earnings | average | earnings | profit | average | ||||||||||
per | for the | number | per | Profit for | number | per | for the | number | |||||||||
share | year | shares | share | the year | shares | share | year | shares | |||||||||
2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2002 | 2002 | 2002 | |||||||||
pence | £m | million | pence | £m | million | pence | £m | million | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, including exceptional items | |||||||||||||||||
and goodwill amortisation | 35.8 | 1,099 | 3,070 | 12.7 | 391 | 3,078 | (11.3 | ) | (321 | ) | 2,832 | ||||||
Exceptional operating items (note 4(a)) | 9.0 | 277 | | 11.3 | 347 | | 46.9 | 1,327 | | ||||||||
Exceptional non-operating items (note 4(b)) | (10.4 | ) | (322 | ) | | 3.2 | 99 | | (5.5 | ) | (156 | ) | | ||||
Exceptional financing charge (note 4(c)) | | | | 1.0 | 31 | | 5.0 | 142 | | ||||||||
Exceptional tax credit (note 4(d)) | (2.9 | ) | (89 | ) | | (4.1 | ) | (128 | ) | | (5.9 | ) | (166 | ) | | ||
Exceptional minority interests (note 4(e)) | | | | 0.9 | 28 | | (1.8 | ) | (50 | ) | | ||||||
Goodwill amortisation | 3.2 | 99 | | 3.3 | 102 | | 3.4 | 97 | | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic, excluding exceptional | |||||||||||||||||
items and goodwill amortisation | 34.7 | 1,064 | 3,070 | 28.3 | 870 | 3,078 | 30.8 | 873 | 2,832 | ||||||||
Dilutive impact of employee share options | (0.1 | ) | | 7 | (0.1 | ) | | 10 | (0.2 | ) | | 21 | |||||
Dilutive impact of 4.25% Exchangeable Bonds | n/a | n/a | n/a | (0.3 | ) | 22 | 110 | (0.4 | ) | 22 | 110 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted, excluding exceptional | |||||||||||||||||
items and goodwill amortisation | 34.6 | 1,064 | 3,077 | 27.9 | 892 | 3,198 | 30.2 | 895 | 2,963 | ||||||||
Exceptional operating items (note 4(a)) | (9.0 | ) | (277 | ) | | (10.9 | ) | (347 | ) | | (44.8 | ) | (1,327 | ) | | ||
Exceptional non-operating items (note 4(b)) | 10.4 | 322 | | (3.1 | ) | (99 | ) | | 5.3 | 156 | | ||||||
Exceptional financing charge (note 4(c)) | | | | (1.0 | ) | (31 | ) | | (4.8 | ) | (142 | ) | | ||||
Exceptional tax credit (note 4(d)) | 2.9 | 89 | | 4.0 | 128 | | 5.6 | 166 | | ||||||||
Exceptional minority interests (note 4(e)) | | | | (0.9 | ) | (28 | ) | | 1.7 | 50 | | ||||||
Goodwill amortisation | (3.2 | ) | (99 | ) | | (3.2 | ) | (102 | ) | | (3.3 | ) | (97 | ) | | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted, including exceptional items | |||||||||||||||||
and goodwill amortisation | 35.7 | 1,099 | 3,077 | 12.8 | 413 | 3,198 | (10.1 | ) | (299 | ) | 2,963 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share, excluding exceptional items and goodwill amortisation, are provided in order to reflect the underlying performance of the Group.
In respect of the years ended 31 March 2003 and 31 March 2002, the potential ordinary shares that related to the 4.25% Exchangeable Bonds were dilutive as they decreased earnings from continuing operations. Consequently, the diluted earnings per share were higher than basic earnings per share for these years because of the effect of losses that arose from discontinued operations.
b) Adjusted profit on ordinary activities before
taxatio
The following table reconciles profit before taxation on ordinary activities to adjusted profit on ordinary activities before taxation. Adjusted profit on ordinary activities before taxation excludes exceptional items
and goodwill amortisation and is provided to reflect the underlying pre-tax performance of the Group.
87 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
12. Intangible fixed assets
Group | £m | |
|
|
|
Cost at 1 April 2003 | 2,146 | |
Exchange adjustments | (292 | ) |
Additions | 3 | |
|
|
|
Cost at 31 March 2004 | 1,857 | |
|
|
|
Amortisation at 1 April 2003 | 253 | |
Exchange adjustments | (46 | ) |
Charge for the year | 101 | |
Impairment charge (i) | 12 | |
|
|
|
Amortisation at 31 March 2004 | 320 | |
|
|
|
Net book value at 31 March 2004 | 1,537 | |
|
|
|
Net book value at 31 March 2003 | 1,893 | |
|
|
(i) | Impairment charge related to business restructuring activities. |
Negative goodwill with a cost of £37m which was fully amortised at 31 March 2003, was written off during the year.
The net book value of intangible fixed assets at 31 March 2004 included £1m (2003: £3m) relating to telecoms licences and £nil (2003: £3m) relating to capitalised software. The remaining net book value of intangible fixed assets related entirely to goodwill. The charge for the year relating to goodwill amortisation amounted to £99m (2003: £102m).
13. Tangible fixed assets
Assets | Motor | |||||||||
Plant | in the | vehicles | ||||||||
Land and | and | course of | and office | |||||||
buildings | machinery | construction | equipment | Total | ||||||
Group | £m | £m | £m | £m | £m | |||||
|
|
|
|
|
|
|
|
|
|
|
Cost at 1 April 2003 | 1,037 | 22,665 | 1,035 | 870 | 25,607 | |||||
Exchange adjustments | (67 | ) | (965 | ) | (17 | ) | (6 | ) | (1,055 | ) |
Additions | 13 | 345 | 1,020 | 101 | 1,479 | |||||
Disposals | (128 | ) | (144 | ) | (2 | ) | (124 | ) | (398 | ) |
Reclassifications | 3 | 760 | (907 | ) | 144 | | ||||
|
|
|
|
|
|
|
|
|
|
|
Cost at 31 March 2004 | 858 | 22,661 | 1,129 | 985 | 25,633 | |||||
|
|
|
|
|
|
|
|
|
|
|
Depreciation at 1 April 2003 | 343 | 7,818 | | 599 | 8,760 | |||||
Exchange adjustments | (12 | ) | (358 | ) | | (4 | ) | (374 | ) | |
Charge for the year | 19 | 732 | | 115 | 866 | |||||
Impairment charge (i) | | 5 | | 3 | 8 | |||||
Disposals | (74 | ) | (140 | ) | | (119 | ) | (333 | ) | |
|
|
|
|
|
|
|
|
|
|
|
Depreciation at 31 March 2004 | 276 | 8,057 | | 594 | 8,927 | |||||
|
|
|
|
|
|
|
|
|
|
|
Net book value at 31 March 2004 | 582 | 14,604 | 1,129 | 391 | 16,706 | |||||
|
|
|
|
|
|
|
|
|
|
|
Net book value at 31 March 2003 | 694 | 14,847 | 1,035 | 271 | 16,847 | |||||
|
|
|
|
|
|
|
|
|
|
(i) | Impairment charge related to business restructuring activities. |
The net book value of land and buildings comprised:
2004 | 2003 | |||
£m | £m | |||
|
|
|
|
|
Freehold | 564 | 653 | ||
Long leasehold (over 50 years) | 4 | 32 | ||
Short leasehold (under 50 years) | 14 | 9 | ||
|
|
|
|
|
582 | 694 | |||
|
|
|
|
The cost of tangible fixed assets at 31 March 2004 included £402m (2003: £347m) relating to interest capitalised.
Included within creditors (amounts falling due within one year) and creditors (amounts falling due after more than one year) at 31 March 2004 are contributions to the cost of tangible fixed assets amounting to £46m (2003: £32m) and £1,130m (2003: £1,079m) respectively.
Annual Report and Accounts 2003/04_ National Grid Transco 88
Notes to the Accounts _continued
14. Fixed asset investments | |||||||||||
Group | Company | ||||||||||
|
|
|
|
|
|
|
|
|
|||
Unlisted joint ventures | |||||||||||
share of net | Own | Other | Group | ||||||||
assets | shares | investments | Total | undertakings | |||||||
£m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2003 (as previously reported) | 44 | 39 | 170 | 253 | 2,225 | ||||||
Prior year adjustment (note 1) | | (39 | ) | | (39 | ) | | ||||
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2003 (restated) | 44 | | 170 | 214 | 2,225 | ||||||
Exchange adjustments | (5 | ) | | (21 | ) | (26 | ) | | |||
Additions | 1 | | 5 | 6 | | ||||||
Disposals | (17 | ) | | (22 | ) | (39 | ) | | |||
Share of retained loss | (4 | ) | | | (4 | ) | | ||||
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2004 | 19 | | 132 | 151 | 2,225 | ||||||
|
|
|
|
|
|
|
|
|
|
|
With the exception of investments in unlisted joint ventures, which are carried in the balance sheet at the Groups share of their net assets, all investments are carried at cost.
The names of the principal Group undertakings and joint ventures are included in note 30.
15. Stocks | ||||
Group | ||||
|
|
|
|
|
2004 | 2003 | |||
£m | £m | |||
|
|
|
|
|
Raw materials and consumables | 53 | 60 | ||
Work in progress | 21 | 53 | ||
Fuel stocks | 17 | 13 | ||
|
|
|
|
|
91 | 126 | |||
|
|
|
|
16. Debtors | |||||||||
Group | Company | ||||||||
|
|
|
|
|
|
|
|||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Amounts falling due within one year: | |||||||||
Trade debtors | 496 | 628 | | | |||||
Amounts owed by Group undertakings | | | 3,883 | 2,652 | |||||
Regulatory assets | 472 | 406 | | | |||||
Other debtors | 158 | 381 | | 12 | |||||
Prepayments and accrued income | 462 | 396 | 1 | | |||||
|
|
|
|
|
|
|
|
|
|
1,588 | 1,811 | 3,884 | 2,664 | ||||||
|
|
|
|
|
|
|
|
|
|
Amounts falling due after more than one year: | |||||||||
Regulatory assets | 2,639 | 3,337 | | | |||||
Other debtors | 69 | 58 | | | |||||
|
|
|
|
|
|
|
|
|
|
2,708 | 3,395 | | | ||||||
|
|
|
|
|
|
|
|
|
|
4,296 | 5,206 | 3,884 | 2,664 | ||||||
|
|
|
|
|
|
|
|
|
Provision for doubtful debts | Group | |
£m | ||
|
|
|
At 1 April 2003 | 116 | |
Exchange adjustments | (13 | ) |
Reinstatement of amounts previously written off | 14 | |
Charge for the year | 50 | |
Uncollectable amounts written off net of recoveries | (39 | ) |
|
|
|
At 31 March 2004 | 128 | |
|
|
Other debtors falling due within one year included tax recoverable of £nil (2003: £62m).
89 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
17. Assets held for exchange
The
assets held for exchange in 2003 of £17m represented the carrying value
of 74m shares of Energis plc which were held to satisfy obligations under the
6% Mandatorily Exchangeable Bonds 2003, as explained in note 20. The voting rights
in respect of 61m of these shares were vested in the bondholders.
18. Creditors (amounts falling due within one year) |
Group | Company | ||||||||
|
|
|
|
|
|
|
|||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Borrowings (note 20) | 1,706 | 2,246 | 388 | 557 | |||||
Trade creditors and accruals | 1,031 | 1,249 | | | |||||
Amounts owed to Group undertakings | | | 1,680 | 1,439 | |||||
Purchased power obligations | 57 | 68 | | | |||||
Corporate tax | 122 | | | | |||||
Social security and other taxes | 191 | 203 | | | |||||
Proposed dividend | 366 | 317 | 366 | 317 | |||||
Liability for index-linked swap contracts | 100 | 121 | | | |||||
Other creditors | 606 | 589 | 6 | 8 | |||||
Deferred income | 334 | 253 | 4 | | |||||
|
|
|
|
|
|
|
|
|
|
4,513 | 5,046 | 2,444 | 2,321 | ||||||
|
|
|
|
|
|
|
|
|
Other creditors included interest payable of £286m (2003: £269m).
19. Creditors (amounts falling due after more than one year) | |||||||||
Group | Company | ||||||||
|
|
|
|
|
|
|
|||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Borrowings (note 20) | 11,542 | 12,233 | 746 | | |||||
Purchased power obligations | 149 | 253 | | | |||||
Liability for index-linked swap contracts | 291 | 381 | | | |||||
Other creditors | 289 | 309 | | | |||||
Deferred income | 1,193 | 1,079 | 13 | | |||||
|
|
|
|
|
|
|
|
|
|
13,464 | 14,255 | 759 | | ||||||
|
|
|
|
|
|
|
|
|
Other creditors included £9m (2003: £nil) of corporate tax .
Purchased power obligations
As part of the sale of substantially all its non-nuclear
generating business, National Grid USA entered into purchased power transfer
agreements with the purchasers whereby the purchasers took over a number of long-term
contracts between National Grid USA and owners of various generating units. In
exchange, National Grid USA committed to make fixed monthly payments to the purchasers
towards the above-market cost of the contracts. The creditor relating to
purchased power obligations, which is also reflected in regulatory assets (note
16), represents the net present value of these monthly payments discounted at
3.3%. At 31 March 2004, amounts falling due after more than five years totalled £1m
(2003: £15m).
Liability for index-linked swap contracts
National Grid USA has entered into indexed swap contracts that expire in 2008. A further three swap contracts expired in June and September 2003. National Grid USA has recorded a liability in respect of these
contractual obligations and recorded a corresponding regulatory asset as losses on these instruments will be recovered from customers. The amount of the liability and regulatory asset will fluctuate over the remaining terms of the swaps as nominal
energy quantities are settled and may be adjusted as periodic assessments are made of energy prices.
Annual Report and Accounts 2003/04_ National Grid Transco 90
Notes to the Accounts _continued
20. Borrowings
The following table analyses the Groups
total borrowings after taking account of currency and interest rate swaps:
Group | Company | ||||||||
|
|
|
|
|
|
|
|||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Amounts falling due within one year: | |||||||||
Bank loans and overdrafts | 314 | 484 | 33 | | |||||
Commercial paper | 557 | 557 | 355 | 557 | |||||
6% Mandatorily Exchangeable Bonds 2003 | | 243 | | | |||||
Other bonds | 832 | 730 | | | |||||
Other loans | 3 | 232 | | | |||||
|
|
|
|
|
|
|
|
|
|
1,706 | 2,246 | 388 | 557 | ||||||
|
|
|
|
|
|
|
|
|
|
Amounts falling due after more than one year: | |||||||||
Bank loans | 823 | 613 | | | |||||
4.25% Exchangeable Bonds 2008 | | 502 | | | |||||
Other bonds | 10,587 | 10,881 | 746 | | |||||
Other loans | 132 | 237 | | | |||||
|
|
|
|
|
|
|
|
|
|
11,542 | 12,233 | 746 | | ||||||
|
|
|
|
|
|
|
|
|
|
Total borrowings | 13,248 | 14,479 | 1,134 | 557 | |||||
|
|
|
|
|
|
|
|
|
|
Total borrowings are repayable as follows: | |||||||||
In one year or less | 1,706 | 2,246 | 388 | 557 | |||||
In more than one year, but not more than two years | 877 | 1,031 | 52 | | |||||
In more than two years, but not more than three years | 2,043 | 834 | | | |||||
In more than three years, but not more than four years | 458 | 1,924 | | | |||||
In more than four years, but not more than five years | 1,575 | 882 | 308 | | |||||
In more than five years | |||||||||
by instalments | 35 | 46 | | | |||||
other than by instalments | 6,554 | 7,516 | 386 | | |||||
|
|
|
|
|
|
|
|
|
|
13,248 | 14,479 | 1,134 | 557 | ||||||
|
|
|
|
|
|
|
|
|
Charges over property, plant and other assets of the Group were provided as collateral over borrowings totalling £925m at 31 March 2004 (2003: £1,415m).
In February 1999, National Grid Holdings One plc issued 14.7m Equity Plus Income Convertible Securities (EPICs) in the form of 6% Mandatorily Exchangeable Bonds 2003 (exchangeable bonds) in the aggregate principal amount of US$401m. The EPICs were exchangeable, subject to certain exceptions, on or prior to 26 April 2003 at the option of the holder of the bonds (bondholders) into ordinary shares of Energis plc, a company which prior to 16 July 2002 was an associated undertaking. On 16 July 2002, trading in the shares of Energis plc was suspended and on 6 May 2003, five Energis shares for each EPICs were delivered by the Group to bondholders in satisfaction of the bonds outstanding at that date.
The notional amount at maturity of the Groups debt portfolio at 31 March 2004 was £14,164m (2003: £15,621m).
91 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
20. Borrowings
(continued)
The 4.25% Exchangeable Bonds 2008 (the Bonds)
were redeemed in whole at the option of the Group on 29 September 2003. The Bonds
were redeemed at their principal amount, including the redemption premium, except
where the holder elected to exchange their Bonds for ordinary shares in the Company.
There was no gain or loss on redemption.
The principal items included within Other bonds are listed below. Unless otherwise indicated, these instruments were outstanding at both 31 March 2004 and 31 March 2003.
(i) | Matured during the year ended 31 March 2004. |
(ii) | Issued during the year ended 31 March 2004. |
(iii) | Redeemed during the year ended 31 March 2004. |
(iv) | Issue tapped during the year ended 31 March 2004. |
Annual Report and Accounts 2003/04_ National Grid Transco 92
Notes to the Accounts _continued
21. Financial instruments
The
Groups treasury policy, described on
pages 43 to 46, includes details of the objectives, policies and strategies
of the Group associated with financial instruments with off balance sheet risk.
The Groups counterparty exposure under foreign currency swaps and foreign exchange contracts at 31 March 2004 was £442m (2003: £443m) and under interest rate swaps was £115m (2003: £170m).
The Group had no significant exposure to either individual counterparties or geographical groups of counterparties at 31 March 2004.
Where permitted by FRS 13 Derivatives and other Financial Instruments: Disclosures, short-term debtors and creditors have been excluded from the following disclosures. It is assumed that because of short maturities, the fair value of short-term debtors and creditors approximates to their book value.
Currency and interest rate composition of financial liabilities
The
currency and interest rate composition of the Groups financial liabilities
are shown in the table below after taking into account currency and interest
rate swaps:
Fixed rate liabilities | ||||||||||
|
|
|
|
|
||||||
Weighted | ||||||||||
average | ||||||||||
Weighted | period | |||||||||
average | for which | |||||||||
Total | Variable rate | Fixed rate | interest rate | rate is fixed | ||||||
At 31 March 2004 | £m | £m | £m | % | years | |||||
|
|
|
|
|
|
|
|
|
|
|
Sterling | 8,988 | 5,231 | 3,757 | 6.09 | 8.7 | |||||
US dollars | 4,260 | 1,376 | 2,884 | 7.03 | 4.9 | |||||
|
|
|
|
|
|
|
|
|
|
|
Borrowings | 13,248 | 6,607 | 6,641 | 6.50 | 7.1 | |||||
Other financial liabilities (sterling) | 40 | 40 | | | | |||||
Other financial liabilities (US dollars) | 602 | 564 | 38 | 5.07 | | (i) | ||||
|
|
|
|
|
|
|
|
|
|
|
13,890 | 7,211 | 6,679 | 6.49 | 7.1 | ||||||
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2003 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
Sterling | 9,655 | 4,157 | 5,498 | 6.29 | 8.3 | |||||
US dollars | 4,824 | 965 | 3,859 | 7.09 | 5.9 | |||||
|
|
|
|
|
|
|
|
|
|
|
Borrowings | 14,479 | 5,122 | 9,357 | 6.62 | 7.3 | |||||
Other financial liabilities (sterling) | 76 | 60 | 16 | 5.34 | 2.7 | |||||
Other financial liabilities (US dollars) | 824 | 755 | 69 | 5.77 | | (i) | ||||
|
|
|
|
|
|
|
|
|
|
|
15,379 | 5,937 | 9,442 | 6.61 | 7.2 | ||||||
|
|
|
|
|
|
|
|
|
|
(i) | Excludes non-equity minority interests of £38m (2003: £69m) with no final repayment date. |
At 31 March 2004 the weighted average interest rate on short-term borrowings of £1,706m (2003: £2,246m) was 4.0% (2003: 5.8%).
Foreign exchange forward deals held to manage the currency mix of the Groups borrowings portfolio comprising a £141m (2003: £165m) forward sale of US dollars have not been adjusted in the table above.
Other US dollar financial liabilities comprised indexed-linked energy swap contracts of £391m (2003: £502m), purchased power obligations due after more than one year of £149m (2003: £253m), non-equity minority interests of £38m (2003: £69m), and interest rate swaps of £24m (2003: £nil) which are shown at fair value as they are no longer considered a hedge.
Substantially all the variable rate borrowings are subject to interest rates which fluctuate with LIBOR for the appropriate currency at differing premiums or, in the case of certain US companies, are based on the market rate for tax-exempt commercial paper.
In calculating the weighted average number of years for which interest rates are fixed, swaps which are cancellable at the option of the swap provider are assumed to have a life based on the earliest date at which they can be cancelled.
93 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
21. Financial instruments
(continued)
Currency and interest rate composition of financial assets
The
currency and interest rate composition of the Groups financial assets are
shown in the table below after taking into account currency and interest rate
swaps:
Fixed rate assets | ||||||||||||
|
|
|
|
|
|
|
|
|
||||
At 31 March 2004 | Weighted | |||||||||||
average | ||||||||||||
Weighted | period | |||||||||||
Non-interest | average | for which | ||||||||||
Total | bearing | Variable rate | Fixed rate | interest rate | rate is fixed | |||||||
£m | £m | £m | £m | % | years | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling | 428 | | 428 | | | | ||||||
US dollars | 165 | | 165 | | | | ||||||
Other currencies | 23 | | 23 | | | | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments | 616 | | 616 | | | | ||||||
Other financial assets (sterling) | 45 | | | 45 | 11.50 | 5.1 | ||||||
Other financial assets (US dollars) | 34 | | | 34 | 5.08 | 13.8 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
695 | | 616 | 79 | 8.74 | 8.8 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2003 | ||||||||||||
Sterling | 423 | | 423 | | | | ||||||
US dollars | 147 | | 147 | | | | ||||||
Other currencies | 31 | | 31 | | | | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments | 601 | | 601 | | | | ||||||
Other financial assets (sterling) | 67 | 17 | | 50 | 11.50 | 4.5 | ||||||
Other financial assets (US dollars) | 34 | | 1 | 33 | 4.77 | 10.8 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
702 | 17 | 602 | 83 | 8.85 | 7.0 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments earned interest at local prevailing rates for maturity periods generally not exceeding 12 months, and included listed investments with a cost of £241m (2003: £226m) and market value of £241m (2003: £226m). Other financial assets at 31 March 2004 predominantly related to a net investment in a finance lease of £45m (2003: £50m), fixed asset investments of £34m (2003: £33m) and assets held for exchange of £nil (2003: £17m). The non-interest bearing assets held for exchange were realised in May 2003, on redemption of the 6% Mandatorily Exchangeable Bonds 2003, as described in notes 17 and 20.
The maturity profile of the Groups financial liabilities and assets are shown in the tables below after taking into account currency and interest rate swaps:
Maturity of financial liabilities at 31 March | 2004 | 2003 | ||
£m | £m | |||
|
|
|
|
|
In one year or less | 1,848 | 2,380 | ||
In more than one year, but not more than two years | 1,029 | 1,192 | ||
In more than two years, but not more than three years | 2,189 | 1,005 | ||
In more than three years, but not more than four years | 589 | 2,090 | ||
In more than four years, but not more than five years | 1,598 | 1,040 | ||
In more than five years | 6,637 | 7,672 | ||
|
|
|
|
|
13,890 | 15,379 | |||
|
|
|
|
Maturity of financial assets at 31 March | 2004 | 2003 | ||
£m | £m | |||
|
|
|
|
|
In one year or less | 625 | 611 | ||
In more than one year, but not more than two years | 11 | 8 | ||
In more than two years, but not more than three years | 10 | 25 | ||
In more than three years, but not more than four years | 11 | 10 | ||
In more than four years, but not more than five years | 10 | 11 | ||
In more than five years | 28 | 37 | ||
|
|
|
|
|
695 | 702 | |||
|
|
|
|
Annual Report and Accounts 2003/04_ National Grid Transco 94
Notes to the Accounts _continued
21. Financial instruments
(continued)
Fair values of financial instruments at 31 March
2004 | 2003 | ||||||||
|
|
|
|
|
|||||
Book value | Fair value | Book value | Fair value | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
6% Mandatorily Exchangeable Bonds 2003 | | | (243 | ) | (17 | ) | |||
Other short-term debt | (1,666 | ) | (1,678 | ) | (1,965 | ) | (1,973 | ) | |
4.25% Exchangeable Bonds 2008 | | | (502 | ) | (510 | ) | |||
Other long-term debt | (11,767 | ) | (12,800 | ) | (12,081 | ) | (13,042 | ) | |
Cash and investments | 616 | 616 | 601 | 601 | |||||
Other financial liabilities | (642 | ) | (641 | ) | (900 | ) | (871 | ) | |
Net investment in finance lease | 45 | 45 | 50 | 50 | |||||
Assets held for exchange | | | 17 | 17 | |||||
Other financial assets | 34 | 36 | 34 | 50 | |||||
|
|
|
|
|
|
|
|
|
|
Financial instruments held to manage interest rate and currency profiles: | |||||||||
Interest rate swaps | | (42 | ) | | 8 | ||||
Forward foreign currency contracts and cross-currency swaps | 185 | 331 | 312 | 533 | |||||
|
|
|
|
|
|
|
|
|
Market values, where available, have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing interest rates.
The notional principal amounts relating to financial instruments held to manage interest rate and currency profiles for interest rate swaps and forward rate agreements, foreign currency contracts and cross-currency swaps at 31 March 2004 amounted to £14,301m (2003: £6,363m) and £7,898m (2003: £5,017m) respectively.
Gains and losses on hedges | ||||||||||||
Unrecognised | Unrecognised | Unrecognised | Deferred | Deferred | Deferred | |||||||
gains | losses | net gain | gains | losses | net (loss)/gain | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on hedges at 1 April 2003 | 458 | (229 | ) | 229 | 39 | (88 | ) | (49 | ) | |||
(Gains)/losses arising in previous years recognised in the year | (50 | ) | 18 | (32 | ) | (12 | ) | 12 | | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) arising in previous years not recognised in the year | 408 | (211 | ) | 197 | 27 | (76 | ) | (49 | ) | |||
Gains/(losses) arising in the year | 22 | (115 | ) | (93 | ) | 104 | (6 | ) | 98 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on hedges at 31 March 2004 | 430 | (326 | ) | 104 | 131 | (82 | ) | 49 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which: | ||||||||||||
Gains/(losses) expected to be recognised within one year | 5 | (21 | ) | (16 | ) | 21 | (13 | ) | 8 | |||
Gains/(losses) expected to be recognised after one year | 425 | (305 | ) | 120 | 110 | (69 | ) | 41 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing facilities
At
31 March 2004, the Group had bilateral committed credit facilities of £1,823m (2003: £1,221m), of which £1,808m (2003: £1,221m) were undrawn. The Group also had committed credit facilities
from syndicates of banks of £1,313m at 31 March 2004 (2003: £1,880m), £1,201m (2003: £1,880m)
of which were undrawn, and an analysis of the maturity of these undrawn committed
facilities is shown below:
Undrawn committed borrowing facilities | ||||
2004 | 2003 | |||
£m | £m | |||
|
|
|
|
|
Expiring: | ||||
In one year or less | 2,269 | 1,155 | ||
In more than one year, but not more than two years | 575 | 966 | ||
In more than two years | 165 | 980 | ||
|
|
|
|
|
3,009 | 3,101 | |||
|
|
|
|
Of the unused facilities at 31 March 2004 £2,604m (2003: £2,135m) was held as back-up to commercial paper and similar borrowings. The remainder was available as additional back-up to commercial paper and for other general corporate purposes.
95 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
22. Provisions for liabilities and charges | ||||||||||||||
Group
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement | Deferred | Total | ||||||||||||
Decommissioning | benefits | Environmental | taxation | Restructuring | Other | provisions | ||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2003 | 143 | 551 | 442 | 3,031 | 156 | 83 | 4,406 | |||||||
Exchange adjustments | (21 | ) | (59 | ) | (25 | ) | (148 | ) | | | (253 | ) | ||
Additions | 24 | 260 | 35 | 84 | 87 | 13 | 503 | |||||||
Unwinding of discount | 7 | | 22 | | | | 29 | |||||||
Unused amounts reversed | | | (10 | ) | | | | (10 | ) | |||||
Utilised | (22 | ) | (288 | ) | (36 | ) | | (154 | ) | (3 | ) | (503 | ) | |
Other | | | | (15 | ) | | | (15 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2004 | 131 | 464 | 428 | 2,952 | 89 | 93 | 4,157 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decommissioning provision of £131m at 31 March 2004 represented the net present value of the estimated expenditure (discounted at a nominal rate of 4.25%) expected to be incurred in respect of the decommissioning of certain nuclear generating units and other related provisions. Related regulatory assets were also recognised (note 16). Expenditure is expected to be incurred between 2005 and 2010. Additions in the year included £3m in respect of the change in the discount rate.
The post-retirement benefits provision was in respect of pensions £273m (2003: £253m) and other post-retirement benefits (health care and life insurance) £191m (2003: £298m).
The environmental provision represented the estimated environmental restoration and remediation costs relating to a number of sites owned and managed by the Group.
At 31 March 2004, £252m (2003: £244m) of the environmental provision represented the net present value of the estimated statutory decontamination costs of old gas manufacturing sites in the UK (discounted using a nominal rate of 5.25%). The anticipated timing of the cash flows for statutory decontamination cannot be predicted with certainty, but it is expected to be incurred over the period 2005 to 2057 with some 60% of the spend projected to be spent over the next five years. During the year ended 31 March 2004, a project to survey all old gas work contaminated sites was completed. With this new information, a re-evaluation of the provision was made which also took into account the impact of the recent changes to the regulations on waste disposal and resulted in an additional provision being made as an exceptional charge of £28m in the profit and loss account see note 4a.
There are a number of uncertainties that affect the calculation of the provision for UK gas site decontamination, including the impact of regulation, the accuracy of the site surveys, unexpected contaminants, transportation costs, the impact of alternative technologies and changes in the discount rate. The Group has made its best estimate of the financial effect of these uncertainties in the calculation of the provision, but future material changes in any of the assumptions could materially impact on the calculation of the provision and hence the profit and loss account.
The undiscounted amount of the provision at 31 March 2004 relating to UK gas site decontamination was £341m, being the undiscounted best estimate of the liability having regard to the uncertainties referred to above (excluding the impact of changes in discount rate). The Group believes that the best estimate of this liability lies in a range of between £260m and £420m.
The environmental provision at 31 March 2004 also included £165m (2003: £186m) which represented the net present value of estimated remediation expenditure in the US which has been discounted at a nominal rate of 5.75%. This expenditure is expected to be incurred between 2005 and 2046. The uncertainties regarding the calculation of this provision are similar to those considered in respect of UK gas decontamination. However, unlike the UK, with the exception of immaterial amounts of such costs, this expenditure is recoverable from rate payers under the terms of the Groups various rate agreements in the US. As a consequence, any movement in the calculation of the best estimate of the Groups liability is matched by a corresponding movement in the value of regulatory assets (note 16). Therefore, there is no material impact on the Groups profit and loss account arising from changes in the calculation of this liability.
The undiscounted amount of environmental provision relating to the Groups US based sites amounted to £233m at 31 March 2004. The Group does not have sufficient information to calculate a range of outcomes, but it is expected that any outcome of the liability would be recovered from rate payers.
The remainder of the environmental provision of £11m related to the expected cost of remediation of certain other sites in the UK, is calculated on an undiscounted basis and is expected to be utilised within the next five years.
The undiscounted amount of the total Group environmental provision at 31 March 2004 was £585m.
At 31 March 2004, £42m of the total restructuring provision (2003: £50m) consisted of provisions for the disposal of surplus leasehold interests and rates payable on surplus properties. The expected payment dates for property restructuring costs remain uncertain. The remainder of the restructuring provision related to business reorganisation costs in the UK.
Other provisions at 31 March 2004 included £54m (2003: £49m) of estimated liabilities in respect of past events incurred by the Groups insurance undertakings, including employer liability claims. In accordance with insurance industry practice, these estimates were based on experience from previous years and there was, therefore, no identifiable payment date. Other provisions at 31 March 2004 also included £12m (2003: £12m) in respect of obligations associated with the impairment of investments in joint ventures.
Deferred taxation comprised: | ||||
Provided | ||||
|
|
|
|
|
2004
|
2003
|
|||
£m
|
£m
|
|||
|
|
|
|
|
Accelerated capital allowances | 2,748 | 2,997 | ||
Other timing differences | 204 | 34 | ||
|
|
|
|
|
2,952 | 3,031 | |||
|
|
|
|
A deferred tax asset in respect of substantial capital losses has not been recognised because their future recovery was uncertain. Final agreement of certain of these losses is outstanding, however, losses in excess of £700m have been agreed with the relevant tax authorities as at 31 March 2004.
Annual Report and Accounts 2003/04_ National Grid Transco 96
Notes to the Accounts _continued
23. Share capital
Group | Allotted, called up and fully paid | |||
|
|
|||
millions | £m | |||
|
|
|
|
|
At 31 March 2001 (i) | 2,808 | 281 | ||
Issued during the year | 292 | 29 | ||
|
|
|
|
|
At 31 March 2002 | 3,100 | 310 | ||
Issued during the year | 1 | | ||
Redeemed during the year | (24 | ) | (2 | ) |
|
|
|
|
|
At 31 March 2003 | 3,077 | 308 | ||
Issued during the year | 11 | 1 | ||
|
|
|
|
|
At 31 March 2004 | 3,088 | 309 | ||
|
|
|
|
|
One £1 special rights non-voting redeemable preference share (2003 and 2002: one). | ||||
|
|
|
|
(i) | In accordance with merger accounting principles, the shares issued in connection with the Merger have been treated as if those shares were in issue throughout the year ended 31 March 2003 and comparative periods. |
The total consideration received by the Group and Company in respect of ordinary shares issued during the year ended 31 March 2004 was £34m
(i) | These shares were nil paid at 31 March 2002. They represented shares issued to financial institutions in order to purchase Niagara Mohawk which were not required to form part of the final consideration and were sold on the open market during the year ended 31 March 2003. |
At 31 March 2001, the authorised share capital of the Company was £250m and the allotted and issued share capital of the Company was £50,000 (500,000 ordinary shares of 10 pence each), of which £12,500 had been called up and paid.
At 31 March 2002, the authorised share capital of the Company was £250m (2,500m ordinary shares of 10 pence each and one £1 special rights non-voting redeemable preference share).
On 21 October 2002, the authorised share capital of the Company was increased to £500m (5,000m ordinary shares of 10 pence each and one £1 special rights non-voting redeemable preference share). This remained unchanged at 31 March 2003 and 31 March 2004.
During the year ended 31 March 2003, the Group purchased for cancellation 24,225,000 of its ordinary shares at an average price per ordinary share of 401.59p.
The special rights non-voting redeemable preference share of £1 in National Grid Transco plc (the Special Share), held on behalf of the Crown, was issued by National Grid to the Secretary of State for Trade and Industry on 31 January 2002 as part of a scheme of arrangement. It was redeemed at par on 5 May 2004. The Special Share did not carry any rights to vote at general meetings but entitled the holder to receive notice of and to attend and speak at such meetings. Certain matters, in particular the alteration of certain Articles of Association of the Company, required the prior written consent of the holder of the Special Share. The Special Share conferred no right to participate in the capital or profits of the Company, except that on a winding-up the holder of the Special Share was entitled to repayment of £1 in priority to other shareholders. Prior to 31 January 2002, the Secretary of State for Trade and Industry held a Special Share with equivalent rights in National Grid Holdings One plc. A similar special share in Lattice was held at 31 March 2002 by the Crown. This share was redeemed on 21 October 2002 as part of the Merger arrangements.
Share option schemes
The
Group operates two principal forms of share option scheme. They are an employee
sharesave scheme and an Executive Share Option Scheme (the Executive Scheme).
The details given below relate to the schemes operated by the Group and the sharesave
scheme formerly operated by Lattice. Following the Merger, most Lattice scheme
options were converted into 0.375 National Grid Transco plc options. The remaining
Lattice scheme options lapsed on 29
April 2003.
In any 10-year period, the maximum number of shares that may be issued or issuable pursuant to the exercise of options under all of the Groups share option schemes may not exceed the number of shares representing 10% of the issued ordinary share capital from time to time.
97 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
23. Share capital
(continued)
Share option schemes
(continued)
The sharesave scheme is savings related where, under normal circumstances, share options are exercisable on completion of a three or a five-year save-as-you-earn contract. The exercise price of options granted
represents 80% of the market price at the date the option was granted.
The Executive Scheme applies to senior executives, including Executive Directors. Options granted for the 1999/2000 financial year are subject to the achievement of performance targets related to earnings per share growth over a three-year period and have now vested. Options granted for the 2000/01 financial year and thereafter are subject to the achievement of performance targets related to total shareholder returns over a three-year period and these have not yet vested. The share options are generally exercisable between the third and tenth anniversaries of the date of grant if the relevant performance target is achieved.
Movement in options to subscribe for ordinary shares under the Groups various options schemes for the three years ended 31 March 2004 are shown below and include those options related to shares issued to employee benefit trusts:
Sharesave scheme options | Executive share scheme options | Total options | |||||||||
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Weighted | Weighted | ||||||||||
average price | average price | ||||||||||
£ | millions | £ | millions | millions | |||||||
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At 31 March 2001 | 2.54 | 13.1 | 4.31 | 6.9 | 20.0 | ||||||
Granted | 4.57 | 2.4 | 5.50 | 2.6 | 5.0 | ||||||
Lapsed forfeited | 3.74 | (0.7 | ) | | | (0.7 | ) | ||||
Lapsed expired | | | 4.17 | (0.1 | ) | (0.1 | ) | ||||
Exercised | 1.76 | (5.0 | ) | 3.05 | (0.9 | ) | (5.9 | ) | |||
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At 31 March 2002 | 3.33 | 9.8 | 4.81 | 8.5 | 18.3 | ||||||
Converted from Lattice sharesave scheme | 3.18 | 26.7 | | | 26.7 | ||||||
Granted | 3.62 | 9.9 | 4.78 | 5.1 | 15.0 | ||||||
Lapsed forfeited | 4.14 | (3.7 | ) | 5.10 | | (3.7 | ) | ||||
Lapsed expired | 3.68 | (1.0 | ) | 2.85 | (0.1 | ) | (1.1 | ) | |||
Exercised | 2.39 | (3.7 | ) | 2.84 | (0.4 | ) | (4.1 | ) | |||
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At 31 March 2003 | 3.31 | 38.0 | 4.86 | 13.1 | 51.1 | ||||||
Granted | 3.17 | 10.4 | 4.05 | 0.1 | 10.5 | ||||||
Lapsed expired | 3.52 | (5.1 | ) | 5.24 | (0.9 | ) | (6.0 | ) | |||
Exercised | 3.16 | (11.6 | ) | 2.90 | (0.3 | ) | (11.9 | ) | |||
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At 31 March 2004 | 3.32 | 31.7 | 4.84 | 12.0 | 43.7 | ||||||
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Included within options outstanding at 31 March 2004 and 31 March 2003 were the following options which were exercisable:
At 31 March 2004 | 3.32 | 0.8 | 3.78 | 2.4 | 3.2 | |||||
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At 31 March 2003 | 3.34 | 1.7 | 3.72 | 2.4 | 4.1 | |||||
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The weighted average remaining contractual life of options in the employee sharesave scheme at 31 March 2004 was 2 years and 6 months. These options have exercise prices between £3.12 and £4.57.
Lattice sharesave scheme
Weighted | Sharesave | |||
average price | scheme | |||
£ | millions | |||
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At 31 March 2001 | 1.18 | 71.0 | ||
Granted | 1.29 | 11.0 | ||
Lapsed forfeited | 1.18 | (2.8 | ) | |
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At 31 March 2002 | 1.19 | 79.2 | ||
Lapsed forfeited | 1.21 | (1.4 | ) | |
Lapsed expired | 1.20 | (3.4 | ) | |
Exercised | 1.19 | (1.9 | ) | |
Converted to National Grid Transco options | 1.19 | (71.2 | ) | |
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At 31 March 2003 | 1.20 | 1.3 | ||
Lapsed expired | 1.20 | (1.3 | ) | |
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At 31 March 2004 | | | ||
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Following the merger of Lattice and National Grid, a number of employees did not convert their Lattice sharesave options into National Grid Transco options. These options lapsed on 29 April 2003 if they had not been exercised by that date.
The National Grid Transco employee sharesave scheme is Inland Revenue approved and hence, as permitted by UITF abstract 17 (revised 2000) Employee share shemes, no charge has been made to the profit and loss account.
Annual Report and Accounts 2003/04_ National Grid Transco 98
Notes to the Accounts _continued
23. Share capital
(continued)
Share option schemes
(continued)
Executive options outstanding and exercisable and their weighted average exercise prices for the respective ranges of exercise prices and years at 31 March 2004 are as follows:
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Weighted average | Weighted average | ||||||||||
exercise price of | Number | exercise price of | Number | Exercise price | Normal dates | ||||||
exercisable options | exercisable | outstanding options | outstanding | per share | of exercise | ||||||
£ | millions | £ | millions | pence | Years | ||||||
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Executive scheme | 2.77 | 0.7 | 2.77 | 0.7 | 258.0 280.5 | 2001 2008 | |||||
3.78 | 0.7 | 3.78 | 0.7 | 375.8 490.0 | 2002 2009 | ||||||
4.91 | 0.2 | 5.31 | 1.9 | 424.0 566.5 | 2003 2010 | ||||||
5.36 | 0.2 | 5.33 | 1.4 | 526.0 623.0 | 2004 2011 | ||||||
5.56 | 0.2 | 5.50 | 2.3 | 479.5 563.0 | 2005 2012 | ||||||
4.57 | 0.3 | 4.68 | 4.9 | 434.3 481.5 | 2006 2013 | ||||||
4.05 | 0.1 | 4.05 | 0.1 | 405.0 | 2007 2014 | ||||||
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3.78 | 2.4 | 4.84 | 12.0 | ||||||||
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24. Reserves
Group | Company | ||||||||||||||
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Share premium account | Revaluation reserve | Other reserves | Profit and loss account | Share premium account | Other reserve | Profit and loss account | |||||||||
£m | £m | £m | £m | £m | £m | £m | |||||||||
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At 31 March 2001 (as previously reported) | | 50 | (5,202 | ) | 6,225 | | | | |||||||
Prior year adjustment | | | | (26 | ) | | | | |||||||
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At 31 March 2001 (restated) | | 50 | (5,202 | ) | 6,199 | | | | |||||||
Exchange adjustments | | | | (58 | ) | | | | |||||||
Tax on exchange adjustments | | | | 21 | | | | ||||||||
Ordinary shares issued during the year | |||||||||||||||
Share option scheme | 46 | | | | 1 | | |||||||||
Acquisition | 1,242 | | | | 1,242 | | | ||||||||
Transfer on issue of certain shares
under share
option schemes
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11 | | | (11 | ) | | | | |||||||
Unrealised
gain on transfer of assets to a joint
venture (net of tax)
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| | 7 | | | | | ||||||||
Reduction in revaluation reserve | | (50 | ) | | | | | | |||||||
Movement in shares held by employee share trusts | | | | (27 | ) | | | | |||||||
Retained (loss)/profit for the year | | | | (901 | ) | | | 498 | |||||||
Transfer | (56 | ) | | 56 | | | | | |||||||
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At 31 March 2002 (restated) | 1,243 | | (5,139 | ) | 5,223 | 1,243 | | 498 | |||||||
Exchange adjustments | | | | (322 | ) | | | | |||||||
Tax on exchange adjustments | | | | 12 | | | | ||||||||
Ordinary shares issued during the year | 2 | | | | 4 | | | ||||||||
Repurchase and cancellation of ordinary shares | | | 2 | (97 | ) | | 2 | (97 | ) | ||||||
Transfer
on issue of certain shares under share
option schemes
|
2 | | | (2 | ) | | | | |||||||
Unrealised
gain on transfer of assets to a joint
venture (net of tax)
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| | 6 | | | | | ||||||||
Movement in shares held by employee share trusts | | | | 14 | | | | ||||||||
Retained (loss)/profit for the year | | | | (139 | ) | | | 734 | |||||||
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At 31 March 2003 (restated) | 1,247 | | (5,131 | ) | 4,689 | 1,247 | 2 | 1,135 | |||||||
Exchange adjustments | | | | (417 | ) | | | | |||||||
Tax on exchange adjustments | | | | (12 | ) | | | | |||||||
Ordinary shares issued during the year | 33 | | | | 33 | | | ||||||||
Movement in shares held by employee share trusts | | | | 5 | | | | ||||||||
Retained profit for the year | | | | 490 | | | 186 | ||||||||
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At 31 March 2004 | 1,280 | | (5,131 | ) | 4,755 | 1,280 | 2 | 1,321 | |||||||
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The Company has not presented its own profit and loss account as permitted by section 230 of the Companies Act 1985. The Companys profit after taxation was £795m (2003: £1,264m; 2002: £667m).
