National Grid 2008 Annual Report Download - page 699

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 10786
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: 172
Description: EXHIBIT 15.1
0/3368.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/368/3*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 10786
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: 172 Description: EXHIBIT 15.1
0/3368.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/368/3*
Table of Contents
180
Com
p
an
y
accountin
g
p
olicies continued
National Grid plc
Borrowings, which include interest-bearing loans and
overdrafts are recorded at their initial fair value which
normally reflects the proceeds received, net of direct issue
costs less any repayments. Subsequently these are stated at
amortised cost, using the effective interest rate method. Any
difference between proceeds and the redemption value is
recognised over the term of the borrowing in the profit and
loss account using the effective interest rate method.
Derivative financial instruments are recorded at fair value,
and where the fair value of a derivative is positive, it is
carried as a derivative asset and where negative, as a
liability. Assets and liabilities on different transactions are
only netted if the transactions are with the same
counterparty, a legal right of set-off exists and the cash flows
are intended to be settled on a net basis. Gains and losses
arising from changes in fair value are included in the profit
and loss account in the period they arise.
Where derivatives are embedded in other financial
instruments that are closely related to those instruments, no
adjustment is made with respect to such derivative clauses.
Otherwise the derivative is recorded separately at fair value
on the balance sheet.
F. Hedge accounting
The Company enters into derivative financial instruments
(‘derivatives’) and non-derivative financial instruments in
order to manage its interest rate and foreign currency
exposures, with a view to managing these risks associated
with the Company’s underlying business activities and the
financing of those activities. The principal derivatives used
include interest rate swaps, forward rate agreements,
currency swaps, forward foreign currency contracts and
interest rate swaptions.
Hedge accounting allows derivatives to be designated as a
hedge of another (non-derivative) financial instrument, to
mitigate the impact of potential volatility in the profit and loss
account. The Company uses two hedge accounting
methods.
Firstly, changes in the carrying value of financial instruments
that are designated and effective as hedges of future cash
flows (‘cash flow hedges’) are recognised directly in equity
and any ineffective portion is recognised immediately in the
profit and loss account. Amounts deferred in equity in
respect of cash flow hedges are subsequently recognised in
the profit and loss account in the same period in which the
hedged item affects net profit or loss.
Secondly, changes in the carrying value of financial
instruments that are desi
g
nated as hed
g
es of the chan
g
es in
the fair value of assets or liabilities (‘fair value hedges’) are
recognised in the profit and loss account. An offsetting
amount is recorded as an adjustment to the carryin
g
value of
hedged items, with a corresponding entry in the profit and
loss account, to the extent that the change is attributable to
the risk being hedged and that the fair value hedge is
effective.
Chan
g
es in the fair value of derivatives that do not qualify for
hedge accounting are recognised in the profit and loss
account as they arise.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, exercised, or no
longer qualifies for hedge accounting. At that time, any
cumulative gains or losses relating to cash flow hedges
recognised in equity are initially retained in equity and
subsequently reco
g
nised in the profit and loss account in the
same periods in which the previously hed
g
ed item affects net
profit or loss. For fair value hedges the cumulative
adjustment recorded to its carrying value at the date hedge
accounting is discontinued is amortised to the profit and loss
account using the effective interest rate method.
If a hedged transaction is no longer expected to occur, the
net cumulative gain or loss recognised in equity is
transferred to the profit and loss account immediately.
G. Parent Company guarantees
The Company has
g
uaranteed the repayment of the principal
and any associated premium and interest on specific loans
due from certain subsidiary undertakings to third parties. In
the event of default or non-performance by the subsidiary,
the Company recognises such guarantees as insurance
contracts, at fair value with a corresponding increase in the
carrying value of the investment.
H. Share-based payments
The Company issues equity-settled, share-based payments
to certain employees of subsidiary undertakings, detailed in
the Directors’ Report, the Directors’ Remuneration Report
and in note 36 to the consolidated financial statements.
Equity-settled, share-based payments are measured at fair
value at the date of grant. The Company has no employees.
Equity-settled, share-based payments that are made
available to employees of the Company’s subsidiaries are
treated as increases in equity over the vesting period of the
award, with a corresponding increase in the Company’s
investments in subsidiaries, based on an estimate of the
number of shares that will eventually vest. Where payments
are subsequently received from subsidiaries, these are
accounted for as a disposal of investment.
I. Dividends
Interim dividends are recognised when they are paid to the
Company’s shareholders. Final dividends are recognised
when the
y
are a
pp
roved b
y
shareholders.