-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BHI1VunB/wx+Uu4mMSY/YBJJ6yZ3V5ybBqX1aQ1QWaKcw2cfY9JGxEVDcuDtCqsQ l34f7gdX4cNXpvhG8gnTqA== 0000950120-02-000613.txt : 20021119 0000950120-02-000613.hdr.sgml : 20021119 20021119160545 ACCESSION NUMBER: 0000950120-02-000613 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020906 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20021119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL CORP CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11459 FILM NUMBER: 02833179 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 181011179 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP&L RESOURCES INC DATE OF NAME CHANGE: 19941123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL ENERGY SUPPLY LLC CENTRAL INDEX KEY: 0001161976 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-74794 FILM NUMBER: 02833180 BUSINESS ADDRESS: STREET 1: TWO NORTH NINETH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 8-K/A 1 form8ka.txt CURRENT REPORT ON FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 6, 2002 PPL Corporation --------------- (Exact Name of Registrant as Specified in Its Charter) Pennsylvania 1-11459 23-2758192 ------------ ------- ---------- (State or other jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) PPL Energy Supply, LLC ---------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 333-74794 23-3074920 -------- --------- ---------- (State or other jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) Two North Ninth Street, Allentown, Pennsylvania 18101-1179 ---------------------------------------------------------- (Address of principal executive offices) Registrant's Telephone Number, including Area Code: (610) 774-5151 -------------- ITEM 2. ACQUISITIONS OR DISPOSITION OF ASSETS - --------------------------------------------- On September 6, 2002, PPL Corporation ("PPL"), through an indirect, wholly-owned subsidiary of PPL Energy Supply, LLC ("PPL Energy Supply"), acquired Mirant Corporation's 49% indirect equity interest in Western Power Distribution Holdings Limited and WPD Investment Holdings Limited (together, "WPD") for an aggregate consideration of approximately $236 million. PPL and PPL Energy Supply filed a Form 8-K describing this transaction on September 9, 2002. As permitted by Item 7 of Form 8-K, the previously filed Form 8-K describing this transaction excluded financial statements for WPD and pro forma financial information for PPL and PPL Energy Supply giving effect to the transaction (collectively, the "Financial Information"). This amendment to the Form 8-K is being filed to provide the Financial Information in accordance with, and within the time period prescribed by, Item 7 of Form 8-K. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS - ---------------------------------------------------------------- (c) Exhibits. 99.1 Audited Consolidated Financial Information of Western Power Distribution Holdings Limited 99.2 Audited Consolidated Financial Information of WPD Investment Holdings Limited 99.3 Unaudited Pro Forma Consolidated Financial Information of PPL Corporation 99.4 Unaudited Pro Forma Consolidated Financial Information of PPL Energy Supply SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. PPL CORPORATION By: /s/ James E. Abel ------------------------------------ James E. Abel Vice President-Finance and Treasurer PPL ENERGY SUPPLY, LLC By: /s/ James E. Abel ------------------------------------ James E. Abel Treasurer Dated: November 19, 2002 EX-99 3 ex99_1annrpt.txt EX. 99.1 - WESTERN POWER DIST. HLDGS. FIN. INFO. EXHIBIT 99.1 NOTE: This report is an unchanged copy of a previously issued Arthur Andersen, LLP Accountants' report. Obtaining a consent from Arthur Andersen, LLP is not possible, and this report has not been reissued by Arthur Andersen, LLP. We are filing this copy of the previously issued report as permitted by Regulation S-X 210.2-02(e). WESTERN POWER DISTRIBUTION HOLDINGS LIMITED AND SUBSIDIARY UNDERTAKINGS ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2002 Registered Number: 4267536 [WESTERN POWER DISTRIBUTION LOGO] CONTENTS Page DIRECTORS' REPORT 1 STATEMENT OF DIRECTORS' RESPONSIBILITIES 8 INDEPENDENT AUDITORS' REPORT 9 FINANCIAL STATEMENTS: Group profit and loss account 10 Balance sheets 11 Statement of total recognised gains and losses 12 Reconciliation of movements in equity shareholders' funds 12 Group statement of cash flows 13 Notes to the financial statements 14 DIRECTORS' REPORT For the year ended 31 March 2002 The directors present their annual report on the affairs of Western Power Distribution Holdings Limited (the "Company") and its subsidiary undertakings (the "Group" or "WPD"), together with the financial statements and auditors' report, for the year ended 31 March 2002. The Company was incorporated as Alnery No. 2177 Limited on 9 August 2001, a private limited company. On 7 September 2001, it changed its name to WPD 1953 Limited and on 27 March 2002 to Western Power Distribution Holdings Limited. On 11 September 2001, the Company became the parent company of the WPD Holdings UK group through a share for share exchange with WPD Holdings UK's owners. The financial information for the current period has been presented as if WPD Holdings UK had been owned by the Company throughout the current and comparative accounting period in accordance with the merger principles of group reconstructions. OWNERSHIP The Company is owned 49% indirectly by Mirant Corporation ("Mirant"), a global competitive energy company based in Atlanta, Georgia, United States of America ("US") and 51% indirectly by PPL Corporation ("PPL"), an electricity utility of Allentown, Pennsylvania, US. Both parties share operational and management control equally. The Company is the UK parent of the Group whose principal operating activity is conducted by Western Power Distribution (South West) plc ("WPD South West") and Western Power Distribution (South Wales) plc ("WPD South Wales"). PRINCIPAL ACTIVITIES The Group's principal activity is the distribution of electricity. Distribution involves the delivery of electricity across the Group's distribution network within its authorised areas of South West England and South Wales. The Group also has ancillary business activities, including electricity generation and telecommunications. It owns generating assets with 11 megawatts ("MW") of capacity used to back up the distribution network as well as minority investments in windfarms. The Group telecommunications subsidiary, Surf Telecoms Limited, is developing an income stream from the rental of fibre optic cables primarily attached to the Group's overhead electricity distribution network. BUSINESS REVIEW WPD met the regulatory requirement that all distribution businesses must be separate from their local supply company by April 2002. Under the new licence conditions introduced by the Utilities Act 2000, WPD decided to make official name changes. Therefore, from 1 August 2001, South Western Electricity plc became Western Power Distribution (South West) plc and South Wales Electricity plc became Western Power Distribution (South Wales) plc. The final outcome of the distribution price control review was announced in December 1999. The price control is effective for a five year period from 1 April 2000. WPD South West and WPD South Wales were required to reduce their regulated prices by 20% and 26%, respectively, from 1 April 2000, with a price change of 3% below the retail price index for each of the following four years. In response, management of WPD South West formulated a plan to maximise efficiency and customer service as a focused distribution company. The implementation of the plan has necessitated a reduction in overheads including a reduction in staffing levels in WPD South West. The reductions focused on administrative and corporate functions, with minimal impact on field staff, ensuring customer service is not affected. Further cost savings have been achieved through the sharing of systems and facilities by the two distribution businesses now owned by the Group. Further savings in WPD South Wales have been achieved through the introduction of an engineering team structure based upon that in WPD South West. 1 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 BUSINESS REVIEW (CONTINUED) FOOT AND MOUTH EPIDEMIC The foot and mouth epidemic which devastated farming, tourism and rural businesses across much of the UK also posed a number of operational problems for WPD during the year. Stringent restrictions on access to land imposed by council authorities and MAFF, the agricultural ministry, had a significant impact on our operations and most work on our maintenance and refurbishment of rural networks had to be put on hold for at least 50% of the year. During the foot and mouth outbreak, work activity was concentrated on underground cable and roadside overhead work in urban areas, towns and villages. BUSINESS INTEGRATION WPD South Wales was part of the Hyder Limited group ("Hyder"). Hyder was acquired in September 2000 by an affiliate of the WPD Group. WPD South Wales was transferred from Hyder to the WPD Group on 16 March 2001. The main focus for the year was the completion of the integration of WPD South Wales into the Group's existing operation in the South West of England. During the year, the restructuring of the electricity business in South Wales was completed to exactly mirror the team based engineering structure that already successfully operates in WPD South West. A Network Services Manager was appointed for South Wales along with a team of six Distribution Managers each of whom is responsible for an area and a group of geographically based teams. All network services staff in Wales have now been allocated to one of these teams. Joint goals and targets were established for the Group, which allow everyone to contribute to the success of the organisation. Every member of staff was sent a letter outlining the 'top ten' priorities for the year. In both companies, the focus centred on customer service, delivering exceptional network performance and being financially prudent. To deliver the improved network performance in South Wales, a number of successful initiatives from WPD South West were replicated and implemented during 2000/01. Two of the key programmes continued during 2001/02 were: Tree trimming A managed tree-trimming programme was introduced into South Wales. WPD carried out a competitive tendering process across the whole of the South West and South Wales to ensure we maximised value for money. Tree maintenance is essential for protecting the reliability of power supplies to customers. With the easing of foot and mouth restrictions, an extensive programme of tree trimming began across South and West Wales in the latter part of 2001. Over (pound)6m was spent during the year. This programme will continue for some time. WPD uses suitably qualified contractors who have obtained all the British Standard certificates of competence. In addition, we have independent qualified arborists to check the contractors' work and ensure that high standards are maintained. 