Other reserves are non-distributable reserves. They primarily represent the difference between the carrying value of Group undertakings, investments and their respective capital structures following the Lattice Demerger from BG Group plc and the 1999 Lattice Refinancing of £(5,745)m. The reserve also included the merger differences described below of £221m and £359m together with unrealised gains of £32m on transfer of fixed assets to a former joint venture which subsequently became a Group undertaking.
The revaluation reserve brought forward as at 1 April 2001 related to investment properties. These properties were reclassified as other land and buildings in 2001 and are now reported at historical cost.
During the year ended 31 March 2002, the application of merger accounting principles to a group reconstruction which involved the creation of a new holding company gave rise to a difference of £359m. It was accounted for as a merger difference and included within other reserves. In accordance with merger accounting principles, the shares issued in connection with the scheme of arrangement to acquire the former holding company of the Group (National Grid Holdings One plc), as adjusted to reflect the issue of options were treated as if issued throughout the year ended 31 March 2002 and comparative period.
99 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
24. Reserves
(continued)
During the year ended 31 March 2003, the application
of merger accounting principles to the Merger gave rise to a difference of £221m.
It was accounted for as a merger difference and included within other reserves.
The difference represented the excess of nominal share capital in issue by Lattice
at the date of the Merger over the National Grid Transco plc share capital issued
to Lattice shareholders. In accordance with merger accounting principles,
the shares issued in connection with the Merger were treated as if issued throughout
the year ended 31 March 2003 and comparative periods.
Own shares are included in the profit and loss account reserve at 31 March 2004 and related to 9m 10p ordinary shares in National Grid Transco plc, held by employee share trusts for the purpose of satisfying certain obligations under various share option schemes operated by the Group. The carrying value of £34m (market value £43m) at 31 March 2004 represented the exercise amounts receivable in respect of those which were issued at market value by the Company and the cost in respect of those shares purchased in the open market. These own shares were, in prior years, held in fixed assets investments, the adoption of UITF 38 as indicated in note 1 has resulted in these shares now being held within the profit and loss account reserve, as a result the profit and loss account reserve for 31 March 2001, 31 March 2002 and 31 March 2003 were restated.
Funding is provided to the trusts by Group undertakings. The trusts have waived their rights to dividends on these shares.
Own shares at 31 March 2003 related to 10m 10p ordinary shares in National Grid Transco plc (book value £39m, market value £37m).
Own shares at 31 March 2002 related to 13m 10p ordinary shares in National Grid (book value £46m, market value £61m) and 33m 10p ordinary shares in Lattice (book value £7m, market value £57m), prior to the Merger.
25. Non-equity minority interests
The non-equity minority interests of £38m (2003: £69m)
comprised cumulative preference stock issued by Group undertakings.
26. Reconciliation of movement in equity shareholders funds | ||||||
2004 | 2003 | 2002 | ||||
(restated) | (restated) | |||||
£m | £m | £m | ||||
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Profit/(loss) for the year | 1,099 | 391 | (321 | ) | ||
Dividends | (609 | ) | (530 | ) | (580 | ) |
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490 | (139 | ) | (901 | ) | ||
Issue of ordinary shares | 34 | 2 | 1,317 | |||
Repurchase and cancellation of ordinary shares | | (97 | ) | | ||
Exchange adjustments | (417 | ) | (322 | ) | (58 | ) |
Tax on exchange adjustments | (12 | ) | 12 | 21 | ||
Movement in shares held by employee share trust | 5 | 14 | (27 | ) | ||
Unrealised gain on transfer of assets to a joint venture (net of tax) | | 6 | 7 | |||
Reduction in revaluation reserve on reclassification of investment properties | | | (50 | ) | ||
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Net increase/(decrease) in equity shareholders funds | 100 | (524 | ) | 309 | ||
Equity shareholders funds at start of year | 1,113 | 1,637 | 1,328 | |||
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Equity shareholders funds at end of year | 1,213 | 1,113 | 1,637 | |||
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Annual Report and Accounts 2003/04_ National Grid Transco 100
Notes to the Accounts _continued
27. Group cash flow statement
a) Reconciliation of operating profit to net cash inflow from operating activities before exceptional items |
||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
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Operating profit of Group undertakings | 1,855 | 1,612 | 1,060 | |||
Group exceptional operating items | 277 | 476 | 673 | |||
Depreciation and amortisation | 1,117 | 1,088 | 876 | |||
Decrease/(increase) in stocks | 31 | (16 | ) | 3 | ||
(Increase)/decrease in debtors | (121 | ) | (149 | ) | 222 | |
(Decrease)/increase in creditors | (6 | ) | 159 | (180 | ) | |
Decrease in provisions | (95 | ) | (16 | ) | (260 | ) |
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Net cash inflow from operating activities before exceptional items | 3,058 | 3,154 | 2,394 | |||
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b) Disposal of investments | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
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Cash consideration received | 33 | 328 | 37 | |||
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Comprises: | ||||||
Disposal of Group undertakings | | 92 | 37 | |||
Disposal of other investments | 33 | 236 | | |||
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33 | 328 | 37 | ||||
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c) Acquisition of Group undertakings | ||||||
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
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Payments to acquire Group undertakings | | | (943 | ) | ||
Overdraft of Group undertakings acquired | | | (7 | ) | ||
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| | (950 | ) | |||
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During the year ended 31 March 2004 certain cross-currency swaps were terminated and £209m of cash was received. £61m of this cash flow was reported in the cash flow statement within the total of net cash outflow for returns on investments and servicing of finance amounting to £(692)m, and £148m was reported within net cash inflow from financing. Termination of these cross-currency swaps also necessitated a re-translation of Euro denominated debt at new swapped rates amounting to £(140)m, which was reported within the net exchange adjustments of £534m reported above.
101 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
27. Group
cash flow statement
(continued)
e) Analysis of changes in net debt |
||||||||||||
Acquisition | Other | |||||||||||
At 1 April | Cash | of Group | Exchange | non-cash | At 31 March | |||||||
2001 | flow | undertakings | adjustments | movements | 2002 | |||||||
£m | £m | £m | £m | £m | £m | |||||||
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Cash at bank and in hand | 28 | 82 | | | | 110 | ||||||
Bank overdrafts | (24 | ) | (60 | ) | | | | (84 | ) | |||
22 | ||||||||||||
Current asset investments | 491 | (347 | ) | 215 | (5 | ) | | 354 | ||||
Borrowings due after one year | (8,254 | ) | (1,830 | ) | (3,189 | ) | 11 | 549 | (12,713 | ) | ||
Borrowings due within one year | (1,346 | ) | 624 | (704 | ) | 14 | (554 | ) | (1,966 | ) | ||
(1,206 | ) | |||||||||||
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(9,105 | ) | (1,531 | ) | (3,678 | ) | 20 | (5 | ) | (14,299 | ) | ||
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Other | ||||||||||||
At 1 April | Cash | Exchange | Settlement | non-cash | At 31 March | |||||||
2003 | flow | adjustments | of EPICs | movements | 2004 | |||||||
£m | £m | £m | £m | £m | £m | |||||||
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Cash at bank and in hand | 119 | (21 | ) | (2 | ) | | | 96 | ||||
Bank overdrafts | (62 | ) | 34 | 2 | | | (26 | ) | ||||
13 | ||||||||||||
Current asset investments | 482 | 48 | (10 | ) | | | 520 | |||||
Borrowings due after one year | (12,233 | ) | (1,117 | ) | 448 | | 1,360 | (11,542 | ) | |||
Borrowings due within one year | (2,184 | ) | 1,543 | 96 | 243 | (1,378 | ) | (1,680 | ) | |||
426 | ||||||||||||
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(13,878 | ) | 487 | 534 | 243 | (18 | ) | (12,632 | ) | ||||
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28. Related party transactions
Transactions with related parties were in the normal course of business and are summarised below. Transactions with subsidiaries or associated undertakings disposed of during the year are deemed to be related party
transactions from the date of disposal and have been included within the following table:
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
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Sales: | ||||||
Services supplied | 6 | 10 | 33 | |||
Finance lease rentals | | 11 | 9 | |||
Tangible fixed assets | | | 28 | |||
Purchases: | ||||||
Services received | 25 | 59 | 55 | |||
Finance lease rentals | | 1 | | |||
Tangible fixed assets | | 12 | 3 | |||
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At 31 March 2004, the Group had amounts receivable and payable amounting to £1m and £1m respectively with related parties.
During 2002/03, amounts were paid to or in respect of joint ventures, arising from the Groups obligations from its decision to exit from these investments. The payments made during that year amounted to £153m, all of which had been provided for at 31 March 2002.
At 31 March 2003, amounts due to and from The Leasing Group plc, a former subsidiary undertaking, amounted to £73m and £79m respectively. In addition, at 31 March 2003 the Group had a net investment in a finance lease with a related party amounting to £50m, of which £5m fell due within one year. Rentals received and receivable relating to this lease in 2003 amounted to £11m.
Annual Report and Accounts 2003/04_ National Grid Transco 102
Notes to the Accounts _continued
29. Commitments and contingencies
a) Future capital expenditure |
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Group | Joint ventures | ||||||||
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2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
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Contracted for but not provided | 448 | 664 | | 1 | |||||
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b) Lease commitments At 31 March 2004, the Groups operating lease commitments for the financial year ending 31 March 2005 amounted to £59m (2003: £74m) and are analysed by lease expiry date as follows:
Land and buildings | Other | Total | |||||||||||
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2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||
£m | £m | £m | £m | £m | £m | ||||||||
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Within one year | 2 | 1 | 4 | 7 | 6 | 8 | |||||||
Between two and five years | 5 | 4 | 15 | 20 | 20 | 24 | |||||||
After five years | 21 | 26 | 12 | 16 | 33 | 42 | |||||||
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28 | 31 | 31 | 43 | 59 | 74 | ||||||||
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Total Group commitments under non-cancellable operating leases were as follows:
2004 | 2003 | |||
£m | £m | |||
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|
|
In one year or less | 59 | 74 | ||
In more than one year, but not more than two years | 45 | 52 | ||
In more than two years, but not more than three years | 40 | 41 | ||
In more than three years, but not more than four years | 32 | 32 | ||
In more than four years, but not more than five years | 31 | 30 | ||
In more than five years | 271 | 247 | ||
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478 | 476 | |||
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c) Power commitments
At 31 March 2004, the Group had obligations to purchase energy under long-term contracts. The following table analyses these commitments, excluding those purchased power obligations, the net present value of which is
already reflected in creditors (notes 18 and 19):
2004 | 2003 | |||
(restated) | ||||
£m | £m | |||
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|
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In one year or less | 1,065 | 1,320 | ||
In more than one year, but not more than two years | 629 | 1,016 | ||
In more than two years, but not more than three years | 592 | 679 | ||
In more than three years, but not more than four years | 575 | 662 | ||
In more than four years, but not more than five years | 559 | 624 | ||
In more than five years | 2,135 | 2,374 | ||
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5,555 | 6,675 | |||
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At 31 March 2003, power commitments were shown net of agreed forward contractual sales of £346m. In the current year the commitments shown above are presented without the netting off of any related contractual sales. As a result, the comparatives have been restated.
103 National Grid Transco_ Annual Report and Accounts 2003/04
Notes to the Accounts _continued
29. Commitments and contingencies
(continued)
d) Other commitments, contingencies
and guarantees
The value of other Group
commitments, contingencies and guarantees at 31 March 2004 amounted to £263m (2003: £221m), including guarantees amounting to £168m (2003: £134m). Included within these
amounts are outstanding BG Group related commitments and contingencies amounting to £13m (2003: £13m),
arising from the restructuring of BG Group in 1999.
Details of the guarantees entered into by the Group at 31 March 2004 are shown below: | |
i) | performance guarantees of £24m relating to certain property obligations of a group undertaking; |
ii) | £50m guarantee of the obligations of a Group undertaking to pay liabilities under a meter operating contract for a duration expected to be 20-30 years; |
iii) | a performance guarantee during construction of the Victoria to Tasmania interconnector, that expires on commissioning, of £41m; |
iv) | a four-year guarantee relating to an interconnector construction project amounting to £20m provided by the Company; |
v) | guarantees in respect of a former associate amounting to £14m; and |
vi) | other guarantees amounting to £19m arising in the normal course of business and entered into on normal commercial terms. |
The Company has also guaranteed the lease obligations of a former associate to a Group undertaking, amounting to £45m (2003: £50m).
e) Parent Company loan guarantees on
behalf of Group undertakings
The
Company has guaranteed the repayment of principal sums, any associated premium
and interest on specific loans due from certain Group undertakings to third
parties. At 31 March 2004, the sterling equivalent amounted
to £1,892m (2003: £1,845m). The guarantees are for varying terms
between four and 10 years.
f) Larkhall prosecution
Following a fatal accident in Larkhall, Lanarkshire
in December 1999 in which four people died, Transco faces charges alleging
breaches of sections 3 and 33 of the Health & Safety at Work Act 1974.
The case is currently listed for trial in Edinburgh commencing on 27 September
2004. The maximum penalty for breach of either of the above sections is an
unlimited fine.
g) Sale of Millstone 3
In
November 1999, New England Power (NEP), a subsidiary of National Grid USA,
entered into an agreement with Northeast Utilities (NU) to settle claims
made by NEP in relation to the operation of the Millstone 3 nuclear unit.
As part of this agreement, NU agreed to include NEPs 16.2% share in an auction of NUs share in that unit, at a guaranteed price, irrespective of the price actually received at auction. On 31 March 2001, the Millstone 3 sale was
completed and proceeds of US$28m (£20m) were received by NEP. Millstone 3 was subsequently sold to Dominion Resources Inc. for a total of approximately US$855m (£602m).
Regulatory authorities from Rhode Island, New Hampshire and Massachusetts have expressed an intent to challenge the reasonableness of the settlement agreement as NEP would have received approximately US$140m of sale proceeds without the agreement. Any dispute will be resolved by the Federal Energy Regulatory Commission (FERC). The Group believes that it acted prudently since the amount received under the settlement agreement was the highest sale price for a nuclear unit at the time the agreement was reached.
h) Environmental related litigation
On 10 January 2002, New York State filed a civil action against Niagara Mohawk in US District Court in Buffalo, New York, for alleged violations of the federal Clean Air Act, related state environmental laws and the
common law at the Huntley and Dunkirk power plants, which Niagara Mohawk sold in 1999 to affiliates of NRG Energy, Inc. (collectively with its affiliates, NRG). The State alleged, among other things, that between 1982 and 1999, Niagara Mohawk
modified the two plants 55 times without obtaining proper preconstruction permits and implementing proper pollution equipment controls.
On 27 March 2003, the court issued an order granting in part Niagara Mohawks motion to dismiss, which had been filed in 2002. Based on applicable statutes of limitations, the court reduced the number of projects allegedly requiring preconstruction permits under the Clean Air Act from 55 to nine.
On 31 December 2003, the court granted the States motion to amend the complaint, allowing it to assert operating permit violations against Niagara Mohawk and NRG, though still barring monetary penalties for actions outside the statute of limitations period. Niagara Mohawk answered the amended complaint on 2 March 2004 and filed a counterclaim against the State in response to its common law public nuisance claim, seeking contribution for the companys portion of any alleged harm caused by emissions from facilities that the State owns or to which it has given permits.
Prior to the commencement of the enforcement action, NRG took the position that Niagara Mohawk would be at least partly responsible for the costs of pollution control equipment and post-sale fines and penalties, notwithstanding contrary language in the agreement governing the sale of the plants to NRG. As a result, on 13 July 2001, Niagara Mohawk sued NRG in New York State Supreme Court (Onondaga County), seeking a declaratory ruling that under the agreement, NRG is responsible for the costs of pollution controls and mitigation, as well as post-sale fines and penalties, that may result from the States enforcement action. The parties are awaiting a decision on NRGs partial summary judgment motion, which was argued on 15 January 2004. The courts decision has been delayed pending the hearing judges determination of whether to recuse himself due to a perceived conflict of interest.
Annual Report and Accounts 2003/04_ National Grid Transco 104
Notes to the Accounts _continued
30.
Group undertakings and joint ventures
Principal Group undertakings
The principal Group undertakings included in the Group accounts at 31 March 2004 are listed below. These undertakings are wholly-owned and, unless otherwise indicated, are incorporated in Great Britain.
Principal activity | |
|
|
Transco plc (i) | Gas transportation |
National Grid Company plc (i) | Transmission of electricity in England and Wales |
New England Power Company (Incorporated in the US) (i) | Transmission and generation of electricity |
Massachusetts Electric Company (Incorporated in the US) (i) | Distribution of electricity |
The Narragansett Electric Company (Incorporated in the US) (i) | Distribution of electricity |
Niagara Mohawk Power Corporation (Incorporated in the US) (i) | Distribution and transmission of electricity and gas |
GridAmerica LLC (formed in the US) (i) | Management of electricity transmission assets |
Gridcom (UK) Limited (i) | Telecommunications infrastructure |
NGG Finance plc (ii) | Financing |
British Transco International Finance B.V. (Incorporated in The Netherlands) (i) | Financing |
SecondSite Property Portfolio Limited (i) | Property |
National Grid Holdings One plc (ii) | Holding company |
Lattice Group plc (ii) | Holding company |
National Grid USA (Incorporated in the US) (i) | Holding company |
Niagara Mohawk Holdings Inc. (Incorporated in the US) (i) | Holding company |
Lattice Group Holdings Limited (i) | Holding company |
Transco Holdings plc (i) | Holding company |
National Grid (US) Holdings Limited (ii) | Holding company |
National Grid Holdings Limited (i) | Holding company |
|
(i) | Issued ordinary share capital held by Group undertakings. |
(ii) | Issued ordinary share capital held by National Grid Transco plc. |
Principal joint ventures | |||||
(at 31 March 2004) | |||||
Country of | |||||
incorporation | |||||
Group holding | and operation | Principal activity | |||
|
|||||
Compañia Inversora En Transmicion | |||||
Electrica CITELEC S.A. (i) | 42.5% ordinary shares | Argentina | Transmission of electricity | ||
Copperbelt Energy Corporation Plc. (i) | 38.5% ordinary shares | Zambia | Transmission, distribution and supply of electricity | ||
|
(i) | 31 December year end. |
The investments in joint ventures are held by Group undertakings.
A full list of all Group and associated undertakings is available from the Group Company Secretary.
31. Summary US GAAP income statement, balance sheet, notes and associated reconciliationsThe Group prepares its consolidated accounts in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP), which differ in certain respects from United States Generally Accepted Accounting Principles (US GAAP).
The most significant difference between UK and US GAAP is that, under UK GAAP, the combination of National Grid and Lattice was accounted for as a merger (pooling of interests), while under US GAAP this transaction was accounted for as an acquisition (purchase accounting) of Lattice by National Grid. Consequently, under UK GAAP, the accounts represent the combined accounts of National Grid and Lattice on an historical cost basis for all periods presented. Under US GAAP, the accounts presented prior to the Merger are those of National Grid only.
The income statement and balance sheet shown on the following pages are presented in a US GAAP format. The balance sheets at 31 March 2003 and 31 March 2004 include the impact of the fair value of the acquired assets and liabilities of Lattice prepared under US GAAP at the date of acquisition. A summary of the principal differences between UK and US GAAP is shown in note 32.
The comparative figures for discontinued operations and continuing operations have been restated for 2001/02 for US GAAP reporting purposes. This restatement does not affect UK GAAP reported figures. This restatement arose because the results of operations relating to the joint ventures and the associate, from which the Group has now exited and were treated as discontinued operations under UK GAAP, were reported as part of discontinued operations under US GAAP. This treatment is not permitted under US GAAP as these results should have been reported as part of the interest in equity accounted affiliates. The net loss for the Group reported under US GAAP for 2001/02 is not affected by this restatement.
The effect of this restatement was to reclassify amounts of net loss amounting to £857m for 2001/02 from discontinued operations to continuing operations through a restatement of the interest in equity accounted affiliates. Earnings per share for continuing and discontinued operations has similarly been restated.
105 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
31. Summary US GAAP income statement,
balance
sheet, notes and associated reconciliations
(continued)
Summary US GAAP income statement |
||||||||
2004 | 2004 | |||||||
National | National | |||||||
Grid | 2004 | Grid | ||||||
Transco | US GAAP | Transco | ||||||
(UK GAAP) | adjustments | (US GAAP) | ||||||
£m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
Turnover | 9,033 | (167 | ) | 8,866 | ||||
Operating costs | ||||||||
Depreciation | (866 | ) | (298 | ) | (1,164 | ) | ||
Payroll and severance costs | (1,020 | ) | (277 | ) | (1,297 | ) | ||
Purchases of electricity | (1,998 | ) | | (1,998 | ) | |||
Purchases of gas | (371 | ) | | (371 | ) | |||
Rates and property taxes | (516 | ) | | (516 | ) | |||
Electricity transmission services scheme direct costs | (277 | ) | | (277 | ) | |||
EnMO direct costs | (158 | ) | 158 | | ||||
Replacement expenditure | (388 | ) | 388 | | ||||
Provision for doubtful debts | (50 | ) | | (50 | ) | |||
Other operating charges | (1,534 | ) | 263 | (1,271 | ) | |||
(7,178 | ) | 234 | (6,944 | ) | ||||
|
|
|
|
|
|
|
|
|
Operating profit | 1,855 | 67 | 1,922 | |||||
Share of joint ventures operating profit | 7 | (7 | ) | | ||||
Non-operating items | 322 | (290 | ) | 32 | ||||
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | 2,184 | (230 | ) | 1,954 | ||||
Net interest | (822 | ) | 150 | (672 | ) | |||
|
|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | 1,362 | (80 | ) | 1,282 | ||||
Taxation | (261 | ) | (21 | ) | (282 | ) | ||
|
|
|
|
|
|
|
|
|
Profit on ordinary activities after taxation | 1,101 | (101 | ) | 1,000 | ||||
Minority interests | (2 | ) | | (2 | ) | |||
|
|
|
|
|
|
|
|
|
Net income from continuing operations | 1,099 | (101 | ) | 998 | ||||
Net loss from discontinued operations (net of taxation of £nil) | | | ||||||
|
|
|
|
|
|
|
|
|
Net income for the year | 1,099 | (101 | ) | 998 | ||||
|
|
|
|
|
|
|
|
|
Basic earnings per share under US GAAP (pence) continuing operations | 32.5 | p | ||||||
Diluted earnings per share under US GAAP (pence) continuing operations | 32.4 | p | ||||||
|
|
|
|
|
|
|
|
|
Basic earnings per ADS under US GAAP (pence) continuing operations | 162.5 | p | ||||||
Diluted earnings per ADS under US GAAP (pence) continuing operations | 162.0 | p | ||||||
|
|
|
|
|
|
|
|
|
Basic earnings per share under US GAAP (pence) total Group | 32.5 | p | ||||||
Diluted earnings per share under US GAAP (pence) total Group | 32.4 | p | ||||||
|
|
|
|
|
|
|
|
|
Basic earnings per ADS under US GAAP (pence) total Group | 162.5 | p | ||||||
Diluted earnings per ADS under US GAAP (pence) total Group | 162.0 | p | ||||||
|
|
|
|
|
|
|
|
|
There was no dilution of net income under US GAAP. | ||||||||
|
|
|
|
|
|
|
|
|
Weighted average number of shares in issue (million) for basic EPS | 3,070 | |||||||
|
|
|
|
|
|
|
|
|
Weighted average number of shares in issue (million) for diluted EPS | 3,077 | |||||||
|
|
|
|
|
|
|
|
Basic and diluted earnings per share and per ADS for discontinued operations under US GAAP were 0.0p.
Consolidated statement of comprehensive income and changes in shareholders equity under US GAAP
Annual Report and Accounts 2003/04_ National Grid Transco 106
Notes to the Accounts _continued
31.
Summary
US GAAP income statement, balance sheet,
notes and associated reconciliations
(continued)
Summary US GAAP income statement (continued) |
|||||||||||
US GAAP adjustments | |||||||||||
|
|||||||||||
2003 | 2003 | ||||||||||
National | 2003 | 2003 | National | ||||||||
Grid | Lattice pre- | Other | Grid | ||||||||
Transco | acquisition | US GAAP | Transco | ||||||||
(UK GAAP) | (UK GAAP) | adjustments | (US GAAP) | ||||||||
£m | £m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
||||
Turnover | 9,400 | (1,470 | ) | (529 | ) | 7,401 | |||||
Operating costs | |||||||||||
Depreciation | (851 | ) | 249 | (129 | ) | (731 | ) | ||||
Payroll and severance costs | (1,107 | ) | 308 | (305 | ) | (1,104 | ) | ||||
Purchases of electricity | (1,901 | ) | | | (1,901 | ) | |||||
Purchases of gas | (357 | ) | 53 | | (304 | ) | |||||
Rates and property taxes | (537 | ) | 130 | | (407 | ) | |||||
Electricity transmission services scheme direct costs | (252 | ) | | | (252 | ) | |||||
EnMO direct costs | (530 | ) | | 530 | | ||||||
Replacement expenditure | (405 | ) | 239 | 166 | | ||||||
Provision for doubtful debts | (24 | ) | 1 | | (23 | ) | |||||
Other operating charges | (1,824 | ) | 542 | 320 | (962 | ) | |||||
(7,788 | ) | 1,522 | 582 | (5,684 | ) | ||||||
|
|
|
|
|
|
|
|
||||
Operating profit | 1,612 | 52 | 53 | 1,717 | |||||||
Share of joint ventures operating profit/(loss) | 124 | 1 | (125 | ) | | ||||||
Non-operating expenses | (99 | ) | 67 | 27 | (5 | ) | |||||
|
|
|
|
|
|
|
|
||||
Profit before interest and taxation | 1,637 | 120 | (45 | ) | 1,712 | ||||||
Net interest | (970 | ) | 203 | 103 | (664 | ) | |||||
|
|
|
|
|
|
|
|
||||
Profit on ordinary activities before taxation | 667 | 323 | 58 | 1,048 | |||||||
Taxation | (245 | ) | (29 | ) | 16 | (258 | ) | ||||
|
|
|
|
|
|
|
|
||||
Profit on ordinary activities after taxation | 422 | 294 | 74 | 790 | |||||||
Minority interests | (31 | ) | (1 | ) | 29 | (3 | ) | ||||
Interest in equity accounted affiliates (net of tax of £5m) | 3 | 3 | |||||||||
|
|
|
|
|
|
|
|
||||
Net income from continuing operations | 391 | 293 | 106 | 790 | |||||||
Net loss from discontinued operations (net of tax of £nil) | (39 | ) | (39 | ) | |||||||
|
|
|
|
|
|
|
|
||||
Net income for the year | 391 | 293 | 67 | 751 | |||||||
|
|
|
|
|
|
|
|
||||
Basic earnings per share under US GAAP (pence) continuing operations | 33.6 | p | |||||||||
Diluted earnings per share under US GAAP (pence) continuing operations | 32.9 | p | |||||||||
|
|
|
|
|
|
|
|
||||
Basic earnings per ADS under US GAAP (pence) continuing operations | 168.0 | p | |||||||||
Diluted earnings per ADS under US GAAP (pence) continuing operations | 164.5 | p | |||||||||
|
|
|
|
|
|
|
|
||||
Basic earnings per share under US GAAP (pence) total Group | 31.9 | p | |||||||||
Diluted earnings per share under US GAAP (pence) total Group | 31.3 | p | |||||||||
|
|
|
|
|
|
|
|
||||
Basic earnings per ADS under US GAAP (pence) total Group | 159.5 | p | |||||||||
Diluted earnings per ADS under US GAAP (pence) total Group | 156.5 | p | |||||||||
|
|
|
|
|
|
|
|
||||
£m | |||||||||||
Net income under US GAAP after £22m dilutive impact of 4.25% Exchangeable Bonds 2008 | 773 | ||||||||||
|
|
|
|
|
|
|
|
||||
Weighted average number of shares in issue (million) for basic EPS | 2,348 | ||||||||||
Weighted average number of shares in issue (million) for diluted EPS | 2,468 | ||||||||||
|
|
|
|
|
|
|
|
Basic loss per share and per ADS for discontinued operations under US GAAP was (1.7)p and (8.5)p respectively. Diluted loss per share and per ADS for discontinued operations under US GAAP was (1.6)p and (8.0)p respectively.
Under UK GAAP, the weighted average number of shares in issue for basic EPS for the year ended 31 March 2003 was 3,078m compared with 2,348m under US GAAP. The difference related to shares issued on the combination of National Grid and Lattice. As this transaction was accounted for as a merger (pooling of interests) under UK GAAP, shares issued were included in the weighted average share capital as if they were in issue throughout the year. Under US GAAP, they are included from the date of issue (21 October 2002). This difference impacted 2003 and earlier periods but will not affect future accounting periods.
Consolidated statement of comprehensive income and changes in shareholders equity under US GAAP (continued)
107 National Grid Transco_ Annual Report and Accounts 2003/04
Notes to the Accounts _continued
31. Summary US GAAP income
statement, balance sheet, notes and associated reconciliations
(continued)
Summary US GAAP income statement (continued) |
|||||||||||
US GAAP adjustments | |||||||||||
|
|||||||||||
2002 | 2002 | ||||||||||
National | 2002 | 2002 | National | ||||||||
Grid | Lattice pre- | Other | Grid | ||||||||
Transco | acquisition | US GAAP | Transco | ||||||||
(UK GAAP ) | (UK GAAP) | adjustments | (US GAAP) | ||||||||
(restated) | (restated) | ||||||||||
£m | £m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Turnover | 7,554 | (3,153 | ) | (397 | ) | 4,004 | |||||
Operating costs | |||||||||||
Depreciation | (750 | ) | 431 | 3 | (316 | ) | |||||
Payroll and severance costs | (946 | ) | 581 | (52 | ) | (417 | ) | ||||
Purchases of electricity | (1,410 | ) | | | (1,410 | ) | |||||
Purchases of gas | (171 | ) | 113 | | (58 | ) | |||||
Rates and property taxes | (424 | ) | 227 | | (197 | ) | |||||
Electricity transmission services scheme direct costs | (204 | ) | | | (204 | ) | |||||
EnMO direct costs | (395 | ) | | 395 | | ||||||
Replacement expenditure | (368 | ) | 368 | | | ||||||
Provision for doubtful debts | (23 | ) | (3 | ) | | (26 | ) | ||||
Other operating charges | (1,803 | ) | 883 | 411 | (509 | ) | |||||
(6,494 | ) | 2,600 | 757 | (3,137 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit | 1,060 | (553 | ) | 360 | 867 | ||||||
Share of joint ventures and associates operating profit/(loss) | (701 | ) | 65 | 636 | | ||||||
Non-operating income | 156 | (104 | ) | (30 | ) | 22 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | 515 | (592 | ) | 966 | 889 | ||||||
Net interest | (799 | ) | 364 | 309 | (126 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | (284 | ) | (228 | ) | 1,275 | 763 | |||||
Taxation | (85 | ) | 60 | 12 | (13 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities after taxation | (369 | ) | (168 | ) | 1,287 | 750 | |||||
Minority interests | 48 | (4 | ) | (46 | ) | (2 | ) | ||||
Interest in equity accounted affiliates (note 32) | (900 | ) | (900 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations | (321 | ) | (172 | ) | 341 | (152 | ) | ||||
Net loss from discontinued operations (net of tax credit of £1m) | (1 | ) | (1 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effects of changes in accounting principles | (321 | ) | (172 | ) | 340 | (153 | ) | ||||
Cumulative effects of changes in accounting principles (FAS 133 transitional adjustment)
|
(14 | ) | (14 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year | (321 | ) | (172 | ) | 326 | (167 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share under US GAAP (pence) continuing operations | (10.0 | )p | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per ADS under US GAAP (pence) continuing operations | (50.0 | )p | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share under US GAAP (pence) total Group | (10.9 | )p | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per ADS under US GAAP (pence) total Group | (54.5 | )p | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares in issue (million) for basic EPS | 1,527 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
The Groups 4.25% Exchangeable Bonds 2008 were antidilutive under US GAAP. Therefore no dilutive earnings per share information has been shown.
The cumulative effect of changes in accounting principles (FAS 133 transitional adjustment) increased basic loss per share and per ADS for the Group by 0.9p and 4.5p respectively.
Basic loss per share and per ADS for discontinued operations under US GAAP was 0.0p.
Consolidated statement of comprehensive income and changes in shareholders equity under US GAAP (continued)
Annual Report and Accounts 2003/04_ National Grid Transco 108
Notes to the Accounts _continued
31. Summary US GAAP income statement,
balance sheet, notes and associated reconciliations
(continued)
Summary US GAAP balance sheet |
|||||
2004 | 2003 | (i) | |||
£m | £m | ||||
|
|
|
|
|
|
Assets | |||||
Current assets | |||||
Cash and cash equivalents | 528 | 570 | |||
Marketable securities | 102 | 48 | |||
Accounts and notes receivable | 496 | 628 | |||
Inventories | 91 | 126 | |||
Regulatory assets | 512 | 461 | |||
Prepaid expenses and other current assets | 596 | 705 | |||
|
|
|
|
|
|
Total current assets | 2,325 | 2,538 | |||
Property, plant and equipment cost | 32,216 | 31,987 | |||
Property, plant and equipment accumulated depreciation | (9,091 | ) | (8,603 | ) | |
23,125 | 23,384 | ||||
Goodwill cost | 5,698 | 5,971 | |||
Goodwill accumulated amortisation and impairments | (93 | ) | (71 | ) | |
5,605 | 5,900 | ||||
Intangible assets | 50 | 74 | |||
Investments | 155 | 210 | |||
Regulatory assets | 3,136 | 3,998 | |||
Other debtors | 951 | 843 | |||
|
|
|
|
|
|
Total assets | 35,347 | 36,947 | |||
|
|
|
|
|
|
Liabilities and shareholders equity | |||||
Current liabilities | |||||
Bank overdrafts | 26 | 62 | |||
Accounts payable | 1,036 | 1,266 | |||
Short-term borrowings | 1,644 | 1,973 | |||
Accrued income taxes | 122 | | |||
Purchased power obligations | 57 | 68 | |||
Liability for index-linked swap contracts | 100 | 121 | |||
Other accrued liabilities | 1,402 | 1,121 | |||
|
|
|
|
|
|
Total current liabilities | 4,387 | 4,611 | |||
Long-term borrowings | 12,256 | 13,058 | |||
Purchased power obligations | 149 | 253 | |||
Liability for index-linked swap contracts | 291 | 381 | |||
Post-retirement benefits | 1,681 | 2,283 | |||
Deferred income taxes | 4,867 | 4,687 | |||
Other liabilities | 1,841 | 2,159 | |||
|
|
|
|
|
|
Total liabilities | 25,472 | 27,432 | |||
|
|
|
|
|
|
Minority interest equity | 12 | 15 | |||
Cumulative preference stock issued by Group undertakings | 42 | 74 | |||
Shareholders equity | |||||
Common stock (par value £0.10 per share; shares authorised 5,000m; shares issued 2004: 3,088m; 2003: 3,077m) | 309 | 308 | |||
Additional paid in capital | 7,768 | 7,710 | |||
Other reserves | 359 | 359 | |||
Retained earnings | 2,701 | 2,263 | |||
Other comprehensive loss | (1,282 | ) | (1,175 | ) | |
Treasury stock | (34 | ) | (39 | ) | |
|
|
|
|
|
|
Equity shareholders funds | 9,821 | 9,426 | |||
|
|
|
|
|
|
Total liabilities and shareholders equity | 35,347 | 36,947 | |||
|
|
|
|
|
(i) | Certain amounts have been reclassified for consistency with current year presentation. |
Other comprehensive loss can be analysed as follows:
2004 | 2003 | |||
£m | £m | |||
|
|
|
|
|
Foreign exchange losses | (821 | ) | (365 | ) |
Additional minimum pension liability | (672 | ) | (1,305 | ) |
Mark to market of financial instruments | (88 | ) | 22 | |
Taxation | 295 | 469 | ||
Other | 4 | 4 | ||
|
|
|
|
|
(1,282 | ) | (1,175 | ) | |
|
|
|
|
109 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
31. Summary US GAAP income
statement, balance sheet, notes and associated reconciliations
(continued)
Segmental information under US GAAP |
||||||
2004 | 2003 | (i) | 2002 | (i) | ||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Turnover by business segment | ||||||
Continuing operations | ||||||
UK gas distribution | 2,229 | 1,239 | | |||
UK electricity and gas transmission | 1,875 | 1,615 | 1,283 | |||
US electricity transmission | 318 | 400 | 278 | |||
US electricity distribution | 3,536 | 3,446 | 2,278 | |||
US gas distribution | 464 | 446 | 104 | |||
Other | 906 | 462 | 113 | |||
Sales between businesses | (462 | ) | (207 | ) | (52 | ) |
|
|
|
|
|
|
|
Group turnover continuing operations | 8,866 | 7,401 | 4,004 | |||
|
|
|
|
|
|
|
Operating profit by business segment | ||||||
Continuing operations | ||||||
UK gas distribution | 758 | 567 | | |||
UK electricity and gas transmission | 676 | 573 | 520 | |||
US electricity transmission | 124 | 116 | 95 | |||
US electricity distribution | 333 | 446 | 240 | |||
US gas distribution | 39 | 52 | 17 | |||
Other | (8 | ) | (37 | ) | (5 | ) |
|
|
|
|
|
|
|
Group undertakings continuing operations | 1,922 | 1,717 | 867 | |||
|
|
|
|
|
|
Turnover and operating profit in the other segment relates primarily to the UK.
(i) | Prior year comparatives have been amended to reflect changes in business segments (see note 2). |
Tangible fixed assets | ||||
|
|
|||
2004 | 2003 | (i) | ||
£m | £m | |||
|
|
|
|
|
Analysis by business segment | ||||
Continuing operations | ||||
UK gas distribution | 10,233 | 10,153 | ||
UK electricity and gas transmission | 6,442 | 6,135 | ||
US electricity transmission | 1,174 | 1,348 | ||
US electricity distribution | 2,819 | 3,167 | ||
US gas distribution | 615 | 680 | ||
Other | 1,842 | 1,898 | ||
|
|
|
|
|
23,125 | 23,381 | |||
Discontinued operations | | 3 | ||
|
|
|
|
|
23,125 | 23,384 | |||
|
|
|
|
|
Analysis by geographical region | ||||
UK | 18,335 | 18,131 | ||
US | 4,652 | 5,194 | ||
Rest of the World | 138 | 59 | ||
|
|
|
|
|
23,125 | 23,384 | |||
|
|
|
|
(i) | Prior year comparatives have been amended to reflect changes in business segments (see note 2) and balance sheet reclassifications. |
Goodwill | ||||||||||||||
UK electricity | ||||||||||||||
UK gas | and gas | US electricity | US electricity | US gas | ||||||||||
distribution | transmission | transmission | distribution | distribution | Other | Total | ||||||||
£m | £m | £m | £m | £m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 April 2002 | | | 438 | 1,558 | 141 | 86 | 2,223 | |||||||
Exchange adjustments | | | (44 | ) | (161 | ) | (14 | ) | (9 | ) | (228 | ) | ||
Additions | 3,040 | 753 | | | | 20 | 3,813 | |||||||
Adjustments to provisional fair value | | | 9 | 36 | 8 | 39 | 92 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 April 2003 | 3,040 | 753 | 403 | 1,433 | 135 | 136 | 5,900 | |||||||
Exchange adjustments | | | (55 | ) | (195 | ) | (19 | ) | (18 | ) | (287 | ) | ||
Additions | | | | | | 1 | 1 | |||||||
Impairment | | | | | | (20 | ) | (20 | ) | |||||
Adjustments to provisional fair value | (50 | ) | 3 | | | | 58 | 11 | ||||||
|
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|
|
|
31 March 2004 | 2,990 | 756 | 348 | 1,238 | 116 | 157 | 5,605 | |||||||
|
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|
|
Annual Report and Accounts 2003/04_ National Grid Transco 110
Notes to the Accounts _continued
31. Summary US GAAP income statement, balance sheet, notes and associated reconciliations
(continued)
Reconciliation of net income from UK to US GAAP
The following is a summary of the material adjustments to net income which would have been required if US GAAP had been applied instead of UK GAAP:
2004 | 2003 | 2002 | ||||||
£m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
Net income/(loss) under UK GAAP | 1,099 | 391 | (321 | ) | ||||
Adjustments to conform with US GAAP | ||||||||
Elimination of Lattice pre-acquisition results, measured under UK GAAP
|
| 293 | (172 | ) | ||||
Merger costs | | 32 | | |||||
Deferred taxation | (24 | ) | 7 | 7 | ||||
Pensions | 7 | 35 | 29 | |||||
Share option schemes | (25 | ) | (29 | ) | (5 | ) | ||
Fixed assets purchase of Lattice | (364 | ) | (169 | ) | | |||
Impairment of Advantica goodwill and other intangible assets | (31 | ) | | | ||||
Replacement expenditure (net of depreciation) | 383 | 166 | | |||||
Financial instruments | 82 | 40 | (69 | ) | ||||
Cumulative effect of changes in accounting principles (FAS 133 transitional adjustment)
|
| | (14 | ) | ||||
Carrying value of EPICs liability | (226 | ) | 2 | 203 | ||||
Severance and integration costs | | (110 | ) | 67 | ||||
Recognition of income | (9 | ) | 2 | (4 | ) | |||
Goodwill | 99 | 70 | 78 | |||||
Restructuring purchase of Lattice | 2 | 46 | | |||||
Share of joint ventures and associates adjustments | | (27 | ) | 37 | ||||
Other | 5 | 2 | (3 | ) | ||||
(101 | ) | 360 | 154 | |||||
|
|
|
|
|
|
|
|
|
Net income/(loss) under US GAAP | 998 | 751 | (167 | ) | ||||
|
|
|
|
|
|
|
|
Reconciliation of equity shareholders funds from UK to US GAAP
The following is a summary of the material adjustments
to equity shareholders funds which would have been required if US GAAP
had been applied instead of UK GAAP:
2004 | 2003 | ||||
(restated) | |||||
£m | £m | ||||
|
|
|
|
|
|
Equity shareholders funds under UK GAAP | 1,213 | 1,113 | |||
Adjustments to conform with US GAAP | |||||
Deferred taxation | (1,868 | ) | (1,593 | ) | |
Pensions | (1,069 | ) | (1,800 | ) | |
Ordinary dividends | 366 | 317 | |||
Tangible fixed assets reversal of partial release of impairment provision | (32 | ) | (35 | ) | |
Fixed assets impact of Lattice purchase accounting and replacement expenditure gross
|
7,776 | 7,385 | |||
Fixed assets impact of Lattice purchase accounting and replacement expenditure accumulated depreciation
|
(458 | ) | (142 | ) | |
Financial instruments | (285 | ) | (253 | ) | |
Carrying value of EPICs liability | | 243 | |||
Severance liabilities | 3 | 3 | |||
Recognition of income | (35 | ) | (27 | ) | |
Regulatory assets | 128 | 241 | |||
Goodwill purchase of Lattice | 3,820 | 3,829 | |||
Goodwill other acquisitions | 245 | 179 | |||
Restructuring purchase of Lattice | (4 | ) | (6 | ) | |
Share of joint ventures adjustments | | (17 | ) | ||
Other | 21 | (11 | ) | ||
8,608 | 8,313 | ||||
|
|
|
|
|
|
Equity shareholders funds under US GAAP | 9,821 | 9,426 | |||
|
|
|
|
|
111 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
31. Summary US GAAP income statement, balance sheet, notes and associated reconciliations
(continued)
Group cash flow statement
The Group accounts include a cash flow statement
prepared in accordance with UK Financial Reporting Standard 1 (Revised 1996) Cash Flow Statements (FRS 1 (revised)), the objectives and
principles of which are substantially the same as US Statement of Financial Accounting Standard 95 Statement of Cash Flows (SFAS 95)
under US GAAP. The principal differences between FRS 1 (revised) and SFAS 95
relate to the classification of items within the cash flow statement and the
definition of cash and cash equivalents. Under UK GAAP, cash flows are classified
under nine standard headings whereas US GAAP only requires presentation of cash
flows from three
activities, being operating activities, investing activities and financing activities.
