National Grid 2008 Annual Report Download - page 658

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6834
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 131
Description: EXHIBIT 15.1
0/5327.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/327/5*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6834
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 131 Description: EXHIBIT 15.1
0/5327.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/327/5*
Table of Contents
Annual Report and Accounts 2007/08
139
11. Goodwill
The amounts disclosed above as at 31 March 2008 include balances relating to our operations in New England of £909m
(2007: £915m; 2006: £882m), New York of £560m (2007: £565m; 2006: £639m) and our acquired KeySpan businesses of
£2,369m.
Goodwill is reviewed annually for impairment.
Within our New England and upstate New York operations, goodwill is allocated to the individual subsidiary companies. These
are defined as cash-generating units for impairment testing purposes. The recoverability of the goodwill as at 31 March 2008
that relates to our New En
g
land and upstate New York operations has been assessed by comparin
g
the carryin
g
value of these
operations with the recoverable amount on a value-in-use basis. Value-in-use has been calculated based on projections that
incorporate our best estimates of future cash flows, customer rates, costs, future prices and growth and has been prepared
from internal forecasts for the next five years extrapolated into the future by using a 2%
g
rowth rate. Cash flow projections have
been discounted to reflect the time value of money, using a discount rate of 5.5% (2007: 6%). The discount rate is the post-tax
wei
g
hted avera
g
e cost of capital. On a pre-tax basis it is estimated that the discount rate would be approximately 9% (2007:
10%).
Within KeySpan, provisional goodwill (see note 28) is allocated based on the fair value of each cash-
g
eneratin
g
unit followin
g
a
business enterprise valuation using both income and market-based approaches. For the income approach, a discounted cash
flow analysis was prepared. This is an analysis of prospective cash flows discounted to present value at a discount rate, which
reflects the risk of the entity being valued. The market-based approach indicates the fair value of a business based on a
comparison of the company to comparable publicly traded companies and transactions in its industry, as well as prior company
transactions. Once the fair value of the cash-generating unit and any identified intangible assets were estimated, the goodwill
was implied as the residual value.
The main companies in the KeySpan group of companies are each defined as cash-generating units. The recoverability of the
goodwill as at 31 March 2008 has been assessed by comparing the carrying value of these companies with the recoverable
amount on a value-in-use basis. This has been based on projections prepared from internal forecasts extrapolated into the
future by using a 2% growth rate. Cash flow projections have been discounted to reflect the time value of money, using
discount rates of between 6.5% and 13.5% depending on the cash-generating unit. The discount rates are the post-tax
wei
g
hted avera
g
e cost of capital. On a pre-tax basis it is estimated that the discount rates would have been between 8.5% and
14.5%.
£m
Cost at 1 A
p
ril 2006 2,156
Exchan
g
e ad
j
ustments
(
192
)
Acquisition of subsidiary undertakings 157
Reclassification to assets of businesses held for sale
(
641
)
Cost at 31 March 2007 1,480
Exchan
g
e ad
j
ustments 23
Ac
q
uisition of subsidiar
y
undertakin
g
s
(
note 28
)
2,335
Cost at 31 March 2008 3,838
Accumulated im
p
airment losses at 1 A
p
ril 2006 14
Exchange adjustments (1)
Im
p
airment char
g
e 55
Reclassification to assets of businesses held for sale
(
68
)
Accumulated im
p
airment losses at 31 March 2007 and 31 March 2008
–
Net book value at 31 March 2008 3,838
Net book value at 31 March 2007 1,480