2 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 BUSINESS REVIEW (CONTINUED) BUSINESS INTEGRATION (CONTINUED) ENMAC Network Management System ENMAC ensures that the Group has network control data at its fingertips, and can automatically update the call centre, relay electronic messages to customers, and increase flexibility for control centre staff. We installed the latest version of the ENMAC network management system into South Wales to bring it into line with the system in use in WPD South West. This allows the control room to monitor all 250 primary and grid substations in South Wales, which are fully integrated with a SCADA (System Control and Data Acquisition) system, also known as telecontrol. This allows equipment at substations to be closely monitored and remotely operated. The system also incorporates a trouble-call system that monitors the network and any "no-supply" calls from customers, and then matches the two together. As technology continues to improve, it means we are well placed to provide a better service to our customers. New, improved versions of ENMAC will be introduced during the latter part of 2002. LIVE WORKING Additional "Hot Gloving" vehicles were also introduced to allow more live line working. This reduces interruptions to the supply. CUSTOMER SERVICE During the year, the WPD Group was awarded the Charter Mark for outstanding customer service provision. The award is the Government's top seal of approval for service excellence and followed a rigorous and detailed assessment of WPD's operations as well as interviews with the Group's main customers. In particular, Charter Mark assessors singled out "target 60", a unique WPD initiative that goes beyond the regulatory requirement, empowering staff to ensure the maximum number of customer supplies is restored within one hour of a fault occurring. Streamlining of call centres was also completed and all call centre operations in South Wales are now outsourced to an external company. This ensures that we improve the quality and speed of our response to our customers. The Company we use has already provided call centre services to WPD South West for a number of years and has recently won a top European award and been given the title of "best multi service call centre". The overall industry regulator is the Gas and Electricity Markets Authority (known as "Ofgem"). A new watchdog group was established during the year, the Gas and Electricity Consumer Council (known as "energywatch"). energywatch replaced the South West and South Wales Consumers' Committees, which had been active for nearly 11 years. The new arrangements were introduced as part of the Governments' drive to protect customer interests via the Utilities Act 2000. energywatch took over the role of complaint handling and customer representation. The Group has worked hard with the new regulatory body to ensure that we establish an effective and positive working relationship. During the year, customer complaints to energywatch for WPD South West and WPD South Wales fell by 86% and 100%, respectively, from 7 and 49 in the twelve months to March 2001 compared to 1 and nil in the twelve months up to March 2002. WPD maintained its position as number one for fewest complaints to the regulator. 3 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 BUSINESS REVIEW (CONTINUED) CAPITAL INVESTMENT Investment during 2001/02 was (pound)146.3m across the entire region and included the replacement of overhead lines, replacement of switchgear and the introduction of new technology. Of this total investment, (pound)58.2m was in South Wales with the remainder in the South West. A number of significant engineering projects were also tackled during the year: - - a major engineering project to improve and reinforce the quality of supplies to remote areas on Dartmoor was completed. The scheme involved bringing in a new main line underground supply to Princetown, famous for the forbidding Dartmoor Prison. - - we also installed a new ethylene propylene rubber cable ("EPR") along the riverbed of the River Yealm in Devon to replace the existing submarine cable. We used specialist divers to ensure that we met the European Union Directive for clean water and caused minimum disruption to the riverbed. - - one of the year's most ambitious projects was to replace an intricate system of exposed 33kV switchgear at Woodcote substation near Axminster, Devon with an advanced computerised indoor system; the first of its kind and a radical departure from traditional methods. Load growth in the area had taken the existing switchgear beyond its fault rating. Replacing the exposed and ageing switchgear with a modern system under cover has not only reduced the risk of a fault occurring but has made it easier to operate and maintain as well. - - booming residential development has also necessitated the commencement of a (pound)3.9m project to build a new 132/33kV substation from scratch at Portishead on the Bristol Channel. The project is complex and involves the transfer of existing circuits to a nearby substation and the relocation of two 132kV transformers to a new greenfield site. The work will be completed during summer 2002. PERFORMANCE Through a combination of continued investment and close monitoring of goals and targets, WPD strives to improve network performance. Early plans implemented in South Wales have paid off
Network reliability South Wales Minutes lost per customer 2000/01 123.3 Minutes lost per customer 2001/02 90.6 Improvement in performance 27% Interruptions per 100 customers 2000/01 158.2 Interruptions per 100 customers 2001/02 128.5 Improvement in performance 19%
In WPD South West, minutes lost per customer again improved to 86.1 minutes lost per customer (86.5 minutes in 2000/01), but interruptions per 100 customers increased to 107.2 (70.0 in 2000/01). This increase was the result of a high incidence of lightning. The WPD Group has an on-line lightning location display system which provides information on all the lightning strikes to ground. This indicated an increase in lightning activity in the South West of almost 50% during the year. 4 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 PERFORMANCE (CONTINUED) More than 92.6% of customers in the South West and 94.2% of customers in South Wales were restored in less than three hours, beating the Ofgem target of 85%. More than 71.1% and 72.3% of customers in the South West and South Wales, respectively, were in fact restored within one hour of a fault occurring. Among the initiatives identified for the coming year are: - - installation of more automatic switchgear in rural areas - - increasing the number of protective devices on the network thus reducing the number of customers affected by a fault - - a continued drive on line refurbishment and tree trimming. WPD GROUP AND THE ENVIRONMENT The WPD Group has developed systems to capture data on greenhouse emissions using the guidelines issued by the UK Government's Department of Environment, Food and Rural Affairs, and prepared a report. It has updated its Environmental Policy to reflect its current areas of operation. The WPD Group has had no prosecutions or notice of intended prosecution for any environmental matter during the reporting year. REGULATORY ISSUES One of the more significant priorities for the year was to monitor and aim to influence Ofgem's Information and Incentive Project ("IIP"). This initiative, which commenced in April 2002, can lead to an increase or reduction in revenue of up to two per cent depending on performance. The incentives for distribution companies focus on three main areas: - - the number of interruptions that customers experience - - the duration of those interruptions - - the speed and quality of telephone response from the distribution business to the customer. As part of the implementation of the Utilities Act, a new licensing scheme came into force in October 2001. WPD South West and WPD South Wales now hold Electricity Distribution Licences. RESULTS AND DIVIDENDS The Group profit after taxation for the year ended 31 March 2002 was(pound)58.3m (2001:(pound)64.3m). Dividends of (pound)140.7m have been declared during the year. No dividends were declared during the year ended 31 March 2001. PAYMENT OF CREDITORS The Group's policy in respect of its suppliers (other than those providing electricity utility supplies and services) is to require suppliers to accept our terms which are displayed on our official orders unless alternative terms of mutual benefit can be agreed. The average length of time for the payment of creditors during 2002 was 21 days. CHARITABLE AND POLITICAL DONATIONS During the year ended 31 March 2002, donations of (pound)131,000 were made by the Group to community organisations of which (pound)52,000 was donated to charities. No contributions were made for political purposes. In addition, WPD South West established a charitable foundation in 1996 with a (pound)1.0m donation. In May 2001, Hyder Limited, which is under the same ultimate ownership as the Group, donated a further (pound)1.0m to the foundation. The foundation made donations of (pound)78,000 in 2002. 5 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 EQUAL OPPORTUNITIES The Group is committed to equality of opportunity in employment and this is reflected in its equal opportunities policy and employment practices. Employees are selected, treated, and promoted according to their abilities and merits and to the requirements of the job. Applications for employment by people with disabilities are fully considered, and in the event of members of staff suffering disabilities, every effort is made to ensure that their employment with the Group continues with redeployment or retraining arranged as appropriate. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. EMPLOYEE CONSULTATION The Group places considerable value on the involvement of its employees in its affairs. Staff are kept informed of the Group's aims, objectives, performance and plans, and their effect on them as employees through newsletters, regular team briefings and other meetings, as well as through the Group's in-house journal. Formal meetings are held regularly between senior managers and representatives of staff and their unions to discuss matters of common interest. REGULATORY FINANCIAL STATEMENTS As a condition of their Electricity Distribution Licences, WPD South West and WPD South Wales are required to prepare and publish separate financial statements for their distribution businesses for each year ending 31 March. These are expected to be available after 30 September 2002 from the Company's registered office as shown below. DIRECTORS AND THEIR INTERESTS The directors who served during the year were as follows:
Appointed Resigned --------- -------- RA Symons, Chief Executive 21 December 2001 - ME Fletcher, Resources and External Affairs Director 21 December 2001 - DCS Oosthuizen, Finance Director 6 September 2001 - RW Burke 21 December 2001 - PA Farr, alternate director to RL Petersen 18 January 2002 - DM Kleppinger, alternate director to RL Klingensmith 21 December 2001 - RF Owen 21 December 2001 - BS Rush 21 December 2001 27 March 2002 RL Peterson 21 December 2001 - WP Bowers, alternate director to RA Symons 21 December 2001 - JW Holden, alternate director to RF Owen 21 December 2001 - GE Klappa, alternate director to ME Fletcher 21 December 2001 - RL Klingensmith 21 December 2001 - SA Underwood 6 September 2001 20 December 2001 Alnery Incorporations No. 1 Limited 9 August 2001 6 September 2001 Alnery Incorporations No. 2 Limited 9 August 2001 6 September 2001
Subsequent to the year end, on 18 April 2002, WP Bowers and GE Klappa resigned as directors, CJ Edwards was appointed as an alternate director to ME Fletcher, FD Kuester was appointed as a director, and RJ Pershing was appointed as an alternate director to FD Kuester. During and at the end of the financial year, no director was materially interested in any contract of significance in relation to the Group's business other than service contracts. At 31 March 2002, no director had a beneficial interest in any of the Group companies. 6 DIRECTORS' REPORT (CONTINUED) For the year ended 31 March 2002 SUBSEQUENT EVENT Subsequent to the year end, the Group effectively restructured its interest rate swaps and certain of its cross currency swaps. Further detail is given in note 29. AUDITORS Arthur Andersen will not be seeking re-appointment as auditors for the forthcoming year. A resolution to appoint a successor will be proposed at the Annual General Meeting. By Order of the Board, RA Symons Chief Executive WESTERN POWER DISTRIBUTION HOLDINGS LIMITED Avonbank Feeder Road Bristol BS2 0TB 31 May 2002 7 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that year. In preparing those financial statements, the directors are required to: - - select suitable accounting policies and then apply them consistently; - - make judgments and estimates that are reasonable and prudent; - - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors confirm that the financial statements comply with the above requirements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 8 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF WESTERN POWER DISTRIBUTION HOLDINGS LIMITED We have audited the financial statements of Western Power Distribution Holdings Limited for the year ended 31 March 2002 which comprise the Profit and loss account, Balance sheets, Cash flow statement, Statement of total recognised gains and losses and the related notes numbered 1 to 30. These financial statements have been prepared under the accounting policies set out therein. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors' responsibilities for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the Statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the Company and other members of the Group is not disclosed. We read the Directors' report and consider the implications for our report if we become aware of any apparent misstatements within it. BASIS OF OPINION We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group at 31 March 2002 and of the Group's profit for the year then ended and have been properly prepared in accordance with the Companies Act 1985. ARTHUR ANDERSEN Chartered Accountants and Registered Auditors 1 The Square Temple Quay Bristol BS1 6DG 31 May 2002 9
GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 March 2002 2002 2001 (As restated) NOTE (POUND)m (pound)m - ---------------------------------------------------------------------------------------------------------- TURNOVER - CONTINUING OPERATIONS 2 399.2 243.6 Operating expenses 3 (220.2) (147.8) Other operating income - gain on disposal of contract for differences 2 29.4 - - ---------------------------------------------------------------------------------------------------------- OPERATING PROFIT - CONTINUING OPERATIONS 208.4 95.8 Income from fixed asset investments and associated undertakings 2 7.7 2.9 Profit on sale of properties in continuing operations 8.2 - Gain on liquidation of subsidiaries 2 - 23.8 Deferred contingent consideration on disposal of subsidiaries 2 - 15.5 Deferred contingent gain on disposal of the electricity supply activity - 2.1 Amounts written off investments 2 (53.1) - - ---------------------------------------------------------------------------------------------------------- PROFIT ON ORDINARY ACTIVITIES BEFORE FINANCE CHARGES AND TAX 2 171.2 140.1 Finance charges (net) 6 (93.2) (49.4) - ---------------------------------------------------------------------------------------------------------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 78.0 90.7 Tax on profit on ordinary activities 7 (19.7) (26.4) - ---------------------------------------------------------------------------------------------------------- PROFIT ON ORDINARY ACTIVITIES AFTER TAX, BEING PROFIT FOR THE FINANCIAL YEAR 58.3 64.3 Dividends on equity shares 8 (140.7) - - ---------------------------------------------------------------------------------------------------------- TRANSFER (FROM)/TO RESERVES 22 (82.4) 64.3 - ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group profit and loss account. 10
BALANCE SHEETS 31 March 2002 GROUP COMPANY 2002 2001 2002 (As restated) NOTE (POUND)m (POUND)m (POUND)m - ----------------------------------------------------------------------------------------------------------- FIXED ASSETS Intangible assets - goodwill 11 136.8 146.6 - Tangible assets 12 1,822.1 1,793.2 - Investments 13 1.9 55.2 353.2 - ----------------------------------------------------------------------------------------------------------- 1,960.8 1,995.0 353.2 CURRENT ASSETS Stocks 5.2 9.3 - Debtors 16 168.9 159.6 - Investments 17 115.0 574.9 - Cash at bank 9.2 4.4 - - ----------------------------------------------------------------------------------------------------------- 298.3 748.2 - CREDITORS Amounts falling due within one year 18 (495.2) (852.6) - - ----------------------------------------------------------------------------------------------------------- NET CURRENT LIABILITIES (196.9) (104.4) - - ----------------------------------------------------------------------------------------------------------- TOTAL ASSETS LESS CURRENT LIABILITIES 1,763.9 1,890.6 353.2 CREDITORS Amounts falling due after more than one year 18 (1,029.3) (1,073.5) - PROVISIONS FOR LIABILITIES AND CHARGES 20 (218.0) (218.1) - - ----------------------------------------------------------------------------------------------------------- NET ASSETS 2 516.6 599.0 353.2 - ----------------------------------------------------------------------------------------------------------- CAPITAL AND RESERVES Called-up share capital 21 24.9 24.9 24.9 Share premium account 22 328.3 328.3 328.3 Other reserves 22 142.3 142.3 - Profit and loss account 22 21.1 103.5 - - ----------------------------------------------------------------------------------------------------------- EQUITY SHAREHOLDERS' FUNDS 516.6 599.0 353.2 - -----------------------------------------------------------------------------------------------------------
The financial statements on pages 10 to 38 were approved by the Board of Directors on 31 May 2002 and signed on its behalf by: R A Symons D C S Oosthuizen Chief Executive Finance Director The accompanying notes are an integral part of these balance sheets. 11
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 March 2002 2002 2001 (As restated) (POUND)m (pound)m - ----------------------------------------------------------------------------------------------------------- Profit for the financial year 58.3 64.3 Prior year adjustment for implementation of FRS19 Deferred Tax (Note 1) (78.9) - -------------------------------------------------------------------------------------- Total gains and losses recognised since last financial statements (20.6) - -------------------------------------------------------------------------------------- RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS For the year ended 31 March 2002 2002 2001 (As restated) (POUND)m (pound)m - ----------------------------------------------------------------------------------------------------------- Profit for the financial year 58.3 64.3 Dividends (140.7) - - ----------------------------------------------------------------------------------------------------------- Net (reduction)/addition in shareholders' funds (82.4) 64.3 Opening equity shareholders' funds (as adjusted for implementation of FRS19 Deferred Tax - Note 1) 599.0 534.7 - ----------------------------------------------------------------------------------------------------------- Closing equity shareholders' funds 516.6 599.0 - -----------------------------------------------------------------------------------------------------------
The opening shareholders' funds at 1 April 2001 were originally (pound)677.9m before a prior year adjustment of (pound)78.9m (Note 1). 12
GROUP STATEMENT OF CASH FLOWS For the year ended 31 March 2002 2002 2001 NOTE (POUND)m (POUND)m (pound)m (pound)m - ----------------------------------------------------------------------------------------------------------- NET CASH INFLOW FROM OPERATING ACTIVITIES 23 245.8 122.9 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 6.4 6.8 Interest paid (103.2) (60.7) Dividends received and other investment income 7.9 4.4 ------ ----- Net cash outflow from returns on investments and servicing of finance (88.9) (49.5) UK CORPORATION TAX PAID (18.6) (17.0) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (144.9) (99.3) Consumers' contributions received 26.7 14.8 Sale of tangible fixed assets 12.7 0.2 Sale of fixed asset investments - 163.8 Net repayment/(issue) of loan to affiliate 347.0 (439.6) Loan to WPD South Wales (prior to acquisition) - (153.7) ------ ----- Net cash inflow/(outflow) from capital expenditure and financial investment 241.5 (513.8) ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertaking (3.0) 301.8 Net cash acquired with subsidiary undertaking 0.1 (1.1) Consideration received in respect of disposals made in previous years 15.5 - ------ ----- Net cash inflow from acquisitions and disposals 12.6 300.7 EQUITY DIVIDENDS PAID (140.7) - ------ ------ CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID RESOURCES AND FINANCING 251.7 (156.7) MANAGEMENT OF LIQUID RESOURCES Net decrease/(increase) in deposits 125.1 (93.6) Net (purchase)/sale of government securities (0.2) 2.5 ------ ----- Net cash inflow/(outflow) from management of liquid resources 124.9 (91.1) FINANCING Net (repayment)/receipt of parent company loans (150.0) 150.0 Net (decrease)/increase in short-term loans (94.0) 101.9 Loan repayments (127.2) - Net repayment of other amounts borrowed (0.6) (1.6) ------ ----- Net cash (outflow)/inflow from financing (371.8) 250.3 - ----------------------------------------------------------------------------------------------------------- INCREASE IN CASH IN THE YEAR 25 4.8 2.5 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group statement of cash flows. 13 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year with the exception of the adoption of the policy for deferred tax as detailed in the next paragraph. RESTATEMENT OF PRIOR YEARS Following the introduction of Financial Reporting Statement 19 ("FRS19"), the Group now makes full provision for deferred tax on most timing differences which arise between its taxable profits and results as stated in the financial statements. The full amount of the provision is discounted using a discount rate similar to the current post tax rates of return on UK treasury gilts. The change in accounting policy as a result of the introduction of FRS19 has necessitated a restatement of prior years. The impact is to increase the deferred tax provision, increase goodwill amortisation, and reduce profit and loss account reserves by (pound)78.9m at 31 March 2001. The deferred tax charge in the profit and loss account for the year ended 31 March 2001 was increased by (pound)4.1m and goodwill amortisation was increased by (pound)0.1m. Accordingly, the results for prior periods have been restated by these amounts. A revision of (pound)51.9m has also been made to the provisional fair values on acquisition (Note 15). BASIS OF PREPARATION The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. BASIS OF CONSOLIDATION These financial statements are the result of the consolidation of the financial statements of the Company and its subsidiary undertakings drawn up for the year ended 31 March 2002. The results of subsidiary undertakings acquired or sold are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method. On 11 September 2001, Western Power Distribution Holdings Limited became the parent company of the WPD Holdings UK group through a share for share exchange with WPD Holdings UK's owners, Mirant and PPL. The group reconstruction has been accounted for using the merger principles set out in FRS6. Accordingly, the financial information for the current period has been presented as if WPD Holdings UK had been owned by Western Power Distribution Holdings Limited throughout the current and comparative accounting period. GOODWILL Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life. Provision is made for any impairment. Negative goodwill is similarly included in the balance sheet and is credited to the profit and loss account in the periods in which the acquired non-monetary assets are recovered through depreciation or sale. Negative goodwill in excess of the fair values of the non-monetary assets acquired is credited to the profit and loss account in periods expected to benefit. Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier periods was taken to reserves in accordance with the accounting standard then in force. As permitted by the current accounting standard the goodwill previously taken to reserves has not been reinstated in the balance sheet. On disposal or closure of a previously acquired business, the attributable amount of goodwill previously taken to reserves is included in determining the profit or loss on disposal. 14 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES (CONTINUED) TURNOVER Turnover is stated net of value added tax. Sales relating to electricity distributed during the year includes an estimate of the sales value of units distributed to customers but not billed by the period end. Other sales relate to the invoice value of other goods and services provided. IT CONSULTANCY AND DEVELOPMENT COSTS Significant IT consultancy and development costs are capitalised when tangible benefits accrue, and amortised over their estimated useful economic life from the date of first use. Other IT consultancy and development costs are charged to the profit and loss account in the period in which they are incurred. LEASES Rentals for operating leases are charged to the profit and loss account in equal annual amounts over the period of the lease. RESEARCH Expenditure on research is written off to the profit and loss account in the period in which it is incurred. PENSION COSTS The Group operates three pension schemes. Contributions to defined contribution pension schemes are charged to the profit and loss account or capital expenditure as they become payable in accordance with the rules of the schemes. Contributions to defined benefit pension schemes are charged to the profit and loss account or capital expenditure so as to spread the cost of pensions over employees' working lives with the Group. Differences between amounts charged to the profit and loss account or capital expenditure and amounts funded are shown as either accruals or prepayments in the balance sheet. Any capital cost of ex gratia and supplementary pensions is charged to the profit and loss account in the period in which they are granted. TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost less any provision for impairment less amounts provided to write off the cost less anticipated residual value of the assets over their useful economic lives, which are as follows:
Years Generation assets 15-40 Distribution assets Up to 40 Buildings - freehold Up to 60 - leasehold Lower of lease period or 60 years Fixtures and equipment Up to 20 Vehicles and mobile plant Up to 10