Under US GAAP, in contrast to UK GAAP, cash and cash equivalents do not include bank overdrafts but do include investments with original maturities of three months or less.
Set out below is a summary of the Group cash flow statement under US GAAP:
2004 | 2003 | 2002 | ||||||
£m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities (i) | 2,500 | 2,000 | 902 | |||||
Investing activities | ||||||||
Payments to acquire tangible fixed assets | (1,788 | ) | (1,170 | ) | (500 | ) | ||
Acquisition of Group undertakings (net of cash acquired) | | 338 | (934 | ) | ||||
Payments to acquire investments | | (163 | ) | (50 | ) | |||
Receipts from disposal of tangible fixed assets | 146 | 53 | 28 | |||||
Receipts from disposal of investments | 7 | 328 | 37 | |||||
Net movement in investments with an original maturity date of more than three months
|
(65 | ) | | 193 | ||||
Other | | (22 | ) | 26 | ||||
Net cash used in investing activities (ii) | (1,700 | ) | (636 | ) | (1,200 | ) | ||
Net cash (used in)/provided by financing activities (iii) | (828 | ) | (962 | ) | 222 | |||
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents | (28 | ) | 402 | (76 | ) | |||
Cash and cash equivalents at beginning of year | 570 | 178 | 259 | |||||
Exchange adjustments | (14 | ) | (10 | ) | (5 | ) | ||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year | 528 | 570 | 178 | |||||
|
|
|
|
|
|
|
|
Set out below is an explanation of the reconciliation from US GAAP to UK GAAP cash flow headings:
(i) | Net cash provided by operating activities comprised net cash inflow from operating activities (excluding payments in respect of replacement expenditure), dividends from joint ventures, returns on investments and servicing of finance, excluding costs relating to the issue of debt and taxation. |
(ii) | Net cash used in investing activities comprised capital expenditure, payments in respect of replacement expenditure (included in operating activities under UK GAAP), acquisitions and disposals and the component of the management of liquid resources which comprised deposits with an original maturity of more than three months |
(iii) | Net cash (used in)/provided by financing activities comprised equity dividends paid, financing, including costs relating to the issue of debt and movements in bank overdrafts. |
32. Principal differences between UK and US accounting principles
The principal differences between UK and US GAAP, as applied in preparing the Group accounts under US GAAP, are set out below:
Acquisition (purchase) accounting adjustments (including elimination of merger costs)
In order to determine the allocation of purchase
price relating to the acquired assets and liabilities of Lattice under US GAAP
purchase accounting, the cost of acquisition was calculated using the market
value of the shares issued, the fair value of vested options exchanged and direct
external acquisition costs and these amounts were allocated to the fair value
of net assets acquired. As a result of the fair value exercise, increases in
the value of
Lattices tangible fixed assets, financial instruments, pension obligations
and restructuring provisions were recognised and market values were attributed
to its intangible fixed assets, mainly product licences, patents and trademarks,
together with the recognition of appropriate deferred taxation effects. The difference
between the cost of acquisition and the fair value of the separable assets and
liabilities of Lattice was recorded as goodwill. Additional depreciation in respect
of the
fair value of tangible fixed assets will be recorded over their respective economic
useful lives.
The adjustments to the assets and liabilities of Lattice to reflect the fair values and allocation of the excess purchase consideration over the fair values of net assets acquired, based on managements best estimates of fair value, are discussed below. The fair value adjustments to UK gas transmission and distribution and other fixed assets, pensions, restructuring provision and the related deferred tax thereon were revised during the year ended 31 March 2004. The adjustments are detailed in the table on page 113.
a) | The total purchase consideration was calculated by multiplying the number of National Grid shares issued to Lattice shareholders for all outstanding Lattice shares by the average fair value of National Grid shares. The average fair value of National Grid shares was calculated over a period of five business days, including two days prior to and two days subsequent to the announcement of the Merger on 22 April 2002. |
The total purchase consideration, which included merger costs of £32m that were expensed under UK GAAP, also included the fair value of Lattice vested options exchanged for vested options in National Grid Transco. | |
The total number of Lattice vested options was multiplied by the respective fair value of each of the ordinary shares determined at 22 April 2002. | |
b) | The increase in the fair value of tangible fixed assets primarily related to UK gas transmission and distribution. This was determined by calculating the value in use of these businesses. Value in use represented the present value of expected future cash flows discounted on a pre-tax basis, using the estimated cost of capital. Future cash flows were based on a five-year plan projected out to perpetuity. The fair value of other tangible fixed assets, largely gas metering assets, was determined using their depreciated replacement costs, based on the current cost of replacing meters and expected remaining useful economic lives. |
c) | The fair value attributed to pension obligations reflected the recognition of previously unrecognised actuarial gains and losses, prior service costs and transition amounts. The amounts recognised were based on actuarial assessments at the acquisition date. |
Annual Report and Accounts 2003/04_ National Grid Transco 112
Notes to the Accounts _continued
32. Principal differences between UK
and US accounting principles
(continued)
Acquisition (purchase) accounting adjustments (including elimination of merger costs) (continued) |
|
d) | The fair value attributed to intangible fixed assets related to licences, patents and trade marks and was determined based on discounted future cash flows. |
e) | Restructuring costs (£60m) represented the costs incurred in respect of the integration of activities within the newly merged Group and related primarily to redundancy and property relocation costs. |
f) | Deferred taxes were computed on the excess of the fair value over book value, other than for goodwill, using the applicable statutory UK corporation tax rate. |
g) | Goodwill represented the remainder of unallocated purchase consideration. |
The fair value of consideration, assets and liabilities and the resulting goodwill is set out in the table below:
Assets
|
Provisional | Final | ||||
fair value | fair value | Final | ||||
at acquisition | adjustments | fair value | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Total current assets | 1,336 | | 1,336 | |||
Property, plant and equipment | 14,148 | 67 | (i) | 14,215 | ||
Intangible assets | 20 | | 20 | |||
Other assets | 6 | | 6 | |||
|
|
|
|
|
|
|
Total assets | 15,510 | 67 | 15,577 | |||
|
|
|
|
|
|
|
Liabilities | ||||||
Total current liabilities | 2,656 | | 2,656 | |||
Long-term borrowings | 5,935 | | 5,935 | |||
Pensions | 535 | | 535 | |||
Other liabilities | 470 | | 470 | |||
Deferred income taxes | 3,129 | 78 | (i)(ii) | 3,207 | ||
|
|
|
|
|
|
|
Total liabilities | 12,725 | 78 | 12,803 | |||
|
|
|
|
|
|
|
Net assets | 2,785 | (11 | ) | 2,774 | ||
|
|
|
|
|
|
|
Consideration | 6,598 | | 6,598 | |||
|
|
|
|
|
|
|
Goodwill | 3,813 | 11 | 3,824 | |||
|
|
|
|
|
|
Final fair value adjustments related to: | |
(i) | A revision to the fair values attributed to UK gas transmission and distribution property, plant and equipment due to improved estimates of future cash flows following finalisation of the latest available business plans (£67m increase in property, plant and equipment carrying values; £20m deferred tax impact). |
(ii) | The recognition of a deferred tax liability on gains relating to the sale of properties where taxable gains were rolled over into replacement assets (£58m). There is no deferred tax recognised for this under UK GAAP. |
Acquisitions pro forma results
The following unaudited pro forma summary gives effect to the acquisitions of Lattice and Niagara Mohawk, as if the acquisitions had taken place on 1 April 2001. The pro forma summary combines the actual consolidated
results of the Group (excluding the effect of the acquisitions in the actual period that they took place) and the results of Lattice and Niagara Mohawk after giving effect to certain adjustments. These adjustments include estimates of the effect of
adopting the final fair value adjustments for both acquisitions, and the increased net interest expense, together with the associated tax effects, as a result of financing the acquisition of Niagara Mohawk. In addition, the earnings per share
calculation has been adjusted as if the shares issued to acquire Lattice and Niagara Mohawk were issued on the assumed date of acquisition for the purposes of preparing the pro forma summary. The pro forma summary does not necessarily reflect the
results of operations as they would have been if the Group (excluding the acquisitions) and the acquisitions had constituted a single entity during the periods presented.
Continuing operations
2003 | 2002 | |||
£m | £m | |||
|
|
|
|
|
Turnover | 8,802 | 7,486 | ||
Net income before cumulative effects of changes in accounting principles
|
580 | 115 | ||
Net income after cumulative effects of changes in accounting principles
|
580 | 101 | ||
|
|
|
|
|
pence | pence | |||
Earnings per share | 18.9 | 3.3 | ||
Earnings per ADS | 94.5 | 16.5 | ||
|
|
|
|
Deferred taxation
Under UK GAAP, deferred taxation is provided in
full on all material timing differences with certain exceptions, as outlined
in Accounting Policies Deferred taxation and investment tax credits.
Under US GAAP, deferred tax is provided in full, using the liability method,
and requires the recognition of deferred taxation on all timing differences except
for non tax deductible goodwill.
The deferred taxation adjustment principally reflects the tax effect of the other differences between UK and US GAAP.
113 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
32.
Principal
differences between UK and US accounting principles
(continued)
Deferred taxation
(continued)
The deferred tax liability under US GAAP is analysed
as follows:
2004 | 2003 | |||
£m | £m | |||
|
|
|
|
|
Deferred taxation liabilities: | ||||
Excess of book value over taxation value of fixed assets | 4,943 | 4,955 | ||
Other temporary differences | 1,169 | 1,229 | ||
|
|
|
|
|
6,112 | 6,184 | |||
Deferred taxation assets: | ||||
Other temporary differences (i) | (1,245 | ) | (1,497 | ) |
|
|
|
|
|
4,867 | 4,687 | |||
|
|
|
|
|
Analysed as follows: | ||||
Current | 63 | 31 | ||
Non-current | 4,804 | 4,656 | ||
|
|
|
|
|
4,867 | 4,687 | |||
|
|
|
|
|
(i) | Deferred taxation assets at 31 March 2004 were stated net of a £210m valuation allowance adjustment associated with certain capital losses (31 March 2003: £nil). |
Pensions
Under UK GAAP, pension costs have been accounted
for in accordance with UK Statement of Standard Accounting Practice (SSAP) 24
and disclosures have been provided in accordance with SSAP 24 and FRS 17.
Under US GAAP, pension costs are determined in accordance with the requirements of US Statements of Financial Accounting Standards (SFAS) 87 and 88 and pension disclosures are presented in accordance with SFAS 132. Differences between UK GAAP and US GAAP figures arise from the requirement to use different actuarial methods and assumptions and a different method of amortising certain surpluses and deficits. Under US GAAP, the Company has estimated the effect on net income and shareholders equity assuming the adoption and application of SFAS 87 Employers Accounting for Pensions as of 1 April 1996, as the adoption of SFAS 87 on the actual effective date of 1 April 1989 was not feasible. The unrecognised transition asset at 1 April 1989, using the financial assumptions at 1 April 1996, amounted to £172m and is being amortised over 15 years commencing 1 April 1989.
Under UK GAAP, as explained in note 7, net interest includes a charge of £52m (2003: £3m credit; 2002: £30m credit) in respect of the notional interest element of the variation from the regular pension cost. Under US GAAP, this cost is not recognised.
The net periodic charge/(credit) for pensions and other post-retirement benefits is as follows:
Pensions | Other post-retirement benefits | ||||||||||||
|
|
|
|
|
|
|
|||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||
£m | £m | £m | £m | £m | £m | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost | 143 | 78 | 30 | 10 | 8 | 5 | |||||||
Interest cost | 799 | 456 | 125 | 59 | 59 | 29 | |||||||
Settlements | 14 | 19 | (12 | ) | 10 | | | ||||||
Expected return on assets | (814 | ) | (490 | ) | (160 | ) | (36 | ) | (32 | ) | (21 | ) | |
Amortisation of prior service cost | 5 | 5 | 4 | | | | |||||||
Amortisation of previously unrecognised losses | 39 | 4 | | 21 | 2 | | |||||||
Amortisation of transitional asset | (11 | ) | (11 | ) | (11 | ) | | | | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175 | 61 | (24 | ) | 64 | 37 | 13 | |||||||
Release of pension provision | (2 | ) | (2 | ) | (2 | ) | | | | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173 | 59 | (26 | ) | 64 | 37 | 13 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The additional cost incurred in respect of severance cases computed in accordance with SFAS 88 Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits is as follows:
2004 | 2003 | 2002 | ||||
£m | £m | £m | ||||
|
|
|
|
|
|
|
Cost of termination benefits and curtailments | 129 | 119 | 46 | |||
|
|
|
|
|
|
The principal financial assumptions used for the SFAS 87 calculations of net periodic charge/(credit), based on a measurement date of 31 March 2003 in respect of the US and UK defined benefit schemes are shown below:
US | UK | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||
% | % | % | % | % | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate | 6.3 | 7.5 | 7.3 | 5.4 | 6.0 | 5.5 | |||||||
Return on assets | 8.5 | 8.5 | 7.5-9.0 | 6.3-6.9 | 6.3-7.1 | 7.0 | |||||||
General salary increases | 3.3-5.3 | 3.3-4.5 | 4.0 | 3.5 | 3.8 | 3.3 | |||||||
Pension increases | nil | nil | nil | 2.6 | 2.9 | 2.5 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of US schemes, the estimated rate of return for various passive asset classes is based both on analysis of historical rates of return and forward-looking analysis of risk premiums and yields. Current market conditions, such as inflation and interest rates, are evaluated in connection with the setting of our long-term assumption. A small premium is added for active management of both equity and fixed income. The rates of return for each asset class are then weighted in accordance with our target asset allocation, and the resulting long-term return on asset rate is then applied to the market-related value of assets.
Annual Report and Accounts 2003/04_ National Grid Transco 114
Notes to the Accounts _continued
32. Principal differences between UK
and US accounting principles
(continued)
Pensions
(continued)
In respect of UK schemes, the expected long-term
rate of return on assets has been set reflecting the price inflation expectation,
the expected real return on each major asset class and the long-term asset allocation
strategy adopted for each plan. The expected real returns on specific asset
classes reflect historical returns, investment yields on the measurement date
and general future return expectations, and have been set after taking advice
from the plans actuaries.
The assumptions used for other post-retirement costs relate solely to US schemes. These assumptions were that the discount rate used would be 5.75% (2003: 6.25%; 2002: 7.5%) and that medical costs would increase by 10% (2003: 10%; 2002: 10%), decreasing to 5% (2003: 5%; 2002: 5%) by 2009 and remain at 5% (2003: 5%; 2002: 5%) thereafter.
A reconciliation of the funded status of the Group pension and other post-retirement schemes to the net accrued benefit liability that were included in the Groups balance sheet prepared under US GAAP is as follows:
Other post-retirement | |||||||||
Pensions | benefits | ||||||||
|
|
|
|
|
|||||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation | (15,394 | ) | (15,030 | ) | (1,002 | ) | (1,004 | ) | |
Fair value of plan assets | 13,432 | 12,115 | 496 | 373 | |||||
|
|
|
|
|
|
|
|
|
|
Excess of projected benefit obligation over plan assets | (1,962 | ) | (2,915 | ) | (506 | ) | (631 | ) | |
Unrecognised transition asset | | (11 | ) | | | ||||
Unrecognised net loss | 1,493 | 2,508 | 328 | 336 | |||||
Unrecognised prior service cost/(credit) | 48 | 57 | (5 | ) | (1 | ) | |||
|
|
|
|
|
|
|
|
|
|
Net accrued benefit liability before minimum liability adjustment | (421 | ) | (361 | ) | (183 | ) | (296 | ) | |
Additional minimum liability adjustment | (840 | ) | (1,583 | ) | | | |||
|
|
|
|
|
|
|
|
|
|
Net accrued benefit liability | (1,261 | ) | (1,944 | ) | (183 | ) | (296 | ) | |
|
|
|
|
|
|
|
|
|
At 31 March 2004, as required under SFAS 87, an intangible asset of £48m (2003: £57m) was recognised in relation to the additional minimum liability, being equal to the unrecognised prior service cost. A regulatory asset of £120m (2003: £221m) was also created. The remaining additional minimum liability of £672m (2003: £1,303m) has been included in other comprehensive income.
The net accrued benefit liabiity above is shown net of a prepaid cost of £174m in respect of one group scheme.
The principal financial assumptions used for the SFAS 87 calculations of the projected benefit obligation, based on a measurement date of 31 March 2004, in respect of the US and UK defined benefit schemes are shown below:
US | UK | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | ||||||||
% | % | % | % | % | % | ||||||||
|
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|
|
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|
|
|
|
|
Discount rate | 5.8 | 6.3 | 7.5 | 5.5 | 5.4 | 6.0 | |||||||
General salary increases | 3.3-5.3 | 3.3-5.3 | 3.3-4.5 | 3.9 | 3.5 | 3.8 | |||||||
Pension increases | nil | nil | nil | 3.0 | 2.6 | 2.9 | |||||||
|
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|
All pension schemes had an additional minimum liability adjustment except the Lattice Group Pension Scheme. The accumulated benefit obligation for pensions was £14,507m at 31 March 2004 (2003: £14,059m). The Group has followed approach two of Emerging Issues Task Force (EITF) Abstract 88-1 in calculating the accumulated benefit obligation. Changes in the projected benefit obligation and changes in the fair value of plan assets are shown below:
Other post-retirement | |||||||||
Pensions | benefits | ||||||||
|
|
|
|
|
|||||
2004 | 2003 | 2004 | 2003 | ||||||
£m | £m | £m | £m | ||||||
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at start of year | 15,030 | 2,953 | 1,004 | 884 | |||||
Service cost | 143 | 78 | 10 | 8 | |||||
Interest cost | 799 | 456 | 59 | 59 | |||||
Plan participants contributions | 18 | 10 | | | |||||
Plan amendment prior service cost | | 8 | (5 | ) | | ||||
Terminations | 129 | 58 | 5 | | |||||
Curtailments | (2 | ) | 42 | 10 | | ||||
Settlements | (80 | ) | (109 | ) | | | |||
Actuarial loss | 322 | 1,212 | 119 | 195 | |||||
Benefits paid | (736 | ) | (423 | ) | (51 | ) | (54 | ) | |
Acquisition of Group undertakings | | 10,908 | | | |||||
Transfers | | (1 | ) | | | ||||
Exchange adjustments | (229 | ) | (162 | ) | (149 | ) | (88 | ) | |
|
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|
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|
|
Projected benefit obligation at end of year | 15,394 | 15,030 | 1,002 | 1,004 | |||||
|
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|
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|
|
Fair value of plan assets at start of year | 12,115 | 2,698 | 373 | 397 | |||||
Actual return on assets | 2,023 | (437 | ) | 92 | (35 | ) | |||
Employer contributions | 244 | 150 | 123 | 68 | |||||
Plan participants contributions | 18 | 10 | | | |||||
Benefits paid | (736 | ) | (423 | ) | (24 | ) | (18 | ) | |
Acquisition of Group undertakings | | 10,373 | | | |||||
Settlements | (80 | ) | (109 | ) | | | |||
Exchange adjustments | (152 | ) | (147 | ) | (68 | ) | (39 | ) | |
|
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|
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|
|
|
Fair value of plan assets at end of year | 13,432 | 12,115 | 496 | 373 | |||||
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|
It is estimated that a 1% change in the assumed healthcare cost trends would have increased or decreased the accumulated post-retirement benefit obligation at 31 March 2004 by £106m (2003: £106m; 2002: £91m) and £96m (2003: £96m; 2002: £82m) respectively. The net periodic cost for the year ended 31 March 2004 would have increased or decreased by £7m and £8m respectively (2003: £8m and £7m respectively).
Estimated contributions for the year ending 31 March 2005 are £164m.
115 National Grid Transco_ Annual Report and Accounts 2003/04
Notes to the Accounts _continued
32. Principal differences between UK
and US accounting principles
(continued)
Pensions
(continued)
In the UK, the trustees for each plan are responsible
for setting the long-term strategy after consultation with the Group and professional
advisers. The trustees objectives are to invest in assets of appropriate
liquidity, which together with future contributions from employers and members,
will generate income and capital growth to meet the cost of benefits from the
plans; to limit the risk and to minimise long-term cost. In the US, the Group
manages its pension plan investments to minimise the long-term cost of operating
the plan, with a reasonable level of risk.
Risk tolerance is determined as a result of periodic asset/liability studies which analyse plan liabilities and funded status and results in the determination of the allocation of assets.
Equity investments, fixed income and index-linked portfolios are broadly diversified. Investments are also held in property, private equity and timber with the objective of enhancing long-term returns whilst improving diversification. Investment risk and return are reviewed by investment committees on a quarterly basis.
Share option schemes
As permitted under UK GAAP, no cost is accrued
for share options awarded under the sharesave scheme where the exercise price
of the options is below the market value at the date of grant. In respect of
the grant of options under the Executive scheme, no cost is accrued under UK
GAAP as the exercise price is equivalent to the market value at the date of
grant.
Under US GAAP, a charge is made against net income based on the fair value of grants in accordance with SFAS 123 Accounting for Stock Based Compensation. Disclosures are provided in accordance with SFAS 123 and SFAS 148 Accounting for Stock Based Compensation Transition and Disclosure an amendment of FAS No. 123.
The average exercise price of the options granted during each of the three financial years ended 31 March are as follows:
The fair value of the options granted are estimated using the Black-Scholes European option pricing model using the following principal assumptions:
2004 | 2003 | 2002 | ||||
|
|
|
|
|
|
|
Dividend yield (%) | 7.0 | 3.5 | 3.5 | |||
Volatility (%) | 20.4 | 35.0 | 30.0 | |||
Risk-free investment rate (%) | 4.6 | 4.4 | 5.4 | |||
Average life (years) | 3.4 | 4.0 | 4.2 | |||
|
|
|
|
|
|
The compensation cost charged for the year ended 31 March 2004 amounted to £25m (2003: £29m; 2002: £5m).
Further details of the Groups share-based plans are given in note 23, pages 97 to 99.
Ordinary dividends
Under UK GAAP, final ordinary dividends
are provided for in the year in respect of which they are proposed by the Board
of Directors for approval by the shareholders. Under US GAAP, dividends are
not provided until declared.
Tangible fixed assets reversal of
partial release of impairment provision
During the financial year ended 31
March 1990, an impairment provision was recorded in respect of certain tangible
fixed assets. Part of this impairment provision was subsequently released and
shareholders equity credited. Under US GAAP, this partial release would
not be permitted.
Fixed assets impact of Lattice purchase
accounting and replacement expenditure
Under UK GAAP, the combination of
National Grid and Lattice was accounted for as a merger (pooling of interests),
while under US GAAP this transaction was accounted for as an acquisition (purchase
accounting) of Lattice by National Grid. Consequently, under US GAAP the tangible
fixed assets of Lattice have been recorded at their fair value at the date of
purchase, and depreciation subsequent to acquisition has been calculated on
that fair value.
In addition, under UK GAAP the Group charges to the profit and loss account replacement expenditure on certain components of plant and equipment, which is principally undertaken to repair and to maintain the safety of the pipeline system. Under US GAAP, such expenditure is capitalised and depreciated over the assets expected useful economic lives.
Financial instruments
Under UK GAAP, derivative financial instruments
that qualify for hedge accounting are recorded at their historical cost, if
any, and are not remeasured. Any related monetary assets or liabilities, including
foreign currency borrowings, are translated at the hedged rate. In addition,
under UK GAAP, it is permissible to hedge account for the net assets of overseas
operations with hedging instruments denominated in currencies other than the
functional currencies of the overseas operations.
Under US GAAP, as required by SFAS 133 Accounting for Derivative Instruments and Hedging Activities, all derivative financial instruments, including derivatives embedded within other contracts, are required to be recognised in the balance sheet as either assets or liabilities and measured at fair value. SFAS 133 only permits hedge accounting in specific circumstances, where the hedge is identified as one of three types: fair value; cash flow; or foreign currency exposures of net investments in foreign operations. Provided that it can be demonstrated that the hedge is highly effective and the relevant hedging criteria have been met, then in respect of fair value hedges, both the change in fair value of the derivative and hedged item are reflected in net income in the period of the change. For cash flow hedges and hedges of foreign currency exposures of net investments in foreign operations, changes in fair value are reflected through other comprehensive income. In the event that the conditions for hedge accounting are not met, changes in the fair value of derivatives are reflected in net income.
Annual Report and Accounts 2003/04_ National Grid Transc o 116
Notes to the Accounts _continued
32. Principal differences between UK and
US accounting principles
(continued)
Financial instruments
(continued)
The primary differences that arise between
UK GAAP and US GAAP result from the different criteria that are applied under
UK GAAP and US GAAP to permit the use of hedge accounting, and the application
of different measurement criteria.
Equity Plus Income Convertible Securities
(EPICs)
Under UK GAAP, EPICs were carried
in the balance sheet at the gross proceeds of the issue. This resulted in a
gain being recognised on disposal during 2004. The related issue costs were
written off in the year of issue. Under US GAAP, the issue costs were deferred
and written off over the period to the date of redemption of the EPICs on 6
May 2003.
US GAAP required that the carrying value of the EPICs be adjusted to the settlement amount of the debt, which was linked to the Energis plc share price and therefore no gain was recorded on the disposal see note 20.
Regulatory assets
SFAS 71 Accounting for Certain
Types of Regulation establishes US GAAP for utilities whose regulators
have the power to approve and/or regulate rates that may be charged to customers.
Provided that through the regulatory process the utility is substantially assured
of recovering its allowable costs by the collection of revenue from its customers,
such costs not yet recovered are deferred as regulatory assets. Due to the
different regulatory environment, no equivalent accounting standard applies
in the UK.
Under UK GAAP, regulatory assets established in accordance with the principles of SFAS 71 are recognised where they comprise rights or other access to future economic benefits which arise as a result of past transactions or events which have created an obligation to transfer economic benefit to a third party. Measurement of the past transaction or event and hence of the regulatory asset is determined in accordance with UK GAAP. Where the application of UK GAAP results in the non or partial recognition of an obligation compared with US GAAP, any related regulatory asset is either not or partially recognised. Under UK GAAP, in certain circumstances, regulatory assets may be reported net of related regulatory liabilities. Such amounts are shown gross in the US GAAP balance sheet.
Recognition of income
Under US GAAP, income is recognised
in the period that the service is provided up to the maximum revenue allowed
under the terms of the relevant regulatory regime. Under UK GAAP, any income
received or receivable in excess of the maximum revenue allowed for the period,
under the terms of the relevant regulatory regime, is recognised as income,
even where prices will be reduced in a future period.
Severance and integration costs
Under UK GAAP, severance costs are
provided for in the accounts if it is determined that a constructive or legal
obligation has arisen from a restructuring programme where it is probable that
it will result in the outflow of economic benefits and the costs involved can
be estimated with reasonable accuracy. Under US GAAP, severance costs are recognised
when the employees accept the severance offer. In addition, where the number
of employees leaving results in a significant reduction in the accrual of pension
benefits for employees future service (a curtailment under US GAAP),
the effects are reflected as part of the cost of such termination benefits.
Accordingly, timing differences between UK and US GAAP arise on the recognition
of such costs.
Goodwill purchase of Lattice
Under UK GAAP, the combination of
National Grid and Lattice has been accounted for as a merger (pooling of interests)
while under US GAAP this transaction was accounted for as an acquisition (purchase
accounting) of Lattice by National Grid. In accordance with US GAAP, goodwill
arising on the purchase has been capitalised, but is not amortised.
Goodwill other
Under US GAAP, the fair value of
net assets acquired is calculated in accordance with US GAAP principles which
differ in certain respects from UK GAAP principles. As a result, the US GAAP
fair value of net assets of Group undertakings acquired differs from the fair
value of net assets as determined under UK GAAP principles.
Under UK GAAP, goodwill is amortised over its expected useful economic life, principally 20 years. Under US GAAP, goodwill is not amortised but is reviewed periodically for impairment. An impairment assessment has been carried out during 2004 and it resulted in an impairment of goodwill being recorded in respect of Advantica, which was acquired by the Group as part of the Lattice acquisition.
Restructuring purchase of Lattice
Under US GAAP, certain reorganisation
costs relating to an acquired entity are included in liabilities in determining
the fair value of net assets acquired. Under UK GAAP, such costs are not recognised
as liabilities of the acquired entity at the date of acquisition and are treated
as post-acquisition costs.
Share of joint ventures and associates
adjustments
The Groups share of the associated
undertakings results and net assets, which also impact on the exceptional
profit on disposal of investments and assets held for exchange, have been adjusted
to conform with US GAAP.
On 16 July 2002, Energis plc (Energis) went into administration. As a direct result of this event, Energis ceased to be an associate of the Group from that date. The results for 2002/03 have not been affected by this change in status, because the Group investment in Energis had been fully written down during 2001/02 and Energis had not publicly declared any results since reporting its results for the six months ended 30 September 2001.
The Group ceased equity accounting for Intelig, its Brazilian telecoms joint venture, with effect from 30 September 2002. This arose as a result of the Groups share of net assets falling to zero and the Group declaring its intention not to fund this business any further while pursuing a withdrawal strategy.
The Groups interest in Manquehue net and Silica Networks were disposed of in October 2002 and September 2002 respectively. The Group ceased equity accounting for Manquehue net and Silica Networks from the date of disposal. In the case of Energis Polska, the interest reduced to a level where the Group has no significant influence on the activities of this business as of November 2002. As a result, these entities are no longer equity accounted for, and any losses arising from the disposal or reduction in interest have previously been reflected in the income statement.
The tables on pages 118 and 119 provide summarised information of the Groups equity in the loss or income for 31 March 2001 and 2002 and also summarised balance sheet information as at 31 March 2002.
117 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
32. Principal differences between UK and
US accounting principles
(continued)
Summary financial information for
equity investments
The following information is provided to enable
the reader to see the impact on the US GAAP results of equity accounted affiliates
for the years ended 31 March 2001 and 31 March 2002 and to allow further understanding
of the impact of these investments on the financial condition of the Group
at those dates.
The following table summarises the underlying results of all material equity accounted investments included within the Group accounts for the year ended 31 March 2002:
2002
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Silica |
(ii)
|
Manquehue | (ii) | Energis | (ii) |
(ii)
|
|||||
Energis | Intelig | Networks | net | Polska | Citelec | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue | 482 | 300 | | 28 | 1 | 149 | ||||||
Total expenses | (582 | ) | (408 | ) | (13 | ) | (46 | ) | (8 | ) | (301 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests | (100 | ) | (108 | ) | (13 | ) | (18 | ) | (7 | ) | (152 | ) |
Taxation | 2 | | | 2 | | (14 | ) | |||||
Minority interests | 1 | | | | | 58 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | (97 | ) | (108 | ) | (13 | ) | (16 | ) | (7 | ) | (108 | ) |
Groups % ownership in investee | 36.9% | 50.0% | 50.0% | 30.0% | 48.8% | 42.5% | ||||||
Groups equity in net loss of investee under US GAAP | (36 | ) | (54 | ) | (6 | ) | (5 | ) | (3 | ) | (46 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the Groups equity in the net (loss)/income of equity accounted investees to the Groups reported interest in equity accounted affiliates as measured under US GAAP, including consolidation adjustments, for the year ended 31 March 2002:
2002 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Silica |
(ii)
|
Manquehue | (ii) | Energis | (ii) | (ii) | |||||||||
Energis | Intelig | Networks | net | Polska | Citelec | Other | Total | |||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups
equity in net (loss)/income of investee under US GAAP
|
(36 | ) | (54 | ) | (6 | ) | (5 | ) | (3 | ) | (46 | ) | 7 | (143 | ) | |
Consolidation adjustments | ||||||||||||||||
Impairments write down carrying value | (392 | ) | (116 | ) | (41 | ) | (37 | ) | (20 | ) | | | (606 | ) | ||
Provisions for related liabilities | | (83 | ) | (11 | ) | (2 | ) | (90 | ) | | | (186 | ) | |||
Other | 25 | (iii) | 2 | | 2 | (2 | ) | (3 | ) | 11 | 35 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups equity in net (loss)/income under US GAAP including consolidation adjustments | (403 | ) | (251 | ) | (58 | ) | (42 | ) | (115 | ) | (49 | ) | 18 | (900 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Only includes six months results to September 2001. No results are available after this date, as a consequence of Energis being placed in administration. |
(ii) | Results included in the Group accounts for Silica Networks, Manquehue net, Energis Polska and Citelec are based on their results reported for the year ended 31 December 2001. |
(iii) | Represents a profit on a deemed disposal of Energis shares, arising from a dilution of the Group's equity interest. |
The following table summarises the balance sheet of all material equity accounted investments:
2002
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|||
Silica | Manquehue | Energis | ||||||||||
Energis
£m |
Intelig
£m |
Networks
£m |
(i) |
net
£m |
(i) |
Polska
£m |
(i) |
Citelec
£m |
(i) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | 342 | 117 | 11 | 28 | 47 | 25 | ||||||
Non-current assets | 2,276 | 525 | 77 | 156 | 89 | 366 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | 2,618 | 642 | 88 | 184 | 136 | 391 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | 389 | 551 | 23 | 24 | 93 | 151 | ||||||
Non-current liabilities | 1,151 | 4 | | 63 | | 207 | ||||||
Minority interests | 3 | | | | | 17 | ||||||
Shareholders equity | 1,075 | 87 | 65 | 97 | 43 | 16 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity | 2,618 | 642 | 88 | 184 | 136 | 391 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the Groups investment in equity accounted affiliates, under US GAAP, as at 31 March 2002:
2002 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silica | (i) | Manquehue | (i) | Energis | (i) | (i) | ||||||||||
Energis | Intelig | Networks | net | Polska | Citelec | Other | Total | |||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups
investment in and advances to equity investees plus equity in undistributed
earnings since acquisition:
|
||||||||||||||||
Before impairment |
392 |
126 | 43 | 41 | 20 | 7 | 57 | 686 | ) | |||||||
Impairment | (392 | ) | (126 | ) | (43 | ) | (41 | ) | (20 | ) | (7 | ) | - | (629 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After impairment | | | | | | | 57 | 57 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups % ownership in investee at end of year | 36.8% | 50.0% | 50.0% | 30.0% | 48.8% | 42.5% | various | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | The balance sheets shown for Silica Networks, Manquehue net, Energis Polska and Citelec are as at 31 December 2001. The amounts included within the Groups investment carrying value at 31 March 2002 are based on these balance sheets. |
Annual Report and Accounts 2003/04_ National Grid Transco 118
Notes to the Accounts _continued
32. Principal differences between UK and
US accounting principles
(continued)
Summary financial information for equity
investments
(continued)
The following table summarises the results
of all material equity accounted investments included within the Group accounts
for the year ended 31
March 2001:
The following table reconciles the Groups equity in the net (loss)/income of equity accounted investees to the Groups reported interest in equity accounted affiliates as measured under US GAAP, including consolidation adjustments, for the year ended 31 March 2001:
2001 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silica
|
(i)
|
Manquehue
|
(i)
|
Energis
|
(i)
|
(i)
|
||||||||||
Energis
|
Intelig
|
Networks
|
net
|
Polska
|
Citelec
|
Other
|
Total
|
|||||||||
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups
equity in net (loss)/income of investee under US GAAP
|
(53 | ) | (112 | ) | (1 | ) | | (1 | ) | 6 |
9
|
(152 | ) | |||
Consolidation adjustments | ||||||||||||||||
Goodwill amortisation | | | | (1 | ) | | |
|
(1 | ) | ||||||
Other | 534 | (ii) | | | | | (1 | ) |
|
533 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Groups equity in net income/(loss) under US GAAP including consolidation adjustments | 481 | (112 | ) | (1 | ) | (1 | ) | (1 | ) | 5 |
9
|
380 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Results for Silica Networks, Manquehue net, Energis Polska and Citelec are for the year ended 31 December 2000. | |
(ii) | The Other consolidation adjustment comprises: | |
| a gain of £288m on a deemed disposal of Energis shares, caused by a dilution of the Group's interest as a result of Energis issuing additional shares to third party investors; | |
| a tax credit of £230m from the release of tax liabilities relating to profits on disposal of fixed assets in earlier years, as a result of the realisation in 2001 of capital losses arising from a group reorganisation; and | |
| sundry other consolidation adjustments amounting to £16m. |
Non-GAAP measures
In preparing the accounts in accordance
with the Companies Act and UK GAAP, certain information is presented that would
be viewed as non-GAAP under regulations issued by the SEC. The
Group has described such items and provided disclosure of the effects and reasons
for presentation along with a condensed US GAAP income statement using the
format prescribed by the SEC. The disclosure of each of the exceptional items
would be prohibited within the Form 20-F if such exceptional items were not
expressly permitted by FRS 3.
Management uses adjusted profit measures in considering the performance of the Groups operating segments and businesses. References to adjusted operating profit, adjusted profit before taxation, adjusted earnings and adjusted earnings per share are stated before exceptional items and goodwill amortisation.
The Directors believe that the use of these adjusted measures better indicates the underlying business performance of the Group than the unadjusted measures because the exclusion of these items provides a clearer comparison of results from year to year for each of the years presented. This is because this method of presentation removes the distorting impact of exceptional items and removes the impact of goodwill amortisation in order to enhance comparability with the reporting practices of other UK companies.
Exceptional items, which are adjusted for in the adjusted measures referred to above, are defined as material items that derive from events that fall within the ordinary activities of the Group, but that require separate disclosure on the grounds of size or incidence for the accounts to give a true and fair view. Such exceptional items include, for example, material restructuring costs and impairments. Note 4 on pages 80 and 81 contains a discussion of the nature of these exceptional items for each period.
Other differences between UK and US GAAP
UK GAAP requires the investors share
of operating profit or loss, interest and taxation relating to associates and
joint ventures to be accounted for and disclosed separately from those of Group
undertakings. Under US GAAP, the investors share of the after tax profits
and losses of joint ventures and associates is included within the income statement
as a single line item. UK GAAP requires the investors share of gross
assets and gross liabilities of joint ventures to be shown on the face of the
balance sheet. Under US GAAP, the net investment in joint ventures is shown
as a single line item.
Under UK GAAP, the impact of discontinued operations on turnover, operating costs and operating profit is required to be accounted for and disclosed separately from continuing operations. Under US GAAP, the net income/(loss) arising from discontinued operations of Group undertakings is required to be separately accounted for and disclosed as a single line item.
The Group reviews all long-lived assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Under UK GAAP, recognition and measurement of impairment is determined on the basis of discounted cash flows attributable to income generating units. Under US GAAP, impairments on long-lived assets are determined in accordance with SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets and are recognised on the basis of undiscounted future cash flows and measured on the basis of discounted future cash flows. For the year ended 31 March 2004, there was an additional £11m impairment of intangible fixed assets relating to Advantica under US GAAP over the impairment under UK GAAP. This difference has no effect on the Group accounts for the years ended 31 March 2003 and 31 March 2002.
Under UK GAAP, assets in the balance sheet are presented in ascending order of liquidity and the balance sheet is analysed between net assets and shareholders funds. Under US GAAP, assets are presented in descending order of liquidity and the balance sheet is analysed between total assets and liabilities and shareholders funds see note 31.
119 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
32. Principal differences
between UK and US accounting principles
(continued)
New US Accounting Standards adopted during 2003/04 During 2003/04, the Group adopted the following US GAAP accounting standards to the extent necessary to comply with their reporting obligations in respect of these accounts: |
SFAS 143 Accounting for Asset Retirement Obligations (FAS 143); |
SFAS 132 Employers Disclosures about Pensions and Other Post-Retirement Benefits an amendment of FASB Statements No 87, 88 and 106 (FAS 132); |
FIN 46 Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) 51; and |
SFAS 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (FAS 150). |
FAS 143 prescribes the accounting for retirement obligations associated with tangible long-lived assets, including the timing of liability recognition and initial measurement of the liability. FAS 143 requires that an asset retirement cost should be capitalised as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The adoption of FAS 143 has had no material impact on the results or the financial position of the Group. However, in accordance with industry-wide guidance received from the Securities and Exchange Commission in February 2004, costs of removal totalling £266m at 31 March 2004, which were previously classified as accumulated depreciation, have been reclassified as liabilities. Prior period numbers have also been reclassified by £297m at 31 March 2003. There has been no impact on net assets.
FAS 132 (Revised 2003) requires entities to make additional disclosures about pensions and other post-retirement obligations. The Group has complied with these disclosure requirements to the extent necessary at 31 March 2004.
In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46 Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) 51. FIN 46 addresses the consolidation of entities for which control is achieved through means other than through voting rights (variable interest entities or VIE) by clarifying the application of ARB 51 Consolidated Financial Statements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its own activities without additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which business enterprise (the primary beneficiary) should consolidate the VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures.
The disclosure provisions of FIN 46 are effective in all financial statements initially issued after 31 January 2003. FIN 46 is required to be immediately applied by all entities with a variable interest in a VIE created after 31 January 2003. A public foreign private issuer with a variable interest in a VIE created before 1 February 2003 is required to apply FIN 46 to that entity from 1 April 2004.
There have been no entities created since 31 January 2003 which fall within the scope of FIN 46 and therefore the application of FIN 46 has not had any material impact on the results or the financial condition of the Group. The impact of FIN 46 on future results is still being assessed in respect of the as yet unapplied provisions of the standard.
In May 2003, the FASB issued FAS 150. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that certain obligations that could be settled by issuance of an entitys equity but lack other characteristics of equity be reported as liabilities. Some provisions of this statement are consistent with the FASBs proposal to revise the definition of liabilities in FASB Concepts Statement 6 Elements of Financial Statements. This statement was effective beginning 1 July 2003. On 7 November 2003, FASB Staff Position (FSP) FAS 150-3 was issued deferring the effective date for the measurement provisions of paragraphs 9 and 10 of FAS 150, as they apply to mandatorily redeemable non-controlling interests (eg minority interest in finite-lived entities). The FSP indicated, however, that the disclosure requirements of FAS 150 continue to apply. The Group has adopted the effective provisions of FAS 150 in the current year without material impact on results of operations or financial position.
Recent US pronouncements
In
January 2004, the FASB issued FSP FAS 106-1 Accounting
and Disclosure Requirements Related to Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act). This FSP addresses
the accounting implications of the newly issued Act to an entity that sponsors
a post-retirement healthcare plan that provides prescription drug benefits.
This Act, signed into law in December 2003 in the US, introduces a prescription
drug benefit under Medicare as well as a Federal subsidy to sponsors of certain
retiree healthcare benefit plans. The FSP includes an election to defer accounting
for the implications of this new law until specific authoritative guidance
to address the accounting treatment has been issued. As such, as a result
of the lack of the existence of such guidance, any measures included in these
accounts of the accumulated post-retirement benefit obligation (APBO) or
net periodic post-retirement benefit cost in the accounts or accompanying
notes do not reflect the effect of the Act on the plan. Authoritative guidance,
when issued, could require a change in previously reported information.
