National Grid 2008 Annual Report Download - page 304

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 1102
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 98
Description: EXH 2(B).6.1
0/2702.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/702/2*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 1102
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 98 Description: EXH 2(B).6.1
0/2702.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/702/2*
F-13
Deferred investment tax credits are amortized over the useful life of the underl
y
in
g
p
ro
p
ert
y
(
see Note G – “Income Taxes”
)
.
13 Derivatives
The Company accounts for derivative financial instruments under SFAS No. 133, “Accountin
g
for Derivatives and Hed
g
in
g
Activities,” and SFAS No. 149, “Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities,” as amended.
All derivatives except those qualifyin
g
for the normal purchase/normal sale exception are reco
g
nized on the balance sheet at
their fair value. Fair value is
g
enerally determined usin
g
current quoted market prices. If a contract is desi
g
nated as a cash
flow hed
g
e, the chan
g
e in its market value is
g
enerally deferred as a component of other comprehensive income until the
transaction it is hed
g
in
g
is completed. Conversely, the chan
g
e in the market value of a derivative not desi
g
nated as a cash
flow hed
g
e is deferred as a re
g
ulatory asset or liability. A cash flow hed
g
e is a hed
g
e of a forecasted transaction or the
variability of cash flows to be received or paid related to a reco
g
nized asset or liability. To qualify as a cash flow hed
g
e, the fair
value chan
g
es in the derivative must be expected to offset 80% to 125% of the chan
g
es in fair value or cash flows of the
hedged item. The Company also has purchase power agreements with non-affiliates for the purchase of power and capacity
for resale to its retail customers. These a
g
reements
g
enerally have no notional amounts and do not meet the definition of a
derivative under SFAS No. 133.
14 Comprehensive Income (Loss)
Comprehensive income (loss) is the chan
g
e in the equity of a company, not includin
g
those chan
g
es that result from
shareholder transactions. While the primary component of comprehensive income (loss) is net income, the other components
relate to additional minimum pension liability reco
g
nition, deferred
g
ains and losses associated with hed
g
in
g
activity, and
unrealized gains and losses associated with certain investments held as available for sale (see Note D — “Accumulated Other
Com
p
rehensive Income
(
Loss
)
”
)
.
15 New Accounting Standards
SFAS No. 123R
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R addresses the accountin
g
for
transactions in which a company receives employee services in exchan
g
e for (a) equity instruments of the company or
(b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of
such equity instruments. SFAS No. 123R also eliminates the ability to account for share-based compensation transactions
using Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires that such
transactions be accounted for using a fair-value-based method. The adoption of SFAS No. 123R on April 1, 2006 did not have
a material impact on the Company’s results of operations or its financial position.
SFAS No. 154
In May 2005, the FASB issued SFAS No. 154, “Accountin
g
Chan
g
es and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3.” Previously, APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reportin
g
Accountin
g
Changes in Interim Financial Statements,” defined the requirements for the accountin
g
for and the reportin
g
of a chan
g
e in
accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of chan
g
es in
accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an accountin
g
chan
g
e on one or more individual
prior periods presented, SFAS No. 154 requires that the new accountin
g
principle be applied to the balances of assets and
liabilities as of the be
g
innin
g
of the earliest period for which retrospective application is practicable and that a correspondin
g
adjustment be made to the openin
g
balance of retained earnin
g
s for that period rather than bein
g
reported in an income
statement.