Depreciation on distribution network assets is charged at 3% for 20 years followed by 2% for the remaining 20 years. Other assets are depreciated on a straight line basis. Customers' contributions towards distribution network assets, which include capital grants, are credited to the profit and loss account over the life of the distribution network assets to which they relate. The unamortised amount of such contributions is shown as a deduction from fixed assets. This is a departure from the Companies Act 1985 requirements which require fixed assets to be included at their purchase price or production cost and hence the unamortised amount of contributions would be presented as deferred income. However, contributions relate directly to the cost of fixed assets used in the distribution network and it is the opinion of the directors that the treatment adopted is necessary to give a true and fair view. The value of contributions is shown in Note 12. The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. 15 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES (CONTINUED) FINANCE COSTS Finance costs of debt are recognised in the profit and loss account over the term of such instruments at a constant rate on the carrying amount. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are used by the Group for the management of foreign currency and interest rate exposures. The Group only uses derivatives for hedging purposes. Gains and losses on foreign currency hedges are recognised as an adjustment to the carrying amount when the hedged transaction occurs. Interest rate differentials are reflected as an adjustment to interest expense as they accrue. FOREIGN CURRENCY Monetary liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date and any gain or loss arising from a change in exchange rates is included as an exchange gain or loss in the profit and loss account. Where swaps convert a liability from another currency to sterling, as in the case of long term debt, the liability is accounted for in sterling at the exchange rate fixed by the swap. TAXATION The charge for ordinary taxation takes into account the full provision for deferred tax, using the approach set out in FRS19 "Deferred Tax", in respect of timing differences on a discounted basis. Previously the provision for deferred tax was accounted for on the partial provisioning basis required by Statement of Standard Accounting Practice ("SSAP") 15. The comparative figures in the primary statements and notes have been restated to reflect the new policy. Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding agreement to sell the revalued asset and the gain or loss expected to arise on sale has been recognised in the financial statements. Neither is deferred tax recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets are sold. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a discounted basis to reflect the time value of money over the period between the balance sheet date and the dates on which it is estimated that the underlying timing differences will reverse. The discount rates used reflect the post-tax yields to maturity that can be obtained on Government bonds with similar maturity dates and currencies to those of the deferred tax assets or liabilities. 16 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES (CONTINUED) PROPERTY Properties surplus to operational requirements are stated at the lower of cost and net realisable value. Profits are recognised when properties are sold. Sales are accounted for when there is an unconditional exchange of contracts. INVESTMENTS Investment income is included in the financial statements of the period in respect of which it is receivable. Fixed asset investments are stated at cost less any provisions for impairment. Current asset investments are valued at the lower of cost and net realisable value. STOCKS Stocks, which consist of raw materials and consumables, are valued at the lower of cost and net realisable value which takes account of any provision necessary to recognise damage and obsolescence. 2. SEGMENTAL ANALYSIS Distribution involves the delivery of electricity across the Group's distribution network.
PROFIT BEFORE TURNOVER FINANCE CHARGES NET ASSETS & TAX 2002 2001 2002 2001 2002 2001 (As restated) (As restated) (POUND)m (pound)m (POUND)m (pound)m (POUND)m (pound)m - --------------------------------------------------------------------------------------------------------- Continuing operations: Electricity distribution South West 213.2 211.6 97.7 74.5 1,044.0 1,052.3 Electricity distribution South Wales 161.4 5.7 68.7 2.2 623.8 617.1 Other activities 37.7 32.2 13.2 19.5 173.0 522.9 Gain on disposal of contract for differences (Note 4(a)) 29.4 - Less intra Group trading (13.1) (5.9) (0.6) (0.4) ----- ----- Operating profit 208.4 95.8 Income from associated undertakings 0.1 - Income/(loss) from fixed asset investments: Teesside Power Limited 6.1 4.0 Other 1.5 (1.1) Profit on sale of properties in continuing operations 8.2 - Gain on liquidation of subsidiaries (Note 4(b)) - 23.8 Deferred contingent consideration on disposal of subsidiaries (Note 4(c)) - 15.5 Deferred contingent gain on disposal of electricity supply activity - 2.1 Amounts written off investments (Note 4(d)) (53.1) - Net debt (Note 25) (1,324.2) (1,593.3) - --------------------------------------------------------------------------------------------------------- 399.2 243.6 171.2 140.1 516.6 599.0 - ---------------------------------------------------------------------------------------------------------
17 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 2. SEGMENTAL ANALYSIS (CONTINUED) Turnover is all in respect of sales to customers in the United Kingdom. Turnover and costs are allocated directly to the activity to which they relate wherever possible; however, because of the integrated nature of the Group's activities, it is necessary to apportion or recharge certain costs between activities. 3. OPERATING EXPENSES The directors consider that the nature of the business is such that the analysis of expenses shown in the profit and loss account is more informative than that set out in the formats specified by the Companies Act 1985.
2002 2001 (As restated) (POUND)m (pound)m - ------------------------------------------------------------------------------------------------------- Cost of sales 37.9 22.4 Network expenses 139.1 105.8 Other operating expenses 43.2 19.6 - ------------------------------------------------------------------------------------------------------- 220.2 147.8 - -------------------------------------------------------------------------------------------------------
Other operating expenses include customer service, billing marketing activities, and administration. 4. EXCEPTIONAL ITEMS (a) In September 2000, WPD Limited, an affiliate of the Group, acquired the share capital of Hyder plc. Subsequent to the acquisition, Hyder's electricity distribution business, WPD South Wales plc, was transferred to the Company's immediate subsidiary, WPD Holdings UK, and substantially all of Hyder's other subsidiaries and fixed asset investments were sold. As part of this disposal programme, Dwr Cymru Cyfyngedig ("DCC"), a water supply and sewerage services company, was sold on 11 May 2001 to Glas Cymru (Securities) Cyfyngedig ("Glas"), a company limited by guarantee operating on a not-for-profit basis. Glas was established for the purpose of acquiring and owning DCC and has no relationship with the Group. Prior to the sale, service contracts, running for a fixed term of four years to 31 March 2005 and covering DCC's operations and maintenance, customer services and IT, were competitively tendered, and DCC was the subject of a financial restructuring. To allow the restructuring to proceed before the outsourcing was complete, DCC's operating costs were fixed by means of a contract for differences ("CfD") between WPD Finance Limited, an indirect subsidiary of the Company, and DCC. Under the terms of the CfD, WPD Finance Limited receives annual difference payments from DCC to the extent that DCC's operation and maintenance costs, customer services costs, and IT costs for providing water and sewerage services are below a specified fixed amount. DCC receives annual difference payments from WPD Finance Limited if costs are above the fixed amount. On 1 October 2001, the CfD was sold for consideration of (pound)29.7m realising a gain of (pound)29.4m. 18 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 4. EXCEPTIONAL ITEMS (CONTINUED) (b) A gain of (pound)23.8m was recorded in 2001 as a result of the liquidation of two subsidiaries. These subsidiaries held US dollar investments in indirect subsidiaries of Mirant and PPL, the two US owners of the Company. The gain recorded in the UK was offset by losses recorded in the US by the two owners. (c) In October 1996, WPD South West sold three subsidiaries to a third party for a nominal price. Contingent consideration of (pound)15.5m was due subject to the resolution of certain issues. These were resolved in February 2001 and the consideration (plus interest) was recognised at that point. Payment was received from the third party in April 2001. (d) On 2 December 2001, Enron filed for bankruptcy in the US. The Group owns a 15.4% interest in Teesside Power Limited ("Teesside"), owner of a 1,925MW natural gas-fired, combined-cycle plant. Enron participates in Teesside through its European affiliates as an owner, an operator and a power purchaser of the project. Failure by Enron to perform on its obligations related to Teesside has created significant risk as to the ongoing viability of the project at current investment levels. In the December 2001 quarter, the Group provided against the full carrying value ((pound)53.1m) of its equity investment in Teesside. This is partly offset by the write back of a consortium tax liability ((pound)12.3m) relating to Teesside which is now anticipated will not be payable. 5. OPERATING PROFIT
2002 2001 (POUND)m (pound)m - ------------------------------------------------------------------------------------------------- Operating profit is stated after charging: Depreciation 77.2 58.8 Amortisation of goodwill 7.2 0.3 Operating lease rentals: Plant, machinery and equipment 2.8 3.9 Other 0.7 0.5 Research and development 0.4 0.3 Auditors' remuneration: Audit fees and expenses 0.2 0.1 Other fees and expenses - -
19 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002
6. FINANCE CHARGES (NET) 2002 2001 (POUND)m (pound)m - --------------------------------------------------------------------------------------------------------- Interest payable and similar charges: On bank loans and overdrafts 22.7 26.1 Derivative restructuring costs - 1.4 On loans from affiliated companies 1.1 8.8 Other 84.7 35.6 - --------------------------------------------------------------------------------------------------------- 108.5 71.9 Interest receivable: On loans to affiliated companies (9.1) (17.5) On deferred contingent consideration (Note 4(c)) - (3.5) Other (6.2) (1.5) - --------------------------------------------------------------------------------------------------------- 93.2 49.4 - ---------------------------------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
(a) Analysis of charge in the year 2002 2001 (As restated) (POUND)m (pound)m - --------------------------------------------------------------------------------------------------------- Current tax: UK corporation tax on profits for the year 23.5 22.1 Adjustment to current tax in respect of previous years 0.1 (1.5) Release of consortium tax in respect of previous years (12.3) - - --------------------------------------------------------------------------------------------------------- Total current tax (Note 7(b)) 11.3 20.6 Deferred tax: Origination and reversal of timing differences 12.7 8.3 Increase in discount (4.3) (2.5) - --------------------------------------------------------------------------------------------------------- Total deferred tax (Note 20) 8.4 5.8 - --------------------------------------------------------------------------------------------------------- Tax on profit on ordinary activities 19.7 26.4 - ---------------------------------------------------------------------------------------------------------
20 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 7. TAX ON PROFIT ON ORDINARY ACTIVITIES (CONTINUED)