33. Transco plc additional US GAAP disclosures
The
following condensed consolidating financial information, comprising income
statements, balance sheets and cash flow statements,
is given in respect of Transco plc (Subsidiary Guarantor), which
became joint full and unconditional guarantor on 11 May 2004 with National
Grid Transco plc (Parent Guarantor) of the 6.625% Guaranteed
Notes due 2018 issued in June 1998 by British Transco Finance Inc. (then
known as British Gas Finance Inc.) (Issuer of notes). Transco
plc and British Transco Finance Inc. are wholly-owned subsidiaries of National
Grid Transco Group.
The following financial information for National Grid Transco plc, Transco plc and British Transco Finance Inc. on a condensed consolidating basis is intended to provide investors with meaningful and comparable financial information and is provided pursuant to Rule 3-10 of Regulation S-X in lieu of the separate financial statements of each subsidiary issuer of public debt securities.
Summary income statements are presented, on a consolidating basis, for the three years ended 31 March 2004. Summary income statements of National Grid Transco plc and Transco plc are presented under UK and US GAAP measurement principles, as modified by the inclusion of the results of subsidiary undertakings on the basis of equity accounting principles.
The summary balance sheets of National Grid Transco plc and Transco plc include the investments in subsidiaries recorded under the equity method for the purposes of presenting condensed consolidating financial information under UK and US GAAP. The UK GAAP balance sheet presents these investments as Net assets of subsidiaries (equity accounted). The US GAAP summary balance sheet presents these investments within Investments.
The consolidation adjustments column includes the necessary amounts to eliminate the inter-company balances and transactions between National Grid Transco plc, Transco plc, British Transco Finance Inc. and other subsidiaries.
Transco plc and British Transco Finance Inc. were treated as acquired (as part of the Lattice acquisition) under US GAAP. As a consequence, under US GAAP, their results only feature in the following tables for the period after acquisition on 21 October 2002. There are no results under US GAAP for these or other Lattice entities reflected in the following tables for the year ended 31 March 2002; where appropriate this is indicated by n/a. In contrast, under UK GAAP, results are presented for these entities for all periods as these entities have been accounted for under merger accounting principles.
Annual Report and Accounts 2003/04_ National Grid Transco 120
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Summary
income statement for the twelve months to 31 March 2004 UK GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
Turnover | | | 3,194 | 6,310 | (471 | ) | 9,033 | ||||||||||
Operating costs | |||||||||||||||||
Depreciation | | | (423 | ) | (443 | ) | | (866 | ) | ||||||||
Payroll costs | | | (392 | ) | (628 | ) | | (1,020 | ) | ||||||||
Purchases of electricity | | | | (1,998 | ) | | (1,998 | ) | |||||||||
Purchases of gas | | | (86 | ) | (285 | ) | | (371 | ) | ||||||||
Rates and property taxes | | | (238 | ) | (278 | ) | | (516 | ) | ||||||||
Electricity transmission services scheme direct costs | | | | (277 | ) | | (277 | ) | |||||||||
EnMO direct costs | | | | (158 | ) | | (158 | ) | |||||||||
Replacement expenditure | | | (388 | ) | | | (388 | ) | |||||||||
Provisions for doubtful debts | | | 2 | (64 | ) | | (62 | ) | |||||||||
Other operating charges (including exceptional items) | (13 | ) | | (634 | ) | (1,343 | ) | 468 | (1,522 | ) | |||||||
(13 | ) | | (2,159 | ) | (5,474 | ) | 468 | (7,178 | ) | ||||||||
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Operating profit | (13 | ) | | 1,035 | 836 | (3 | ) | 1,855 | |||||||||
Share of joint ventures operating profit | | | | 7 | | 7 | |||||||||||
Non-operating exceptional items | | | | 322 | | 322 | |||||||||||
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|
|
|
|
|
|
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|
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|
|
|
|
|
|
Profit before interest and taxation | (13 | ) | | 1,035 | 1,165 | (3 | ) | 2,184 | |||||||||
Net interest | (17 | ) | | (304 | ) | (501 | ) | | (822 | ) | |||||||
Dividends receivable | | | | 70 | (70 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | (30 | ) | | 731 | 734 | (73 | ) | 1,362 | |||||||||
Taxation | 13 | | (184 | ) | (90 | ) | | (261 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities after taxation | (17 | ) | | 547 | 644 | (73 | ) | 1,101 | |||||||||
Minority interests | | | | (2 | ) | | (2 | ) | |||||||||
Interest in group undertakings on an equity accounted basis | 1,116 | | 11 | | (1,127 | ) | | ||||||||||
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|
|
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Net income for the year | 1,099 | | (i) | 558 | 642 | (1,200 | ) | 1,099 | |||||||||
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
Summary income statement for the twelve months to 31 March 2004 US GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover | | | 3,186 | 6,151 | (471 | ) | 8,866 | ||||||||||
Operating costs | |||||||||||||||||
Depreciation | | | (726 | ) | (438 | ) | | (1,164 | ) | ||||||||
Payroll and severance costs | | | (484 | ) | (813 | ) | | (1,297 | ) | ||||||||
Purchases of electricity | | | | (1,998 | ) | | (1,998 | ) | |||||||||
Purchases of gas | | | (86 | ) | (285 | ) | | (371 | ) | ||||||||
Rates and property taxes | | | (238 | ) | (278 | ) | | (516 | ) | ||||||||
Electricity transmission services scheme direct costs | | | | (277 | ) | | (277 | ) | |||||||||
Provision for doubtful debts | | | 2 | (64 | ) | | (62 | ) | |||||||||
Other operating charges | (13 | ) | | (553 | ) | (1,161 | ) | 468 | (1,259 | ) | |||||||
(13 | ) | | (2,085 | ) | (5,314 | ) | 468 | (6,944 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
Operating profit | (13 | ) | | 1,101 | 837 | (3 | ) | 1,922 | |||||||||
Non-operating expenses | | | | 32 | | 32 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | (13 | ) | | 1,101 | 869 | (3 | ) | 1,954 | |||||||||
Net interest | (34 | ) | | (365 | ) | (273 | ) | | (672 | ) | |||||||
Dividends receivable | | | | 70 | (70 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | (47 | ) | | 736 | 666 | (73 | ) | 1,282 | |||||||||
Taxation | 18 | | (189 | ) | (111 | ) | | (282 | ) | ||||||||
|
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|
|
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|
Profit on ordinary activities after taxation | (29 | ) | | 547 | 555 | (73 | ) | 1,000 | |||||||||
Minority interests | | | | (2 | ) | | (2 | ) | |||||||||
Interest in equity accounted affiliates | 1,027 | | 64 | | (1,091 | ) | | ||||||||||
|
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Net income from continuing operations | 998 | | 611 | 553 | (1,164 | ) | 998 | ||||||||||
Net loss from discontinued operations | | | | | | | |||||||||||
|
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Net income for the year | 998 | | (i) | 611 | 553 | (1,164 | ) | 998 | |||||||||
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|
(i) | Net income for the year for British Gas Transco Finance Inc. is £nil as interest payable to external bondholders is offset by interest receivable on loans to Transco plc. |
121 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Summary
income statement for the twelve months to 31 March 2003 UK GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover | | | 3,083 | 6,764 | (447 | ) | 9,400 | ||||||||||
Operating costs | |||||||||||||||||
Depreciation | | | (385 | ) | (466 | ) | | (851 | ) | ||||||||
Payroll costs | | | (432 | ) | (675 | ) | | (1,107 | ) | ||||||||
Purchases of electricity | | | | (1,901 | ) | | (1,901 | ) | |||||||||
Purchases of gas | | | (108 | ) | (249 | ) | | (357 | ) | ||||||||
Rates and property taxes | | | (235 | ) | (302 | ) | | (537 | ) | ||||||||
Electricity transmission services scheme direct costs | | | | (252 | ) | | (252 | ) | |||||||||
EnMO direct costs | | | | (530 | ) | | (530 | ) | |||||||||
Replacement expenditure | | | (405 | ) | | | (405 | ) | |||||||||
Provision for doubtful debts | | | (4 | ) | (20 | ) | | (24 | ) | ||||||||
Other operating charges (including exceptional items) | (21 | ) | | (735 | ) | (1,518 | ) | 450 | (1,824 | ) | |||||||
(21 | ) | | (2,304 | ) | (5,913 | ) | 450 | (7,788 | ) | ||||||||
|
|
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|
|
|
|
|
|
|
Operating profit | (21 | ) | | 779 | 851 | 3 | 1,612 | ||||||||||
Share of joint ventures operating profit | | | | 124 | | 124 | |||||||||||
Non-operating exceptional items | (32 | ) | | (12 | ) | (51 | ) | (4 | ) | (99 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | (53 | ) | | 767 | 924 | (1 | ) | 1,637 | |||||||||
Net interest | 21 | | (343 | ) | (648 | ) | | (970 | ) | ||||||||
Dividends receivable | | | | 244 | (244 | ) | | ||||||||||
|
|
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|
|
|
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|
|
|
Profit on ordinary activities before taxation | (32 | ) | | 424 | 520 | (245 | ) | 667 | |||||||||
Taxation | (5 | ) | | (140 | ) | (100 | ) | | (245 | ) | |||||||
|
|
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|
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|
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|
Profit on ordinary activities after taxation | (37 | ) | | 284 | 420 | (245 | ) | 422 | |||||||||
Minority interests | | | | (31 | ) | | (31 | ) | |||||||||
Interest in group undertakings on an equity accounted basis | 428 | | 23 | | (451 | ) | | ||||||||||
|
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Net income for the year | 391 | | (i) | 307 | 389 | (696 | ) | 391 | |||||||||
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|
Summary income statement for the twelve months to 31 March 2003 US GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
Turnover | | | 1,673 | 5,945 | (217 | ) | 7,401 | ||||||||||
Operating costs | |||||||||||||||||
Depreciation | | | (311 | ) | (420 | ) | | (731 | ) | ||||||||
Payroll and severance costs | | | (191 | ) | (913 | ) | | (1,104 | ) | ||||||||
Purchases of electricity | | | | (1,901 | ) | | (1,901 | ) | |||||||||
Purchases of gas | | | (56 | ) | (248 | ) | | (304 | ) | ||||||||
Rates and property taxes | | | (105 | ) | (302 | ) | | (407 | ) | ||||||||
Electricity transmission services scheme direct costs | | | | (252 | ) | | (252 | ) | |||||||||
Provision for doubtful debts | | | (3 | ) | (20 | ) | | (23 | ) | ||||||||
Other operating charges | (21 | ) | | (298 | ) | (864 | ) | 221 | (962 | ) | |||||||
(21 | ) | | (964 | ) | (4,920 | ) | 221 | (5,684 | ) | ||||||||
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|
|
|
|
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|
|
|
|
|
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|
|
|
Operating profit | (21 | ) | | 709 | 1,025 | 4 | 1,717 | ||||||||||
Non-operating expenses | (32 | ) | | (10 | ) | 37 | | (5 | ) | ||||||||
|
|
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|
|
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|
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|
Profit before interest and taxation | (53 | ) | | 699 | 1,062 | 4 | 1,712 | ||||||||||
Net interest | 21 | | (97 | ) | (588 | ) | | (664 | ) | ||||||||
Dividends receivable | | | | 120 | (120 | ) | | ||||||||||
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|
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|
|
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|
|
Profit on ordinary activities before taxation | (32 | ) | | 602 | 594 | (116 | ) | 1,048 | |||||||||
Taxation | (5 | ) | | (193 | ) | (60 | ) | | (258 | ) | |||||||
|
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|
Profit on ordinary activities after taxation | (37 | ) | | 409 | 534 | (116 | ) | 790 | |||||||||
Minority interests | | | | (3 | ) | | (3 | ) | |||||||||
Interest in equity accounted affiliates | 788 | | 17 | 3 | (805 | ) | 3 | ||||||||||
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|
Net income from continuing operations | 751 | | 426 | 534 | (921 | ) | 790 | ||||||||||
Net loss from discontinued operations | | | | (39 | ) | | (39 | ) | |||||||||
|
|
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|
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|
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|
|
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|
|
Net income for the year | 751 | | (i) | 426 | 495 | (921 | ) | 751 | |||||||||
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(i) | Net income for the year for British Gas Transco Finance Inc. is £nil as interest payable to external bondholders is offset by interest receivable on loans to Transco plc. |
Annual Report and Accounts 2003/04_ National Grid Transco 122
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Summary
income statement for the twelve months to 31 March 2002 UK GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
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|
|
Turnover | | | 2,994 | 4,800 | (240 | ) | 7,554 | ||||||||||
Operating costs | |||||||||||||||||
Depreciation | | | (371 | ) | (379 | ) | | (750 | ) | ||||||||
Payroll costs | | | (466 | ) | (480 | ) | | (946 | ) | ||||||||
Purchases of electricity | | | | (1,410 | ) | | (1,410 | ) | |||||||||
Purchases of gas | | | (112 | ) | (59 | ) | | (171 | ) | ||||||||
Rates and property taxes | | | (231 | ) | (193 | ) | | (424 | ) | ||||||||
Electricity transmission services scheme direct costs | | | | (204 | ) | | (204 | ) | |||||||||
EnMO direct costs | | | | (395 | ) | | (395 | ) | |||||||||
Replacement expenditure | | | (368 | ) | | | (368 | ) | |||||||||
Provision for doubtful debts | | | 3 | (26 | ) | | (23 | ) | |||||||||
Other operating charges (including exceptional items) | (78 | ) | | (610 | ) | (1,351 | ) | 236 | (1,803 | ) | |||||||
(78 | ) | | (2,155 | ) | (4,497 | ) | 236 | (6,494 | ) | ||||||||
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|
|
Operating profit | (78 | ) | | 839 | 303 | (4 | ) | 1,060 | |||||||||
Share of joint ventures and associates operating profit/(loss) | | | | (701 | ) | | (701 | ) | |||||||||
Non-operating exceptional items | | | 11 | 128 | 17 | 156 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | (78 | ) | | 850 | (270 | ) | 13 | 515 | |||||||||
Net interest | (8 | ) | | (355 | ) | (436 | ) | | (799 | ) | |||||||
Dividends receivable | | | | 352 | (352 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | (86 | ) | | 495 | (354 | ) | (339 | ) | (284 | ) | |||||||
Taxation | 3 | | (149 | ) | 61 | | (85 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities after taxation | (83 | ) | | 346 | (293 | ) | (339 | ) | (369 | ) | |||||||
Minority interests | | | | 48 | | 48 | |||||||||||
Interest in group undertakings on an equity accounted basis | (238 | ) | | 15 | | 223 | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year | (321 | ) | | (i) | 361 | (245 | ) | (116 | ) | (321 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Net income for the year for British Gas Transco Finance Inc. is £nil as interest payable to external bondholders is offset by interest receivable on loans to Transco plc. |
Summary income statement for the twelve months to 31 March 2002 US GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover | | n/a | n/a | 4,004 | | 4,004 | |||||||||||
Operating costs | |||||||||||||||||
Depreciation | | n/a | n/a | (316 | ) | | (316 | ) | |||||||||
Payroll and severance costs | | n/a | n/a | (417 | ) | | (417 | ) | |||||||||
Purchases of electricity | | n/a | n/a | (1,410 | ) | | (1,410 | ) | |||||||||
Purchases of gas | | n/a | n/a | (58 | ) | | (58 | ) | |||||||||
Rates and property taxes | | n/a | n/a | (197 | ) | | (197 | ) | |||||||||
Electricity transmission services scheme direct costs | | n/a | n/a | (204 | ) | | (204 | ) | |||||||||
Provision for doubtful debts | | n/a | n/a | (26 | ) | | (26 | ) | |||||||||
Other operating charges | (78 | ) | n/a | n/a | (431 | ) | | (509 | ) | ||||||||
(78 | ) | n/a | n/a | (3,059 | ) | | (3,137 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit | (78 | ) | n/a | n/a | 945 | | 867 | ||||||||||
Non-operating expenses | | n/a | n/a | 22 | | 22 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest and taxation | (78 | ) | n/a | n/a | 967 | | 889 | ||||||||||
Net interest | (8 | ) | n/a | n/a | (118 | ) | | (126 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities before taxation | (86 | ) | n/a | n/a | 849 | | 763 | ||||||||||
Taxation | 3 | n/a | n/a | (16 | ) | | (13 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit on ordinary activities after taxation | (83 | ) | n/a | n/a | 833 | | 750 | ||||||||||
Minority interests | | n/a | n/a | (2 | ) | | (2 | ) | |||||||||
Interest in equity accounted affiliates | (84 | ) | n/a | n/a | (900 | ) | 84 | (900 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations | (167 | ) | n/a | n/a | (69 | ) | 84 | (152 | ) | ||||||||
Net loss from discontinued operations | | n/a | n/a | (1 | ) | | (1 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effects of changes in accounting principles | (167 | ) | n/a | n/a | (70 | ) | 84 | (153 | ) | ||||||||
Cumulative effects of changes in accounting principles (FAS 133
transitional adjustment) |
| n/a | n/a | (14 | ) | | (14 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year | (167 | ) | n/a | n/a | (84 | ) | 84 | (167 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Balance
sheet as at 31 March 2004 UK
GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets | |||||||||||||||||
Intangible assets | | | | 1,537 | | 1,537 | |||||||||||
Tangible assets | | | 7,880 | 8,829 | (3 | ) | 16,706 | ||||||||||
Investments | | | | 7,303 | (7,152 | ) | 151 | ||||||||||
Net assets of subsidiaries (equity accounted) | 526 | | 22 | | (548 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526 | | 7,902 | 17,669 | (7,703 | ) | 18,394 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | |||||||||||||||||
Stocks | | | 32 | 59 | | 91 | |||||||||||
Debtors (amounts falling due within one year) | 3,884 | | 292 | 4,291 | (6,879 | ) | 1,588 | ||||||||||
Debtors (amounts falling due after one year) | | 168 | 2,544 | 3,792 | (3,796 | ) | 2,708 | ||||||||||
Current asset investments | 6 | | 264 | 440 | (190 | ) | 520 | ||||||||||
Cash at bank and in hand | | 1 | | 95 | | 96 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,890 | 169 | 3,132 | 8,677 | (10,865 | ) | 5,003 | |||||||||||
Creditors (amounts falling due within one year) | |||||||||||||||||
Borrowings | (388 | ) | | (861 | ) | (947 | ) | 490 | (1,706 | ) | |||||||
Other creditors | (2,056 | ) | (4 | ) | (1,801 | ) | (5,286 | ) | 6,340 | (2,807 | ) | ||||||
(2,444 | ) | (4 | ) | (2,662 | ) | (6,233 | ) | 6,830 | (4,513 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets/(liabilities) | 1,446 | 165 | 470 | 2,444 | (4,035 | ) | 490 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities | 1,972 | 165 | 8,372 | 20,113 | (11,738 | ) | 18,884 | ||||||||||
Creditors (amounts falling due after more than one year) | |||||||||||||||||
Borrowings | (746 | ) | (165 | ) | (2,768 | ) | (8,103 | ) | 240 | (11,542 | ) | ||||||
Other creditors | (13 | ) | | (2,111 | ) | (3,593 | ) | 3,795 | (1,922 | ) | |||||||
(759 | ) | (165 | ) | (4,879 | ) | (11,696 | ) | 4,035 | (13,464 | ) | |||||||
Provisions for liabilities and charges | | | (1,356 | ) | (2,801 | ) | | (4,157 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets employed | 1,213 | | 2,137 | 5,616 | (7,703 | ) | 1,263 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves | |||||||||||||||||
Called up share capital | 309 | | 45 | 540 | (585 | ) | 309 | ||||||||||
Share premium account | 1,280 | | 204 | 1,557 | (1,761 | ) | 1,280 | ||||||||||
Other reserves | (5,131 | ) | | 1,332 | (181 | ) | (1,151 | ) | (5,131 | ) | |||||||
Profit and loss account | 4,755 | | 556 | 3,650 | (4,206 | ) | 4,755 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders funds | 1,213 | | 2,137 | 5,566 | (7,703 | ) | 1,213 | ||||||||||
Minority interests | |||||||||||||||||
Equity | | | | 12 | | 12 | |||||||||||
Nonequity | | | | 38 | | 38 | |||||||||||
| | | 50 | | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,213 | | 2,137 | 5,616 | (7,703 | ) | 1,263 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2003/04_ National Grid Transco 124
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Balance
sheet as at 31 March 2004 US GAAP
Parent | Issuer of | Subsidiary | ||||||||||
Guarantor | notes | Guarantor | ||||||||||
|
|
|
||||||||||
National | British | National | ||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | ||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 6 | 1 | 264 | 447 | (190 | ) | 528 | |||||
Marketable securities | | | | 102 | | 102 | ||||||
Accounts and notes receivable | | | 16 | 480 | | 496 | ||||||
Inventories | | | 32 | 59 | | 91 | ||||||
Amounts owed by Group undertakings | 3,883 | | 22 | 2,430 | (6,335 | ) | | |||||
Regulatory assets | | | | 512 | | 512 | ||||||
Prepaid expenses and other current assets | 1 | | 254 | 395 | (54 | ) | 596 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets | 3,890 | 1 | 588 | 4,425 | (6,579 | ) | 2,325 | |||||
Property, plant and equipment | | | 13,785 | 9,343 | (3 | ) | 23,125 | |||||
Goodwill | | | 3,746 | 1,859 | | 5,605 | ||||||
Intangible assets | | | | 50 | | 50 | ||||||
Investments | 8,851 | | (94 | ) | 9,881 | (18,483 | ) | 155 | ||||
Amounts owed by Group undertakings | | 161 | 2,544 | 1,084 | (3,789 | ) | | |||||
Regulatory assets | | | | 3,136 | | 3,136 | ||||||
Other debtors | 161 | | 196 | 629 | (35 | ) | 951 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | 12,902 | 162 | 20,765 | 30,407 | (28,889 | ) | 35,347 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity | ||||||||||||
Current liabilities | ||||||||||||
Bank overdrafts | | | 6 | 20 | | 26 | ||||||
Accounts payable | | | 406 | 630 | | 1,036 | ||||||
Short-term borrowings | 389 | | 856 | 399 | | 1,644 | ||||||
Accrued income taxes | | | 176 | | (54 | ) | 122 | |||||
Purchased power obligations | | | | 57 | | 57 | ||||||
Liability for index-linked swap contracts | | | | 100 | | 100 | ||||||
Amounts owed to Group undertakings | 1,680 | | 750 | 3,856 | (6,286 | ) | | |||||
Other accrued liabilities | 127 | 4 | 561 | 787 | (77 | ) | 1,402 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities | 2,196 | 4 | 2,755 | 5,849 | (6,417 | ) | 4,387 | |||||
Long-term borrowings | 872 | 158 | 2,894 | 8,572 | (240 | ) | 12,256 | |||||
Amounts owed to Group undertakings | | | 1,084 | 2,705 | (3,789 | ) | | |||||
Purchased power obligations | | | | 149 | | 149 | ||||||
Liability for index-linked swap contracts | | | | 291 | | 291 | ||||||
Post-retirement benefits | | | | 1,681 | | 1,681 | ||||||
Deferred income taxes | | | 3,312 | 1,590 | (35 | ) | 4,867 | |||||
Other liabilities | 13 | | 148 | 1,680 | | 1,841 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities | 3,081 | 162 | 10,193 | 22,517 | (10,481 | ) | 25,472 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest equity | | | | 12 | | 12 | ||||||
Cumulative preference stock issued by Group undertakings | | | | 42 | | 42 | ||||||
Shareholders equity | ||||||||||||
Common stock | 309 | | 45 | 540 | (585 | ) | 309 | |||||
Additional paid in capital | 7,768 | | 9,680 | 7,799 | (17,479 | ) | 7,768 | |||||
Other reserves | 359 | | | | | 359 | ||||||
Retained earnings | 2,701 | | 847 | 712 | (1,559 | ) | 2,701 | |||||
Other comprehensive loss | (1,282 | ) | | | (1,181 | ) | 1,181 | (1,282 | ) | |||
Treasury stock | (34 | ) | | | (34 | ) | 34 | (34 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders funds | 9,821 | | 10,572 | 7,836 | (18,408 | ) | 9,821 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity | 12,902 | 162 | 20,765 | 30,407 | (28,889 | ) | 35,347 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
125 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Balance sheet as at 31 March 2003 UK
GAAP
Parent | Issuer of | Subsidiary | |||||||||||||||
Guarantor | notes | Guarantor | |||||||||||||||
|
|
|
|||||||||||||||
National | British | National | |||||||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | |||||||||||||
Transco plc | Finance Inc . | Transco plc | subsidiaries | adjustments | Group | ||||||||||||
£m | £m | £m | £m | £m | £m | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets | |||||||||||||||||
Intangible assets | | | | 1,893 | | 1,893 | |||||||||||
Tangible assets | | | 7,785 | 9,062 | | 16,847 | |||||||||||
Investments | | | | 7,371 | (7,157 | ) | 214 | ||||||||||
Net assets of subsidiaries (equity accounted) | 646 | | 13 | | (659 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
646 | | 7,798 | 18,326 | (7,816 | ) | 18,954 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | |||||||||||||||||
Stocks | | | 31 | 95 | | 126 | |||||||||||
Debtors (amounts falling due within one year) | 2,664 | 4 | 298 | 4,089 | (5,244 | ) | 1,811 | ||||||||||
Debtors (amounts falling due after one year) | | 190 | 2,241 | 5,032 | (4,068 | ) | 3,395 | ||||||||||
Assets held for exchange | | | | 17 | | 17 | |||||||||||
Current asset investments | 123 | | 206 | 355 | (202 | ) | 482 | ||||||||||
Cash at bank and in hand | 1 | | | 118 | | 119 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,788 | 194 | 2,776 | 9,706 | (9,514 | ) | 5,950 | |||||||||||
Creditors (amounts falling due within one year) | |||||||||||||||||
Borrowings | (557 | ) | | (580 | ) | (1,458 | ) | 349 | (2,246 | ) | |||||||
Other creditors | (1,764 | ) | (4 | ) | (1,633 | ) | (4,294 | ) | 4,895 | (2,800 | ) | ||||||
(2,321 | ) | (4 | ) | (2,213 | ) | (5,752 | ) | 5,244 | (5,046 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets/(liabilities) | 467 | 190 | 563 | 3,954 | (4,270 | ) | 904 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities | 1,113 | 190 | 8,361 | 22,280 | (12,086 | ) | 19,858 | ||||||||||
Creditors
(amounts falling due after more than one year)
|
|||||||||||||||||
Borrowings | | (190 | ) | (2,838 | ) | (9,407 | ) | 202 | (12,233 | ) | |||||||
Other creditors | | | (2,424 | ) | (3,666 | ) | 4,068 | (2,022 | ) | ||||||||
| (190 | ) | (5,262 | ) | (13,073 | ) | 4,270 | (14,255 | ) | ||||||||
Provisions for liabilities and charges | | | (1,450 | ) | (2,956 | ) | | (4,406 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets employed | 1,113 | | 1,649 | 6,251 | (7,816 | ) | 1,197 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves | |||||||||||||||||
Called up share capital | 308 | | 45 | 540 | (585 | ) | 308 | ||||||||||
Share premium account | 1,247 | | 204 | 1,557 | (1,761 | ) | 1,247 | ||||||||||
Other reserves | (5,131 | ) | | 1,332 | (181 | ) | (1,151 | ) | (5,131 | ) | |||||||
Profit and loss account | 4,689 | | 68 | 4,251 | (4,319 | ) | 4,689 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders funds | 1,113 | | 1,649 | 6,167 | (7,816 | ) | 1,113 | ||||||||||
Minority interests | |||||||||||||||||
Equity | | | | 15 | | 15 | |||||||||||
Non-equity | | | | 69 | | 69 | |||||||||||
| | | 84 | | 84 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,113 | | 1,649 | 6,251 | (7,816 | ) | 1,197 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2003/04_ National Grid Transco 126
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Balance sheet as at 31 March 2003 US
GAAP
Parent | Issuer of | Subsidiary | ||||||||||
Guarantor | notes | Guarantor | ||||||||||
|
|
|
||||||||||
National | British | National | ||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | ||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 124 | | 206 | 442 | (202 | ) | 570 | |||||
Marketable securities | | | | 48 | | 48 | ||||||
Accounts and notes receivable | | | 27 | 601 | | 628 | ||||||
Inventories | | | 31 | 95 | | 126 | ||||||
Amounts owed by Group undertakings | 2,652 | 4 | 4 | 2,584 | (5,244 | ) | | |||||
Regulatory assets | | | | 461 | | 461 | ||||||
Prepaid expenses and other current assets | 12 | | 559 | 134 | | 705 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets | 2,788 | 4 | 827 | 4,365 | (5,446 | ) | 2,538 | |||||
Property, plant and equipment | | | 13,584 | 9,800 | | 23,384 | ||||||
Goodwill | | | 3,793 | 2,107 | | 5,900 | ||||||
Intangible assets | | | | 74 | | 74 | ||||||
Investments | 8,642 | | (156 | ) | 9,935 | (18,211 | ) | 210 | ||||
Amounts owed by Group undertakings | | 182 | 2,241 | 1,645 | (4,068 | ) | | |||||
Regulatory assets | | | | 3,998 | | 3,998 | ||||||
Other debtors | | | | 843 | | 843 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | 11,430 | 186 | 20,289 | 32,767 | (27,725 | ) | 36,947 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity | ||||||||||||
Current liabilities | ||||||||||||
Bank overdrafts | | | 13 | 49 | | 62 | ||||||
Accounts payable | | | 341 | 925 | | 1,266 | ||||||
Short-term borrowings | 557 | | 567 | 1,198 | (349 | ) | 1,973 | |||||
Purchased power obligations | | | | 68 | | 68 | ||||||
Liability for index-linked swap contracts | | | | 121 | | 121 | ||||||
Amounts owed to Group undertakings | 1,439 | | 796 | 2,660 | (4,895 | ) | | |||||
Other accrued liabilities | 8 | 4 | 626 | 535 | (52 | ) | 1,121 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities | 2,004 | 4 | 2,343 | 5,556 | (5,296 | ) | 4,611 | |||||
Long-term borrowings | | 182 | 3,004 | 10,074 | (202 | ) | 13,058 | |||||
Amounts owed to Group undertakings | | | 1,447 | 2,621 | (4,068 | ) | | |||||
Purchased power obligations | | | | 253 | | 253 | ||||||
Liability for index-linked swap contracts | | | | 381 | | 381 | ||||||
Post-retirement benefits | | | | 2,283 | | 2,283 | ||||||
Deferred income taxes | | | 3,329 | 1,358 | | 4,687 | ||||||
Other liabilities | | | 135 | 2,024 | | 2,159 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities | 2,004 | 186 | 10,258 | 24,550 | (9,566 | ) | 27,432 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest equity | | | | 15 | | 15 | ||||||
Cumulative preference stock issued by Group undertakings | | | | 74 | | 74 | ||||||
Shareholders equity | ||||||||||||
Common stock | 308 | | 45 | 540 | (585 | ) | 308 | |||||
Additional paid in capital | 7,710 | | 9,680 | 7,799 | (17,479 | ) | 7,710 | |||||
Other reserves | 359 | | | | | 359 | ||||||
Retained earnings | 2,263 | | 306 | 1,003 | (1,309 | ) | 2,263 | |||||
Other comprehensive loss | (1,175 | ) | | | (1,175 | ) | 1,175 | (1,175 | ) | |||
Treasury stock | (39 | ) | | | (39 | ) | 39 | (39 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shareholders funds | 9,426 | | 10,031 | 8,128 | (18,159 | ) | 9,426 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity | 11,430 | 186 | 20,289 | 32,767 | (27,725 | ) | 36,947 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
127 National Grid Transco _Annual Report and Accounts 2003/04
Notes to the Accounts _continued
33. Transco plc additional US GAAP disclosures
(continued)
Cash flow statements
Parent | Issuer of | Subsidiary | ||||||||||
Guarantor | notes | Guarantor | ||||||||||
|
|
|
||||||||||
National | British | National | ||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | ||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
UK GAAP cash flow statements | ||||||||||||
Twelve months to 31 March 2004 | ||||||||||||
Cash flow from operating activities | (7 | ) | | 1,397 | 1,420 | | 2,810 | |||||
Dividends from subsidiary undertakings and joint ventures | 352 | | 2 | 78 | (424 | ) | 8 | |||||
Returns on investments and servicing of finance | 8 | | (243 | ) | (457 | ) | | (692 | ) | |||
Taxation | | | (61 | ) | 43 | | (18 | ) | ||||
Capital expenditure and financial investment | | | (497 | ) | (757 | ) | | (1,254 | ) | |||
Acquisitions and disposals | | | | 7 | | 7 | ||||||
Equity dividends paid | (560 | ) | | (70 | ) | (354 | ) | 424 | (560 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow before management of liquid resources | (207 | ) | | 528 | (20 | ) | | 301 | ||||
Management of liquid resources | 117 | | (56 | ) | (109 | ) | | (48 | ) | |||
Financing | 90 | | (465 | ) | 135 | | (240 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash in the year | | | 7 | 6 | | 13 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months to 31 March 2003 | ||||||||||||
Cash flow from operating activities | (53 | ) | | 1,291 | 1,588 | | 2,826 | |||||
Dividends from subsidiary undertakings and joint ventures | 1,301 | | 28 | 348 | (1,666 | ) | 11 | |||||
Returns on investments and servicing of finance | 14 | | (335 | ) | (591 | ) | | (912 | ) | |||
Taxation | | | (50 | ) | (62 | ) | | (112 | ) | |||
Capital expenditure and financial investment | | | (605 | ) | (802 | ) | | (1,407 | ) | |||
Acquisitions and disposals | (90 | ) | | 860 | 240 | (847 | ) | 163 | ||||
Equity dividends paid | (382 | ) | | (337 | ) | (2,365 | ) | 2,513 | (571 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before management of liquid resources | 790 | | 852 | (1,644 | ) | | (2 | ) | ||||
Management of liquid resources | (123 | ) | | 2 | (17 | ) | | (138 | ) | |||
Financing | (670 | ) | | (833 | ) | 1,677 | | 174 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash in the year | (3 | ) | | 21 | 16 | | 34 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months to 31 March 2002 | ||||||||||||
Cash flow from operating activities | (1 | ) | | 1,253 | 1,039 | | 2,291 | |||||
Dividends from subsidiary undertakings and joint ventures | 750 | | 4 | 374 | (1,115 | ) | 13 | |||||
Returns on investments and servicing of finance | (10 | ) | | (335 | ) | (360 | ) | | (705 | ) | ||
Taxation | 3 | | (204 | ) | (11 | ) | | (212 | ) | |||
Capital expenditure and financial investment | | | (754 | ) | (729 | ) | | (1,483 | ) | |||
Acquisitions and disposals | (660 | ) | | (860 | ) | (969 | ) | 1,520 | (969 | ) | ||
Equity dividends paid | | | (361 | ) | (1,232 | ) | 1,115 | (478 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before management of liquid resources | 82 | | (1,257 | ) | (1,888 | ) | 1,520 | (1,543 | ) | |||
Management of liquid resources | | | 1 | 346 | | 347 | ||||||
Financing | (78 | ) | | 1,239 | 1,577 | (1,520 | ) | 1,218 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash in the year | 4 | | (17 | ) | 35 | | 22 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Parent | Issuer of | Subsidiary | ||||||||||
Guarantor | notes | Guarantor | ||||||||||
|
|
|
||||||||||
National | British | National | ||||||||||
Grid | Transco | Other | Consolidation | Grid Transco | ||||||||
Transco plc | Finance Inc. | Transco plc | subsidiaries | adjustments | Group | |||||||
£m | £m | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
US GAAP cash flow statements | ||||||||||||
Twelve months to 31 March 2004 | ||||||||||||
Net cash provided by operating activities | 353 | | 1,463 | 1,106 | (422 | ) | 2,500 | |||||
Net cash used in investing activities | 117 | | (921 | ) | (896 | ) | | (1,700 | ) | |||
Net cash (used in)/provided by financing activities | (470 | ) | | (535 | ) | (245 | ) | 422 | (828 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents | | | 7 | (35 | ) | | (28 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months to 31 March 2003 | ||||||||||||
Net cash provided by operating activities | 1,262 | | 1,060 | 979 | (1,301 | ) | 2,000 | |||||
Net cash used in investing activities | (90 | ) | | (438 | ) | (108 | ) | | (636 | ) | ||
Net cash (used in)/provided by financing activities | (1,175 | ) | | (601 | ) | (487 | ) | 1,301 | (962 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents | (3 | ) | | 21 | 384 | | 402 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months to 31 March 2002 | ||||||||||||
Net cash provided by operating activities | 742 | n/a | n/a | 910 | (750 | ) | 902 | |||||
Net cash used in investing activities | (660 | ) | n/a | n/a | (1,200 | ) | 660 | (1,200 | ) | |||
Net cash (used in)/provided by financing activities | (78 | ) | n/a | n/a | 210 | 90 | 222 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents | 4 | n/a | n/a | (80 | ) | | (76 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2003/04_ National Grid Transco 128
Summary Group Financial Information
Financial summary (unaudited)
The financial summary set out below has been derived
from the audited consolidated accounts of National Grid Transco for the four
financial years ended 31 March 2004. It should be read in conjunction with the
Group accounts and related notes, together with the Operating and Financial Review.
It is not practicable to derive the information for the year ended 31 March 2000
as the former Lattice Group had a different year end and Lattice Group was still
part of
BG Group plc at 31 March 2000. The balance sheets for 2001 to 2003 have been
restated for the adoption of UITF 38. At 31 March 2002, net income for US GAAP
includes the FAS 133 transitional adjustment of £14m.
31 March | 31 March | 31 March | 31 March | ||||||||
2004 | 2003 | 2002 | 2001 | ||||||||
(restated) | (restated) | (restated) | |||||||||
Summary profit and loss account | £m | £m | £m | £m | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Group turnover | 9,033 | 9,400 | 7,554 | 6,891 | |||||||
Operating costs | (7,178 | ) | (7,788 | ) | (6,494 | ) | (5,179 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit of Group undertakings | 1,855 | 1,612 | 1,060 | 1,712 | |||||||
Share of joint ventures and associates operating profit/(loss) | 7 | 124 | (701 | ) | (105 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit | |||||||||||
Before exceptional items and goodwill amortisation | 2,238 | 2,185 | 1,783 | 1,780 | |||||||
Exceptional items | (277 | ) | (347 | ) | (1,327 | ) | (88 | ) | |||
Goodwill amortisation | (99 | ) | (102 | ) | (97 | ) | (85 | ) | |||
1,862 | 1,736 | 359 | 1,607 | ||||||||
Non-operating exceptional items | 322 | (99 | ) | 156 | 306 | ||||||
Net interest | |||||||||||
Excluding exceptional items | (822 | ) | (939 | ) | (657 | ) | (635 | ) | |||
Exceptional items | | (31 | ) | (142 | ) | | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) on ordinary activities before taxation | 1,362 | 667 | (284 | ) | 1,278 | ||||||
Tax on profit on ordinary activities excluding exceptional items | (350 | ) | (373 | ) | (251 | ) | (390 | ) | |||
Tax on profit on ordinary activities exceptional items | 89 | 128 | 166 | 243 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) on ordinary activities after taxation | 1,101 | 422 | (369 | ) | 1,131 | ||||||
Minority interests including exceptional items | (2 | ) | (31 | ) | 48 | (7 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year | 1,099 | 391 | (321 | ) | 1,124 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary statement of net assets | |||||||||||
Fixed assets | 18,394 | 18,954 | 19,582 | 15,670 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | 5,003 | 5,950 | 6,568 | 2,960 | |||||||
Creditors: amounts falling due within one year | (4,513 | ) | (5,046 | ) | (4,888 | ) | (4,034 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets/(liabilities) | 490 | 904 | 1,680 | (1,074 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities | 18,884 | 19,858 | 21,262 | 14,596 | |||||||
Creditors: amounts falling due after more than one year | (13,464 | ) | (14,255 | ) | (14,868 | ) | (9,793 | ) | |||
Provisions for liabilities and charges | (4,157 | ) | (4,406 | ) | (4,663 | ) | (3,434 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Net assets | 1,263 | 1,197 | 1,731 | 1,369 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary cash flow statement | |||||||||||
Net cash inflow from operating activities before exceptional items | 3,058 | 3,154 | 2,394 | 2,482 | |||||||
Expenditure relating to exceptional items | (248 | ) | (328 | ) | (103 | ) | (129 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities | 2,810 | 2,826 | 2,291 | 2,353 | |||||||
Dividends from joint ventures | 8 | 11 | 13 | 20 | |||||||
Net cash outflow for returns on investments and servicing of finance | (692 | ) | (912 | ) | (705 | ) | (691 | ) | |||
Net cash outflow for taxation | (18 | ) | (112 | ) | (212 | ) | (350 | ) | |||
Net cash outflow for capital expenditure and financial investment | (1,254 | ) | (1,407 | ) | (1,483 | ) | (1,179 | ) | |||
Net cash inflow/(outflow) for acquisitions and disposals | 7 | 163 | (969 | ) | (587 | ) | |||||
Equity dividends paid | (560 | ) | (571 | ) | (478 | ) | (336 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before the management of liquid resources and financing activities | 301 | (2 | ) | (1,543 | ) | (770 | ) | ||||
Net cash (outflow)/inflow for the management of liquid resources | (48 | ) | (138 | ) | 347 | 696 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before financing activities | 253 | (140 | ) | (1,196 | ) | (74 | ) | ||||
Net cash (outflow)/inflow from financing activities | (240 | ) | 174 | 1,218 | 59 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash in the year | 13 | 34 | 22 | (15 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
31 March | 31 March | 31 March | 31 March | 31 March | ||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||
Amounts in accordance with US GAAP | £m | £m | £m | £m | £m | |||||
|
|
|
|
|
|
|
|
|
|
|
Group turnover | 8,866 | 7,401 | 4,004 | 3,583 | 1,545 | |||||
Net income/(loss) | 998 | 751 | (167 | ) | 810 | 1,010 | ||||
Earnings/(loss) per ADS | ||||||||||
Basic | 162.5 | p | 159.5 | p | (54.5 | )p | 274.5 | p | 342.8 | p |
Diluted | 162.0 | p | 156.5 | p | (44.0 | )p | 260.0 | p | 323.4 | p |
Total assets | 35,347 | 36,947 | 17,727 | 10,392 | 9,106 | |||||
Net assets employed/total shareholders funds | 9,875 | 9,515 | 3,862 | 2,962 | 2,381 | |||||
Equity shareholders funds | 9,821 | 9,426 | 3,759 | 2,920 | 2,346 | |||||
|
|
|
|
|
|
|
|
|
|
129 National Grid Transco _Annual Report and Accounts 2003/04
Glossary of Terms
Term used in Annual Report | US equivalent or brief description |
Accounts | Financial statements |
Acquisition accounting | Purchase accounting |
Allotted | Issued |
Associate | Equity investment |
Borrowings | Debt |
Called up share capital | Common stock issued and fully paid |
Capital allowances | Tax term equivalent to US tax depreciation |
allowances | |
Creditors | Accounts payable (or payables) |
Debtors | Accounts receivable (or receivables) |
Equity shareholders funds | Shareholders equity |
Finance lease | Capital lease |
Financial year | Fiscal year |
Fixed asset investments | Non-current investments |
Freehold | Ownership with absolute rights in perpetuity |
Freehold land | Land owned |
Group accounts | Consolidated financial statements |
Interest payable | Interest expense |
Interest receivable | Interest income |
Joint venture | Equity investment |
Merger accounting | Pooling of interests |
Net asset value | Book value |
Operating profit | Net operating income |
Pension scheme | Pension plan |
Profit | Income (or earnings) |
Profit and loss account | Income statement |
Profit and loss account reserve | Retained earnings |
Profit for the year | Net income |
Provision for doubtful debts | Allowance for bad and doubtful accounts receivable |
Provisions | Long-term liabilities other than debt and specific |
accounts payable | |
Reconciliation of movements in equity shareholders funds | Statement of changes in stockholders equity |
Reserves | Stockholders equity other than common stock |
Share capital | Ordinary shares, capital stock or common stock |
issued and fully paid | |
Share premium account | Additional paid-in capital relating to proceeds of |
sale of stock in excess of par value or paid-in | |
surplus (not distributable) | |
Stocks | Inventories |
Tangible fixed assets | Property, plant and equipment |
Turnover | Revenues (or sales) |
Annual Report and Accounts 2003/04_ National Grid Transco 130
Definitions
ADRs
American Depositary Receipts, negotiable certificates representing holdings in ADSs.
ADSs
American Depositary Shares, each of which represents the right to receive five ordinary shares.
AGM
Annual General Meeting.
bcm
Billion cubic metres.
Company or National Grid Transco
National Grid Transco plc.
Corporate Centre
Core Group functions operating from the Groups
head office.
DC
Direct current.
Demerger
The demerger of Lattice from BG Group plc which became effective on 23 October 2000.
EMFs
The electric and magnetic fields produced by all electrical equipment and appliances.
FERC
Federal Energy Regulatory Commission.
GAAP
Generally accepted accounting principles.
GridAmerica
The
Groups business that manages electricity transmission operations for other
utilities in the US.
Gridcom
The Groups communications infrastructure
business.
Group
National Grid Transco and/or its subsidiary undertakings or any of them as the context requires.
GW
Gigawatt, 10
9
watts.
GWh
Gigawatt hours.
HSE
Health and Safety Executive.
kV
Kilovolt, 10
3
volts.
kW
Kilowatt, 10
3
watts.
kWh
Kilowatt hours.
Lattice or Lattice Group
Lattice Group plc and/or its subsidiary undertakings or any of them as the context requires immediately prior to the completion of the Merger.
LNG
Liquefied natural gas.
LTI
Lost Time Injury. A work-related injury that caused the person to be away from work for at least one normal shift after the shift on which the injury occurred, because he/she is unfit to perform his/her duties.
mcm
Million cubic metres.
Merger
The merger of Lattice and National Grid which became effective on 21 October 2002.
MJ/cuM
Megajoules per cubic metre.
MW
Megawatt, 10
6
watts.
MWh
Megawatt hours.
National Grid or National Grid Group
National Grid Group plc and/or its subsidiary undertakings or any of them as the context requires immediately prior to the completion of the Merger.
National Grid Company or NGC
National Grid Company plc.
National Grid Transco or the Company
National Grid Transco plc.
National Grid USA
The holding company which owns the Groups
electricity, gas and other interests in the US.
Niagara Mohawk
Niagara Mohawk Holdings Inc., the US utility
acquired by National Grid on 31 January 2002.
NTS or National Transmission System
The UK national gas transmission system owned and operated by Transco.
Ofgem
The Office of Gas and Electricity Markets which on 16 June 1999 became the new name for the combined Office of Electricity Regulation and Office of Gas Supply.
ordinary shares
Ordinary shares of 10 pence each in the capital of National Grid Transco.
pence or p
United Kingdom (UK) currency.
pound(s) sterling or £
United Kingdom (UK) currency.
PUHCA
Public Utility Holding Company Act of 1935.
SEC
United States Securities and Exchange Commission.
tonnes CO
2
equivalent
Measure of greenhouse gas emissions in relation to the impact of carbon dioxide.
TW
Terawatt, 10
12
watts.
TWh
Terawatt hours.
Transco
Transco plc.
US dollars, US$ or $
United States (US) currency.
131 National Grid Transco _Annual Report and Accounts 2003/04
Certain Disclosures Required by Form 20-F and Related Information
Exchange rates
The following table sets out the $ to £ exchange
rates as indicated:
As at 19 May 2004 |
|
|
|
||
high
|
|
low
|
|||
|
|
|
|
|
|
May 2004*
|
1.79
|
|
1.75
|
|
|
|
|
|
|
|
|
April 2004
|
1.86
|
|
1.77
|
|
|
|
|
|
|
|
|
March 2004
|
1.87
|
|
1.79
|
|
|
|
|
|
|
|
|
February 2004
|
1.90
|
|
1.82
|
|
|
|
|
|
|
|
|
January 2004
|
1.85
|
|
1.79
|
|
|
|
|
|
|
|
|
December 2003
|
1.78
|
|
1.72
|
|
|
|
|
|
|
|
|
November 2003
|
1.72
|
|
1.67
|
|
|
|
|
|
|
|
|
average**
|
|||||
|
|
|
|
|
|
2003/04 |
1.70
|
||||
|
|
|
|
|
|
2002/03 |
1.55
|
||||
|
|
|
|
|
|
2001/02 |
1.44
|
||||
|
|
|
|
|
|
2000/01 |
1.47
|
||||
|
|
|
|
|
|
1999/2000 |
1.61
|
||||
|
|
|
|
|
* | for the period to 19 May 2004 |
** | the average for each period is calculated by using the average of the exchange rates on the last day of each month during the period |
Trading markets for ordinary shares
National Grid Transcos ordinary shares have been listed on the London Stock Exchange since 11 December 1995. National Grid Transcos
ADRs have had a full listing on the New York Stock Exchange since 7
October 1999.
Documents on display
National Grid Transco is subject to the filing
requirements of the US Securities Exchange Act of 1934. In accordance with these
requirements, National Grid Transco files reports and other information with
the US Securities and Exchange Commission (SEC). These materials, including this
document, may be inspected during normal business hours at National Grid Transcos registered office at 1-3 Strand, London WC2N 5EH or at the SECs Public Reference
Room at 450 Fifth Street, NW, Washington, DC 20549. For further information about the Public Reference Room, please call the SEC on 1-800-SEC-0330. Some of National Grid Transcos filings are also available on the SECs
website at
www.sec.gov.
Analysis of shareholdings
The following analysis of shareholdings is at 19 May 2004:
size of shareholding
|
number of holders
|
|
number of shares held
|
|
% of issued share capital
|
||
|
|
|
|
|
|
|
|
1-100 | 667,142 | 39,465,751 | 1.28 | ||||
|
|
|
|
|
|
|
|
101-500 | 649,818 | 135,119,732 | 4.38 | ||||
|
|
|
|
|
|
|
|
501-1,000 | 65,696 | 45,368,169 | 1.47 | ||||
|
|
|
|
|
|
|
|
1,001-5,000 | 45,850 | 90,821,622 | 2.94 | ||||
|
|
|
|
|
|
|
|
5,001-10,000 | 3,276 | 22,222,095 | 0.72 | ||||
|
|
|
|
|
|
|
|
10,001-50,000 | 1,535 | 30,436,324 | 0.99 | ||||
|
|
|
|
|
|
|
|
50,001-100,000 | 285 | 20,471,089 | 0.66 | ||||
|
|
|
|
|
|
|
|
100,001-500,000 | 566 | 133,753,489 | 4.33 | ||||
|
|
|
|
|
|
|
|
500,001-1,000,000 | 175 | 125,106,504 | 4.05 | ||||
|
|
|
|
|
|
|
|
1,000,001 and above | 298 | 2,445,112,781 | 79.18 | ||||
|
|
|
|
|
|
|
|
Total | 1,434,641 | 3,087,877,556 | 100.00 | ||||
|
|
|
|
|
|
|
In addition to the number of ordinary shareholders shown, there are approximately 19,000 beneficial and 26,300 registered holders of ADSs. These ADSs represent approximately 2.92% of the issued ordinary share capital.
Market prices
The following table sets out the highest and lowest market prices for National Grid Transco ordinary shares and ADSs for the periods indicated:
ordinary share (p) | ADS ($) | ||||||||
|
|
|
|
|
|
|
|
|
|
high
|
|
low
|
|
high
|
|
low
|
|
||
|
|
|
|
|
|
|
|
|
|
2003/04 |
438.00
|
|
374.75
|
|
41.450
|
|
30.190
|
|
|
|
|
|
|
|
|
|
|
|
|
2002/03 |
511.50
|
|
365.75
|
|
37.400
|
|
26.690
|
|
|
|
|
|
|
|
|
|
|
|
|
2001/02 |
581.00
|
|
417.25
|
|
41.750
|
|
30.400
|
|
|
|
|
|
|
|
|
|
|
|
|
2000/01 |
646.00
|
|
479.50
|
|
47.875
|
|
37.000
|
|
|
|
|
|
|
|
|
|
|
|
|
1999/2000 |
597.00
|
|
388.50
|
|
48.125
|
|
31.875
|
|
|
|
|
|
|
|
|
|
|
|
|
2003/04 |
|
|
|
|
|
|
|
|
|
Q1 |
421.00
|
|
394.00
|
|
34.980
|
|
31.060
|
|
|
Q2 |
406.75
|
|
374.75
|
|
34.120
|
|
30.190
|
|
|
Q3 |
406.25
|
|
376.25
|
|
36.250
|
|
32.000
|
|
|
Q4 |
438.00
|
|
385.00
|
|
41.450
|
|
35.590
|
|
|
|
|
|
|
|
|
|
|
|
|
2002/03 |
|
|
|
|
|
|
|
|
|
Q1 |
511.50
|
|
459.00
|
|
37.400
|
|
32.870
|
|
|
Q2 |
472.25
|
|
402.25
|
|
36.500
|
|
31.400
|
|
|
Q3 |
480.00
|
|
418.00
|
|
37.140
|
|
32.800
|
|
|
Q4 |
448.00
|
|
365.75
|
|
35.920
|
|
29.690
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2004* |
433.50
|
|
421.25
|
|
39.340
|
|
37.590
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2004 |
436.25
|
|
422.50
|
|
40.550
|
|
38.390
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2004 |
438.00
|
|
418.00
|
|
41.450
|
|
38.000
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2004 |
431.00
|
|
397.00
|
|
40.600
|
|
36.830
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2004 |
404.75
|
|
385.00
|
|
37.560
|
|
35.590
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2003 |
400.25
|
|
379.25
|
|
36.250
|
|
33.750
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2003 |
406.25
|
|
377.25
|
|
34.810
|
|
32.100
|
|
|
|
|
|
|
|
|
|
|
|
|
* | for the period to 19 May 2004 |
Annual Report and Accounts 2003/04_ National Grid Transco 134
Exhibit 14.2
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of National Grid Transco plc (File numbers 333-33094, 333-65968, 333-97249, 333-103768 and 333-107727) of our report dated May 19, 2004 relating to the financial statements of National Grid Transco plc which appears in this Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
London, UK
June 16, 2004
Exhibit 14.3
Consent of independent accountants
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of National Grid Transco plc (File numbers 333-33094, 333-65968, 333-97249, 333-103768 and 333-107727) of our report dated January 2, 2002 relating to the financial statements of JVCO Participações Ltda., which is incorporated in this Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
June 16, 2004
Exhibit 14.4
Consent of independent accountants
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of National Grid Transco plc (File numbers 333-33094, 333-65968, 333-97249, 333-103768 and 333-107727) of our report dated May 17, 2004 relating to the consolidated financial statements of Compañía Inversora en Transmisión Eléctrica Citelec S.A., which is incorporated in National Grid Transco plc Annual Report on Form 20-F.
Price Waterhouse & Co.
by /s/ Miguel A. Urus (Partner)
Miguel A. Urus
Buenos Aires, Argentina
June 16, 2004
Exhibit 14.5
Consent of independent accountants
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of National Grid Transco plc (File numbers 333-33094, 333-65968, 333-97249, 333-103768 and 333-107727) of our report dated May 28, 2004 relating to the financial statements of Energis Polska Sp. z o.o. for the year ended December 31, 2001 which appears in this Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers Sp. z o.o.
PricewaterhouseCoopers Sp. z o.o.
Warsaw, Poland
June 16, 2004
Exhibit 14.6
JVCO Participações
Ltda.
and subsidiary
Financial Statements at
31 December 2001
and Report of Independent Auditors
Report of Independent Auditors
To the Board of Directors and Quotaholders
JVCO
Participações
Ltda.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of JVCO Participações Ltda. and its subsidiaries at 31 December 2001 and changes in quotaholders equity of JVCO Participações Ltda.(parent company), and the results of their operations and their changes in financial position for the year then ended in conformity with accounting practices adopted in Brazil. These financial statements are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in Brazil and the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Accounting practices adopted in Brazil vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 15 to the consolidated financial statements.
2
JVCO Participações Ltda.
As described in Note 1 to the financial statements, the Company started operations in January 2000 and has incurred significant losses in the initial years of operations, and at 31 December 2001 presented an excess of current liabilities over current assets of R$ 1.342.609 thousand. Management has negotiated the extension of bridge finance facilities from the Vendors of its principal supply contract through 28 June 2002, while its quotaholders explore other strategic alternatives for raising the necessary long-term finance required by the Company. Until its operations generate enough revenue to cover its costs and expenses and sufficient long-term finance facilities are secured, the Company will be dependent on financial support from its quotaholders to be able to meet its ongoing obligations and liabilities. Assurances of continued provision of the necessary long-term financial support have not been provided by the quotaholders, and accordingly substantial doubt remains as to JVCO's ability to continue as going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments, if any, that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
4 January 2002
JVCO Participações Ltda.
Consolidated Balance Sheet at 31 December 2001Assets | ||||
Current assets | ||||
Cash and cash equivalents | 57,012 | |||
Accounts receivable, net | 240,206 | |||
Accounts receivable parent companies | 7,367 | |||
Recoverable taxes | 18,096 | |||
Others | 13,451 | |||
|
||||
336,132 | ||||
|
||||
Long-term receivables | ||||
Recoverable taxes | 38,731 | |||
Others | 308 | |||
|
||||
39,039 | ||||
|
||||
Investments | 1,766 | |||
Fixed assets | 1,706,491 | |||
Deferred charges | 108,165 | |||
|
||||
Total assets | 2,191,593 | |||
|
||||
Liabilities and Quotaholders' equity | ||||
Current liabilities | ||||
Suppliers | 286,215 | |||
Loans | 831,631 | |||
Accounts payable to parent companies | 479,331 | |||
Social contributions and taxes payable | 59,701 | |||
Payroll charges and other benefits | 21,863 | |||
|
||||
1,678,741 | ||||
|
||||
Long-term liabilities | ||||
Loans | 13,999 | |||
|
||||
Quotaholders' equity | ||||
Capital | 1,546,342 | |||
Accumulated losses | (1,047,489 | ) | ||
|
||||
498,853 | ||||
|
||||
Total liabilities and quotaholders' equity | 2,191,593 | |||
|
||||
The accompanying notes are an integral part of these financial statements.
4
JVCO Participações Ltda.
Consolidated Statement of OperationsGross revenues from telecommunication services rendered | 909,980 | |||
Taxes | (236,547 | ) | ||
|
||||
Net revenues | 673,433 | |||
Cost of telecommunication services rendered | (352,748 | ) | ||
|
||||
Gross margin | 320,685 | |||
|
||||
Operating income (expenses) | ||||
Selling | (164,757 | ) | ||
General and administrative | (230,159 | ) | ||
Leased circuit lines | (102,984 | ) | ||
Depreciation and amortisation | (183,944 | ) | ||
Financial expenses and foreign exchange losses, net | (71,816 | ) | ||
Other | 19,446 | |||
|
||||
(734,214 | ) | |||
|
||||
Loss for the year | (413,529 | ) | ||
|
||||
The accompanying notes are an integral part of these financial statements.
5
JVCO Participações Ltda.
Parent Company Statement of Changes in Quotaholders EquityCapital |
Accumulated
losses |
||||||||||||
|
|||||||||||||
Subscribed | Unpaid | Total | |||||||||||
|
|
|
|
||||||||||
At 31 December 2000 | 1,800,000 | (253,658 | ) | (633,960 | ) | 912,382 | |||||||
Loss for the year | (413,529 | ) | (413,529 | ) | |||||||||
|
|
|
|
||||||||||
At 31 December 2001 | 1,800,000 | (253,658 | ) | (1,047,489 | ) | 498,853 | |||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
JVCO Participações Ltda.
Consolidated Statement ofFinancial resources were provided by: | ||||
Transfer from current liabilities to long-term liabilities | 13,999 | |||
|
||||
Total funds provided | ||||
Financial resources were used for: | ||||
Operations | ||||
Loss for the year | 413,529 | |||
Expenses not affecting net working capital | ||||
Depreciation and amortisation | (183,944 | ) | ||
|
||||
229,585 | ||||
|
||||
Increase in long-term receivables | 33,691 | |||
Transfer from long-term liabilities to current liabilities | 31,343 | |||
Fixed assets acquisitions | 551,977 | |||
|
||||
Total funds used | 846,596 | |||
|
||||
Decrease in working capital | (832,597 | ) | ||
|
||||
Changes in working capital | ||||
Current assets | ||||
At the end of the year | 336,132 | |||
At the beginning of the year | 285,735 | |||
|
||||
50,397 | ||||
|
||||
Current liabilities | ||||
At the end of the year | 1,678,741 | |||
At the beginning of the year | 795,747 | |||
|
||||
882,994 | ||||
|
||||
Decrease in working capital | (832,597 | ) | ||
|
The accompanying notes are an integral part of these financial statements.
7
JVCO Participações Ltda.
Notes to the Financial Statements
1 Operations |
JVCO Participações Ltda. (the Parent Company), its wholly owned subsidiary Holdco Participações Ltda. (Holdco) and its indirectly wholly owned subsidiary Intelig Telecomunicações Ltda. (Intelig) are referred to as (the Company) in these financial statements.
Holdcos objective is to invest in other companies as a holding company and at 31 December 2001 its sole investment was the participation in Intelig.
Intelig is a private limited liability company, formed in late 1998, and its main activities are the installation, marketing, operation, maintenance and provision of telecommunications services, and specifically long-distance domestic and international fixed switched telephone services, data transmission and added value services, as defined in Invitation to Bid No. 001/98/SPB issued by the Agência Nacional de Telecomunicações ANATEL. Intelig is ultimately owned by the National Grid Group (50%) and by a company jointly owned by France Telecom and Sprint International (50%).
In January 1999, the Company was the successful bidder in the auction for the rights to operate long-distance domestic and international fixed switched telephone systems in Brazil, in direct competition with Empresa Brasileira de Telecomunicações S.A. EMBRATEL, for a period of 20 years, renewable, once only, for an equal period, at a cost to be determined. The value bid for the concession was R$ 55,000 .
Intelig commenced its operations on 23 January 2000, prior to the final deadline of 24 January 2000 determined by ANATEL, the Brazilian telecommunications sector regulatory authority.
Intelig is in the initial stages of its operations and, while still in the process of finalising the build-out of its telecommunications backbone, network and operational structure, is incurring significant losses. Until its operations generate enough revenue to cover its costs and expenses, and or sufficient long-term finance facilities are secured, Intelig will be dependent on financial support from its quotaholders to be able to meet its ongoing obligations and liabilities. The original bridge facilities from the Vendors were extended through 28 June 2002, while its quotaholders explore other strategic alternatives for raising the necessary long-term finance required by Intelig.
The accompanying notes are an integral part of these financial statements.
8
JVCO Participações Ltda.
Notes to the Financial Statements2 Summary of Significant Accounting Policies
The accompanying financial statements were prepared in accordance with accounting practices adopted in Brazil (Brazilian GAAP) and standards applicable to concessionaires of public telecommunications services. The following more significant accounting practices have been adopted:
(a) Basis of presentation
The consolidated financial statements as of and for the year in the period ended 31 December, 2001, were prepared in accordance with accounting practices adopted in Brazil and include the financial statements of Holdco and Intelig. Investments in businesses which the Company does not have the ability to exercise significant influence over operating and financial policies are accounted for under the equity method.
The consolidation process for the balance sheet and the statement of income accounts reflects the aggregate of the balances of the assets, liabilities and income and expense accounts, according to their nature, together with the following eliminations:
| The participation in capital and reserves held among the companies; |
| The balances of intercompany accounts and other asset and/or liability accounts held among the companies; |
| Unrealized results and current assets arising from intercompany transactions, if applicable; |
| The effects of significant transactions between the companies; |
| The interests in the net equity of the companies. |
(b) Use of estimates
The consolidated financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingencies and the amounts of revenues and expenses. Actual results could differ from those estimates.
(c) Cash and cash equivalents
Cash equivalents consist of bank deposits placed with major financial institutions in Brazil and highly liquid investments that are readily convertible into cash and has a maturity of three months or less at date of acquisition.
9
JVCO Participações Ltda.
Notes to the Financial Statements(d) Foreign currency transactions
Transactions in foreign currencies are recorded at the prevailing exchange rate at the time of the related transactions. Foreign currency-denominated assets and liabilities are translated using the exchange rate at the balance sheet date. Exchange gains and losses on transactions denominated in foreign currencies are included in results of operations as incurred.
(e) Accounts receivable from services
Accounts receivable from telecommunication services are valued by applying the rates on the date the service is provided. These accounts receivable also include credits for services rendered but not yet billed up to the balance sheet date. The value of services rendered but not yet billed is determined by the valuation of the metered services at year-end.
(f) Provision for doubtful accounts
This provision is established in order to recognize probable losses in relation to the collection for all 90 days outstanding receivables.
(g) Revenue recognition
Revenues are recognized on the accrual basis i.e. at the time the service is rendered. The services provided between the last billing date ("cycle") and the end of each month are estimated and recognized in the month of accrual.
Revenues consist mainly by tariffs for long-distance calls are based on the time and length of calls, the distance involved and the services used.
(h) InvestmentsInvestments are stated at equity method, including amortised goodwill.
The Company uses the equity method of accounting for the long-term investment in LMS Botafogo Imóveis Ltda. for which it owns 50% of the investee's outstanding quotas and has significant influence over operating and financial policies of the investee. The equity method requires periodic adjustments to the investment account to recognize the Company's proportionate share in the investee's results, reduced by receipt of investee dividends.
10
JVCO Participações Ltda.
Notes to the Financial Statements(i) Fixed assets
Fixed assets are stated at cost and depreciated at rates, which are based on their estimated useful lives (see Note 8). The rights for the long-distance fixed-line telecommunications concessions and the rights of way (fibre optic cable passage along railway routes, metro systems and highway routes) are being amortised over the concession and the contract terms, respectively.
Financial charges arising from loans for financing construction work in progress are capitalised in fixed assets.
(j) Pre-operating and deferral of costsUntil January 2000, the Company was in a pre-operational stage and, during this stage all costs and expenses and occasional income were deferred as pre-operating expenses and are being amortised over a period of five years from the date of start-up of operations.
(k) Current and long-term liabilitiesAre stated at their known or estimated values, including, when applicable, accrued charges and monetary variations.
(l) Contingencies
Provisions for contingencies are established for contingent risks considered as "probable losses" by the Company's management and external legal consultants.
(m) Income tax and social contribution
Deferred taxes are provided on temporary differences. Tax credits arising from tax loss carryforwards are recognized as deferred tax assets when the losses are incurred and management considers future realization to be probable.
(n) Pension plan
Contributions to defined contribution pension plan are based on payroll, being recorded on the accrual basis.
3 Cash and Cash Equivalents |
These are represented mainly by financial investments in fixed-income securities and bank deposit certificates, in the amount of R$ 55,246.
11
JVCO Participações Ltda.
Notes to the Financial Statements4 Accounts Receivable, Net |
Services billed | 212,332 | |||
Services accrued | 106,129 | |||
|
||||
318,461 | ||||
Allowance for doubtful accounts | (78,255 | ) | ||
|
||||
240,206 | ||||
|
During 2001, accounts receivable of R$ 92.644 were written-off against the allowance for doubtful accounts.
5 Transactions with Related Parties
Current assets | ||||
Accounts receivable TSA | ||||
Sprint International | 527 | |||
France Telecom | 5,427 | |||
National Grid | 1,413 | |||
|
||||
7,367 | ||||
|
||||
Current liabilities | ||||
Accounts payable TSA | ||||
Sprint International | 2,701 | |||
France Telecom | 10,283 | |||
National Grid | 3,110 | |||
Withholding tax | 3,751 | |||
|
||||
19,845 | ||||
|
||||
Accounts payable Loans and interest | ||||
Sprint International | 112,219 | |||
France Telecom | 112,219 | |||
National Grid | 224,435 | |||
Withholding tax | 10,613 | |||
|
||||
459,486 | ||||
|
||||
479,331 | ||||
|
12
JVCO Participações Ltda.
Notes to the Financial StatementsAccounts receivable represent reimbursable expenses paid on behalf of employees of the parent companies. They will be subsequently offset by Intelig with Technical Service Agreements (TSA) to be provided by the parent companies.
At 31 December 2001, these accounts represent mainly short-term loans obtained from the Companys quotaholders in the amount of R$ 459,486; these loans are denominated in U.S. dollars and are subject to interest based on LIBOR plus 4% per annum. The due dates are 26 February 2002 ( R$ 378,714), 8 March 2002 (R$ 56,116) and 5 February 2002 (R$ 24,656). These due dates can be extended.
6 Recoverable Taxes
Withholding taxes | 7,979 | |||
Value-added taxes on sale and services - | ||||
ICMS and others | 48,848 | |||
|
||||
56,827 | ||||
|
||||
Current assets | 18,096 | |||
Long-term receivables | 38,731 | |||
|
||||
56,827 | ||||
|
13
JVCO Participações Ltda.
Notes to the Financial Statements7 Income Taxes
Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory composite enacted tax rate applicable in the period presented is 33% represented by a 25% federal income tax rate plus 8% social contribution rate.
Loss before income tax | (413,529 | ) | ||
|
||||
Federal income tax and social contribution credit at | ||||
Statutory enacted rates | 136,465 | |||
Adjustment to derive effective tax rate: | ||||
Tranfer pricing adjustment | (444 | ) | ||
Valuation allowance provision | (136,021 | ) | ||
|
||||
Federal income tax and social contribution credit in | ||||
consolidated statement of operations | ||||
|
The major components of the deferred tax accounts are as follows:
Assets | ||||
Deferred tax relative to temporary differences | 61,679 | |||
Tax loss carryforwards | 283,349 | |||
|
||||
345,028 | ||||
|
||||
Valuation allowance | ||||
Beginning balance | (209,007 | ) | ||
Additions | (135,021 | ) | ||
|
||||
Ending balance | (345,028 | ) | ||
|
||||
Net deferred tax assets | ||||
|
14
JVCO Participações Ltda.
Notes to the Financial Statements8 Fixed Assets
Annual | |||||||||||||
depre- | |||||||||||||
ciation | |||||||||||||
rates | Accumulated | ||||||||||||
(%) | Cost | depreciation | Net | ||||||||||
|
|
|
|
||||||||||
Intangible | |||||||||||||
Rights of way | 5 | 179,470 | (14,319 | ) | 165,151 | ||||||||
Concession rights | 5 | 55,200 | (8,055 | ) | 47,145 | ||||||||
|
|
|
|
||||||||||
234,670 | (22,374 | ) | 212,296 | ||||||||||
|
|
|
|
||||||||||
Tangible | |||||||||||||
Premises and equipment in use | |||||||||||||
Commutation equipment | 7,7 | 177,184 | (14,511 | ) | 162,673 | ||||||||
Transmission equipment | 10 | 304,773 | (24,258 | ) | 280,515 | ||||||||
Fibre optic cable | 7 10 | 402,913 | (31,442 | ) | 371,471 | ||||||||
Land and buildings | 4 | 123.213 | (7,124 | ) | 116,089 | ||||||||
Computer equipment and | |||||||||||||
software | 20 | 498,683 | (111,797 | ) | 386,886 | ||||||||
Others | 34,929 | (3,109 | ) | 31,820 | |||||||||
Telecommunications network - | |||||||||||||
under construction | 144,741 | 144,741 | |||||||||||
|
|
|
|
||||||||||
1,696,436 | (192,241 | ) | 1,494,195 | ||||||||||
|
|
|
|
||||||||||
1,921,106 | (214,615 | ) | 1,706,491 | ||||||||||
|
|
|
|
Intelig has signed several contracts to acquire rights of way to lay fibre optic cable along railway routes, highways and metro systems, and up to 31 December 2001, had invested R$ 179,470 in the acquisition of these rights of way.
15
JVCO Participações Ltda.
Notes to the Financial StatementsThe contract signed with a consortium of Brazilian railway companies established that Intelig will make payments to the consortium, on a per-kilometre-used basis, at the beginning of the construction of each specific route, until 9 April 2002. The total amount of this contract will be determined based on the number of kilometres of routes used by Intelig, subject to a minimum total price of R$ 146,600. Up to 31 December 2001, Intelig had made payments of R$ 59,483 relating to this agreement, and has made a provision of a further R$ 31,343, representing in total 62% of the minimum price. Negotiations are ongoing with the consortium to determine a commercial solution following the unavailability of certain route sections.
During 2001, Intelig capitalised R$ 129,649 related to financial charges incurred on the financing of assets under construction.
The tangible fixed assets of Intelig are secured under an equipment pledge agreement incurred on the bridge facility agreement with Electro Banque/Alcatel and Nortel (see Note 12).
9 Social Contributions and Tax Payable
Value-added tax on sale and services ICMS | 24,460 | |||
PIS/COFINS Social Contributions | 4,129 | |||
FUST/FUNTTEL Telecommunications | ||||
sector contributions | 6,604 | |||
Withholding taxes | 20,769 | |||
Others | 3,739 | |||
|
||||
59,701 | ||||
|
10 Capital
At 31 December 2001 the subscribed capital was represented by 1,800,000 thousand quotas of R$ 1,00 each, the amount paid up at 31 December 2001 being R$ 1,546.342.
The distribution of annual net income will be determined by quotaholders representing at least 60% of the capital, with interim distributions on quarterly, six-monthly or other bases determined by the quotaholders being permitted.
16
JVCO Participações Ltda.
Notes to the Financial Statements11 Pension Plan
In August 2000, Intelig introduced a contributory private pension plan (defined contribution) for its employees, with defined contributions, which is managed by CCF Credit Commercial de France in a separate pension trust legal entity. Contributions made to the plan by Intelig during 2001 amounted R$ 2,077.
12 Loans and Financing
(a) Vendor financing
In November 1999, Intelig signed agreements (supply contracts) with Alcatel Telecomunicações S.A. and Nortel Networks Cala Inc. (together and individually, the Vendors) for the design, procurement, construction, commissioning and testing of its telecommunications network. The aggregate contract base price was US$ 447 million. These agreements included letters of commitment, under which Alcatel and Nortel undertook, subject to the satisfactory conclusion of due diligence and to Inteligs compliance with the terms of commitment, to arrange for long-term financing of amounts due under the supply contracts. Up to 31 December 2001, Intelig had paid Alcatel and Nortel approximately US$ 410,5 million (R$ 964,7 million) related to equipment and services supplied.
On 1 March 2001, Intelig signed Bridge Facility Agreements with Electro Banque (on behalf of Alcatel) and with Nortel in the amounts of US$ 298 million and US$ 50 million, respectively. These bridge facilities were drawn down in 5 tranches maturing on 28 September 2001 that was subsequently extended to 28 June 2002. Intelig has also signed an Amendment and Restatement Bridge Facility Agreement with Electro Banque (Alcatel) to extend the bridge facilities by a further US$ 35 million repayable up to 28 June 2002, with interest payments on 28 February 2002 and 28 June 2002. The commitment to provide long-term financing has been withdrawn by the Vendors. During December 2001, Intelig received two drawdowns in the total amount of R$ 36,132 (US$ 15,484 ) from Electro Banque, related to the additional US$ 35 million bridge facility. Intelig is negotiating to receive the balance of additional bridge facility in 6 tranches during the first semester of 2002. Intelig paid R$ 18,273 (US$ 7,351 thousand) to Electro Banque (Alcatel) and capitalised R$ 3,110 (US$ 1,251 thousand) related to accrued interest on the Bridge Facility Agreements relating to the period between March 2001 and October 2001.
17
JVCO Participações Ltda.
Notes to the Financial StatementsThe Bridge loans are recorded as current liabilities at 31 December 2001, in the amount of R$ 831,631 (US$ 358,195 thousand), including interest. Financial charges on the tranches vary from LIBOR plus 1% to LIBOR plus 4.5% per annum, according to the type of collateral presented by the quotaholders, with average financial charges estimated at LIBOR plus 2.39% per annum.
On 24 April 2001, the quotaholders ratified the authorisation given to the Intelig to execute the agreement signed on 17 April 2001, whereby all the 2,300,000 thousand capital quotas of Intelig were pledged to Electro Banque and Nortel Networks Limited under the conditions of the Bridge Facility Agreements.
(b) Other financing
On 2 February 2001, Intelig signed a loan agreement with the Rio de Janeiro State to defer the payment of ICMS in the amount of R$ 14 million, maturing on 4 February 2006 with financial charges of 6.17% per annum.
13 Other Income
On 10 September 2001, Intelig received a penalty payment from Alcatel Telecomunicações S.A., one of the main suppliers for the design, procurement, construction, commissioning and testing of Inteligs telecommunications backbone, due to the delay in performing its obligations under the terms of the supply contracts.
14 Contingencies
The accounting records and operations of the company are subject to examination by the tax authorities and the companies are liable to possible tax assessments for payment of additional taxes, dues and contributions, during varying prescriptive periods, in accordance with the specific applicable legislation.
Intelig are defendants in certain legal actions in the normal course of business involving tax and labour claims. Based on the advice of its legal advisers, management considers no provisions are required to meet possible losses under these claims.
18
JVCO Participações Ltda.
Notes to the Financial Statements
15
Summary of the Differences between Accounting
Practices Adopted in Brazil and USGAAP
The Company has presented its primary financial statements on the basis of accounting principles established under Brazilian GAAP with a reconciliation to US GAAP.
The accounting policies comply with Brazilian GAAP, which differ significantly from US GAAP as described below:
(a) Depreciation of concession rightsUnder Brazilian GAAP, the cost of the long-distance telephone concession rights are being amortised over the full period of the concession term of 20 years. Under US GAAP, amortisation is generally determined over the period from when operations commence.
(b) Different criteria for capitalizing
and depreciating capitalized interest |
Similar to US GAAP, under the Brazilian GAAP interest incurred on borrowings is capitalized to the extent that borrowings do not exceed construction-in-progress against a reduction of interest expense, except that under Brazilian GAAP the amount of capitalized interest includes monetary gains and losses associated the borrowings and foreign exchange gains and losses on foreign currency borrowings.
Under US GAAP, in accordance with the provisions of Statement of Financial Accounting Standard SFAS No. 34, interest incurred on borrowings is capitalized to the extent that borrowings do not exceed construction-in-progress. Under US GAAP, capitalized interest is added to the individual assets and is amortized over their useful lives. The credit is a reduction of interest expense. Under US GAAP, the amount of interest capitalized i) excludes the monetary gains and losses associated with the borrowings and the foreign exchange gains and losses on foreign currency borrowings ii) excludes charges resulting from currency derivatives but interest on borrowings which are not associated with construction-in-progress can be capitalized. No material differences exists on disposals of fixed assets under US GAAP and under Brazilian GAAP since the net effect in the income statement is the same (even if the cost of acquisitions are different due to the capitalization of interests).
19
JVCO Participações Ltda.
Notes to the Financial Statements(c) Development stage subsidiaries
Under Brazilian GAAP, expenses incurred during the pre-operational phase of a subsidiary are deferred until the entity is fully operational, at which time the expenses would be amortized as a charge to income over the expected future benefit of the new subsidiary .
Under US GAAP, in accordance with Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" , costs incurred during the start-up and organization of a development stage entity are to be expensed as incurred.
(d) Revenue recognition
Under Brazilian GAAP, installation revenues are recognized in the period the installation services are provided and related cost of services when incurred.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101) which provides guidance on revenue recognition. SAB 101 requires the deferral of certain non-recurring fees, such as installation fees and costs which would then be recognized over the expected term of the customer relationship. This difference in accounting policy has no impact in loss for the year or in quotaholders equity for the period presented.
(e) Income taxes and social contribution
Under Brazilian GAAP, the Company fully accrues for deferred income taxes on temporary differences between tax and reporting records. The existing policies under Brazilian GAAP for providing for deferred taxes are substantially in accordance with SFAS No. 109, "Accounting for Income Taxes" except as stated below.
A deferred tax liability arises in the case of an excess of net assets shown for financial reporting purposes over the tax basis of these net assets determined in accordance with accounting principles prescribed by Brazilian GAAP. Additionally, deferred income taxes are netted rather than being shown gross. For US GAAP purposes, deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the asset or liability underlying the temporary difference.
In Brazil, the tax law is sometimes significantly altered by provisional measures (" medidas provisórias ") announced by Presidential decree. The provisional measures can affect tax rates as well as other areas that could impact deferred taxes. These measures remain in force for 30 days and expire automatically if they are not extended for an additional period. When calculating the effect of tax changes or other changes on deferred income taxes in Brazil, the provisional measures are substantively considered as enacted law. For the calculation of deferred taxes, Brazilian GAAP requires the use of the tax rate which is expected to be in effect when the temporary differences or tax loss carryforwards will be realized.
Under US GAAP, only enacted tax rates may be used to calculate deferred taxes. Tax rates for future periods which have been established by provisional measures are not considered to have been enacted and are ignored. However, the provisional measure, is still in effect, is used for determining the amount of current tax payable. There are no adjustments between Brazilian GAAP and US GAAP relating to deferred taxes.
20
JVCO Participações Ltda.
Notes to the Financial Statements(f) Segment reporting
Under Brazilian GAAP , no separate segment reporting is required.
Under US GAAP, SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes the standards for the manner in which public enterprises are required to report financial and descriptive information about their operating segments. The standard defines operating segments as components of an enterprise for which separate financial information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. A measure of profit or loss, total assets and other related information are required to be disclosed for each operating segment. In addition, this standard requires the annual disclosure of information concerning revenues derived from the enterprise's products or services, countries in which it earns revenues or hold assets, and major customers. Management considers that the Company has operated in a single segment in the area of telecommunication services for the years presented. Therefore no US GAAP segment disclosures are required.
(g) Disclosure requirements
Under US GAAP disclosure requirement differ from those required by Brazilian GAAP. However, in these Brazilian GAAP financial statements, the level of disclosure has been expanded to comply with US GAAP.
21
JVCO Participações Ltda.
Notes to the Financial Statements(h) Statement of cash flows
Under Brazilian GAAP, a statement of changes in financial position is required to be presented which reflects the source and application of funds in terms of movement in working capital.
Under US GAAP, presentation of a statement of cash flows describing the cash flows provided by or used in operating, investing and financing activities is required. SFAS No. 95, " Statement of Cash Flows", establishes specific presentation requirements and requires additional disclosures, such as the amount of interest and income taxes paid and non cash transactions such as acquisition of property and equipment through capital leases, utilization of escrow deposits in settlement of liabilities and debt for equity conversions, among others. A statement of cash flows has been presented herein to supplement the Brazilian GAAP disclosure (Note 18).
(i) New US GAAP accounting pronouncement not yet adopted
(i.i) Goodwill and other intangible assets
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under prescribed conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The goodwill impairment test under SFAS No. 142 requires a two-step approach, which is performed at the reporting unit level, as defined in SFAS No. 142. Step one identifies potential impairments by comparing the fair value of the reporting unit to its carrying amount. Step two, which is only performed if there is a potential impairment, compares the carrying amount of the reporting unit's goodwill to its implied value, as defined in SFAS No. 142. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for an amount equal to that excess. The amortization of goodwill included in our investments in equity investees will also no longer be recorded upon adoption of the new rules. Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
22
JVCO Participações Ltda.
Notes to the Financial StatementsThe Company will adopt SFAS No. 142 effective 1 st January 2002. In accordance with the standard, the Company is currently in the process of performing the transitional goodwill impairment tests and evaluating the impact of these tests on their results of operations and financial position. Any impairment resulting from their initial application of the standard will be recorded as a cumulative effect of a change in accounting principle as of 1 st January 2002. Management does not expect the impact of the adoption of SFAS No. 142 to have a material effect on its results of operations or financial position.
(i.ii) Impairment or disposal of long-lived assets
In August 2001, the FASB issued SFAS No. 144. This standard supersedes SFAS No. 121 and the provisions of APB Opinion No.30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" with regard to reporting the effects of a disposal of a segment of a business. SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale and addresses several SFAS No. 121 implementation issue. The Company is required to adopt SFAS No. 144 effective 1 st January 2002.
16
Net loss and Shareholders Equity
Reconciliation
of the Differences between Accounting Practices
Loss for | Quotaholders´ | ||||||
the year | equity | ||||||
|
|
||||||
In accordance with Brazilian GAAP | (413,529 | ) | 498,853 | ||||
US GAAP adjustments: | |||||||
Deferred charges | (175,393 | ) | |||||
Amortization of deferred charges | 35,780 | 67,228 | |||||
Amortisation of concession right | (143 | ) | 2,486 | ||||
Apropriation of rights of way | (310 | ) | 1,189 | ||||
Capitalised financial exchange loss | (22,704 | ) | (22,704 | ) | |||
|
|
||||||
In accordance with US GAAP | (400,906 | ) | 371,659 | ||||
|
|
23
JVCO Participações Ltda.
Notes to the Financial Statements
17
Consolidated Statements
of Changes in Shareholders
Equity in Accordance with USGAAP
Capital | |||||||||||||
|
|
|
|
Accumulated | |||||||||
Subscribed | Unpaid | losses | Total | ||||||||||
|
|
|
|
||||||||||
At 31 December 2000 | 1,800,000 | (253,658 | ) | (773,777 | ) | 772,565 | |||||||
Loss for the year | (400,906 | ) | (400,906 | ) | |||||||||
|
|
|
|
||||||||||
At 31 December 2001 | 1,800,000 | (253,658 | ) | (1,174,683 | ) | 371,659 | |||||||
|
|
|
|
24
JVCO Participações Ltda.
Notes to the Financial Statements18 Additional Disclosure Required by USGAAP
(a) Consolidated statements
of cash flows based
accounting practices adopted in Brazil for the
year ended December 31, 2001
Cash flow from operating activities | ||||
Loss for the year | (413,529 | ) | ||
Adjustments to reconcile loss for the year with | ||||
cash used in operating activities | ||||
Depreciation and amortization | 183,944 | |||
Provision for allowance doubtful accounts | 46,044 | |||
Financial charges | 16,201 | |||
(Increase) decrease in assets | ||||
Accounts receivable parent companies | (2,543 | ) | ||
Accounts receivable | (127,148 | ) | ||
Taxes recoverable | (9,464 | ) | ||
Other assets | (9,074 | ) | ||
Increase (decrease) in liabilities | ||||
Accounts payable suppliers | (122,658 | ) | ||
Accounts payable parent companies | 9,649 | |||
Social contributions and tax payable | (23,401 | ) | ||
Payroll charges and other benefits | 7,335 | |||
Interest payment on loans | (28,075 | ) | ||
|
||||
(472,719 | ) | |||
Cash flows from investing activities |
|
|||
Aquisition to fixed assets and deferred charges | (422,328 | ) | ||
|
||||
(422,328 | ) | |||
Cash flow from financing activities |
|
|||
New loans obtained principal | 1,011,766 | |||
Payments of quotaholders loans | (134,816 | ) | ||
|
||||
876,950 | ||||
Decrease in cash and cash equivalents | (18,097 | ) | ||
|
||||
Cash and cash equivalents at the beginning of the year | 75,109 | |||
Cash and cash equivalents at the end of the year | 57,012 |
* * *
25
Exhibit 14.7
Compañía Inversora en Transmisión
Eléctrica
Citelec S.A.
Consolidated Financial Statements
as of December 31, 2001 and for each of
the two years in the period ended December 31, 2001
Compañía Inversora en Transmisión Eléctrica Citelec S.A.
Index to the Consolidated Financial Statements
F-1
Report of Independent Auditors
To the Board of Directors and Shareholders of
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in shareholders equity and of sources and uses of funds present fairly, in all material respects, the financial position of Compañía Inversora en Transmisión Eléctrica Citelec S.A. and its subsidiaries at December 31, 2001, and the results of their operations and their sources and uses of funds for the year then ended in conformity with accounting principles generally accepted in Argentina. These financial statements are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audit to obtain reasonable assurance about 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13, during 2002 the Company was negatively impacted by the devaluation of the Argentine Peso and the Argentine Government adoption of various economic measures, including the conversion of dollar-denominated tariffs to Argentine pesos at an exchange rate of Ps.1 = US$ 1. As a result of these circumstances, the Company did not comply with certain restrictive covenants contained in its debt agreements and suspended the payment of its financial debts. These circumstances raise substantial doubt about the Companys ability to continue as a going concern. Management plans in regard to these matters are also described in Note 13. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Accounting principles generally accepted in Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 14 to the consolidated financial statements.