(b) Factors affecting tax charge for the year The tax assessed for the year is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below: 2002 2001 (POUND)m (pound)m - --------------------------------------------------------------------------------------------------------- Profit on ordinary activities before tax 78.0 90.7 - --------------------------------------------------------------------------------------------------------- Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% 23.4 27.2 Effects of: Expenses not deductible and income not taxable for tax purposes (0.5) (5.9) Capital allowances for the year in excess of depreciation (11.4) (10.4) Other timing differences (1.3) 2.2 Adjustments to tax charge in respect of previous years 0.1 (1.5) Write off of investment 7.8 - Consortium creditor written back (12.3) - Fair value adjustments 14.3 8.4 Utilisation of tax losses (8.8) 0.6 - --------------------------------------------------------------------------------------------------------- Current tax charge for the year (Note 7(a)) 11.3 20.6 - ---------------------------------------------------------------------------------------------------------
FRS19 "Deferred tax" (Note 1), issued on 7 December 2000, requires full provision to be made for deferred tax assets and liabilities, subject to certain exceptions. Previously deferred tax was provided for in respect of timing differences to the extent that it was probable that a liability would crystallise in the foreseeable future. FRS19 has been applied in preparing the 31 March 2002 financial statements and comparative figures have been restated in the Group profit and loss account, the balance sheet and notes. The effect of the change in accounting policy on profit retained for the year ended 31 March 2001 has been to increase the charge for deferred tax and the goodwill amortisation relating to the Hyder Industrial Group acquisition. (c) Factors that may affect future tax charges Based on current capital investment plans, the Group expects to continue to be able to claim capital allowances in excess of depreciation in future years.
8. DIVIDENDS 2002 2001 (POUND)m (pound)m - --------------------------------------------------------------------------------------------------------- Equity dividends on ordinary shares 140.7 - - ---------------------------------------------------------------------------------------------------------
21 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002
9. EMPLOYEE COSTS AND NUMBERS (INCLUDING EXECUTIVE DIRECTORS) (a) Employee costs 2002 2001 (POUND)M (pound)m - --------------------------------------------------------------------------------------------------------- Wages and salaries 72.1 45.0 Social security costs 6.3 3.8 Pension costs (0.3) 1.8 - --------------------------------------------------------------------------------------------------------- Total employee costs 78.1 50.6 Less allocated to capital expenditure (36.1) (22.5) - --------------------------------------------------------------------------------------------------------- Charged to the profit and loss account 42.0 28.1 - --------------------------------------------------------------------------------------------------------- (b) The average monthly number of employees during the year was: 2002 2001 NUMBER Number - --------------------------------------------------------------------------------------------------------- Electricity distribution 2,529 1,645 Other activities 162 112 - --------------------------------------------------------------------------------------------------------- 2,691 1,757
10. DIRECTORS' EMOLUMENTS 2002 2001 (POUND)000 (pound)000 - --------------------------------------------------------------------------------------------------------- The combined emoluments of the directors comprised: Base salary (note ii) 418 386 Performance dependent bonus (note iii) 801 1,656 --------------------------------------------------------------------------------------------------------- 1,219 2,042 - --------------------------------------------------------------------------------------------------------- The emoluments of the highest paid director comprised: Base salary (note ii) 158 143 Performance dependent bonus (note iii) 351 774 - --------------------------------------------------------------------------------------------------------- 509 917 - --------------------------------------------------------------------------------------------------------- (i) Emoluments include those for services to the Hyder Limited group. (ii) Base salary for directors also includes benefits in kind. (iii) The bonus amounts include values relating to the acquisition of Hyder in September 2000, together with the subsequent restructuring of the Hyder group including the securitisation and sale of Welsh Water. The amount of the annual bonus is based on the Group's financial performance, improvements in the reliability of the electricity network (reduction in minutes customers are off supply), customer satisfaction, and other factors. An element of the prior year bonus was estimated in 2001 and has been adjusted above to the actual figures. (iv)The three executive directors are members of the Electricity Supply Pension Scheme (Note 27). At 31 March 2002, the highest paid director had accrued annual pension benefits of (pound)68,583 (2001: (pound)50,469).
22 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002
11. INTANGIBLE FIXED ASSETS GROUP Goodwill (pound)m - --------------------------------------------------------------------------------------------------------- COST At 1 April 2001 - as previously stated 95.0 Prior year adjustment for FRS19 (Note 1) 51.9 - --------------------------------------------------------------------------------------------------------- At 1 April 2001 - as restated 146.9 Additions (Note 14) 0.4 Revision to provisional fair values (Note 15) (3.0) - --------------------------------------------------------------------------------------------------------- At 31 March 2002 144.3 - --------------------------------------------------------------------------------------------------------- AMORTISATION At 1 April 2001 - as previously stated (0.2) Prior year adjustment for FRS19 (Note 1) (0.1) - --------------------------------------------------------------------------------------------------------- At 1 April 2001 - as restated (0.3) Amortisation for the year (7.2) - --------------------------------------------------------------------------------------------------------- At 31 March 2002 (7.5) - --------------------------------------------------------------------------------------------------------- NET BOOK VALUE AT 31 MARCH 2002 136.8 - --------------------------------------------------------------------------------------------------------- Net book value at 31 March 2001 - as restated 146.6 - ---------------------------------------------------------------------------------------------------------
Goodwill arising on the acquisition of Hyder Industrial Group Limited (Note 15) is being amortised evenly over its estimated useful economic life of 20 years. 23 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 12. TANGIBLE FIXED ASSETS
Non-network Vehicles Deduct: GROUP Distribution land & Fixtures & & mobile customers' Total Generation network buildings equipment plant contributions (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m - ------------------------------------------------------------------------------------------------------------------------------ COST At 1 April 2001 0.6 2,111.6 36.6 83.0 20.1 (185.6) 2,066.3 Additions - 124.4 3.0 16.8 2.1 (26.7) 119.6 Revision to provisional fair values - - (0.8) (0.4) - - (1.2) Disposals - (13.4) (6.7) (14.9) (0.8) 0.2 (35.6) - ------------------------------------------------------------------------------------------------------------------------------ At 31 March 2002 0.6 2,222.6 32.1 84.5 21.4 (212.1) 2,149.1 - ------------------------------------------------------------------------------------------------------------------------------ DEPRECIATION At 1 April 2001 0.2 229.4 2.5 38.5 6.9 (4.4) 273.1 Charge for the year - 72.7 0.5 9.8 2.8 (7.1) 78.7 Disposals - (12.3) (0.6) (11.6) (0.5) 0.2 (24.8) - ------------------------------------------------------------------------------------------------------------------------------ At 31 March 2002 0.2 289.8 2.4 36.7 9.2 (11.3) 327.0 - ------------------------------------------------------------------------------------------------------------------------------ NET BOOK VALUE AT 31 MARCH 2002 0.4 1,932.8 29.7 47.8 12.2 (200.8) 1,822.1 - ------------------------------------------------------------------------------------------------------------------------------ At 1 April 2001 0.4 1,882.2 34.1 44.5 13.2 (181.2) 1,793.2 - ------------------------------------------------------------------------------------------------------------------------------
The net book value of land and buildings comprises :
Non-network Network Total land and buildings land and buildings land and buildings 2002 2001 2002 2001 2002 2001 (POUND)m (pound)m (POUND)m (pound)m (POUND)m (pound)m - ----------------------------------------------------------------------------------------------- Freehold 26.0 33.1 95.8 90.1 121.8 123.2 Long leasehold 3.4 0.7 - - 3.4 0.7 Short leasehold 0.3 0.3 0.5 0.3 0.8 0.6 - ----------------------------------------------------------------------------------------------- 29.7 34.1 96.3 90.4 126.0 124.5 - -----------------------------------------------------------------------------------------------
Included within the Group's fixed assets are assets in the course of construction amounting at 31 March 2002 to(pound)16.1m (2001:(pound)67.6m) and land at a cost of(pound)18.3m (2001:(pound)17.4m). COMPANY The Company had no tangible fixed assets at 31 March 2002. 24 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 13. FIXED ASSET INVESTMENTS
GROUP COMPANY Shares in Group Associated Unlisted under - Undertakings investments Total under takings (pound)m (pound)m (pound)m (pound)m - ------------------------------------------------------------------------------------------------------- COST At 1 April 2001 2.0 53.2 55.2 - Additions - - - 353.2 Share of loss retained by associated undertakings (0.2) - (0.2) - - ------------------------------------------------------------------------------------------------------- At 31 March 2002 1.8 53.2 55.0 353.2 - ------------------------------------------------------------------------------------------------------- AMOUNTS WRITTEN OFF At 1 April 2001 - - - - Written off (Note 4(d)) - 53.1 53.1 - - ------------------------------------------------------------------------------------------------------- At 31 March 2002 - 53.1 53.1 - - ------------------------------------------------------------------------------------------------------- NET BOOK VALUE 1.8 0.1 1.9 353.2 - -------------------------------------------------------------------------------------------------------
The principal subsidiaries, associated undertakings and unlisted investments at 31 March 2002 are:
NAME PRINCIPAL ACTIVITY PROPORTION % SUBSIDIARY UNDERTAKINGS WPD 1957 Limited Investment company 100 WPD Holdings UK Investment company 100 WPD 1975 Limited Investment company 100 WPD Holdings Limited Investment company 100 SIUK Finance Investment company 100 SIUK Investments Investment company 100 SIUK plc Investment company 100 Western Power Distribution (South West) plc Electricity distribution 100 Surf Telecoms Limited Telecommunications 100 Western Power Generation Limited Power generation 100 Western Power Investments Limited Investment in power generation 100 WPD Property Investments Limited * Property management 100 WPD Property Developments Limited * Property development 100 Aztec Insurance Limited ^ Insurance 100 WPD Insurance Limited ^ Insurance 100 Brecon Insurance Company Limited ^ Insurance 100 SIUK Capital Trust I + Financing 100 South Western Helicopters Limited * Helicopter operator 100 WPD Investments Limited * Investment company 100 Meter Reading Services Limited * Data collection 100 WPD Finance Limited * Investment company 100 Hyder Industrial Group Limited Investment company 100 25 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 13. FIXED ASSET INVESTMENTS (CONTINUED) NAME PRINCIPAL ACTIVITY PROPORTION % SUBSIDIARY UNDERTAKINGS (CONTINUED) Western Power Distribution (South Wales) plc Electricity distribution 100 Hyder Utilities (Operations) Limited Services 100 South Wales TPL Investments Limited Investment in power generation 100 Temple Back Developments Limited Property development 100 Weston Super Mare Developments Limited Property development 100 ASSOCIATED UNDERTAKINGS Wind Resources Limited Investment in generation projects 45 Carland Cross Limited Power generation 45 Coal Clough Limited Power generation 45 UNLISTED INVESTMENTS Teesside Power Limited Power generation 15 ^ Incorporated in Guernsey. + Incorporated in the United States. All undertakings are registered in England and Wales unless stated.