PRICE WATERHOUSE & Co.
by /s/ Miguel A. Urus (Partner) | ||
|
|
|
Miguel A. Urus | ||
Buenos Aires, Argentina.
May 17, 2004
F-2
Compañía Inversora en Transmisión Eléctrica Citelec S.A.
Consolidated Balance Sheet as
of December 31, 2001
(In Argentine Pesos, except as otherwise indicated)
The accompanying notes are an integral part of these consolidated financial statements .
F-3
Compañía Inversora en Transmisión Eléctrica Citelec S.A.
Consolidated Statements of Income for the years ended December 31, 2001 and 2000
(In Argentine Pesos, except as otherwise indicated)
2001 |
2000
(Unaudited) |
|||||
|
|
|
|
|||
Net revenues | Ps. | 202,517,614 | Ps. | 215,851,154 | ||
Operating expenses | (96,993,978 | ) | (109,585,391 | ) | ||
|
|
|
|
|||
Gross profit | 105,523,636 | 106,265,763 | ||||
Administrative expenses | (18,606,090 | ) | (17,642,529 | ) | ||
|
|
|
|
|||
Operating income | 86,917,546 | 88,623,234 | ||||
Financial results, net | (38,649,583 | ) | (45,032,305 | ) | ||
Other income, net | 1,202,128 | 295,356 | ||||
|
|
|
|
|||
Income before taxes and minority interest | 49,470,091 | 43,886,285 | ||||
Income tax expense | (15,967,233 | ) | (12,357,658 | ) | ||
Minority interest | (12,646,698 | ) | (12,007,860 | ) | ||
|
|
|
|
|||
Net income | Ps. | 20,856,160 | Ps. | 19,520,767 | ||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements .
F-4
Compañía Inversora en Transmisión Eléctrica Citelec S.A.
Consolidated Statements of Changes
in Shareholders' Equity for the years ended December 31, 2001 and 2000
(In Argentine Pesos, except otherwise
indicated)
Common
stock |
Legal
reserve |
Retained
earnings |
Shareholders'
equity |
|||||||||
|
|
|
|
|
|
|
|
|||||
Balances as of December 31, 1999 (Unaudited) | Ps. | 249,392,486 | Ps. | 3,155,873 | Ps. | 34,356,007 | Ps. | 286,904,366 | ||||
Increase in legal reserve (unaudited) | | 609,026 | (609,026 | ) | | |||||||
Distribution of dividends (unaudited) | | | (15,450,000 | ) | (15,450,000 | ) | ||||||
Net income for the year (unaudited) | | | 19,520,767 | 19,520,767 | ||||||||
|
|
|
|
|
|
|
|
|||||
Balances as of December 31, 2000 | Ps. | 249,392,486 | Ps. | 3,764,899 | Ps. | 37,817,748 | Ps. | 290,975,133 | ||||
|
|
|
|
|
|
|
|
|||||
Increase in legal reserve | | 976,038 | (976,038 | ) | | |||||||
Distribution of dividends | | | (16,980,000 | ) | (16,980,000 | ) | ||||||
Net income for the year | | | 20,856,160 | 20,856,160 | ||||||||
|
|
|
|
|
|
|
|
|||||
Balances as of December 31, 2001 | Ps. | 249,392,486 | Ps. | 4,740,937 | Ps. | 40,717,870 | Ps. | 294,851,293 | ||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements .
F-5
Compañía Inversora en Transmisión Eléctrica Citelec S.A.
Consolidated Statements of Sources
and Uses of Funds for the years ended December 31, 2001 and 2000
(In Argentine Pesos, except as otherwise
indicated)
The accompanying notes are an integral part of these consolidated financial statements .
F-6
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
1. | Organization and description of business |
Compañía Inversora en Transmisión Eléctrica Citelec S.A. (Citelec and together with its subsidiaries, the Company) is a holding company incorporated under the laws of Argentina primarily engaged, through its subsidiaries, in the electricity transmission business.
Citelec has a 65% ownership interest in Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. (Transener), which also has a 90% ownership interest in Empresa de Transporte de Energía Eléctrica por Distribución Troncal de la Provincia de Buenos Aires Sociedad Anónima Transba S.A. (Transba).
Under 95-year concession agreements entered into with the government in 1993 and 1997, Transener and Transba, respectively, operate the two main networks of the electricity transmission system in Argentina. Under the concession agreements, Transener and Transba have the exclusive right to provide high voltage and trunk-line electricity transmission services, respectively.
Transener also has the exclusive license to construct, maintain and operate the fourth line of the Comahue-Buenos Aires electricity transmission system (the Fourth Line). See Note 8 for details.
2. | Preparation of financial statements | |
a. | Basis of presentation |
The accompanying consolidated financial statements have been prepared for purposes of being presented by National Grid Transco plc (NGT, one of the Companys shareholders) to the Securities and Exchange Commission (SEC) as separate financial statements of an unconsolidated significant subsidiary as defined by Rule 3-09 of Regulation S-X of the SEC. As waived by the SEC, these financial statements only cover fiscal years 2001 and 2000. Information regarding fiscal year 2000 is unaudited.
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles used in Argentina ("Argentine GAAP"), which differ in certain significant respects from generally accepted accounting principles in the United States of America ("US GAAP"). Such differences involve methods of measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by US GAAP and Regulation S-X of the SEC. These consolidated financial statements include solely a reconciliation of net income and shareholders equity to US GAAP. Pursuant to Item 17 of Form 20-F, this reconciliation does not include disclosure of all information that would be required by US GAAP and Regulation S-X of the SEC. See Note 14 for details.
Certain reclassifications and accommodations have been made to conform more closely to the form and content required by the SEC.
b. | Basis of consolidation |
The consolidated financial statements include the accounts of Citelec and its subsidiaries over which Citelec has effective control. All significant intercompany balances and transactions have been eliminated in consolidation.
In accordance with Argentine GAAP, the presentation of the parent companys individual financial statements is mandatory and consolidated financial statements are included as supplementary information to the individual financial statements. For the purpose of these financial statements, individual financial statements have been omitted since they are not required for SEC reporting purposes.
F-7
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
2. | Preparation of financial statements (continued) | |
b. | Basis of consolidation (continued) |
A description of the subsidiaries with their respective percentage of capital stock owned is presented as follows:
Subsidiaries | Percentage of capital stock owned as of December 31, | |||||
|
|
|
|
|||
2001 | 2000 | |||||
|
|
|||||
Transener | 65.00 | % | 65.00 | % | ||
Transba | 58.50 | % | 58.50 | % | ||
c. | Use of estimates |
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
d. | Reclassifications |
Certain reclassifications of prior year information have been made to conform to the current year presentation.
3. | Significant accounting policies |
The following is a summary of significant accounting policies followed by the Company in the preparation of these consolidated financial statements.
a. | Revenue recognition |
The Company primarily derives its revenues from the electricity transmission services. The Companys rate from the transportation service is made up of charges for (1) connection to the system, (2) energy transmission and (3) transmission capacity. Revenues from electricity transmission services are recognized in income as services are provided.
As stated in the concession agreements, the Company receives bonus payments from the government when certain quality thresholds are met. Bonuses are recognized in income when earned.
In connection with the exclusive license to construct, maintain and operate the fourth line of the Comahue-Buenos Aires electricity transmission system, the Company receives monthly, equal and consecutive installments related to the fee payable by the government for a period of 15 years. In addition, the Company has received subsidies from CAMMESA, which have been recognized as customers prepayments within the non-current portion of trade accounts payable in the accompanying consolidated balance sheet. These subsidies are being recognized in income on a straight-line basis over 15 years.
The Company derives additional revenues related to the transmission services from the supervision of the construction and operation of certain assets connected to the networks and other services provided to third parties. These revenues are recognized in income as services are rendered.
b. | Provision for penalties |
Under the concession agreements, the Company is subject to penalties when any line within the Companys networks is not available to transmit electricity. Penalties are imposed and determined by ENRE based on the type of asset and the period of unavailability. The Companys policy is to recognize a provision for penalties when occurred based on the amount that is expected to be determined by the ENRE.
F-8
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
3. | Significant accounting policies (continued) | |
c. | Statement of sources and uses of funds |
The Company considers cash and banks and current investments as funds for purposes of presenting the statements of sources and uses of funds.
d. | Investments |
Current and non-current investments include government bonds. Government bonds are carried at the lower of amortized cost or fair market value. Unrealized gains and losses on government bonds are included within Financial results, net in the accompanying consolidated statements of income.
e. | Property, plant and equipment, net |
Property, plant and equipment received from the government as a result of the privatizations have been valued at their transfer price, equaling the aggregate amount of cash paid and liabilities assumed. Subsequent additions have been valued at cost. Accumulated depreciation of the assets received from the government as a result of the privatizations is computed under some technical formulas over the estimated useful lives of the assets. Accumulated depreciation of subsequent additions is computed under the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
Asset | Estimated useful life (years) | ||
|
|||
Vehicles | 5 | ||
Air and heavy equipment | 5-25 | ||
Furniture and fixtures | 10-20 | ||
Information systems | 3 | ||
Transmission lines | 15-50 | ||
Substations and related works | 10-50 | ||
Buildings and civil works | 12-50 | ||
Labs and maintenance | 12-20 | ||
Communication equipment | 12-25 | ||
Miscellaneous | 3 |
The cost of maintenance and repairs is charged to expense as incurred. The cost of significant renewals and improvements are added to the carrying amount of the respective asset. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of income.
f. | Intangible assets, net |
Intangible assets represent costs primarily incurred in the start-up and organization of the Company, including certain costs incurred in the optimization of the technical and administrative processes. These costs are primarily being amortized on a straight-line basis over 5 years.
g. | Other assets, net |
Other assets represent costs and expenses incurred in the construction of the Fourth Line. These costs and expenses are being amortized on a straight-line basis over 15 years. See Note 8 for details.
F-9
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
3. | Significant accounting policies (continued) | |
h. | Foreign currency assets and liabilities |
Assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates as of year-end. Transactions denominated in foreign currencies are translated into Argentine pesos at the prevailing exchange rates on the date of transaction settlement. Foreign currency transaction gains and losses are generally recorded within Financial results, net in the accompanying consolidated statements of income.
In accordance with Resolution N° 1/02 of the Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (CPCECABA), assets and liabilities denominated in foreign currencies as of December 31, 2001 were valued at the exchange rate of Ps. 1 per U.S. dollar or its equivalent in any other foreign currency (the exchange rate in effect when the exchange market was suspended). See Note 13 for details of the devaluation of the Argentine peso occurred in 2002. Assets and liabilities denominated in foreign currencies are disclosed in Note 15.c.
i. | Income tax provision |
The subsidiaries of the Company calculate their income taxes on a separate basis. The Company did not either calculate or pay income taxes on a consolidated basis for any of the periods presented. The statutory income tax rate was 35% for all the periods presented. The Company does not recognize deferred income taxes.
j. | Asset tax provision |
The Company is subject to the asset tax. Pursuant to this tax regime, the Company is required to pay the greater of the income tax or the asset tax. Any excess of the asset tax over the income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. The asset tax provision is calculated on an individual entity basis at the statutory asset tax rate of 1% and is based upon the taxable assets of each company as of the end of the year, as defined by Argentine law.
k. | Provisions for contingencies |
The Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor and other matters. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters and the Companys lawyers experience in contesting, litigating and settling other matters. As the scope of the liabilities becomes better defined, there will be changes in the estimates of future costs, which could have a material effect on the Company's future results of operations and financial condition or liquidity.
l. | Pension information |
The Company and its shareholders do not maintain any pension plans for the Companys employees. Argentine laws provide for pension benefits to be paid to retired employees from government pension plans and/or private fund managed plans to which employees may elect to contribute. The Company and its shareholders do not sponsor any employee stock ownership plans for the Companys employees.
m. | Vacation expenses |
Vacation expense in excess of normal remuneration is accrued in the period the employee renders services to earn such vacation.
F-10
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statement
(In Argentine Pesos, except as otherwise indicated)
3. | Significant accounting policies (continued) | |
n. | Impairment of long-lived assets |
The Company periodically evaluates the carrying value of its long-lived assets for impairment. The carrying value of a long-lived asset is considered impaired by the Company when the expected cash flows undiscounted and without interest, from such asset is separately identifiable and less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals.
o. | Derivative financial instruments |
The Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and exchange rates. Premiums on foreign currency forward-exchange and option contracts are amortized over the life of the respective contracts. Interest rate swap agreements are accounted for on an accrual basis, with the net receivable or payable recognized as an adjustment to interest expense. The related accrued receivable or payable is included as an adjustment to interest payable. The fair value of the derivative instruments is not recognized in the accompanying consolidated financial statements. As a matter of policy, the Company does not use derivatives for trading or speculative purposes. See Note 9 for a description of the Companys derivative instruments activity.
p. | Monetary assets and liabilities |
Monetary assets and liabilities are stated at their face value plus the related financial gain or loss.
4. | Breakdown of the main balance sheet captions | |
a. | Cash and banks: |
2001 | ||||
|
||||
Cash in local currency | Ps. | 225,863 | ||
Banks in local currency | 1,053,311 | |||
Banks in foreign currency | 3,482,074 | |||
|
||||
Ps. | 4,761,248 | |||
|
b. | Investments: |
2001 | ||||
Current |
|
|||
Government bonds | Ps. | 19,428 | ||
Bank deposits | 3,063,994 | |||
|
|
|
||
Ps. | 3,083,422 | |||
|
|
|
Non-current | |||
Government bonds | Ps. | 2,000,000 | |
|
|
|
|
Ps. | 2,000,000 | ||
|
|
|
c. | Trade accounts receivable: |
2001 | |||
Current |
|
||
Services receivable | Ps. | 45,264,369 | |
|
|
|
|
Ps. | 45,264,369 | ||
|
|
|
F-11
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
4. | Breakdown of the main balance sheet captions (continued) | |
d. | Other receivables: | |
2001 | |||||
|
|||||
Current | |||||
Guarantee deposits (i) | Ps. | 3,372,739 | |||
Advances to suppliers | 483,510 | ||||
Unbilled services | 1,261,065 | ||||
Prepaid expenses | 2,038,535 | ||||
Tax credits | 52,828 | ||||
Personnel loans and advances | 836,097 | ||||
Others | 253,880 | ||||
|
|
|
|||
Ps. | 8,298,654 | ||||
|
|
|
Non-Current | |||
Guarantee deposits (ii) | Ps. | 2,354,155 | |
Unbilled services | 978,063 | ||
Stock ownership program (Note 11) | 17,983,652 | ||
|
|
|
|
Ps. | 21,315,870 | ||
|
|
|
(i) Pursuant to an agreement entered into between Yacylec S.A. (Yacylec, an independent transmission company) and the Argentine government, Transener collects revenue fees from CAMMESA on behalf of Yacylec. As such, such collected fees are subsequently remitted to Yacylec. In May 1995, CAMMESA retained Ps. 3.4 million from the amount payable to the Company as a guarantee of the obligations assumed by Transener in connection with the above-mentioned agreement. The Company has brought a claim requesting the payment of such amount since the Companys management understands that it was improperly retained by CAMMESA. The Company has classified the guarantee deposit as other current receivables.
(ii) The non-current portion of guarantee deposits represents the amount of turnover tax paid in May 1998 in connection with the claim brought by the Province of Entre Rios against the Company. As described in Note 10, this amount must be reimbursed to the Company since the Argentine Federal Supreme Court (the Court) decided in April 2002 that the Company is exempt from paying such tax.
e. | Other assets, net: |
2001 | |||
|
|
|
|
Non-Current | |||
Fourth Line (Note 8) | Ps. | 248,302,720 | |
|
|
|
|
Ps. | 248,302,720 | ||
|
|
|
f. | Trade accounts payable: |
2001 | |||
|
|
|
|
Current | |||
Suppliers | Ps. | 17,057,979 | |
|
|
|
|
Ps. | 17,057,979 | ||
Non-current |
|
|
|
Suppliers | Ps. | 1,320,148 | |
Customers prepayments (Note 8) | 69,161,290 | ||
|
|
|
|
Ps. | 70,481,438 | ||
|
|
|
F-12
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statement
(In Argentine Pesos, except as otherwise indicated)
4. Breakdown of the main balance sheet captions (continued)
g. | Short-term and long-term debt: |
Short-term debt and current portion of long-term debt consist of the following: |
2001 | |||
|
|
|
|
Short-term debt: | |||
BankBoston NA | Ps. | 7,596,303 | |
Río de la Plata | 3,085,569 | ||
Citibank | 2,018,935 | ||
HSBC Bank plc | 30,486,506 | ||
Bank of Tokyo Mitsubishi | 46,475,339 | ||
Other bank loans | 2,159,802 | ||
Bank overdrafts | 3,378,504 | ||
|
|
|
|
Ps. | 95,200,958 | ||
|
See Note 9 for a description of the Companys short-term and long-term debt.
h. | Salaries and social security payable: | |
2001 | |||
|
|
|
|
Provision for vacation and bonuses | Ps. | 2,551,226 | |
Social security payable | 1,277,972 | ||
Salaries payable | 234,067 | ||
|
|
|
|
Ps. | 4,063,265 | ||
|
i. | Taxes payable: |
2001 | |||
|
|
|
|
VAT payable, net | Ps. | 6,310,728 | |
Income tax, net | 7,051,236 | ||
Other tax withholdings | 38,705 | ||
Other taxes | 624 | ||
|
|
|
|
Ps. | 13,401,293 | ||
|
F-13
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
4. Breakdown of the main balance sheet captions (continued)
j. Provisions: |
2001 | ||||
|
|
|||
Current | ||||
Operating fees payable (Note 6) | Ps. | 452,818 | ||
Provision for penalties | 7,322,566 | |||
Bonuses receivable | (3,184,388 | ) | ||
Provision for contingencies (i) | 2,537,137 | |||
|
|
|||
Ps. | 7,128,133 | |||
|
|
(i) The Company is a party to several civil and labor proceedings and claims that have arisen in the ordinary course of its business. The Company has established reserves for an aggregate amount of Ps. 2.5 million at December 31, 2001 to cover for potential losses under these claims.
5. Shareholders' equity
a. | Common stock |
At December 31, 2001, the Company has authorized, issued and outstanding 105,974,400 shares of Class A common stock, 105,974,400 shares of Class B common stock, 18,704,437 shares of Class C common stock and 18,739,249 shares of Class D common stock. All classes of common stock have a par value of Ps. 1 per share. Holders of these shares are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders.
b. | Restrictions on distribution of profits |
In accordance with the Argentine Corporations Law and the Companys by-laws, 5% of the net and realized profit for the year calculated in accordance with Argentine GAAP plus (less) prior year adjustments must be appropriated by resolution of shareholders to a legal reserve until such reserve equals 20% of the Companys outstanding capital. This legal reserve may be used only to absorb losses.
6. Balances and transactions with related parties
The Company and its primary shareholders, National Grid Finance B.V. (National Grid) and Pecom Energía S.A. (Pecom, formerly Perez Companc S.A., and together with National Grid, the Operators), have entered into an operating agreement (the Operating Agreement) under which the Operators provide services, expertise, know-how and technical assistance in connection with the Companys activities. The Operators provide advisory and coordination services in the areas of human resources, general administration, information systems, quality control and consulting.
The operating fee payable by the Company is based on 5% of energy transmission revenue. Fees for operating services are included as a component of operating expenses in the accompanying consolidated statements of income and totaled Ps. 1.8 million and Ps. 1.7 million for the years ended December 31, 2001 and 2000, respectively.
7. Financial results, net
Year ended December 31, | ||||||
|
|
|
||||
2001 |
2000
(Unaudited) |
|||||
Generated by assets: |
|
|
|
|
||
Interest income | Ps. | 3,329,730 | Ps. | 1,460,941 | ||
Exchange differences, net | | 1,832 | ||||
|
|
|
|
|||
Ps. | 3,329,730 | Ps. | 1,462,773 | |||
|
|
|
|
F-14
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statement
(In Argentine Pesos, except as otherwise indicated)
7. Financial results, net (continued)
Year ended December 31, | ||||||
|
|
|
||||
2001 |
2000
(Unaudited) |
|||||
Generated by liabilities: |
|
|
|
|
||
Interest expense | Ps. | (38,677,684 | ) | Ps. | (44,671,070 | ) |
Exchange differences, net | (3,301,629 | ) | (1,824,008 | ) | ||
|
|
|
|
|||
Ps. | (41,979,313 | ) | Ps. | (46,495,078 | ) | |
|
|
|
|
|||
Ps. | (38,649,583 | ) | Ps. | (45,032,305 | ) | |
|
|
|
|
8. Fourth Line of the Comahue-Buenos Aires electricity transmission system
In October 1997, Transener obtained the exclusive license to construct, maintain and operate the fourth line of the Comahue-Buenos Aires electricity transmission system pursuant to a contract entered into with the Grupo de Generadores de Energía Eléctrica del Area del Comahue (the COM Contract). The COM Contract was approved by ENRE in November 1997 and provided for the construction of approximately 1,300 km of 500kV electricity lines, the installation of approximately 2,550 high-tension towers and the expansion of 5 substations.
The COM Contract establishes a fee to be paid to the Company in monthly equal and consecutive installments during 15 years as from December 1999 (the date operations began). In addition, the Company has received subsidies from CAMMESA, which have been recognized as customers prepayments within the non-current portion of trade accounts payable in the accompanying consolidated balance sheet. These subsidies are being recognized in income on a straight-line basis over 15 years.
9. Financing structure
The Company has issued various series of notes under its global program. The issuances were approved by shareholders general meetings which in turn authorized the Board of Directors to determine the terms and conditions, including amount, price, interest rate and currency. The issuances were as follows:
Corporate bonds | Date of issuance | Amount in US$ | Interest rate | Term | Use of proceeds | ||||||
|
|
|
|
|
|
||||||
Series 1 Class A | April 13, 1998 | 100,000,000 | 8.625 | % | 5 years | Debt refinancing | |||||
Series 1 Class B | April 13, 1998 | 150,000,000 | 9.25 | % | 10 years | Debt refinancing | |||||
|
|||||||||||
Total Corporate bonds | 250,000,000 | ||||||||||
|
Floating rate notes (FRN) | Date of issuance | Amount in US$ | Interest rate (i) | Term | Use of proceeds | |||||
|
|
|
|
|
|
|||||
Class 1 Series A | December 21, 1998 | 16,173,698 | LIBOR + 1.5% | 4 years | Debt refinancing | |||||
Class 2 Series A | December 23, 1998 | 14,808,758 | LIBOR + 1.5% | 3, 4 and 5 years by one third each | Construction of the fourth line and working capital needs. | |||||
Class 2 Series B | August 10, 1999 | 12,000,000 | LIBOR + 1.5% | 3, 4 and 5 years by one third each | Construction of the fourth line. | |||||
Class 3 Series A | December 23, 1998 | 29,517,544 | LIBOR + 1.4 - 1.7% | 4 years | Construction of the fourth line and working capital needs. | |||||
Class 3 Series B | March 5, 1999 | 30,000,000 | LIBOR + 1.4 - 1.7% | 4 years | Construction of the fourth line and working capital needs | |||||
Class 3 Series C | August 5, 1999 | 20,000,000 | LIBOR + 1.4 - 1.7% | 4 years | Construction of the fourth line and working capital needs. | |||||
Total Floating rate notes | 122,500,000 |
(i) See Derivative financial instruments below.
F-15
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
9. Financing structure (continued)
On August 24, 2001 the Company paid the first amortization installment of the FRN Class 2 Series A and FRN Class 2 Series B for US$ 4.9 million and US$ 4.0 million, respectively. The Company used the proceeds of a short-term loan obtained from HSBC Bank plc for US$ 10.0 million to make these payments.
The Companys long-term debt also includes the following bank loans:
Bank | Maturity | Amount | |||
|
|
|
|||
Nordic Investment Bank | March 15, 2005 | US$ 6,000,000 | |||
Bank Boston N.A. |
Various dates through
January 6, 6006 |
US$ 3,621,703 | |||
Banco Río de la Plata |
Various dates through
February 15, 2006 |
US$ 4,283,856 |
The Companys short-term debt is primarily comprised of the following bank loans:
Bank | Maturity | Amount | |||
|
|
|
|||
Bank Boston N.A. |
April 28, 2002
May 29, 2002 April 28, 2002 |
US$ 5,000,000
US$ 1,023,367 US$ 1,500,000 |
|||
Banco Río de la Plata | August 3, 2002 | US$ 3,080,000 (i) | |||
Citibank | February 2, 2002 | US$ 2,000,000 (i) | |||
HSBC Bank plc |
March 8, 2002
April 11, 2002 |
US$ 10,000,000
US$ 20,000,000 |
|||
Bank of Tokyo Mitsubishi |
April 25, 2002
August 2, 2002 |
¥ 2,452,000,000
(ii)
¥ 3,130,000,000 (ii) |
|||
Banco Río
de la Plata (iii)
Banco Río de la Plata (iii) Chase Bank of Texas (iii) |
July 15, 2002
September 3, 2002 August 15, 2002 |
US$ 543,994
US$ 542,306 US$ 690,477 |
(i) As discussed in Note 13, subsequent to year-end these dollar-denominated bank loans were converted to Argentine pesos at the rate of exchange of Ps. 1 per US$.
(ii) See Derivative financial instruments below.
(iii) Included within Other bank loans. See Note 4.g.
Derivative financial instruments
From time to time, the Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and exchange rates. The counterparties to these instruments generally are major financial institutions. The Company does not hold or issue derivative instruments for trading purposes.
A description of the Companys derivative instruments activity during the two years in the period ended December 31, 2001 follows:
(i) | Foreign currency forward-exchange contracts |
In order to manage its foreign currency exposure, during the years ended December 31, 2000 and 2001, the Company entered into foreign currency forward-exchange contracts with financial institutions to effectively convert its yen-denominated short-term debts to US dollar-denominated debts.
F-16
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
9. | Financing structure (continued) |
(i) | Foreign currency forward-exchange contracts (continued) |
As of December 31, 2000, the Company had three foreign currency forward-exchange contracts outstanding with an aggregate notional amount of Yen 6,323,500,000 maturing in April and August 2001. These foreign currency forward-exchange contracts covered yen-denominated short-term debts with Bank of Tokyo-Mitsubishi and Banco Río de la Plata S.A. amounting to Yen 4,718,500,000 and Yen 1,605,000,000, respectively, with the same maturity dates.
As of December 31, 2001, the Company had a foreign currency forward-exchange contract outstanding with JPMorgan Chase Bank for an aggregate notional amount of Yen 2,452,000,000 covering a yen-denominated short-term debt with Bank of Tokyo Mitsubishi maturing on April 25, 2002.
(ii) | Foreign currency option contract |
In order to manage its foreign currency exposure, during the year ended December 31, 2001 the Company entered into a foreign currency option contract with Bank of America, pursuant to which the Company has the option to buy Yen 3,130,000,000 at a strike price of Yen 119 per US dollar. This foreign currency option contract covers a yen-denominated short-term debt maintained with Bank of Tokyo Mitsubishi which matures on August 2, 2002.
(iii) | Interest rate swap |
In order to manage its interest rate exposure, in June 2001 the Company entered into two interest rate swap agreements with Bank of America to effectively convert its Floating Rate Notes from dollar-denominated variable-rate debt to dollar-denominated fixed-rate debt. Under the swap agreements, the Company paid interest at a fixed rate of 4.6225% and received interest at a variable rate equal to LIBOR.
10. | Turnover tax Province of Entre Rios |
The Company had received a claim from the Tax Bureau of the Province of Entre Rios to collect turnover tax, according to their interpretation, on energy transportation services. In May 1998, Transener paid Ps. 2.3 million under protest and filed a suit before the Court requesting the expedition on the legitimacy of the claim for such tax, since the terms and conditions of the concession agreement explicitly stated that the Companys services are not subject to local taxes. In April 2002, the Court finally expedited in favor of the Company stating that the Companys services are exempt from paying turnover tax. The receivable with the Province of Entre Rios is classified as a non-current other receivable in the accompanying consolidated balance sheet.
11. | Stock ownership programs |
Pursuant to the terms and conditions of the privatizations, 10% of the capital stock of both Transener and Transba, represented by their Class C shares, were included in the Programa de Propiedad Participada or PPP and Programa de Participación Accionaria de Personal or PPAP, employee stock ownership programs sponsored by the government, respectively.
Pursuant to the PPP and PPAP, the Class C shares of Transener and Transba are held by a trustee for the benefit of employees of the formerly state-owned company who remained employed by the Company and who elected to participate in the plan until the purchase price is fully paid.
In connection with the privatization of Transba, Transener had paid the government the fair market value of the 10% of the capital stock included in the PPAP. This amount has been recognized as a non-current other receivable and is being collected from the trustee with the proceeds the trustee receives from Transener as dividend distributions.
F-17
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In
Argentine Pesos, except as otherwise indicated)
12. | Restricted assets and limitation to the transfer of Transener and Transba shares |
Restricted assets |
Pursuant to the concession agreements, the Company may not pledge, mortgage, or grant any other lien or right in favour of third parties over the assets affected to the provision of the Companys electricity transmission services.
Limitation to the transfer of Transener and Transba shares |
Citelec is not permitted to modify its 65% ownership interest in Transener nor sell its Class A shares representing 51% of Transeners capital stock without prior approval by the ENRE. Transener may also not modify or sell its ownership interest in Transba without prior approval by the ENRE.
Under the concession agreements, Class A shares of both Transener and Transba have been pledged in favour of the Argentine government as guarantee for the execution of the obligations assumed under such agreements. The Company should increase the guarantee in the event of newly issued shares as a result of capital contributions and/or capitalization of profits or inflation adjustment balances.
Pursuant to the Companys by-laws, Transener and Transba Class A shares may not be pledged or granted as guarantee, except for the exceptions stated in the concession agreements.
13. | Subsequent events |
a. | Argentine economic situation and its impact on the Companys financial position | |
Argentine economic situation |
The Argentine economy has experienced significant difficulties including, a significant public debt burden, high interest rates, a financial system in crisis and a four-year economic recession. This situation has led to a significant decrease in products and services consumption in the country and an increase in the unemployment level, mainly through the end of 2002. These circumstances have affected the Governments ability to comply with existing commitments and access to bank financing.
As from December 3, 2001 the government issued certain measures to restrict the free availability and circulation of cash and the transfer of foreign currency abroad. As from December 21, 2001 all working days until the closing of the financial year were declared exchange holidays. Subsequently, the Government declared default on the external debt.
As from January 6, 2002, the Argentine government issued measures, laws, decrees and regulations that involved significant changes to the prevailing economic model (the Public Emergency Law), including (i) the establishment of a floating exchange rate system, that led to a significant devaluation of the Argentine peso during the first months of 2002, and (ii) the mandatory conversion into Argentine pesos of certain foreign currency-denominated assets and liabilities held in Argentina (known as Pesification). During 2002, there was an important inflation process as a consequence of the end of the convertibility regime.
Listed below are some of the measures adopted by the Government that are in force at the date of issuance of these consolidated financial statements and the effect they had on the Companys economic and financial situation.
Exchange system / Transfers outside Argentina |
On February 8, 2002 a single free exchange market system was established, which is regulated and controlled by Banco Central de la República Argentina (the Argentine Central Bank) . Presently, certain transfers abroad of a financial nature require the prior approval of the Central Bank and there are certain requirements for settling and collecting foreign currency arising from exports.
F-18
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In
Argentine Pesos, except as otherwise indicated)
13. | Subsequent events (continued ) |
a. | Argentine economic situation and its impact on the Companys financial position (continued) | |
Argentine economic situation (continued) | ||
Deposits in Argentine financial institutions |
As from February 3, 2002 deposits in U.S. dollars or other foreign currencies in Argentine financial institutions were converted to pesos at the exchange rate of Ps. 1.4 per US$ 1 or its equivalent in such other currency.
Financial debts in foreign currency with Argentine financial entities |
Debts in U.S. dollars or other foreign currencies in the Argentine financial system were converted to pesos at the rate of exchange of Ps. 1 per US$ 1 or its equivalent in another currency. As from February 3, 2002 the reference stabilization index (CER) and an interest rate are being applied to these debts. The CER is an index that measures the daily rate of change derived from the monthly change in the Consumer Price Index (CPI) published by the INDEC.
Receivables and debts not related to the financial system |
The obligation to pay sums denominated in U.S. dollars or other foreign currency that are not related to the financial system, whatever their origin or nature, were converted to pesos at the exchange rate of Ps. 1 to US$ 1 or its equivalent in such other foreign currency. The CER is being applied to these balances as from February 3, 2002. If application of this provision were to lead to the resulting value of the item, good or service being higher or lower at the time of payment, either of the parties can request a fair readjustment of the price. If no agreement is reached, the case could be submitted to the Courts.
Pesification of prices and tariffs / Renegotiation of concession agreements |
The Public Emergency Law established that, in the case of contracts related to public services, clauses setting forth the price of such public services in U.S. dollars or other foreign currencies, and escalator clauses based on foreign price indexes or any other indexation mechanisms are no longer valid. Prices and tariffs resulting from those clauses were converted into Argentine pesos at a Ps.1 = US$ 1 parity. Pursuant to such law, the Government is entitled to renegotiate the terms of these contracts based on the following criteria: (i) the impact of tariffs on the economy and its effect on peoples income, (ii) service quality and investment plans, as contractually agreed, (iii) the customers interests and access to the services, (iv) the security of the systems, and (v) the companys profitability.
Accounting for the effects of the devaluation / Capitalization of exchange losses / Inflation accounting |
In accordance with Resolution N° 1/02 of the CPCECABA, assets and liabilities denominated in foreign currencies as of December 31, 2001 were valued at the exchange rate of Ps. 1 per U.S. dollar or its equivalent in any other foreign currency (the exchange rate in effect when the exchange market was suspended). The effects of the devaluation were recognized during fiscal year 2002. However, as permitted by Resolution MD No.3/02 of the CPCECABA, during 2002 the Company capitalized certain foreign currency exchange losses related to foreign currency liabilities existing at January 6, 2002 as part of cost of construction of the fourth-line.
As a result of the inflationary environment in Argentina during 2002, the CPCECABA approved on March 6, 2002, a resolution reinstating the application of inflation accounting in financial statements as from January 1, 2002.
Deferral of the deduction of the exchange difference from income tax |
The net negative results caused by the devaluation of the Argentine peso on January 11, 2002 are deductible from taxable income over five years, beginning in 2002.
F-19
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In
Argentine Pesos, except as otherwise indicated)
13. | Subsequent events (continued) | |
a. | Argentine economic situation and its impact on the Companys financial position (continued) |
Impact on the Companys financial position and results of operations Default and going concern
The new macroeconomic scenario after enactment of the Public Emergency Law deeply changed the economic-financial equation of the Company. The significant effect of the devaluation, within a context where revenues remained unchanged as a consequence of the Pesification of rates and financial debts primarily denominated in foreign currency, affected the Companys financial position, results of operations and cash generation ability to comply with financial obligations.
As a consequence, on April 22, 2002 Transener publicly announced the suspension of principal and interest payments on its financial debts. In addition, during 2002 Transener did not comply with a debt covenant contained in the Floating Rate Notes agreement, resulting in another event of default as defined in such debt agreement. Due to cross-default provisions in the agreements that govern the Companys financial debts, this event of default also constituted an event of default under all other debt agreements. As a result of the defaults, creditors have the right to request the accelerated payment of the Companys financial debts. Transener retained an international financial advisor to develop a restructuring plan for its aggregate financial debts.
As a result of the Companys suspension of principal and interest payments on its financial debts, the Company did not pay the amount due at its maturity, totaling US$ 1.9 million, in connection with a foreign currency forward-exchange contract matured on April 25, 2002. In addition, as a result of the Companys default, the swap agreements with original maturities in August 2002 and 2003 were early terminated. The early termination resulted in the recognition of a US$ 1.7 million loss that is still pending of payment.
Regarding the renegotiation of the concession agreements, the Company filed all information as required by the government, which included information on the impact caused by the economic crisis on the Companys financial position and its revenues, the pre-existing mechanisms for tariffs adjustments, operating costs, indebtedness, payment commitments with the government and on future and on-going investments. However, the Company cannot anticipate the outcome of the renegotiation process.
On September 11, 2003, the Company was served notice of an involuntary bankruptcy petition filed against it by an alleged corporate bond holder amounting to US$ 0.1 million. The Company has requested the dismissal of the petition and is pending resolution as of the date of issuance of these financial statements. In addition, the Company is also aware of certain summary attachment proceedings filed against it by persons alleging to be holders of corporate bonds. The Company has been served with process and filed the required formal responses to each of these claims. Trade account receivables for US$ 0.1 are restricted in connection with these summary attachment proceedings.
At the date of issuance of these financial statements, mutual investment funds and local private managed pension funds are the primary creditors of the Companys debts.
The Companys consolidated financial statements have been prepared on the going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, the circumstances abovementioned raise substantial doubt about the Companys ability to continue as a going concern. Management plans to continue as a going concern include the renegotiation of its concession agreements and its financial debts on favorable terms. However, no assurance can be given that (i) the Company will restructure its financial debts on favorable terms or the Companys creditors will not request the accelerated payment of the financial debts, and (ii) the Company will renegotiate the concession agreements on favorable terms. Therefore, the Companys consolidated financial statements could not include any adjustment that might result from the outcome of this uncertainty.
F-20
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In
Argentine Pesos, except as otherwise indicated)
13. | Subsequent events (continued) | |
b. | Adoption of new accounting standards |
Effective January 1, 2003 the Company adopted new accounting pronouncements related to valuation and disclosure criteria. The principal differences of such new standards, as they relate to the Company, are (a) the accounting for deferred income taxes; (b) the use of discounted values for the measurement of certain assets and liabilities; (c) the accounting for derivative financial instruments at fair value; (d) the full accrual of vacation expense in the period the employee renders service to earn such vacation; and (e) the presentation of the statement of cash flows. As required by Argentine GAAP, in presenting 2003 financial statements, the accompanying consolidated financial statements as well as the 2002 consolidated financial statements were restated for comparative purposes to retroactively reflect the adopted changes in accounting principles, except for certain valuation and disclosure criteria that in accordance with the transition provisions were applied prospectively. The impact of such an adoption on reported amounts of shareholders equity and net income as of and for the year ended December 31, 2001, respectively, is summarized as follows:
Shareholders equity | Net income | ||||||
|
|
||||||
As reported | Ps. | 294,851,293 | Ps. | 20,856,160 | |||
As restated (i) | Ps. | 274,270,110 | Ps. | 21,533,317 |
(i) Amounts expressed in historical Argentine pesos (before inflation restatement applied as from January 1, 2002).
c. | Change of shareholders |
In January 2004, The Argentine Investment Company sold its 7.514% ownership interest in Citelec to Dolphin Management Fund (DMF).
In addition, in March 2004, DMF entered into a purchase agreement with National Grid to acquire an additional 42.493% ownership interest in Citelec. However, in April 2004, Petrobras Energía S.A. (Petrobras, formerly Pecom Energía S.A.) notified National Grid the exercise of its preemptive rights to acquire 0.007% of its ownership interest in Citelec. This transaction is subject to approval by the Argentine government and by the ENRE. Once the Argentine government and the ENRE approve this transaction the Companys shareholders will be Petrobras and DMF, each having a 50% ownership interest.
d. | Foreign activities |
In August 2002, Transener formed Transener Internacional Ltda (Transener Brazil) to provide electricity transmission, operation and maintenance services as well as consulting and other related services in Paraguay, Uruguay, Brazil, Peru, Venezuela, Ecuador and Colombia.
In May 2003, Transba formed Transba Internacional S.A. (Transener Panama) to provide electricity transmission, operation and maintenance services as well as consulting and other related services in Panama and other countries.
14. | Differences between Argentine GAAP and US GAAP |
The Companys consolidated financial statements have been prepared in accordance with Argentine GAAP, which differ in certain significant respects from US GAAP. Such differences involve methods of measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by US GAAP and Regulation S-X of the SEC. These consolidated financial statements include solely a reconciliation of net income and shareholders equity to US GAAP. Pursuant to Item 17 of Form 20-F, this reconciliation does not include disclosure of all information that would be required by US GAAP and Regulation S-X of the SEC.
F-21
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In
Argentine Pesos, except as otherwise indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
I. | Difference in measurement methods |
The principal differences between Argentine GAAP and US GAAP are described below, together with an explanation, where appropriate, of the method used in the determination of the necessary adjustments.
As
of
December 31, 2001 |
|||
|
|||
Reconciliation of shareholders equity: | |||
Total shareholders equity under Argentine GAAP | Ps. | 294,851,293 | |
US GAAP adjustments: | |||
Provision for vacation (a) | (2,103,927 | ) | |
Start-up and organization costs (b) | (6,925,601 | ) | |
Capitalization of interest costs (c) | 12,247,857 | ||
Depreciation of property, plant and equipment (d) | (75,929,451 | ) | |
Devaluation of the Argentine peso (e) | (281,119,627 | ) | |
Voluntary retirement program (f) | 4,422,506 | ||
Valuation of property plant and equipment (g) | (55,250,251 | ) | |
Increasing-rate debt (h) | (192,368 | ) | |
Derivative financial instruments (i) | (1,386,169 | ) | |
Accounting for multiple element arrangements (j) | 4,000,000 | ||
Deferred income taxes (k) | 6,312,254 | ||
Minority interest (l) | 141,486,772 | ||
|
|||
Shareholders equity under US GAAP | Ps. | 40,413,288 | |
|
Description of changes in shareholders equity under US GAAP: |
Year
ended
December 31, 2001 |
||
|
|||
Shareholders equity as of the beginning of the year | Ps. | 215,934,554 | |
Distribution of dividends | (16,980,000 | ) | |
Other comprehensive loss | (1,403,286 | ) | |
Net loss for the year | (157,137,980 | ) | |
|
|||
Shareholders equity as of the end of the year | Ps. | 40,413,288 | |
|
F-22
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) |
Description of reconciling items: | ||
(a) | Provision for vacation |
Under Argentine GAAP, there are no specific requirements governing the recognition of accrual for vacations. The accepted practice in Argentina is to expense vacation when taken and to accrue only the amount of vacation in excess of normal remuneration.
Under US GAAP, vacation expense is fully accrued in the period the employee renders services to earn such vacation.
(b) | Start-up and organization costs |
Under Argentine GAAP, the Company has capitalized start-up and organization costs as intangible assets in the accompanying consolidated balance sheets. These costs are primarily being amortized on a straight-line basis over 5 years. Included as start-up and organization costs are fees and expenses related to the issuance of certain financial debts amounting to Ps. 1,213,203 as of December 31, 2001. These fees and expenses are being amortized on a straight-line basis over the term of the debt agreements.
Under US GAAP, start-up and organization costs are expensed as incurred and classified as operating costs. Fees and expenses related to the issuance of certain financial debts are capitalized and amortized over the term of the debt agreements using the effective interest method of amortization.
(c) | Capitalization of interest costs |
Under Argentine GAAP, the Company did not capitalize interest incurred on construction in progress.
Under US GAAP the Company applies the provisions of Statement of Financial Accounting Standards ("SFAS") No. 34, "Capitalization of Interest Cost", which requires interest capitalization on assets which have a period of time to get them ready for their intended use. In accordance with these requirements, the Company capitalized interest costs amounting to Ps. 410,173 and Ps. 3,169,035 for the years ended December 31, 2001 and 2000, respectively. The net US GAAP adjustments include amortization of the capitalized interest amounting to Ps. 738,310 and Ps. 255,999 for the years ended December 31, 2001 and 2000, respectively.
(d) | Depreciation of property, plant and equipment |
Under Argentine GAAP, property, plant and equipment transferred to the Company as a result of the privatization processes are depreciated based on some technical formulas.
Under US GAAP, property, plant and equipment are depreciated based on the straight-line method.
(e) | Devaluation of the Argentine peso |
As discussed in Note 13, the Argentine government declared exchange holidays all working days between December 21, 2001 and December 31, 2001. On January 11, 2002, when the exchange market first opened, the exchange rate was Ps. 1 to US$ 1.4 (buying rate) and Ps. 1 to US$ 1.6 (selling rate). As of December 31, 2001, under Argentine GAAP, the Company accounted for its foreign currency assets and liabilities at an exchange rate of Ps. 1 to US$ 1. The effects of the devaluation were recognized during fiscal year 2002.
Under US GAAP, the Company applied the guidance set forth in the EITF D-12 Foreign Currency Translation Selection of the Exchange Rate When Trading is Temporarily Suspended, that states that when exchangeability between two currencies is temporarily lacking at the balance sheet date, the first subsequent rate at which exchange could be made shall be used. Accordingly, under US GAAP, the Company accounted for its foreign currency assets and liabilities using the buying rate of Ps. 1.4 and the selling rate of Ps. 1.6 to the dollar, as appropriate. The reconciling item reflects the timing difference for the recognition of the foreign currency exchange loss.
F-23
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
(f) | Voluntary retirement program |
Under Argentine GAAP, costs associated with voluntary retirement programs incurred in the start-up of the Company at the time of the privatization were capitalized as intangible assets and amortized on a straight-line basis over 5 years.
Under US GAAP, these costs were considered as a liability assumed in determining the value assigned to the property, plant and equipment transferred by the government as a result of the privatization. As a result, these costs increased the cost of property, plant and equipment under US GAAP. The difference between Argentine GAAP and US GAAP relates to the different amortization period.
(g) | Valuation of property, plant and equipment |
Under Argentine GAAP, the value assigned to property, plant and equipment transferred by the government as a result of the privatization of the Companys subsidiaries was determined based on the purchase price paid for the percentage of ownership interest in these companies. The Company paid the purchase price of the privatized companies using government bonds that the Company had acquired from the market, considering the government recognized an amount greater than its fair value.
Under US GAAP, the purchase price was determined based on the consideration paid plus the fair market value of the government bonds at the time of payment. As the fair market value was below the amount recognized by the government, the purchase price under US GAAP was lower than the purchase price under Argentine GAAP, resulting in a lower value assigned to property, plant and equipment. This adjustment gave rise to differences in depreciation expense.
(h) | Increasing-rate debt |
The Class 3 Floating Rate Notes accrues interest at a variable-increasing rate based on LIBOR plus basic points. Under Argentine GAAP, interest is recognized based on the effective rate applicable to each interest period.
Under US GAAP, in accordance with EITF 86-15 Increasing Rate Debt, the Company is recognizing the periodic interest cost related to the Floating Rate Notes using the effective interest method over the debt term.
(i) | Derivative financial instruments |
As discussed in Note 9, from time to time, the Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks associated with fluctuations in interest rates and exchange rates. The counterparties to these instruments generally are major financial institutions. The Company does not hold or issue derivative instruments for trading purposes. A description of the Companys derivative instruments activity during the years ended December 31, 2001 and 2000 follows:
Foreign currency forward-exchange contracts
In order to manage its foreign currency exposure, during the years ended December 31, 2000 and 2001, the Company entered into foreign currency forward-exchange contracts with financial institutions to effectively convert its yen-denominated short-term debts to US dollar-denominated debts.
As of December 31, 2000, the Company had three foreign currency forward-exchange contracts outstanding with an aggregate notional amount of Yen 6,323,500,000 maturing in April and August 2001. These foreign currency forward-exchange contracts covered yen-denominated short-term debts with Bank of Tokyo-Mitsubishi and Banco Rio de la Plata S.A. amounting to Yen 4,718,500,000 and Yen 1,605,000,000, respectively, with the same maturity dates.
As of December 31, 2001, the Company had a foreign currency forward-exchange contract outstanding with JPMorgan Chase Bank for an aggregate notional amount of Yen 2,452,000,000 covering a yen-denominated short-term debt with Bank of Tokyo Mitsubishi maturing on April 25, 2002.
F-24
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
(i) | Derivative financial instruments (continued) |
Under Argentine GAAP and, until December 31, 2000, also under US GAAP, premiums on foreign currency forward-exchange contracts were amortized over the life of the respective contracts. Gains and losses on the hedge contracts were reported in earnings and offset the gains and losses on the foreign currency exposure. The fair values of the foreign currency forward-exchange contracts were not recognized in the consolidated financial statements.
Effective January 1, 2001, under US GAAP the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In accordance with the transition provisions of SFAS Nº 133, the Company recorded a net-of-tax cumulative-effect-type loss adjustment of Ps. 235,653 (Ps. 153,174 net of minority interest) in earnings to reflect the impact of the adoption of this standard. This loss relates to the fair market value of the foreign currency forward-exchange contracts outstanding as of December 31, 2000 totaling Ps. 362,543. In accordance with SFAS No. 133, although these derivative instruments were used to hedge liabilities denominated in foreign currency, no special or hedge accounting was needed because FAS No. 52 requires these liabilities be translated at current spot exchange rates and the resulting gains and losses be reported in earnings. Therefore, changes in the fair market value of these derivative financial instruments were also recognized in earnings.
Foreign currency option contract
In order to manage its foreign currency exposure, during the year ended December 31, 2001 the Company entered into a foreign currency option contract with Bank of America, pursuant to which the Company has the option to buy Yen 3,130,000,000 at a strike price of Yen 119 per US dollar. This foreign currency option contract covers a yen-denominated short-term debt maintained with Bank of Tokyo Mitsubishi which matures on August 2, 2002.
Under Argentine GAAP, the premium on the foreign currency option contract is being amortized over the life of the respective contract. The fair value of the foreign currency option contract is not recognized in the consolidated financial statements.
Under US GAAP, in accordance with SFAS No. 133 this derivative financial instrument has been recognized on the companys balance sheet at its fair value, with changes in fair value reported in earnings.
Interest rate swap
In order to manage its interest rate exposure, in June 2001 the Company entered into two interest rate swap agreements with Bank of America to effectively convert its Floating Rate Notes from dollar-denominated variable-rate debt to dollar-denominated fixed-rate debt. Under the swap agreements, the Company pays interest at a fixed rate of 4.6225% and receives interest at a variable rate equal to LIBOR. The swap agreements have original maturities in August 2002 and 2003.
Under Argentine GAAP, any differential to be paid or received is accrued and recognized as an adjustment to interest expense in the statement of income. The related accrued receivable or payable is included as an adjustment to interest payable. The fair values of the swap agreements are not recognized in the consolidated financial statements.
Under US GAAP, the interest rate swaps have been designated as a hedge of the changes in cash flows of the variable-rate debts related to fluctuations in interest rates. In accordance with SFAS No. 133, the swaps have been recorded on the balance sheet at their fair values. The swaps have been classified as cash flow hedges, and accordingly, the effective portion of the swaps loss has been reported in other comprehensive income (loss). Amounts accumulated in other comprehensive income (loss) are reclassified to earnings when the related interest payments affect earnings.
F-25
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
(j) | Accounting for multiple element arrangements |
As discussed in Note 8, in October 1997 Transener obtained the exclusive license to construct, maintain and operate the fourth line of the Comahue-Buenos Aires electricity transmission system. The Company received subsidies from CAMMESA totaling US$ 80 million during the construction phase of the contract, which ended in December 1999. The contract also establishes a fee to be paid to the Company in monthly equal and consecutive installments during 15 years as from December 1999 (the date operations began).
Under Argentine GAAP, there is no guidance to be followed when a contract has multiple deliverables. The Company has considered the construction, operation and maintenance as a single unit of accounting. Therefore, subsidies received from CAMMESA during the construction phase were recognized as customers prepayments within the non-current portion of trade accounts payable and are being recognized in income on a straight-line basis over 15 years.
Under US GAAP, revenue was allocated to the multiple elements based on their estimated fair value at the date the agreement was signed. The US GAAP adjustment relates to the result of the construction phase, which is being recognized, under Argentine GAAP, on a straight-line basis over 15 years.
(k) | Deferred income taxes |
Under Argentine GAAP, income taxes are recognized on the basis of amounts currently due in accordance with Argentine tax law and regulations. Temporary differences between the financial reporting and income tax basis of accounting are therefore not considered in recognizing income taxes.
Under US GAAP, the Company applies the principles of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires a comprehensive liability method of accounting for income taxes. Under the comprehensive liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for tax loss carryforwards. SFAS 109 requires companies to record a valuation allowance for that component of net deferred tax assets which does not meet the more likely than not criterion for realization. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning in making these assessments. In accordance with SFAS 109, the Company is required to continuously evaluate the recoverability of deferred tax assets. This evaluation is made based on internal projections which are routinely updated to reflect more recent operating trends. Based on current financial projections, the Company is uncertain that it will recover its deferred tax assets through future taxable income. Accordingly, the Company has established a valuation allowance against its deferred tax assets.
In addition, the US GAAP adjustment includes the effect on deferred income taxes of the foregoing reconciling items, as appropriate.
(l) | Minority interest |
This adjustment represents the effect on minority interest of the foregoing reconciling items, as appropriate.
F-26
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | ||
II. | Additional disclosure requirements | ||
(a) | Statement of income classification differences | ||
Operating income |
Under Argentine GAAP, the recoveries of certain expenses have been included within Other income, net in the accompanying consolidated statements of income. Under US GAAP, such items would have been classified as a reversal to the amounts in the line items which were originally recorded. Operating income under US GAAP but using Argentine GAAP numbers would have been Ps. 88.2 million and Ps. 88.9 million for the years ended December 31, 2001 and 2000, respectively.
(b) | Statements of cash flows |
As required by Argentine GAAP, the Company presents the statements of sources and uses of funds in the primary financial statements.
Under US GAAP, the Company is required to present the statements of cash flows in accordance with SFAS 95, Statement of Cash Flows. The presentation of the statements of cash flows under US GAAP but using Argentine GAAP numbers follows:
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000
2001 |
2000
(Unaudited) |
|||||
|
|
|||||
Cash flows from operating activities: | ||||||
Net income for the year | Ps. | 20,856,160 | Ps. | 19,520,767 | ||
Adjustments to reconcile net income to cash flow from operating activities: | ||||||
Financial results | 3,282,201 | 1,824,008 | ||||
Depreciation of property, plant and equipment | 20,656,895 | 18,928,260 | ||||
Amortization of intangible assets | 5,201,590 | 5,915,786 | ||||
Amortization of other assets | 19,145,136 | 18,106,863 | ||||
Loss (gain) from sale of property, plant and equipment | 76,016 | (29,408 | ) | |||
Provision for contingencies | (238,344 | ) | 3,343,353 | |||
Minority interest | 12,646,698 | 12,007,860 | ||||
Income tax expense | 15,967,233 | 12,357,658 | ||||
Changes in certain assets and liabilities, net of non-cash: | ||||||
(Increase) in trade accounts receivable | (1,503,460 | ) | (3,813,151 | ) | ||
Decrease in other receivables | 2,683,501 | 3,877,701 | ||||
(Increase) in other assets | (14,558,008 | ) | (737,052 | ) | ||
(Increase) in intangible assets | (442,376 | ) | (1,905,577 | ) | ||
(Decrease) in trade accounts payable | (6,269,208 | ) | (16,143,111 | ) | ||
Increase (decrease) in salaries and social security payable | 274,926 | (333,632 | ) | |||
(Decrease) in taxes payable | (12,714,722 | ) | (10,015,693 | ) | ||
(Decrease) in provisions | (611,088 | ) | (507,401 | ) | ||
(Decrease) in other liabilities | (746 | ) | (3,412 | ) | ||
(Decrease) in accrued interest | (2,591,668 | ) | (1,374,269 | ) | ||
|
|
|||||
Net cash provided by operating activities | Ps. | 61,860,736 | Ps. | 61,019,550 | ||
|
|
F-27
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
(b) | Statements of cash flows (continued) |
2001 |
2000
(Unaudited) |
|||||
|
|
|||||
Cash flows from investing activities: | ||||||
Acquisition of property, plant and equipment | Ps. | (30,440,399 | ) | Ps. | (26,124,511 | ) |
Net proceeds from sale of fixed assets | 1,995,130 | 3,680,875 | ||||
Increase in non-current investments | (2,000,000 | ) | | |||
|
|
|||||
Net cash used in investing activities | Ps. | (30,445,269 | ) | Ps. | (22,443,636 | ) |
|
|
|||||
Cash flows from financing activities: | ||||||
Net increase (decrease) in short-term debt | Ps. | 7,892,732 | Ps. | (18,741,789 | ) | |
Repayment of long-term debt | (10,870,524 | ) | (1,935,165 | ) | ||
Proceeds from issuance of long-term debt | 6,000,000 | | ||||
Payment of debt related to the acquisition of property, plant and equipment | (1,480,567 | ) | | |||
Payment of cash dividends to minority interests | (9,870,000 | ) | (9,450,000 | ) | ||
Payment of cash dividends to shareholders | (16,980,000 | ) | (15,450,000 | ) | ||
|
|
|||||
Net cash used in financing activities | Ps. | (25,308,359 | ) | Ps. | (45,576,954 | ) |
|
|
|||||
Increase (decrease) in cash and cash equivalents | 6,107,108 | (7,001,040 | ) | |||
Cash and cash equivalents as of the beginning of the year | 1,718,134 | 8,719,174 | ||||
|
|
|||||
Cash and cash equivalents as of the end of the year | Ps. | 7,825,242 | Ps. | 1,718,134 | ||
|
|
|||||
Supplemental cash flow information: | ||||||
Cash paid during the years for: | ||||||
Interest | Ps. | 41,269,350 | Ps. | 46,045,339 | ||
Income tax | 12,768,616 | 14,368,168 | ||||
Non-cash transactions: | ||||||
Acquisition of property, plant and equipment through an increase in accounts payable | Ps. | | 7,943,127 |
Under US GAAP, the total amounts of cash and cash equivalents at the end of the years shown in the consolidated statements of cash flows are required to be the same amounts as similarly titled line items shown in the consolidated balance sheets, as of those dates. The following table reconciles the balances included as cash and banks and current investments in the balance sheet to the total amounts of cash and cash equivalents at the beginning and end of the year shown in the statements of cash flows:
As of December 31, | ||||||
|
||||||
2001 |
2000
(Unaudited) |
|||||
|
|
|||||
Cash and banks | Ps. | 4,761,248 | Ps. | 938,179 | ||
Current investments | 3,083,422 | 779,955 | ||||
|
|
|||||
Total cash and banks and current investments as per balance sheet | 7,844,670 | 1,718,134 | ||||
|
|
|||||
Less: Items not considered cash and cash equivalents | ||||||
Government bonds | (19,428 | ) | | |||
|
|
|||||
Cash and cash equivalents as shown in the statement of cash flows | Ps. | 7,825,242 | Ps. | 1,718,134 | ||
|
|
F-28
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
14. | Differences between Argentine GAAP and US GAAP (continued) | |
(c) | Comprehensive income (loss) | |
On July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes guidelines for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Accumulated other comprehensive (loss) income is presented below, net of income tax benefit/expense: | ||
Year ended December 31, | |||||||
|
|||||||
2001 |
2000
(Unaudited) |
||||||
|
|
|
|
|
|||
Net (loss) income under US GAAP | Ps. | (157,137,980 | ) | Ps. | 22,597,102 | ||
Other comprehensive loss: | |||||||
Change in fair value of derivative financial instruments (net of income taxes of Ps. 1,162,485 and minority interest of Ps. 755,616) | (1,403,286 | ) | | ||||
|
|
|
|
|
|||
Comprehensive (loss) income | Ps. | (158,541,266 | ) | Ps. | 22,597,102 | ||
|
|
|
|
|
|||
As of December 31, | |||||||
|
|||||||
2001 |
2000
(Unaudited) |
||||||
|
|
|
|
|
|||
Accumulated other comprehensive loss | Ps. | (1,403,286 | ) | Ps. | | ||
|
|
|
|
|
|||
15. | Other financial statement information | |
The following tables present additional consolidated financial statement disclosures required under Argentine GAAP: | ||
a. | Property, plant and equipment, net | |
b. | Intangible assets, net | |
c. | Foreign currency assets and liabilities | |
d. | Other expenses |
F-29
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
15. | Other financial statement information (continued) | |
a. | Property, plant and equipment, net | |
Original value | Depreciation | ||||||||||||||||||
|
|
||||||||||||||||||
Principal account | As of the beginning of the year | Additions | Deductions | Reclassifications | As of the end of the year |
Accumulated
as of the beginning of the year |
Decreases |
Current year
depreciation |
Accumulated
as of the end of the year |
Net carrying value
at year-end |
|||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Land | 818,020 | | (10,811 | ) | | 807,209 | | | | | 807,209 | ||||||||
Vehicles | 6,627,512 | 591,662 | (161,647 | ) | | 7,057,527 | (4,166,322 | ) | 49,096 | (683,836 | ) | (4,801,062 | ) | 2,256,465 | |||||
Air and heavy equipment | 2,590,632 | 145,387 | | | 2,736,019 | (482,327 | ) | | (97,009 | ) | (579,336 | ) | 2,156,683 | ||||||
Furniture and fixtures | 1,326,752 | 69,220 | | | 1,395,972 | (551,261 | ) | | (130,845 | ) | (682,106 | ) | 713,866 | ||||||
Information systems | 3,301,424 | 375,584 | | | 3,677,008 | (2,764,479 | ) | | (298,389 | ) | (3,062,868 | ) | 614,140 | ||||||
Transmission lines | 383,110,938 | | | 3,635,140 | 386,746,078 | (41,386,233 | ) | | (8,872,723 | ) | (50,258,956 | ) | 336,487,122 | ||||||
Substations and related works | 292,253,517 | 1,819,592 | | 17,274,948 | 311,348,057 | (40,181,475 | ) | | (8,698,368 | ) | (48,879,843 | ) | 262,468,214 | ||||||
Building and civil works | 24,963,222 | 174,298 | (186,594 | ) | 3,202,636 | 28,153,562 | (2,804,699 | ) | 7,017 | (688,364 | ) | (3,486,046 | ) | 24,667,516 | |||||
Labs and maintenance | 930,555 | | | | 930,555 | (525,825 | ) | | (106,114 | ) | (631,939 | ) | 298,616 | ||||||
Communication equipment | 16,235,868 | 78,067 | | 7,212,265 | 23,526,200 | (4,410,464 | ) | | (1,077,835 | ) | (5,488,299 | ) | 18,037,901 | ||||||
Miscellaneous | 1,645,400 | 47,651 | | | 1,693,051 | (1,401,081 | ) | | (130,555 | ) | (1,531,636 | ) | 161,415 | ||||||
Work in progress | 53,680,197 | 24,647,880 | | (31,412,505 | ) | 46,915,572 | | | | | 46,915,572 | ||||||||
Spare parts | 31,816,796 | 994,254 | (622,603 | ) | 828,066 | 33,016,513 | | | | | 33,016,513 | ||||||||
Advances to suppliers | 395,431 | 1,623,947 | (1,145,604 | ) | (740,550 | ) | 133,224 | | | | | 133,224 | |||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Totals fiscal year 2001 | 819,696,264 | 30,567,542 | (2,127,259 | ) | | 848,136,547 | (98,674,166 | ) | 56,113 | (20,784,038 | ) | (119,402,091 | ) | 728,734,456 | |||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Totals fiscal year 2000 (Unaudited) | 789,231,698 | 34,134,299 | (3,669,733 | ) | | 819,696,264 | (79,697,511 | ) | 18,266 | (18,994,921 | ) | (98,674,166 | ) | 721,022,098 | |||||
|
|
|
|
|
|
|
|
|
|
F-30
Compañía Inversora
en Transmisión Eléctrica Citelec S.A.
Notes to the Consolidated Financial
Statements
(In Argentine Pesos, except as otherwise
indicated)
15. | Other financial statement information (continued) | |
b. | Intangible assets, net | |
Original value | Amortization | ||||||||||||||
|
|
|
|||||||||||||
Principal account |
As of the beginning
of the year |
Additions | Deductions |
As of the end
of the year |
Accumulated as
of the beginning of the year |
Current year
amortization |
Accumulated as
of the end of the year |
Net carrying
value at year-end |
|||||||
|
|
|
|
|
|
|
|
||||||||
Start-up and organization costs | 62,346,096 | 442,376 | | 62,788,472 | (49,448,078 | ) | (5,201,590 | ) | (54,649,668 | ) | 8,138,804 | ||||
|
|
|
|
|
|
|
|
||||||||
Totals fiscal year 2001 | 62,346,096 | 442,376 | | 62,788,472 | (49,448,078 | ) | (5,201,590 | ) | (54,649,668 | ) | 8,138,804 | ||||
|
|
|
|
|
|
|
|
||||||||
Totals fiscal year 2000 (Unaudited) | 60,440,519 | 1,952,617 | (47,040 | ) | 62,346,096 | (43,532,292 | ) | (5,915,786 | ) | (49,448,078 | ) | 12,898,018 | |||
|
|
|
|
|
|
|
|
F-31
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
15. | Other financial statement information (continued) | |
c. | Foreign currency assets and liabilities |
Captions | Currency |
Amount
of
foreign currency |
Current
exchange rate |
As
of
December 31, 2001 |
||||||
|
|
|
|
|
|
|
|
|
|
|
Assets | ||||||||||
Current assets | ||||||||||
Cash and banks | US$ | 3,525,745 | 1 | Ps. | 3,525,745 | |||||
Investments | US$ | 3,081,342 | 1 | 3,081,342 | ||||||
Trade receivables | US$ | 5,087,531 | 1 | 5,087,531 | ||||||
Other receivables | US$ | 3,832,447 | 1 | 3,832,447 | ||||||
|
|
|||||||||
Total current assets | Ps. | 15,527,065 | ||||||||
|
|
|||||||||
Non-current assets | ||||||||||
Other receivables | ||||||||||
Investments | US$ | 978,063 | 1 | Ps. | 978,063 | |||||
Trade receivables | US$ | 2,000,000 | 1 | 2,000,000 | ||||||
|
|
|||||||||
Total non-current assets | Ps. | 2,978,063 | ||||||||
|
|
|||||||||
Total assets | Ps. | 18,505,128 | ||||||||
|
|
|||||||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Trade accounts payable | US$ | 1,304,102 | 1 | Ps. | 1,304,102 | |||||
Short-term and long-term debt | US$ | 209,974,275 | 1 | 209,974,275 | ||||||
|
|
|||||||||
Total current liabilities | Ps. | 211,278,377 | ||||||||
|
|
|||||||||
Non-current liabilities | ||||||||||
Customers prepayments | US$ | 69,161,290 | 1 | Ps. | 69,161,290 | |||||
Long-term debt | US$ | 270,827,922 | 1 | 270,827,922 | ||||||
|
|
|||||||||
Total non-current liabilities | Ps. | 339,989,212 | ||||||||
|
|
|||||||||
Total liabilities | Ps. | 551,267,589 | ||||||||
|
|
F-32
Compañía Inversora en Transmisión Eléctrica
Citelec S.A.
Notes to the Consolidated Financial Statements
(In Argentine Pesos, except as otherwise indicated)
15. | Other financial statement information (continued) | |
d. | Other expenses |
Expenses | |||||||||||||
|
|||||||||||||
Items | Operating | Administrative |
Total
fiscal year 2001 |
Total
fiscal year 2000 (Unaudited) |
|||||||||
|
|
|
|
|
|
|
|
|
|||||
Salaries and social security charges | Ps. | 27,694,932 | Ps. | 6,721,643 | Ps. | 34,416,575 | Ps. | 33,462,481 | |||||
Other personnel costs | 608,997 | 556,400 | 1,165,397 | 1,172,099 | |||||||||
Fees for operating services | 1,797,818 | | 1,797,818 | 1,745,795 | |||||||||
Professional fees | 690,626 | 1,228,974 | 1,919,600 | 1,609,050 | |||||||||
Equipment maintenance | 1,059,384 | | 1,059,384 | 784,308 | |||||||||
Work for third parties' materials | 5,821,779 | | 5,821,779 | 18,049,992 | |||||||||
Fuels and lubricants | 610,781 | 28,692 | 639,473 | 699,197 | |||||||||
General maintenance | 6,393,143 | 177,784 | 6,570,927 | 6,613,579 | |||||||||
Electricity | 457,130 | 41,107 | 498,237 | 636,435 | |||||||||
Depreciation of property, plant and equipment | 18,610,990 | 2,045,905 | 20,656,895 | 18,928,260 | |||||||||
Amortization of intangible assets | 2,102,320 | 3,099,270 | 5,201,590 | 5,915,786 | |||||||||
Amortization of other assets | 19,145,136 | | 19,145,136 | 18,106,863 | |||||||||
Administration expenses related to WEM | 501,264 | | 501,264 | 431,417 | |||||||||
Regulatory fees | 516,699 | | 516,699 | 496,664 | |||||||||
ATEERA membership fees | | 138,359 | 138,359 | 144,186 | |||||||||
Communications | 2,033,675 | 86,593 | 2,120,268 | 2,389,099 | |||||||||
Transportation | 376,805 | 7,478 | 384,283 | 381,668 | |||||||||
Insurance | 139,908 | 1,705,111 | 1,845,019 | 1,369,789 | |||||||||
Rents | 541,218 | 346,459 | 887,677 | 1,101,847 | |||||||||
Travel and lodging expenses | 2,424,053 | 197,421 | 2,621,474 | 2,491,746 | |||||||||
Stationary and printing | 174,281 | 324,704 | 498,985 | 544,511 | |||||||||
Taxes and government contributions | 1,677,987 | 342,486 | 2,020,473 | 1,123,088 | |||||||||
Directors and syndics fees | | 289,273 | 289,273 | 164,080 | |||||||||
Bank charges | 168,337 | 186,346 | 354,683 | 310,843 | |||||||||
Office and substation cleaning | 1,072,339 | 2,500 | 1,074,839 | 1,234,387 | |||||||||
Security | 733,205 | 17,935 | 751,140 | 773,175 | |||||||||
Electro duct maintenance | 408,619 | | 408,619 | 743,378 | |||||||||
Provisions | (238,344 | ) | | (238,344 | ) | 3,343,353 | |||||||
Other | 1,470,896 | 1,061,650 | 2,532,546 | 2,460,844 | |||||||||
|
|
|
|
|
|
|
|
||||||
Totals fiscal year 2001 | Ps. | 96,993,978 | 18,606,090 | 115,600,068 | |||||||||
|
|
|
|
|
|
||||||||
Totals fiscal year 2000 (Unaudited) | Ps. | 109,585,391 | 17,642,529 | 127,227,920 | |||||||||
|
|
|
|
|
|
F-33
Exhibit 14.8
ENERGIS POLSKA Sp. z o.o.
Consolidated financial statements
as at and for the year ended 31 December 2001
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Energis Polska Sp. z o.o.
We have audited the accompanying consolidated balance sheet of Energis Polska Sp. z o.o. and its subsidiaries (the Company) as of 31 December 2001 and the related consolidated statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at 31 December 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Poland.
Accounting principles generally accepted in Poland vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 35 to the consolidated financial statements.
/s/ PricewaterhouseCoopers Sp. z o.o.
PricewaterhouseCoopers Sp. z o.o.
28 May, 2004
Energis Polska Sp. z o.o. Group |
3
|
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
Consolidated balance sheet as at 31 December 2001
Note |
31.12.2001
PLN |
||
ASSETS | |||
FIXED ASSETS | 436,014,944 | ||
Intangible assets | 6 | 13,494,685 | |
Computer software and licenses | 8,210,803 | ||
Other intangible assets | 7,140 | ||
Prepayments for intangible assets | 5,276,742 | ||
Tangible fixed assets | 7,8 | 422,520,259 | |
Buildings and structures | 191,629,729 | ||
Plant and machinery | 154,185,409 | ||
Other tangible fixed assets | 4,787,598 | ||
Assets under construction | 37,354,427 | ||
Prepayments for assets under construction | 34,563,096 | ||
CURRENT ASSETS | 239,375,136 | ||
Inventories | 19,292 | ||
Raw materials | 19,292 | ||
Short-term receivables and claims | 9 | 63,912,005 | |
Trade receivables | 1,521,969 | ||
Taxation, state subsidy and social security receivables | 62,044,699 | ||
Other receivables | 345,337 | ||
Marketable securities | 10 | 36,246,677 | |
Other securities | 36,246,677 | ||
Cash and cash equivalents | 139,197,162 | ||
Cash in hand | 31,078 | ||
Cash at bank | 139,166,084 | ||
PREPAYMENTS | 11 | 103,654,455 | |
Prepaid expenses | 103,654,455 | ||
|
|||
Total assets | 779,044,535 | ||
|
Energis Polska Sp. z o.o. Group | 4 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
Consolidated balance sheet as at 31 December 2001 (cont.)
Note | 31.12.2001 | |||
PLN | ||||
LIABILITIES AND EQUITY | ||||
EQUITY | 229,224,348 | |||
Share capital | 12 | 326,431,000 | ||
Supplementary capital | 13 | 228 | ||
Accumulated Losses | (23,321,719 | ) | ||
Net loss for the year | (73,885,161 | ) | ||
NEGATIVE GOODWILL ON CONSOLIDATION | 14 | 4,116,204 | ||
SHORT-TERM LIABILITIES AND SPECIAL FUNDS | 526,640,222 | |||
Short-term liabilities | 526,590,905 | |||
To related entities | 945,526 | |||
Bank loans (EUR 125,000,000) | 15 | 440,237,500 | ||
Trade payables | 3,837,768 | |||
Taxation, customs duty and social security payables | 964,088 | |||
Wages and salaries payables | 79,595 | |||
Other short-term liabilities | 16 | 80,526,428 | ||
Special funds | 49,317 | |||
ACCRUALS AND DEFERRED INCOME | 19,063,761 | |||
Accruals | 17 | 11,093,408 | ||
Deferred income | 17 | 7,970,353 | ||
|
|
|||
Total liabilities and equity | 779,044,535 | |||
|
|
Energis Polska Sp. z o.o. Group | 5 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
Consolidated income statement for the year ended 31 December 2001
Note |
Year ended
|
|||
31 December 2001 | ||||
PLN | ||||
Sales | 19 | 6,164,681 | ||
Sales of services | 6,164,681 | |||
Operating expenses | 86,573,747 | |||
Materials and energy used | 1,896,546 | |||
External services | 43,949,498 | |||
Taxes and charges | 2,242,039 | |||
Wages and salaries | 20,243,404 | |||
Employee benefits | 1,954,374 | |||
Depreciation and amortisation | 9,461,819 | |||
Other | 6,826,067 | |||
Loss on sales | (80,409,066 | ) | ||
Other operating income | 20 | 2,168,743 | ||
Proceeds from sale of fixed assets | 62,399 | |||
Other | 2,106,344 | |||
Other operating expenses | 21 | 1,691,411 | ||
Cost of fixed assets sold | 106,900 | |||
Other | 1,584,511 | |||
|
||||
Operating loss | (79,931,734 | ) | ||
Financial income | 22 | 9,621,334 | ||
Interest received | 8,429,130 | |||
Other | 1,192,204 | |||
Financial costs | 23 | 4,066,116 | ||
Interest payable | 773,010 | |||
Other | 3,293,106 | |||
|
||||
Loss on ordinary activities before tax | (74,376,516 | ) | ||
Extraordinary gains | 24 | 55,337 | ||
Extraordinary losses | 24 | (21,338 | ) | |
Amortisation of goodwill on consolidation | 457,356 | |||
|
||||
Loss before tax | (73,885,161 | ) | ||
Tax | 25 | | ||
|
||||
Net loss | (73,885,161 | ) | ||
|
Energis Polska Sp. z o.o. Group | 6 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
Consolidated cash flow statement for the year ended 31 December 2001
Energis Polska Sp. z o.o. Group |
7
|
Consolidated financial statements | |
|
Notes to the consolidated financial statement
1. | The Parent Company |
Energis Polska Sp. z o.o. (hereinafter called the Parent Company or Energis Polska) is the Parent Company of the Group. Energis Polska was formed on 22 November 1999. The Companys registered office is located in Warsaw, ul. Iłżecka 26.
The Parent Company is entered in the Register of Businesses under the number KRS 19194. It was entered in the Register by the District Court in Warsaw, the 20 th Business Department of the National Court Register on 12 June 2001.
The Parent Companys business is the provision of telecommunication and internet services and data centre services.
The following people were on the Parent Companys Management Board during the year:
| George Z. Makowski | Chairman from 1 January to 31 December 2001; | |
| Stephen V. Harris | Deputy Chairman from 1 January to 31 December 2001; | |
| Jarosław Mikos | Board Member from 1 January to 31 December 2001; | |
| Jaromir Łaciński | Board Member from 1 January to 21 September 2001; | |
| Bogdan Szafrański | Board Member from 1 January to 21 September 2001. |
After 31 December 2001, the composition of the Parent Companys Management Board underwent the following changes:
| On 29 January 2002, Mr Stephen V. Harris resigned from the position of Deputy Chairman and replaced by Mr Jarosław Mikos; Mr Rafał Ciećwierz was appointed Board Member. | |
| On 13 March 2002, Mr George Z. Makowski was removed from the position of Chairman and was replaced by Mr Jarosław Mikos; Mr Rafał Ciećwierz was appointed Deputy Chairman. |
Major events during the year were as follows:
| The purchase of 100% of shares in Cel Polska Sp. z o.o., providing telecommunications services in the area of radio data transmission and services consisting of granting access to an optic fibre point-to-point telecommunications network; | |
| Extending the scope of the agreement with Ericsson Sp. z o.o. to construct a telecommunications network to include an additional section of the network, covering the north of Poland; | |
| Signing an agreement with Telekomunikacja Polska S.A. related to connecting the networks and providing telecommunications services; | |
| Launching the provision of data transmission and internet access services, as well as the launch of long-distance voice transmission services (Konekt); | |
| The connection of the Companys optic fibre network with the European network of Energis Group and other European telecommunication operators; | |
| A portion of the loans received from the Companys shareholders (National Grid International Ltd. and Energis plc) being contributed to the share capital; |
Energis Polska Sp. z o.o. Group |
8
|
Consolidated financial statements | |
|
| Transferring by National Grid International Ltd. to National Grid Poland B.V. its shares in the Company and its rights & obligations resulting from the loans granted to the Company; | |
| Obtaining long-term finance from a lending institution (European Investment Bank); | |
| Repaying the outstanding portion of the loans from the Companys shareholders (National Grid Poland B.V. and Energis plc). | |
2. | Information on related entities | |
a) | In accordance with the Memoranda of Association of the related entities, the said related entities have been established for an unlimited period. | |
b) | The following related entity data was included in the consolidated financial statements: |
Entity
Registered
office
Business
Interest
in the share capital and voting rights held by the Parent Company
Share
capital
Subsidiaries
Cel Polska Sp. z o.o.
(hereinafter called the Subsidiary
or Cel Polska)
Warsaw,
ul. Iłżecka
26
Provision of telecommunication
services in the scope of radio data transmission and point-to-point optic
fibre telecommunication network access services
100%
30,437,500 PLN
Telrise Sp. z o.o.
Warsaw
ul. Iłżecka
26
Provision of telecommunication
and Internet services
100%
4,000 PLN
3. | Consolidated financial statements |
The accounting policies used in the preparation of the consolidated financial statements as at and for the year ended 31 December 2001 are in accordance with the Accounting Act of 29 September 1994 (uniform text Journal of Laws of 1994 No. 121/591 with subsequent amendments; hereinafter called the Act) and the Decree of the Minister of Finance of 14 June 1995 on the specific rules for the preparation of consolidated financial statements by entities other than banks (hereinafter called the Decree) which specify, among other things, the accounting policies to be used by companies whose registered offices or seats of management are within the territory of the Republic of Poland. | |
Energis Polska Sp. z o.o. Group |
9
|
Consolidated financial statements | |
|
The consolidated financial statements are prepared on the basis of consolidation documents, comprising: | ||
1) | stand-alone financial statements of Group companies; | |
2) | consolidation adjustments and eliminations; | |
3) | calculation of negative goodwill on consolidation and its amortisation release; | |
Consolidated entities use identical methods of valuation and preparation of financial statements which are in accordance with the Act and the Decree. | ||
With regard to Cel Polska Sp. z o.o., which was purchased on 8 June 2001, for consolidation purposes only the financial data concerning income statement for the period following the date of acquisition were taken into account. Therefore, these data differ from the data included in the Cels stand-alone income statement for 2001. The financial data concerning balance sheet are consolidated as of 31 December 2001. | ||
4. | Going concern | |
The stand-alone financial statements which form the basis for these consolidated financial statements have been prepared on the assumption that the related entities will continue as going concerns in the foreseeable future and that there are no circumstances which indicate any threat to their continuing in operation. The Group does not expect any threats to its continuing in operation in the foreseeable future. The cash flow plan for the next 12 months effectively ending May 2005 provides that the Group will have positive cash flows within 12 months of the date of the financial statements being signed. Therefore, the Parent Companys Management Board have prepared these financial statements on the assumption that the Group will be able to continue as a going concern without materially curtailing the scope of its operations in the foreseeable future. The financial statements do not contain any adjustments which might be necessary if the going concern assumption should prove inappropriate. | ||
5. | Major accounting policies | |
a) | Consolidation methods | |
The subsidiaries have been consolidated using the acquisition accounting method. | ||
When consolidating balance sheets using the acquisition accounting method, the balance sheets of the subsidiaries and the Parent Company are combined on a line-by-line basis by adding together like assets, liabilities and equity, following purchase price adjustments. The cost of investment in subsidiaries of the Parent Company and the share capital of subsidiaries have not been added together. Having adding all the relevant items together, consolidation adjustments and eliminations are made, in accordance with the Act. | ||
When consolidating income statements using the acquisition accounting method the income statements of the subsidiaries and the Parent Company are combined on a line-by-line basis by adding together like revenue and expenses. The income statement lines for subsidiaries are added together in full, irrespective of the Parent Companys proportion of ownership interest in a given subsidiary. Having added all the relevant items together, consolidation adjustments and eliminations are made, in accordance with the Act. | ||
Energis Polska Sp. z o.o. Group | 10 |
Consolidated financial statements | |
|
b) | Consolidation eliminations | |
The following significant items are eliminated from the consolidated financial statements: | ||
PLN | |||
loans to Cel Polska acquired by the Parent Company* | 6,027,698 | ||
short-term loans granted by the Parent Company to Cel Polska | 3,801,256 | ||
* The long-term loans granted constitute Cel Polska Sp. z o.o.s indebtedness to its previous shareholder, purchased by the Parent Company on 8 June 2001. |
c) | Tangible and intangible fixed assets | |
Tangible and intangible fixed assets are stated at cost (purchase price or manufacturing cost). | ||
Depreciation and amortisation is recognised on a straight-line basis. | ||
Annual depreciation rates for the principal categories of fixed assets of the Group are as follows: | ||
Energis Polska Sp. z o.o. Group | 11 |
Consolidated financial statements | |
|
f) | Cash and cash equivalents | |
Cash and cash equivalents are assets in the form of local currency and foreign currencies. | ||
g) | Telecommunication licences | |
Telecommunications licences received from the Minister of Telecommunications are shown as prepayments and amortised on a straight-line basis over the period for which the licence was granted, commencing from the time the services began to be utilised by customers. | ||
h) | Prepaid expenses and deferred costs | |
Prepaid expenses and deferred costs are recognised in respect of costs relating to future reporting periods. | ||
Prepaid expenses and deferred costs are recognised in the income statement in correspondence with the passage of time. The timing and method of their recognition in the income statement should coincide with the nature of the expenses recognised, taking account of the prudence principle. | ||
i) | Share capital | |
The share capital of the Parent Company represents the share capital of the Group. | ||
Share capital is stated at the amount specified in the Companys Memorandum of Association and entered in the court register. | ||
j) | Negative goodwill on consolidation | |
Negative goodwill on consolidation is the negative difference between the cost of acquisition of interest in subsidiaries or associates and the corresponding proportion of the ownership interest of the Parent Company in the net assets at their market value of subsidiaries and associates as at the acquisition date. | ||
Negative goodwill on consolidation is recognised as income over a 5 year period. | ||
k) | Short-term liabilities | |
Liabilities are stated at amounts due, including interest payable as at the balance sheet date. This interest is charged to financial costs. | ||
l) | Accruals | |
Accruals are recognised at amounts of likely liabilities which relate to the current reporting period, in particular with regard to goods and services provided to the Company by its creditors, if the amount of liability can be reliably estimated. Interest payable and cost of guarantee related to bank loan is also included in accruals. | ||
The timing and method of their recognition in the income statement should coincide with the nature of the expenses recognised, taking account of the prudence principle. |
Energis Polska Sp. z o.o. Group | 12 | ||
Consolidated financial statements | |||
|
|
|
|
m) | Deferred income | ||
Deferred income is recognised in accordance with the prudence principle and in particular includes amounts received or receivable from creditors in respect of goods or services to be provided in future reporting periods, which are credited to the income statement in accordance with the passage of time. Deferred income comprises unrealized foreign exchange gains. The unrealized foreign exchange losses are recognized in the income statement as financial costs. | |||
n) | Deferred tax | ||
Deferred income tax provisions are recorded on the basis of timing differences in the recognition of revenue and costs under the Act and tax regulations. | |||
Deferred tax assets are only recorded when it is certain that they will crystallise in the future. | |||
An excess of positive timing differences over negative ones, multiplied by the applicable corporation tax rate is included as part of mandatory appropriations of profit and shown as a deferred tax provision. | |||
An excess of negative timing differences over positive ones, multiplied by the applicable corporation tax rate (giving a deferred tax asset) is not shown as part of prepayments because it is uncertain whether it will crystallise in the future. | |||
o) | Revenue recognition | ||
Sales revenue is recognised at the time services are provided, with the exception of prepaid telecommunication services (lease of domestic lines). Prepaid services are recognized in the income statement in accordance with provision of services through the passage of time. Sales are recognised net of value-added taxes or any discounts allowed. |
Energis Polska Sp. z o.o. Group | 13 | ||
Consolidated financial statements as at and for the year ended 31 December 2001 | |||
|
|
|
|
6. | Intangible assets movements during the year | ||
Computer software and licences | Other intangible assets | Prepayments for intangible assets | Total | ||||||
PLN | PLN | PLN | PLN | ||||||
Cost as at 1.01.2001 | 204,346 | 10,200 | | 214,546 | |||||
Additions: | |||||||||
- Purchase | 8,236,191 | | 5,276,742 | 13,512,933 | |||||
- Value of Cel Polskas assets as at the date of acquisition | 84,446 | | | 84,446 | |||||
- reclassification from assets under construction | 269,538 | | | 269,538 | |||||
|
|
|
|
||||||
Cost as at 31.12.2001 | 8794,521 | 10,200 | 5,276,742 | 14,081,463 | |||||
|
|
|
|
||||||
Accumulated amortization as at 1.01.2001 | 37,322 | | | 37,322 | |||||
Additions: | |||||||||
- Amortization | 546,396 | 3,060 | | 549,456 | |||||
|
|
|
|
||||||
Accumulated amortization as at 31.12.2001 | 583,718 | 3,060 | | 583,778 | |||||
|
|
|
|
||||||
Net book value | |||||||||
As at 1.01.2001 | 167,024 | 10,200 | | 177,224 | |||||
|
|
|
|
||||||
As at 31.12.2001 | 8,210,803 | 7,140 | 5,276,742 | 13,494,685 | |||||
|
|
|
|
Energis Polska Sp. z o.o. Group | 14 | ||
Consolidated financial statements as at and for the year ended 31 December 2001 | |||
|
|
|
|
7. | Tangible fixed assets movements during the year | ||
Buildings and structures | Plant and machinery | Other tangible fixed assets | Assets under construction | Prepayments for assets under construction | Total | |||||||||
PLN | PLN | PLN | PLN | PLN | PLN | |||||||||
Cost as at 1.01.2001 | | 1,267,780 | 142,860 | 206,237,568 | 488,102 | 208,136,310 | ||||||||
Additions: | ||||||||||||||
- Purchase | 21,686,241 | 126,632,866 | 3,516,207 | 23,417,787 | 34,563,096 | 209,816,197 | ||||||||
- Value of Cel Polskas assets as at the date of acquisition | | 9,640,154 | 528,748 | 4,283,551 | | 14,452,453 | ||||||||
Transfers to intangible assets | | | | (269,538 | ) | | (269,538 | ) | ||||||
Transfers to tangible fixed assets | 172,307,855 | 23,007,293 | 1,332,300 | (196,159,346 | ) | (488,102 | ) | | ||||||
Reclassifications | 278,210 | (308,853 | ) | 30,643 | | | | |||||||
Disposals | | (739,928 | ) | (177,842 | ) | (155,595 | ) | | (1,073,365 | ) | ||||
|
|
|
|
|
|
|||||||||
Cost as at 31.12.2001 | 194,272,306 | 159,499,312 | 5,372,916 | 37,354,427 | 34,563,096 | 431,062,057 | ||||||||
|
|
|
|
|
|
|||||||||
Accumulated depreciation as at 1.01.2001 | | 118,626 | 2,287 | | | 120,913 | ||||||||
Additions: | ||||||||||||||
- Amortisation | 2,642,577 | 5,637,131 | 632,655 | | | 8,912,363 | ||||||||
Reclassifications | | (3,767 | ) | 3,767 | | | | |||||||
Disposals | | (438,087 | ) | (53,391 | ) | | | (491,478 | ) | |||||
|
|
|
|
|
|
|||||||||
Accumulated depreciation as at 31.12.2001 | 2,642,577 | 5,313,903 | 585,318 | | | 8,541,798 | ||||||||
|
|
|
|
|
|
|||||||||
Net book value | ||||||||||||||
As at 1.01.2001 | | 1,149,154 | 140,573 | 206,237,568 | 488,102 | 208,015,397 | ||||||||
|
|
|
|
|
|
|||||||||
As at 31.12.2001 | 191,629,729 | 154,185,409 | 4,787,598 | 37,354,427 | 34,563,096 | 422,520,259 | ||||||||
|
|
|
|
|
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Energis Polska Sp. z o.o. Group
Consolidated financial statements as at and for the year ended 31 December 2001 |
15 |
|
|
8. | Tangible fixed assets by title |
9. | Short-term receivables and claims |
9(a). | Receivable write-downs |
Energis Polska Sp. z o.o. Group
Consolidated financial statements as at and for the year ended 31 December 2001 |
16 |
|
|
9(b). | Taxation, state subsidy and social security receivables |
As at 31 December 2001, taxation, state subsidy and social security receivables include mainly VAT receivables of PLN 60,715,752 (being mainly connected with purchases of tangible fixed assets) and a receivable relating to a deposit for the Customs Office, amounting to PLN 1,205,313. |
10. | Marketable securities |
As at the balance sheet date, securities comprise Treasury bills purchased by the Parent Company at the end of December 2001 as a form of a short-term cash deposit. | |
The Company sold all the Treasury bills at a profit on 2 January 2002. |
11. | Prepaid expenses and deferred costs |
Energis Polska Sp. z o.o. Group
Consolidated financial statements as at and for the year ended 31 December 2001 |
17 |
|
|
By 16 February 2001 National Grid International Ltd. and Energis plc had made loans to Energis Polska of PLN 163,195,500 each (PLN 326,391,000 in total). On 16 February 2001, these loans were converted into Share Capital. | ||||
On the basis of the obligations specified in the Shareholders Agreement of 25 January 2000 and the Parent Companys Memorandum of Association, National Grid International Ltd. and Energis plc transferred to PKP S.A. (the State railway Company being the initial investor) free of charge 8,144 shares each (16,288 shares in total) with a total value of PLN 8,144,000. | ||||
On 9 July 2001 National Grid International Ltd. entered into an agreement on transfer of the Parent Companys shares and an agreement on transfer of rights and obligations resulting from loans granted to the Parent Company, with National Grid Poland B.V. | ||||
As at 31 December 2001, the Parent Companys share capital consisted of 652,862 equal, indivisible shares with a nominal value of PLN 500 each. | ||||
As at 31 December 2001, the Parent Companys shareholders were as follows: |
Number of shares | Votes (%) | ||||
National Grid Poland B.V. (The Netherlands) | 318,266 | 48,7494 | |||
Energis plc (Great Britain) | 318,266 | 48,7494 | |||
Polskie Koleje Państwowe S.A. | 16,322 | 2,5000 | |||
P.T. Centrala Sp. z o.o. | 8 | 0,0012 | |||
|
|
||||
652,862 | 100,0000 | ||||
|
|
Energis Polska Sp. z o.o. Group | 18 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
13. | Supplementary capital |
The supplementary capital of PLN 228 constitutes the excess of the actual receivables relating to the loans granted to Energis Polska contributed by National Grid International Ltd. and Energis plc in connection with the increase in the share capital of 16 February 2001, over the nominal value of the shares taken up. | |
14. | Negative goodwill on consolidation |
15. | Bank loans |
Short-term liabilities include a long-term investment loan of EUR 125,000,000 (PLN 440,237,500), granted to the Parent Company on 19 December 2001 by the European Investment Bank, Luxembourg. The loan was to be repaid on a one-off basis on 19 December 2008, however was repaid early during 2002 as part of owners restructuring exercise and has been accordingly categorised as a short-term liability (see Note 34). | |
The loan bears a fixed interest rate of 4.93% p.a. Interest is payable every six months. The interest charge for the period amounts to PLN 723,510. | |
In accordance with the loan agreement, the loan is to be used for financing (re-financing) expenditure connected with designing, constructing and installing structures and plant & machinery for the telecommunications network of Energis Polska. | |
The loan is secured with a warranty securing 100% of the future payments (including interest) granted by National Grid Group plc, on 12 December 2001. The warranty charge for the period amounts to PLN 953,848. | |
Energis Polska Sp. z o.o. Group | 19 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
Foreign exchange gains, which arose on the translation of the loan from the European Investment Bank as at 31 December 2001, amounted to PLN 6,162,500 and are included in deferred income. | |
16. | Other short-term liabilities |
Other short-term liabilities of PLN 80,526,428 as at 31 December 2001 comprise mainly trade payables in respect of capital investment projects. | |
17. | Accruals and deferred income |
18. | Related party assets put up as collateral |
As at 31 December 2001, the Group has not put up any assets as collateral. | |
19. | Segmental analysis of 2001 sales by business segment and geographical area |
Segment | Domestic sales | Total | |||
PLN | PLN | ||||
Leased lines and data transmission services | 5,910,190 | 5,910,190 | |||
Voice transmission services | 11,170 | 11,170 | |||
Internet access services | 211,512 | 211,512 | |||
Co-location | 31,809 | 31,809 | |||
|
|
||||
Total sales | 6,164,681 | 6,164,681 | |||
|
|
||||
Energis Polska Sp. z o.o. Group | 20 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
20. | Other operating income |
31.12.2001
|
|||
Proceeds from sale of fixed assets | 62,399 | ||
Proceeds from recharge of rental and electricity costs to supplier | 1,787,573 | ||
Other | 318,771 | ||
|
|||
2,168,743 | |||
|
21. | Other operating expenses |
31.12.2001
|
|||
Cost of fixed assets sold | 106,900 | ||
Receivable write-downs | 1,080,220 | ||
Donations made | 454,500 | ||
Other | 49,791 | ||
|
|||
1,691,411 | |||
|
22. | Financial income |
31.12.2001
|
|||
Bank interest | 8,429,130 | ||
Realised foreign exchange gains | 1,192,204 | ||
|
|||
9,621,334 | |||
|
23. | Financial costs |
* This guarantee was accrued on the daily basis and was originally scheduled to be paid in line with the interest payments schedule. See also note 34.