With the exception of SIUK Capital Trust, all holdings are in ordinary shares. The SIUK Capital Trust holding is in common securities. The financial year end for the subsidiary undertakings marked * is 31 December; their results are included to 31 March based on management accounts. The year end of the ultimate parent company is 31 December; the other subsidiary undertakings listed above have a 31 March year end for regulatory and other reasons. Except for WPD Holdings UK, WPD 1957 Limited and WPD 1975 Limited, all shares are held by subsidiary undertakings. 14. ACQUISITION In December 2001, the Group acquired the entire issued share capital of Brecon Insurance Company Limited for cash consideration of (pound)3.0m. The acquisition method of accounting has been adopted and the goodwill on the purchase has been capitalised and is being amortised over 20 years. Details of the transaction are shown below:
Provisional fair values (pound)m - -------------------------------------------------------------------------------- Other debtors 4.2 Current asset investments 12.0 Cash 0.1 Other creditors (13.7) - -------------------------------------------------------------------------------- NET ASSETS 2.6 Goodwill arising on acquisition 0.4 - -------------------------------------------------------------------------------- Purchase consideration 3.0 - --------------------------------------------------------------------------------
26 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 15. REVISION TO PROVISIONAL FAIR VALUES OF HYDER INDUSTRIAL GROUP LIMITED On 16 March 2001, the Group acquired Hyder Industrial Group Limited ("HIG"). As set out in the March 2001 financial statements of WPD Holdings UK group, the fair values of the assets and liabilities of HIG, established for the purposes of those financial statements, were provisional due to the size and complexity of the acquisition. In the year ended 31 March 2002, these fair values have been finalised as permitted by FRS7 "Fair values in acquisition accounting". The details of the adjustments to the provisional fair values are set out below.
Provisional fair values Prior year Provisional Revisions to as previously adjustment fair values provisional Final stated (Note*) as restated fair values fair values (pound)m (pound)m (pound)m (pound)m (pound)m - ------------------------------------------------------------------------------------------------------------- Tangible fixed assets 548.9 - 548.9 (1.2) 547.7 Fixed asset investments 40.0 40.0 - 40.0 Stocks 4.6 4.6 - 4.6 Debtors 59.4 - 59.4 - 59.4 Cash and current asset investments 30.4 - 30.4 - 30.4 Creditors due within one year (63.3) - (63.3) - (63.3) Creditors due after more than one year (3.4) - (3.4) - (3.4) Long term loans - Eurobonds (198.7) - (198.7) - (198.7) Long term loan - affiliate (153.7) - (153.7) - (153.7) Provisions for liabilities and charges (36.1) (51.9) (88.0) (0.1) (88.1) - ------------------------------------------------------------------------------------------------------------- NET ASSETS 228.1 (51.9) 176.2 (1.3) 174.9 Goodwill arising on acquisition 95.0 51.9 146.9 (3.0) 143.9 - ------------------------------------------------------------------------------------------------------------- 323.1 - 323.1 (4.3) 318.8 - ------------------------------------------------------------------------------------------------------------- SATISFIED BY: Fair value of debt and associated derivatives transferred 624.9 - 624.9 - 624.9 Cash received (306.1) - (306.1) - (306.1) Costs associated with the acquisition 4.3 - 4.3 (4.3) - - ------------------------------------------------------------------------------------------------------------- 323.1 - 323.1 (4.3) 318.8 - ------------------------------------------------------------------------------------------------------------- * PRIOR YEAR ADJUSTMENT
The provisional fair values attributable to the net assets of HIG have been restated for the effects of the implementation of the Group's new accounting policy for deferred tax in accordance with FRS19 (Note 1). 27 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 16. DEBTORS
GROUP COMPANY 2002 2001 2002 (POUND)m (pound)m (POUND)m - ----------------------------------------------------------------------------------------------------------- AMOUNTS FALLING DUE WITHIN ONE YEAR: Trade debtors 69.5 77.3 - Pensions: Prepayment recognised 6.5 8.1 - Other (1.2) (3.6) - Advance corporation tax recoverable 0.3 0.3 - Prepayments and accrued income 55.0 61.3 - Other debtors 37.2 14.6 - - ----------------------------------------------------------------------------------------------------------- AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR: Prepayments and accrued income 0.6 0.6 - Other debtors 1.0 1.0 - - ----------------------------------------------------------------------------------------------------------- 168.9 159.6 - - -----------------------------------------------------------------------------------------------------------
17. CURRENT ASSET INVESTMENTS
GROUP COMPANY 2002 2001 2002 (POUND)m (pound)m (POUND)m - ----------------------------------------------------------------------------------------------------------- Listed - UK Government securities 22.4 10.2 - Short-term deposits - 108.3 - Unlisted - loans to affiliate 92.6 439.6 - Fixed term and call deposits - 16.8 - - ----------------------------------------------------------------------------------------------------------- 115.0 574.9 - - -----------------------------------------------------------------------------------------------------------
The market value of the listed investments is not materially different to the values shown above. 28 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 18. CREDITORS
GROUP COMPANY 2002 2001 2002 (POUND)m (pound)m (POUND)m - ----------------------------------------------------------------------------------------------------------- AMOUNTS FALLING DUE WITHIN ONE YEAR: Bank loans and overdrafts 326.3 420.3 - $168m 6.375% unsecured bonds 2001 - 100.7 - Loan notes * 3.1 3.7 - Loans due to parent undertakings - 150.0 - Loan due to affiliate - 2.2 - Payments received on account - 8.9 - Trade creditors 8.8 12.3 - UK corporation tax 33.8 28.8 - Other taxation and social security 3.3 5.6 - Other creditors 43.6 29.2 - Accruals and deferred income 76.3 90.9 - - ----------------------------------------------------------------------------------------------------------- 495.2 852.6 - - ----------------------------------------------------------------------------------------------------------- AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR: Accruals and deferred income 2.9 2.9 - Repayable between two and five years: $200m 6.750% unsecured bonds 2004 125.2 127.8 - $332m 6.800% unsecured bonds 2006 198.0 - - Consortium tax creditor (Note 4(d)) - 12.3 - Repayable in five years or more: $332m 6.800% unsecured bonds 2006 - 197.7 - $200m 6.875% unsecured bonds 2007 121.0 121.7 - $225m 6.500% unsecured bonds 2008 129.5 129.0 - $100m 7.250% unsecured bonds 2017 59.8 60.1 - $300m 7.375% unsecured bonds 2028 - 173.7 - $255m 7.375% unsecured bonds 2028 147.0 - - Mandatorily redeemable preferred securities ** 49.8 49.7 - 9.25% Eurobonds 2020 196.1 198.6 - - ----------------------------------------------------------------------------------------------------------- 1,029.3 1,073.5 - - ----------------------------------------------------------------------------------------------------------- * The loan notes were issued to certain shareholders of WPD South West at the time of acquisition; the notes are redeemable at the option of the note holders on fixed dates between 30 June 1996 and 31 December 2002. ** In January 1997, SIUK Capital Trust I (the "Trust"), a statutory trust formed under laws of the State of Delaware, US and established for the sole purpose of issuing its own securities and investing the proceeds thereof in the 8.23% subordinated debentures issued by SIUK plc and scheduled to mature on 1 February 2027, sold US$82m of its 8.23% preferred securities. SIUK plc considers that the mechanisms and obligation relating to the preferred securities, taken together, constitute a full and unconditional guarantee by SIUK plc of the Trust's payment obligations with respect to the preferred securities.