Energis Polska Sp. z o.o. Group | 21 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
24. | Extraordinary items |
Fortuitous events damages in respect of post-accident car repairs | 55,337 | ||
Fortuitous events costs of post-accident car repairs | (21,338 | ) | |
|
|||
33,999 | |||
|
25. | Corporation tax |
The Group is not a corporation income tax payer as defined in the Corporation Income Tax Act. Therefore, the summary table below is based on the stand-alone financial statements of Cel Polska and Energis Polska for the year ended 31 December 2001. | |
The main differences between the tax base and the loss before tax are as follows: |
31.12.2001
PLN |
|||
Loss before tax | (77,307,633 | ) | |
Non-deductible costs | 16,695,324 | ||
Non-taxable income | (277,350 | ) | |
Surplus of tax depreciation over accounting depreciation | (169,844 | ) | |
Taxable income disallowed for accounting purposes | 24,110,560 | ||
|
|||
Net tax loss, including: | (36,948,943 | ) | |
|
|||
Tax loss of Cel Polska | (2,008,417 | ) | |
Tax loss of Energis Polska | (34,940,526 | ) | |
Energis Polska Sp. z o.o. Group | 22 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
26. | Deferred tax |
As permitted by the Act Energis Polska does not recognize the net deferred tax asset because it is unlikely that it will crystallize in the year 2002 and the following years. | |
As at 31 December 2001, the Subsidiary did not recognize a deferred tax asset as it was more likely than not it would not be able to be used in 2002 or in subsequent years. | |
Energis Polska Sp. z o.o. Group | 23 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
|
27. | Discontinued operations |
During the year, the Group has not discontinued any operations. |
28. | Contingent liabilities |
A few former employees lodged claims against the Parent Company as in their opinion there were no grounds for terminating their employment contracts. The amount of total potential claims is immaterial from the perspective of the scale of the Parent Companys operations. Management considered that these claims should not be provided for, because they would not be paid. | |
As at the balance sheet date, Cel Polska had no contingent liabilities. |
29. | Guarantees and pledges |
As at 31 December 2001, bank guarantees granted by banks to third parties on the Groups behalf amounted to PLN 1,667,492. |
30. | Employment level |
In the year ended 31 December 2001, the average number of employees (by category) was as follows: | |
2001
Number of employees |
|||
White collar | 118 | ||
|
|||
Average number of employees | 118 | ||
|
31. | Directors remuneration |
Remuneration paid and payable (including bonuses paid out of net profit) was as follows: | |
2001
PLN |
|||
Management Boards | 4,512,593 | ||
Supervisory Boards | |
The amount of Management Board remuneration includes the costs of cancelling a contract with one of the former Board Members. | |
In 2001, members of the Supervisory Board were not paid any remuneration. | |
32. | Transactions with Management and Supervisory Board members |
During 2001, the Parent Company and its subsidiaries did not extend any loans or related benefits to members of its Management and Supervisory Boards. | |
Energis Polska Sp. z o.o. Group | 24 | |
Consolidated financial statements as at and for the year ended 31 December 2001 | ||
|
||
33. | Transactions with related entities |
31.12.2001
PLN |
|||
Liabilities, including: | |||
National Grid Transco plc | 945,526 | ||
National Grid Group plc | 953,848 | ||
Energis plc | 2,926,803 | ||
Energis Squared Ltd. | 24,441 | ||
Polskie Koleje Państwowe S.A. | 34,102 | ||
Energis Switzerland AG | 215,066 | ||
|
|||
5,099,786 | |||
|
|||
Expenses in the financial year, including: | |||
National Grid Transco plc | 6,760,952 | ||
National Grid Group plc | 953,848 | ||
Energis plc | 9,453,246 | ||
Energis Squared Ltd. | 24,441 | ||
Polskie Koleje Państwowe S.A. | 5,756,572 | ||
Energis GmbH | 218,235 | ||
Energis Switzerland AG | 944,818 | ||
|
|||
24,112,112 | |||
|
|||
Cost of fixed assets purchased, including: | |||
Energis Squared Ltd. | 12,437,109 | ||
|
|||
12,437,109 | |||
|
34. | Post balance sheet events | |
The following significant changes in the Parent Companys ownership structure and the share capital took place subsequent to 31 December 2001: | ||
- | On 23 September 2002, shares of Energis plc in the Parent Company with a value of PLN 159,133,000 were acquired by Bates Telecom Poland Ltd with its registered office in Jersey, Great Britain; | |
- | On 2 October 2002, Bates Telecom Poland Ltd repaid the Parent Companys debt to European Investment Bank for share capital increase of PLN 528,873,000. As part of the owners restructuring exercise, the cost of the guarantee granted for this debt by National Grid Group has been forgiven, and the related accrual has been reversed. | |
As a consequence of these changes, as at 28 May 2004, Bates Telecom Poland Ltd owns above 80% of the Parent Companys shares. | ||
Energis Polska Sp. z o.o. Group | 25 | |||
Consolidated financial statements as at and for the year ended 31 December 2001 | ||||
|
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35. | Reconciliation to United States of America Generally Accepted Accounting Principles | |||
35. (a) | Net Income and Shareholders Equity | |||
The consolidated financial statements of the Group are prepared in accordance with the Accounting Act of 29 September 1994 (Polish GAAP). The Groups accounting policies have been described below where these differ significantly from accounting principles applicable in the United States of America (US GAAP). | ||||
(i) | Cross-border interconnection services | |||
In 2000 Energis Polska entered into an agreement for the purchase of cross-border interconnection services. As the agreement was for a certain period of time and Energis Polska was required to pay a pre-determined fee per year, this indicated the determinable cost of periodic use of these services. In accordance with Groups accounting policies and due to the fact that the Group did not use this facility for a period of time while the remaining construction of the network was being completed, the expense of the monthly charge was deferred until the time the services began to be utilized by customers. From this time, the total portion of the annual cost applicable for the period from date of agreement to date of first use was expensed to the Income Statement. | ||||
Under US GAAP the total cost of these services should be expensed to the Income Statement over the recognised useful economic life beginning from when the asset is put in use (i.e. services begin to be utilized by customers). | ||||
(ii) | Foreign currency translation | |||
In accordance with Polish GAAP applicable for the year ended 31 December 2001 foreign currency gains resulting from the translation of monetary assets and liabilities that are denominated in a foreign currency at the balance sheet date were deferred until realized. Under US GAAP such foreign currency gains are recognised in the Income Statement. | ||||
(iii) | Installation revenue | |||
Energis Polska recognises Installation Revenue, under Polish GAAP, at the point at which the customers service goes live, reflecting the timing of the cash inflows and outflows arising from installation of the service. | ||||
Under US GAAP, in accordance with SEC Staff Accounting Bulletin 104 Revenue Recognition in Financial Statements such revenue is deferred over the expected term of the related customer relationship. As a result an adjustment is required to reflect that part of the revenue recognized under Polish GAAP, which should be deferred to later period in order to match the revenue stream over the customer relationship life. | ||||
In order to calculate this deferred revenue adjustment, the recognition period is the length of contract, as Energis Polska does not have adequate data to establish history of a longer average customer life. | ||||
Energis Polska Sp. z o.o. Group | 26 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
(iv) | Embedded derivatives | ||
The Group has entered into lease and service agreements that require payments denominated in a currency other than the functional currency of the Company or the lessor. Under Polish GAAP applicable for the year ended 31 December 2001 there was no requirement to separate the embedded derivative instruments from the host contracts and record them on the balance sheets at their fair value. | |||
Under US GAAP, effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendments (collectively referred to as "SFAS 133"). These standards require that all derivative instruments be recorded on the balance sheets at their fair value as either assets or liabilities. The effect of the adoption of SFAS 133 as of January 1, 2001, has been disclosed as the cumulative effect of change in accounting principle. The effect of the valuation of the embedded derivative instruments as of December 31, 2001, has been disclosed as the fair value gain on embedded derivatives. | |||
(v) | Extraordinary items | ||
Under Polish GAAP the Group recognises costs of post-accident car repairs and related damages of PLN 33,999, net, as extraordinary items. | |||
Under US GAAP these extraordinary items should be reclassified to other operating expenses. The change has no effect on the Income Statement for 2001 or on the Shareholder Equity as of 31 December 2001. | |||
(vi) | Deferred tax | ||
In accordance with Polish GAAP Energis Polska did not recognize a surplus of deferred tax assets over liabilities, as it was more likely than not that it would not be able to be used in 2002 or in subsequent years. | |||
Under US GAAP, a deferred tax asset would be recognised at the full amount, with a valuation allowance recorded for amounts which were not more likely than not to be utilized. As the valuation allowance would equal 100% of the value of deferred tax assets, this difference has no effect on the Income Statement for 2001 or on the Shareholder Equity as of 31 December 2001. |
Energis Polska Sp. z o.o. Group | 27 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
The effect on Group net income and shareholders equity is stated below as if the Financial Statements had been prepared in accordance with US GAAP |
Net Loss | Shareholders Equity | ||||||
---|---|---|---|---|---|---|---|
PLN | PLN | ||||||
As reported in accordance with Polish GAAP | (73,885,161 | ) | 229,224,348 | ||||
Cross-border interconnection services | (i) | 3,378,583 | 3,378,583 | ||||
Foreign currency translation | (ii) | 6,533,510 | 6,554,798 | ||||
Installation revenue | (iii) | (644,840 | ) | (644,840 | ) | ||
Fair value gains on embedded derivatives | (iv) | 14,073,646 | 14,073,646 | ||||
|
|
||||||
As reported in accordance with US GAAP, before cumulative effect of change in accounting principle | (50,544,262 | ) | 252,586,535 | ||||
|
|
||||||
Cumulative effect of change in accounting principle | (iv) | 5,115,900 | 5,115,900 | ||||
|
|
||||||
As reported in accordance with US GAAP, after cumulative effect of change in accounting principle | (45,428,362 | ) | 257,702,435 | ||||
|
|
35. (b) | Balance Sheet | |
(i) | Telecommunication licenses | ||
Under Polish GAAP applicable for the year ended 31 December 2001, telecommunication licenses were classified in the Balance Sheet as prepayments and written down to the Income Statement on the straight-line basis over the period for which the licenses were granted. The prepayments for licenses amounted to PLN 92,376,760 as at 31 December 2001. | |||
Under US GAAP, the licenses should be reclassified from prepayments to intangible assets. The change has no effect on the Income Statement for 2001 or on the Shareholders Equity as of 31 December 2001. | |||
(ii) | Assets under constructions | ||
Under Polish GAAP, intangible assets under construction, of PLN 4.110.288, are classified in Tangible fixed assets section in the Balance Sheet, which relate to the network operations software. | |||
Under US GAAP, these assets should be reclassified in Intangible assets. The change has no effect on the Income Statement for 2001 or on the Shareholders Equity as of 31 December 2001. | |||
(iii) | Cash and cash equivalents | ||
Under Polish GAAP, treasury bills with a maturity of less than 3 months, of PLN 36,246,677, are included in Marketable Securities. | |||
Under US GAAP, these would be classified in cash and cash equivalents. The change has no effect on the Income Statement for 2001 or on the Shareholders Equity as of 31 December 2001. |
Energis Polska Sp. z o.o. Group | 28 |
Consolidated financial statements as at and for the year ended 31 December 2001 | |
|
(iv) | Negative goodwill | ||
Under Polish GAAP, negative goodwill that arose on acquisition of Cel Polska on 8 June 2001, of PLN 4,573,560, is recognised in the Income Statement over the period of 5 years. | |||
Under US GAAP, in accordance with the Accounting Principles Board Opinion No. 16, Business Combinations, negative goodwill should reduce the value of the non-current assets acquired. As the majority of these assets are also depreciated over 5 years, this difference results in an immaterial effect on the Income Statement for 2001 or on the Shareholders Equity as of 31 December 2001. | |||
35. (c) | Statement of Cash Flows | ||
Exchange rate changes on cash | |||
Under Polish GAAP applicable for the year ended 31 December 2001, the effect of exchange rate changes on cash held in foreign currencies was included in operating activities. The effect of exchange rate changes on cash for the year ended 31 December 2001 amounted to PLN 1,910,735. | |||
Under US GAAP, in accordance with SFAS No. 95, Statement of Cash Flows, the effect of exchange rate changes on cash held in foreign currencies should be reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents. | |||
35. (d) | Statement of Changes in Shareholders Equity | ||
No statement of Changes in Shareholders Equity was required under Polish GAAP applicable for the year ended 31 December 2001. In the financial statements prepared under US GAAP such statement would be included. |
Energis Polska Sp. z o.o.
Financial statements
for the period from 22 November 1999 to 31 December 2000
Energis Polska Sp. z o.o. |
2
|
Financial statements (unaudited) | |
|
BALANCE SHEET as at 31 December 2000
Note |
31.12.2000
PLN |
|||
ASSETS | ||||
Fixed assets | 208,196,620 | |||
Intangible assets | 4 | 177,224 | ||
Computer software | 167,024 | |||
Other intangible assets | 10,200 | |||
Tangible fixed assets | 5 | 208,015,396 | ||
Plant and machinery | 1,149,154 | |||
Other tangible fixed assets | 140,572 | |||
Assets under construction | 206,237,568 | |||
Prepayments for assets under construction | 488,102 | |||
Financial fixed assets | 7 | 4,000 | ||
Current assets | 62,015,976 | |||
Inventories | 8 | | ||
Short-term receivables and claims | 9 | 7,965,011 | ||
Taxation, state subsidy and social security receivables | 7,493,166 | |||
Other receivables | 471,845 | |||
Cash and cash equivalents | 54,050,965 | |||
Cash in hand | 7,315 | |||
Cash at bank | 54,043,650 | |||
Prepayments | 10 | 96,473,001 | ||
Prepaid expenses | 96,473,001 | |||
|
||||
Total assets | 366,685,597 | |||
|
||||
The accompanying notes form an integral part of the financial statements.
Energis Polska Sp. z o.o. |
3
|
Financial statements (unaudited) | |
|
BALANCE SHEET as at 31 December 2000 (cont.)
Note |
31.12.2000
PLN |
|||
LIABILITIES AND EQUITY | ||||
Equity | (23,317,719 | ) | ||
Share capital | 11 | 4,000 | ||
Net loss for the period | 12 | (23,321,719 | ) | |
Net loss (negative amount) | (23,321,719 | ) | ||
Short-term liabilities and special funds | 367,627,127 | |||
Short-term liabilities | 367,627,127 | |||
Loans, debentures and securities | 13 | 206,391,228 | ||
Trade payables | 14 | 4,214,843 | ||
Other payables | 15 | 156,925,557 | ||
Taxation, customs duty and social security payables | 16 | 95,499 | ||
Accruals and deferred income | 17 | 22,376,189 | ||
Accruals | 22,296,665 | |||
Deferred income | 79,524 | |||
|
||||
Total liabilities and equity | 366,685,597 | |||
|
||||
The accompanying notes form an integral part of the financial statements.
Energis Polska Sp. z o.o. | 4 |
Financial statements (unaudited) | |
|
|
The accompanying notes form an integral part of the financial statements.
Energis Polska Sp. z o.o. | 5 |
Financial statements (unaudited) | |
|
|
CASH FLOW STATEMENT
for the period from 22 November 1999 to 31 December 2000 |
||||
2000
PLN |
||||
Cash from operating activities | ||||
Net loss | (23,321,719 | ) | ||
Adjusted for: | ||||
Amortisation and depreciation, net | 158,236 | |||
Other provisions | 22,013 | |||
Increase in inventories | (22,013 | ) | ||
Increase in receivables and claims | (7,965,011 | ) | ||
Increase in short-term liabilities (excluding loans and bank loans) and special funds | 2,783,269 | |||
Increase in accruals and prepayments | (941,723 | ) | ||
Increase in deferred income | 79,524 | |||
|
|
|||
Net cash from operating activities | (29,207,424 | ) | ||
|
|
|||
Cash from investing activities | ||||
Purchase of intangible assets | (214,546 | ) | ||
Purchase of tangible fixed assets | (10,438,212 | ) | ||
Purchase of shares in subsidiaries | (4,000 | ) | ||
Purchase of telecommunication licences | (93,225,045 | ) | ||
|
|
|||
Net cash from investing activities | (103,881,803 | ) | ||
|
|
|||
Cash from financing activities | ||||
Short-term loans received | 206,391,228 | |||
Payment of finance lease liabilities | (19.255,036 | ) | ||
Issue of shares and repayable contributions from shareholders | 4,000 | |||
|
|
|||
Net cash from financing activities | 187,140,192 | |||
|
|
|||
|
|
|||
Increase in cash and cash equivalents | 54,050,965 | |||
|
|
|||
Cash and cash equivalents at start of period | | |||
|
|
|||
Cash and cash equivalents at end of period | 54,050,965 | |||
|
|
The accompanying notes form an integral part of the financial statements.
Energis Polska Sp. z o.o. | 6 |
Financial statements (unaudited) | |
|
|
NOTES TO THE FINANCIAL STATEMENTS | ||
1. | The Company | |
a) | Energis Polska Sp. z o.o. (hereinafter call the Company or Energis Polska) was formed on 22 November 1999 in Warsaw. Its registered office is in Warsaw at ul. Iłżecka 26. | |
b) | The Companys activities consist of providing telecommunications and internet services. | |
c) | Employment | |
The average number of employees during the financial period was 11 (staff). | ||
d) | Directors remuneration | |
Remuneration paid to the members of the Management Board during the financial period amounted to PLN 371,347. In the current financial period, the Supervisory Board did not receive any remuneration. | ||
e) | The following people sat on the Companys Management Board during the financial period: | |
| Vivienne M. Bracken | Chairman | from 22 November 1999 to 3 May 2000; | ||
| Zygmunt M. Miśko | Member | from 25 November 1999 to 3 May 2000; | ||
| Edward Z. Mazur | Member | from 25 November 1999 to 3 May 2000; | ||
| Steven Marshall | Chairman | from 4 May to 20 November 2000; | ||
| George Z. Makowski | Chairman | from 21 November to 31 December 2000; | ||
| Steven V. Harris | Deputy Chairman | from 21 November to 31 December 2000; | ||
| Jarosław Mikos | Member | from 21 November to 31 December 2000; | ||
| Jaromir Łaciński | Member | from 4 May to 31 December 2000; | ||
| Bogdan Szafrański | Member | from 4 May to 31 December 2000. | ||
f) | Major events during the period were as follows: | ||
| Signing an agreement to supply optic fibres and co-locate equipment with Przedsiębiorstwo Państwowe Polskie Koleje Państwowe (PKP); | ||
| Obtaining a licence from the Minister of Communications to provide data transmission services; | ||
| Signing an agreement to construct a telecommunications network with Ericsson Sp. z o.o.; | ||
| Obtaining a licence from the Minister of Communications to provide long distance calls; | ||
| Changing the Companys name from NG Koleje Telekomunikacja Sp. z o.o. to Energis Polska. |
7 | |
Energis Polska Sp. z o.o. | |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
2. | Selected accounting policies |
The accounting policies used in the preparation of the financial statements for the period from 22 November 1999 to 31 December 2000 are in accordance with the Accounting Act of 29 September 1994 (uniform text Journal of Laws of 1994 No. 121/591 with subsequent amendments), hereinafter referred to as the Act, which specifies, among other things, the accounting policies to be applied by companies whose registered offices or seats of management are in Poland. |
Certain presentation changes have been included in these financial statements in comparison with the statutory financial statement of Energis Polska Sp. z o.o. for the year ended 31 December 2001 audited in accordance with the Act and auditing standards of National Board of Registered Auditors. |
Energis Polska presents costs by type in its income statements. |
p) | Tangible and intangible fixed assets |
Tangible and intangible fixed assets are valued at cost (purchase price or the cost of manufacturing), including enlargement or modernisation costs. |
Depreciation of tangible fixed assets and amortisation of intangible assets are charged in accordance with the Companys annual depreciation schedule which includes annual rates and charges. |
Depreciation and amortisation charges are calculated using the straight line method. |
Annual depreciation rates for the principal categories of tangible fixed assets are as follows: |
| plant and machinery | 20% 30%; |
| other tangible fixed assets | 20%. |
Assets under construction are not depreciated. | |
Annual depreciation rates for the principal categories of intangible assets are as follows: |
| right to use copyrights | 20%; |
| computer programs | 50%. |
q) | Financial fixed assets |
Shares in other entities are valued at cost less provisions for permanent diminution in value. The said provisions are charged to financial costs. |
Any permanent increases in the value of financial fixed assets that offset previous decreases in their value raise their carrying amounts to the level of their original cost. The said increases are credited to financial income. |
8 | |
Energis Polska Sp. z o.o. | |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) | |
r) | Short-term receivables and claims |
Short-term receivables and claims are stated net of provisions. |
Receivables are stated at amounts due. Default interest on overdue receivables is included in the receivables balance and credited to financial income. |
Provisions are based on the level of risk associated with individual balances and cover the amount which is not guaranteed or secured. |
s) | Inventories |
Inventories are stated net of write-downs. |
Inventories are valued at the lower of cost (purchase price) and the net realisable value. |
The value of inventory issues is determined using the FIFO method. |
If inventories have become obsolete, their levels exceed the Companys needs, their prices fluctuate on an exchange or are reduced due to competition or if they have been stored for more than one year due to lack of sales opportunities, purchase prices of the inventories are written down to the net realisable value. |
Stocks of advertising materials purchased in order to be transferred free of charge to trade partners are written down in full as at the balance sheet date. |
t) | Telecommunication licences |
Licences from Minister of Communications are presented in prepayments. |
u) | Long-term and short-term liabilities |
Liabilities are stated at amounts due, i.e. including interest accrued as at the balance sheet date, which is charged to financial costs. |
9 | |
Energis Polska Sp. z o.o. | |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) | |
v) | Deferred tax |
Deferred income tax provisions are recognised on the basis of timing differences in the recognition of revenue and costs under the Accounting Act and tax regulations. |
An excess of positive timing differences over negative ones, multiplied by the applicable corporation income tax rate, is included in the tax charge and shown as a deferred tax provision. An excess of negative timing differences over positive ones, multiplied by the applicable corporation income tax rate (giving a deferred tax asset), is shown as part of prepayments only if it is certain that it will crystallise in the future. |
New reduced corporation income tax rates were introduced on 1 January 1997 as a result of amendments to the Corporation Income Tax Act. Therefore, the rate of 28% was used in deferred income tax calculations as this is the rate for 2001. |
3. | Going concern |
These financial statements have been prepared on the assumption that the related entities will continue as going concerns in the foreseeable future and that there are no circumstances which indicate any threat to their continuing in operation. The Company does not expect any threats to its continuing in operation in the foreseeable future. The cash flow plan for the next 12 months effectively ending May 2005 provides that the Company will have positive cash flows within 12 months of the date of the financial statements being signed. Therefore, the Companys Management Board have prepared these financial statements on the assumption that the Company will be able to continue as a going concern without materially curtailing the scope of its operations in the foreseeable future. The financial statements do not contain any adjustments, which might be necessary if the going concern assumption should prove inappropriate. |
Energis Polska Sp. z o.o. | 10 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) | |
4. | Intangible assets movements during the financial period |
Energis Polska Sp. z o.o. | 11 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) | |
5. | Tangible fixed assets movements during the financial period |
Plant and machinery | Other tangible fixed assets | Assets under construction | Prepayments for assets under construction | Total | |||||||
PLN | PLN | PLN | PLN | PLN | |||||||
Cost as at 22 November 1999 | | | | | | ||||||
Additions | 1,267,780 | 142,860 | 206,237,568 | 488,102 | 208,136,310 | ||||||
Disposals | | | | | | ||||||
|
|
|
|
|
|||||||
Cost as at 31 December 2000 | 1,267,780 | 142,860 | 206,237,568 | 488,102 | 208,136,310 | ||||||
|
|
|
|
|
|||||||
Accumulated depreciation as at 22 November 1999 | | | | | | ||||||
Additions | 118,626 | 2,288 | 120,914 | ||||||||
Disposals | | | | | | ||||||
|
|
|
|
|
|||||||
Accumulated depreciation as at 31 December 2000 | 118,626 | 2,288 | | | 120,914 | ||||||
|
|
|
|
|
|||||||
Net book value | |||||||||||
As at 22 November 1999 | | | | | | ||||||
|
|
|
|
|
|||||||
As at 31 December 2000 | 1,149,154 | 140,572 | 206,237,568 | 488,102 | 208,015,396 | ||||||
|
|
|
|
|
|||||||
31.12.2000
|
5.(a) | Assets under construction |
Optic fibres being connected to the telecommunications network | 176,180,593 | ||
Expenditure on designing, constructing and assembling network structures and plant & machinery | 25,481,424 | ||
Expenditure on designing, programming and configuring information systems for the network | 3,154,646 | ||
Other capital expenditure | 1,420,905 | ||
|
|||
206,237,568 | |||
|
On the basis of the agreement concluded on 9 November 2000 for the supply of optic fibres and co-location of equipment with P.P. Polskie Koleje Państwowe (PKP), Energis Polska has long term, exclusive right of use to the optic fibres covered by the agreement for the period of 15 years from the date of signing. The total length of the mentioned optic fibres is approximately 5,000 km, whereas the total payments in respect of the exclusive right of use in the period of 15 years amounts to USD 42.08 mln (PLN 169.3m at the date of agreement). |
Energis Polska Sp. z o.o. | 12 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) | |
31.12.2000
|
6. | Tangible fixed assets by title |
Own tangible fixed assets | 1,289,726 | ||
Tangible fixed assets used under rent, finance lease or similar agreements and included in the Companys assets | | ||
|
|||
Total balance-sheet tangible fixed assets | 1,289,726 | ||
|
7. | Financial fixed assets movements during the financial period |
Shares | |||
PLN | |||
Cost as at 22 November 1999 | | ||
Additions | 4,000 | ||
Disposals | | ||
|
|||
Cost as at 31 December 2000 | 4,000 | ||
|
|||
Permanent diminution in value as at 22 November 1999 | | ||
Additions | | ||
Disposals | | ||
As at 31 December 2000 | | ||
|
|||
Net book value | |||
As at 22 November 1999 | | ||
|
|||
As at 31 December 2000 | 4,000 | ||
|
Energis Polska Sp. z o.o. | 13 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
8. | Inventories |
As at the end of the period, stocks of advertising materials amounted to PLN 22,013. These materials were written down in full. |
31.12.2000
|
9. | Short-term receivables and claims |
Ageing analysis: | |||
Current receivables | 7,965,011 | ||
Overdue receivables | | ||
|
|||
Gross receivables | 7,965,011 | ||
|
|||
Bad debt provisions | | ||
|
|||
Net receivables | 7,965,011 | ||
|
Foreign exchange losses which arose on the translation of receivables denominated in foreign currencies as at 31 December 2000 amounted to PLN 19,884. | |
As at 31 December 2000, the Company had not accrued any default interest on short-term receivables and claims. | |
31.12.2000
|
10. | Prepayments |
Licence from Minister of Communications to provide voice transmission services | 89,055,882 | |||
Licence from Minister of Communications to provide data transmission services | 3,681,061 | |||
Prepaid interconnection agreement | 3,552,396 | |||
Prepaid rent | 180,021 | |||
Prepaid insurance | 3,641 | |||
|
||||
96,473,001 | ||||
|
The licences obtained from Minister of Communications for the voice transmission and data transmission services are for the period of 15 years. Energis Polska has paid them in full in the current financial period. |
Energis Polska Sp. z o.o. | 14 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
11. | Share capital |
As at 31 December 2000, the Companys share capital amounted to PLN 4,000 and consisted of 80 equal, indivisible shares with a nominal value of PLN 50 each. | |
The Companys share capital remained unchanged throughout the period. | |
As at 31 December 2000, the Companys shareholders were as follows: |
Number of shares | Votes (%) | ||||
P.P. Polskie Koleje Państwowe | 34 | 42.50 | |||
Energis plc (Great Britain) | 19 | 23.75 | |||
National Grid International Ltd. (Great Britain) | 19 | 23.75 | |||
P.T. Centrala Sp. z o.o. | 8 | 10.00 | |||
|
|
||||
80 | 100.00 | ||||
|
|
12. | Net loss |
The net loss for the period from 22 November 1999 to 31 December 2000 amounted to PLN 23,321,719. As suggested by the Companys Management Board, the loss will be covered with the Companys future profits. |
13. | Loans, bonds and securities |
As at the balance sheet date, Energis Polska had the following liabilities in respect of short-term loans from its shareholders: |
31.12.2000
|
Lender | |||
National Grid International Ltd. | 103,195,614 | ||
Energis plc | 103,195,614 | ||
|
|||
206,391,228 | |||
|
The said liabilities resulted from amounts transferred to the Company under loan agreements signed on 13 December 2000 with National Grid International Ltd. and Energis plc of up to PLN 189,706,838 each (in total: PLN 379,413,676). |
In accordance with the loan agreements and on the basis of the Shareholders Agreement of 25 January 2000, these loans bear no interest rate as the Shareholders intended to swap them for shares in the Companys share capital by 31 December 2001 see Note 26. |
Energis Polska Sp. z o.o. | 15 |
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
31.12.2000
|
14. | Trade payables |
Maturity profile: | |||
Current payables (up to 3 months): | 4,214,843 | ||
Overdue payables | | ||
|
|||
4,214,843 | |||
|
Foreign exchange gains which arose on the translation of payables denominated in foreign currencies as at 31 December 2000 amounted to PLN 43,084. | |
As at 31 December 2000, the Company had not accrued any default interest on short-term liabilities. |
15. | Other payables |
Other payables represent the amount due in respect of optic fibre agreement, of PLN 156,925,557. |
16. | Taxation, customs duty and social security payables |
Payables relating to: |
- | personal income tax | 41,746 | ||
- | other (social security) | 53,753 | ||
|
||||
95,499 | ||||
|
17. | Accruals and deferred income |
Accruals: |
- | accrual for a liability in respect of construction and assembly works relating to the telecommunications network construction | 16,322,594 | ||
- | services provided, not invoiced | 5,974,071 | ||
|
||||
22,296,665 | ||||
|
||||
Deferred income: | ||||
- | prepaid services not provided | 58,236 | ||
- | unrealised foreign exchange gains | 21,288 | ||
79,524 | ||||
|
||||
22,376,189 | ||||
|
Energis Polska Sp. z o.o.
Financial statements (unaudited) |
16 |
|
|
Notes to the financial statements (cont.) | |
18. | Contingent liabilities | |
18.(a) | Default interest | |
According to the Polish Civil Code, default interest on the late settlement of liabilities may be charged within up to 3 years after the settlement of the principal liability. It is practically impossible to assess the Companys potential liability in that respect. | ||
18.(b) | Guarantees | |
As at 31 December 2000, the amount of bank guarantees granted to third parties in the name of the Company was PLN 1,662,427. | ||
18.(c) | Disputable amounts | |
In March 2001, claims for damages were filed against the Company, arising from an agreement concluded in 2000 by and between Energis Polska and Triad Group plc (Great Britain) for the provision of advisory services in the area of information system implementation. | ||
By the date of the preparation of these financial statements, no court proceedings had been instituted against the Company in relation to the said issue. | ||
Due to the doubts over the circumstances of the claim described above, it is impossible to estimate the potential liability of the Company arising from this claim. | ||
Energis Polska Sp. z o.o.
Financial statements (unaudited) |
17 |
|
|
Notes to the financial statements (cont.) | |
Energis Polska Sp. z o.o.
Financial statements (unaudited) |
18 |
|
|
Notes to the financial statements (cont.) | |
25. | Transactions with related parties | |
25.(a) | Transactions with related parties | |
Company |
P.P. Polskie
Koleje
Państwowe |
Energis plc |
National Grid
International Ltd. |
||||
PLN | PLN | PLN | |||||
Trade payables as at the balance sheet date | 6,100 | 2,322,745 | 1,285,284 | ||||
Liabilities in respect of loans as at the balance sheet date | 103,195,614 | 103,195,614 | |||||
Costs of mutual transactions during the period | 6,100 | 7,467,131 | 11,650,332 |
25.(b) | Transactions with Management Board | |
Advance payments to the members of the Companys Management Board in respect of future remuneration amounted to PLN 122,652. | ||
26. | Post-balance-sheet events | |
The following significant events affecting the Companys financial position occurred between the 31 December 2000 and 30 March 2001: | ||
| Loan agreements with the Companys shareholders, National Grid International Limited and Energis plc, for up to PLN 157,435,163 each (in total: PLN 314,870,326), signed on 10 January 2001. According to the agreements, amounts received in respect of the said loans are to be devoted to the current financing of the Companys working capital, whereas there are agreements in place to swap part or all of the debt to National Grid International Limited and Energis plc for shares in the Companys share capital by 31 December 2001; | |
| Shareholders resolutions of 1 February 2001 on increasing the Companys share capital by PLN 326,427,000 up to PLN 326,431,000; | |
| Shareholders resolution of 27 February 2001 on the commencement of activities aimed at transforming Energis Polska from a limited liability company to a joint stock company. |
Energis Polska Sp. z o.o. |
19
|
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
27. | Reconciliation to United States of America Generally Accepted Accounting Principles | |
Energis Polska owns 100% subsidiary, Telerise Sp. z o.o. (Telrise). Telrise is not consolidated, as it does not meet the thresholds required for consolidation under Polish GAAP. As a result, financial fixed assets of PLN 4 thousand, representing share capital of Telrise, are included in the balance sheet of Energis Polska. Taking into consideration that Telrise was dormant and its balance sheet consisted of cash of PLN 4 thousand and the share capital of PLN 4 thousand, the consolidation would effect with the reclassification of PLN 4 thousand from financial fixed assets to cash. The change has no effect on the Income Statement for 2000 or on the Shareholders Equity as of 31 December 2000. | ||
The financial statements of the Company are prepared in accordance with the Accounting Act of 29 September 1994 (Polish GAAP). The Companys accounting policies have been described below where these differ significantly from accounting principles applicable in the United States of America (US GAAP). | ||
27. (a) | Net Income and Shareholders Equity | |
(i) | Foreign currency translation | |
In accordance with Polish GAAP applicable for the period ended 31 December 2000 foreign currency gains resulting from the translation of monetary assets and liabilities that are denominated in a foreign currency at the balance sheet date were deferred until realized. Under US GAAP such foreign currency gains are recognised in the Income Statement. | ||
(ii) | Deferred tax | |
In accordance with Polish GAAP Energis Polska did not recognize a surplus of deferred tax assets over liabilities, as it was more likely than not that it would not be able to be used in 2001 or in subsequent years. | ||
Under US GAAP, a deferred tax asset would be recognised at the full amount, with a valuation allowance recorded for amounts which were not more likely than not to be utilized. As the valuation allowance would equal 100% of the value of deferred tax assets, this difference has no effect on the Income Statement for 2000 or on the Shareholder Equity as of 31 December 2000. | ||
(iii) | Advertising materials | |
Under Polish GAAP the accounting treatment of advertising materials is the same as for other types of inventory i.e. they are recognised as assets and written down to their net realisable value (NRV). | ||
Under US GAAP any payments made for advertising costs, including advertising materials would be expensed as incurred. However, this difference has no effect on the Income Statement for 2000 or on the Shareholders Equity as of 31 December 2000, as under Polish GAAP it was determined that the NRV of advertising materials in zero and they were written off. |
Energis Polska Sp. z o.o. |
20
|
Financial statements (unaudited) | |
|
|
Notes to the financial statements (cont.) |
(iv) | Prepayments | |
Under Polish GAAP applicable for the period ended 31 December 2000 all prepayments were included in the current assets, without the split on the short-term and the long-term part. | ||
Under US GAAP part of prepayments should be reclassified to other long-term assets. This difference has no effect on the Income Statement for 2000 or on the Shareholders Equity as of 31 December 2000. | ||
27. (b) | Balance Sheet | |
(i) | Telecommunication licenses | |
Under Polish GAAP applicable for the period ended 31 December 2000, telecommunication licenses were classified in the Balance Sheet as prepayments and written down to the Income Statement on the straight-line basis over the period for which the licenses are granted. | ||
Under US GAAP the licenses should be reclassified from prepayments to intangible assets. The change has no effect on the Income Statement for 2000 or on the Shareholders Equity as of 31 December 2000. | ||
(iv) | Assets under constructions | |
Under Polish GAAP, intangible assets under construction are classified in Tangible fixed assets section in the Balance Sheet, which relate to the network operations software. | ||
Under US GAAP, these assets should be reclassified in Intangible assets. The change has no effect on the Income Statement for 2000 or on the Shareholders Equity as of 31 December 2000. | ||
27. (c) | Statement of Cash Flows | |
Exchange rate changes on cash | ||
Under Polish GAAP applicable for the period ended 31 December 2000, the effect of exchange rate changes on cash held in foreign currencies is included in operating activities. | ||
Under US GAAP, in accordance with SFAS No. 95, Statement of Cash Flows, the effect of exchange rate changes on cash held in foreign currencies should be reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents. | ||
27. (d) | Statement of Changes in Shareholders Equity | |
No statement of Changes in Shareholders Equity was required under Polish GAAP applicable for the period ended 31 December 2000. In the financial statements prepared under US GAAP such statement would be included. | ||