29 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS The Group has both short-term and long-term borrowings which are used to finance the Group's operations. Note 18 provides further details. These borrowings are exposed to certain market risks including changes in interest rates and cross currency exchange rates. To reduce the volatility attributable to these exposures the Group has entered into various derivative transactions. At 31 March 2002, these derivatives fixed the value of sterling payments in respect of 81% of the long-term borrowings and fixed the interest payments on (pound)250.0m of the short-term borrowings, the total value of which amounted to (pound)329.4m in 2002 (2001: (pound)574.0m). Subsequent to the year end, on 10 May 2002, the interest rate swaps covering (pound)250.0m of short-term debt were cancelled and certain cross currency swaps were restructured. It is, and has been throughout the period under review, the Group's policy that no speculative trading in financial instruments shall be undertaken. Interest rate and cross currency rate swaps are designated as hedges of underlying debt obligations and, as such, swap payments are reflected as an adjustment to interest payable. These derivatives involve, to a certain degree, credit risk. The Group may be exposed to loss in the event of non-performance by a counterparty. The Group controls credit risk by entering into derivative contracts only with highly credit rated counterparties. The Group has not experienced non-performance by any counterparty. Short term debtors and creditors have been excluded from the disclosures with the exception of short-term commercial paper and other short-term borrowings. INTEREST RATE PROFILE After taking into account interest rate swaps and cross currency swaps entered into by the Group, all financial liabilities can be regarded as sterling liabilities, with an interest rate profile at 31 March 2002 as follows :
Fixed rate borrowings --------------------- Weighted Average Weighted period for Floating Fixed average which rate Rate rate Total interest rate is fixed (pound)m (pound)m (pound)m % Years - ---------------------------------------------------------------------------------------------------------------------------- As at 31 March 2002 79.4 1,276.4 1,355.8 7.9% 9.8 As at 31 March 2001 324.0 1,409.0 1,733.0 7.9% 10.7 - ----------------------------------------------------------------------------------------------------------------------------
At 31 March 2002, the floating rate debt consisted of the loan notes, bank loans and overdrafts disclosed in Note 18 (total value: (pound)329.4m) less (pound)250.0m which represented the notional amount of interest rates swaps hedging such debt. The fixed rate debt consisted of the (pound)250.0m of short-term debt covered by swaps and long-term loans disclosed in Note 18. The long-term loans are fully hedged by interest rate and cross currency swaps. Subsequent to the year end, on 10 May 2002, the interest rate swaps covering (pound)250.0m of short-term debt were cancelled (see below and Note 29). The interest rate on the floating rate financial liability is primarily linked to one month or overnight London Inter Bank Offered Rate ("LIBOR"). CURRENCY EXPOSURES As at 31 March 2002, after taking into account the effect of cross currency swaps the Group had no currency exposures. 30 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED) FINANCIAL LIABILITY MATURITY PROFILE The maturity profile of the Group's financial liabilities at 31 March 2002 was as follows:
2002 2001 (POUND)m (POUND)m - ---------------------------------------------------------------------------------------------------------- In one year or less 329.4 674.7 In more than two years but not more than five years 323.2 127.8 In more than five years 703.2 930.5 - ---------------------------------------------------------------------------------------------------------- 1,355.8 1,733.0 - ----------------------------------------------------------------------------------------------------------
BORROWING FACILITIES The Group had undrawn committed borrowing facilities at 31 March 2002 in respect of which all relevant conditions precedent had been met, and which expire as follows:
2002 2001 (POUND)m (POUND)m - ---------------------------------------------------------------------------------------------------------- In one year or less 139.8 60.6 - ----------------------------------------------------------------------------------------------------------
FAIR VALUES Set out below is a comparison by category of book values and fair values of the Group's primary financial assets and liabilities held or issued to finance the Group's operations at 31 March 2002:
2002 2001 Book Fair Book Fair Value Value Value Value (pound)m (pound)m (pound)m (pound)m - ----------------------------------------------------------------------------------------------------------- Current asset investments 115.0 114.9 574.9 572.2 Cash at bank 9.2 9.2 4.4 4.4 Bank loans and overdrafts (326.3) (326.3) (420.3) (420.3) Short term loan notes (3.1) (3.1) (3.7) (3.7) Loan from parent undertakings - - (150.0) (150.0) Current portion of long term borrowings - - (100.7) (117.7) Long term debt (1,026.4) (1,158.9) (1,058.3) (1,142.5) Interest rate swaps - (39.2) - (53.4) Cross currency swaps - 109.0 - 144.0 - -----------------------------------------------------------------------------------------------------------
The fair value of the long term debt is based on the market price as at the year end. The fair values of all other categories have been calculated by discounting cashflows at prevailing interest rates. Subsequent to the year end, on 10 May 2002 the interest rate swaps and certain cross currency swaps were restructured. Interest rate swaps covering (pound)250.0m of floating rate debt were cancelled. The restructuring of these interest rate swaps and certain of the currency rate swaps will result in lower interest costs being payable and a higher sterling value being payable on maturity. 31 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED) GAINS AND LOSSES ON HEDGES The Group enters into interest rate swaps and cross currency swaps to reduce the volatility of payments related to borrowings. Swap payments are reflected as an adjustment to interest payable; changes in the fair value of instruments used as hedges are not recognised in the financial statements. An analysis of these unrecognised losses is as follows:
GAINS LOSSES TOTAL (POUND)M (POUND)M (POUND)M - --------------------------------------------------------------------------------------------------------------- Unrecognised gains and losses on hedges at 1 April 2001 144.0 (53.4) 90.6 Gains and losses arising in previous years that were recognised in the year ended 31 March 2002 (12.6) 15.4 2.8 - --------------------------------------------------------------------------------------------------------------- Gains and losses arising before 1 April 2001 that were not recognised in the year ended 31 March 2002 131.4 (38.0) 93.4 Gains and losses arising in the year ended 31 March 2002 that were not recognised in the year (19.0) (4.6) (23.6) - --------------------------------------------------------------------------------------------------------------- Unrecognised gains and losses on hedges at 31 March 2002 112.4 (42.6) 69.8 - --------------------------------------------------------------------------------------------------------------- Of which: Gains and losses expected to be recognised in the year ended 31 March 2003 6.0 (11.5) (5.5) Gains and losses expected to be recognised in the year ended 31 March 2004 or later 106.4 (31.1) 75.3 - ---------------------------------------------------------------------------------------------------------------
20. PROVISIONS FOR LIABILITIES AND CHARGES
Reorganisation Group Deferred & Taxation Pensions severance Other Total (pound)m (pound)m (pound)m (pound)m (pound)m - --------------------------------------------------------------------------------------------------------------- At 1 April 2001 - as previously stated 61.5 1.8 1.1 23.0 87.4 Prior year adjustment for FRS19 (Note 1) 130.7 - - - 130.7 - --------------------------------------------------------------------------------------------------------------- At 1 April 2001 - as restated 192.2 1.8 1.1 23.0 218.1 Arising/(released) during the year 8.4 (1.1) - (4.2) 3.1 Acquisition/revision to provisional fair values - - 0.3 0.3 Utilised during the year - (0.2) (1.1) (2.2) (3.5) - --------------------------------------------------------------------------------------------------------------- At 31 March 2002 200.6 0.5 - 16.9 218.0 - ---------------------------------------------------------------------------------------------------------------
Other provisions relate principally to a tree cutting programme and insurance claims. The Company had no provisions 32 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 20. PROVISIONS FOR LIABILITIES AND CHARGES (CONTINUED) PROVISIONS FOR DEFERRED TAX
GROUP 2002 2001 (POUND)M (pound)m - ----------------------------------------------------------------------------------------------------------- Accelerated capital allowances 275.3 263.9 Chargeable gains on sale of electricity supply activities 58.4 58.4 Other timing differences (4.5) (5.8) - ----------------------------------------------------------------------------------------------------------- Undiscounted provision for deferred tax 329.2 316.5 Discount (128.6) (124.3) - ----------------------------------------------------------------------------------------------------------- Discounted provision for deferred tax 200.6 192.2 - -----------------------------------------------------------------------------------------------------------
21. CALLED-UP SHARE CAPITAL
COMPANY 2002 (POUND)M - ----------------------------------------------------------------------------------------------------------- Authorised, allotted, called-up, and fully paid 12,184,716 "A" ordinary shares of(pound)1 each 12.2 11,936,049 "B" ordinary shares of(pound)1 each 11.9 746,003 "C" ordinary shares of(pound)1 each 0.8 5,100,000 "D" ordinary shares of(pound)0.00001 each - 4,900,000 "E" ordinary shares of(pound)0.00001 each - - ----------------------------------------------------------------------------------------------------------- 24.9 - ----------------------------------------------------------------------------------------------------------- (a) On incorporation on 9 August 2001, the Company issued one share. On 11 September 2001, this one share was transferred to one of the owners of the WPD Group. Subsequently on that day, further shares of the Company were issued to the two shareholders such that they then held shares in the same proportion and in the same classes as their shares in WPD Holdings UK. On that day, the two owners then surrendered their shares in WPD Holdings UK to Western Power Distribution Holdings Limited, which then became the holding Company for the WPD Group. (b) The "A" Ordinary shares and the "B" Ordinary shares of the Company have the same voting rights, while the "C" Ordinary shares have no voting rights. (c) On 14 December 1999, the "D" and "E" shares were issued to wholly owned subsidiaries of the two parents, PPL and Mirant respectively, for a total of (pound)100. The "D" and "E" shares entitle their holders solely to all distributions arising in WPD Holdings UK from respectively its holdings of "D" and "E" shares in WPD Holdings Limited.
33 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 22. RESERVES
GROUP GROUP& COMPANY COMPANY Profit & Other Share premium Profit & loss account reserves account loss account (pound)m (pound)m (pound)m (pound)m - ----------------------------------------------------------------------------------------------------------- At 1 April 2001 - as originally stated 182.4 142.3 328.3 - Prior year adjustment for FRS19 (Note 1) (78.9) - - - - ----------------------------------------------------------------------------------------------------------- At 1 April 2001 - as restated 103.5 142.3 328.3 - Retained loss for the year (82.4) - - - - ----------------------------------------------------------------------------------------------------------- Balance at 31 March 2002 21.1 142.3 328.3 - - -----------------------------------------------------------------------------------------------------------
As allowed by section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account. The profit for 2002 attributable to shareholders, dealt with in the financial statements of the parent Company, was (pound)90.0m; a dividend of (pound)90.0m was declared by the Company. The Group's share of accumulated reserves of associated undertakings at 31 March 2002 was (pound)nil (31 March 2001: (pound)0.2m). 23. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOWS FROM OPERATING ACTIVITIES
2002 2001 (As restated) (POUND)M (pound)m - ----------------------------------------------------------------------------------------------------------- Operating profit 208.4 95.8 Depreciation and amortisation 84.4 59.1 Loss on sale of tangible fixed assets 6.4 3.7 Decrease/(increase) in stocks 4.1 (2.6) Increase in debtors (6.1) (2.7) Decrease in creditors (42.8) (24.3) Decrease in provisions (8.6) (6.1) - ----------------------------------------------------------------------------------------------------------- Net cash inflow from operating activities 245.8 122.9 - -----------------------------------------------------------------------------------------------------------
34 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 24. ANALYSIS OF CHANGES IN NET DEBT
At Other AT 1 April Cash non-cash 31 MARCH 2001 Flow movements 2002 (pound)m pound)m (pound)m (pound)m - ----------------------------------------------------------------------------------------------------------- Cash at bank 4.4 4.8 - 9.2 Short-term investments 135.3 (112.9) - 22.4 Debt due within one year : Bank loans and overdrafts (420.3) 94.0 - (326.3) $168m 6.375% unsecured bonds 2001 (100.7) 100.9 (0.2) - Loan notes (3.7) 0.6 - (3.1) Loan from parent undertakings (150.0) 150.0 - - Debt due after one year : $200m 6.750% unsecured bonds 2004 (127.8) - 2.6 (125.2) $332m 6.800% unsecured bonds 2006 (197.7) - (0.3) (198.0) $200m 6.875% unsecured bonds 2007 (121.7) - 0.7 (121.0) $225m 6.500% unsecured bonds 2008 (129.0) - (0.5) (129.5) $100m 7.250% unsecured bonds 2017 (60.1) - 0.3 (59.8) $300m 7.375% unsecured bonds 2028 (173.7) 26.3 0.4 (147.0) Mandatorily redeemable preferred securities (49.7) - (0.1) (49.8) (pound)150m 9.25% Eurobonds 2020 (198.6) - 2.5 (196.1) - ----------------------------------------------------------------------------------------------------------- (1,593.3) 263.7 5.4 (1,324.2) - -----------------------------------------------------------------------------------------------------------
25. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2002 2001 (POUND)m (pound)m - ----------------------------------------------------------------------------------------------------------- Increase in cash in the year 4.8 2.5 Cash outflow/(inflow) from decrease/(increase) in debt 371.8 (250.3) Cash (inflow)/outflow from (increase)/decrease in liquid resources (124.9) 91.1 - ----------------------------------------------------------------------------------------------------------- Change in net debt resulting from cash flows 251.7 (156.7) Borrowings net of short term deposits acquired with subsidiaries 12.0 (167.2) Debt transferred on acquisition - (612.3) Amortisation of finance costs 5.4 (0.3) - ----------------------------------------------------------------------------------------------------------- Movement in net debt in year 269.1 (936.5) Net debt at 1 April (1,593.3) (656.8) - ----------------------------------------------------------------------------------------------------------- Net debt at 31 March (1,324.2) (1,593.3) - -----------------------------------------------------------------------------------------------------------
35 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 26. CAPITAL AND OTHER COMMITMENTS a) There are annual commitments under operating leases for the Group which expire:
EQUIPMENT AND VEHICLES LAND AND BUILDINGS 2002 2001 2002 2001 (POUND)m (pound)m (POUND)m (pound)m - ----------------------------------------------------------------------------------------------------------- Within one year - 0.2 - - In more than five years 0.4 0.4 0.5 0.6 - ----------------------------------------------------------------------------------------------------------- 0.4 0.6 0.5 0.6 - -----------------------------------------------------------------------------------------------------------
b) In common with normal commercial practice, the Group has commitments to pay rentals for leasehold land and buildings through to the end of the lease term. This obligation potentially continues to the end of the lease, whether or not the lease is assigned to a third party. If a lease has been assigned to a third party, then the original lessee is ultimately responsible for any default in the rent payment. However, no material liability is anticipated. The Company has no lease commitments. c) Fixed asset expenditure contracted but not provided for at 31 March 2002 in the financial statements was (pound)0.1m (2001: (pound)8.3m) for the Group. The Company had no fixed asset commitments at the end of the year. d) The Group uses sterling interest rate swaps to hedge exposure to fluctuations in interest rates. At 31 March 2002, the Group had in place swaps with a notional amount of (pound)499.4m, with expiry dates between 2003 and 2012. e) The Group has put in place foreign currency swap contracts to hedge exposure to US dollar liabilities in respect of outstanding debt. At 31 March 2002, these swaps were for notional amounts of (pound)839.4m (US$1,394.0m), with expiry dates between 2004 and 2028. Subsequent to the year end, certain swaps were restructured (Note 29). 27. PENSION ARRANGEMENTS The Group has continued to account for pensions in accordance with Statement of Standard Accounting Practice 24 ("SSAP 24"). FRS17 "Retirement Benefits" was issued in November 2000 but will not be mandatory for the Group until the year ending 31 March 2004. Prior to this, phased disclosures are required from 31 March 2002. These disclosures are set out below. The Group operates three defined benefit schemes, the WPD South West and WPD South Wales segments of the Electricity Supply Pension Scheme ("ESPS"), and the Infralec 1992 Scheme. The ESPS provides pension and other related defined benefits based on final pensionable pay to employees throughout the Electricity Supply Industry. On 1 April 2002, the separate funds for both WPD South West and WPD South Wales were merged. The Infralec 1992 Scheme provides benefits on both a money purchase and final salary basis and is operated in WPD South Wales. The assets of all three schemes are held separately from those of the Group in trustee administered funds. 36 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 27. PENSION ARRANGEMENTS (CONTINUED) A full actuarial valuation of the ESPS and the Infralec 1992 Scheme was carried out at 31 March 2001 and 31 March 2000, respectively, and updated to 31 March 2002 by Bacon & Woodrow, consulting actuaries. The major assumptions used by the actuary were:
WPD South West ESPS WPD South Wales ESPS Infralec 1992 Scheme At 31 March At 31 March At 31 March 2002 2002 2002 Rate of increase in salaries 4.3% 4.3% 4.3% Discount rate 6.0% 6.0% 6.0% Inflation assumption 2.8% 2.8% 2.8%
The assets in the schemes and the expected rates of return were:
WPD South West ESPS WPD South Wales ESPS Infralec 1992 Scheme ------------------- -------------------- -------------------- Long-term Long-term Long-term rate of return Value at rate of return Value at rate of return Value at expected 31 March expected 31 March expected 31 March at 31 March 2002 at 31 March 2002 at 31 March 2002 2002 (pound)m 2002 (pound)m 2002 (pound)m - -------------------------------------------------------------------------------------------------------------------- Equities 8.2% 561.6 8.2% 319.7 8.2% 1.7 Corporate Bonds 6.0% 9.6 6.0% 0.3 5.6% 0.2 Gilts 5.2% 95.2 5.2% 131.3 - - Property 7.2% 7.3 7.2% 18.3 7.2% 0.1 Other 3.5% 9.0 3.5% 10.3 3.5% 0.1 - -------------------------------------------------------------------------------------------------------------------- Total market value of assets 682.7 479.9 2.1 Present value of scheme liabilities (674.0) (472.4) (2.1) - -------------------------------------------------------------------------------------------------------------------- Surplus in the scheme 8.7 7.5 - Related deferred tax liability (2.6) (2.3) - - -------------------------------------------------------------------------------------------------------------------- Net pension asset 6.1 5.2 - - --------------------------------------------------------------------------------------------------------------------
The ESPS surplus is being utilised for benefit improvements, to fund a reduction of 1% in employees' contributions for the three years from 1 April 2002, to cover anticipated short term early retirement costs, and to continue the suspension of contributions to the ESPS from the Group until 31 March 2005. The reduced surplus is being recognised in the financial statements over the average service lives of employees, as required under SSAP 24. Contributions paid by the Group to the ESPS during the year amounted to (pound)0.4m (2001: (pound)0.1m). The Group also operates a defined contribution scheme for which the pension cost charge for the year amounted to (pound)nil (2001: (pound)0.2m). The assets of the scheme are held separately from those of the group in an independent fund administered by the scheme trustee. On 1 April 2001, substantially all of the active members in this scheme transferred to the ESPS scheme based on defined benefits. 37 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 28. RELATED PARTY TRANSACTIONS During 2002, the Group purchased services from Mirant and certain of its other subsidiaries totalling (pound)0.7M (2001: (pound)0.9m). During 2002, the Group provided services to the WPD Limited group totalling (pound)1.2m (2001:(pound)1.0m). 29. SUBSEQUENT EVENT Subsequent to the year end, on 10 May 2002 the Group restructured its interest rate swaps and certain of its cross currency swaps. This resulted in a gain on cancelling current cross currency swaps partly offset by a loss on cancelling the interest rate swaps. This net gain was used towards putting in place new cross currency swaps at lower rates of interest with a higher redemption value on maturity. 30. ULTIMATE PARENT UNDERTAKING The ultimate controlling parties are Mirant Corporation and PPL Corporation, both registered in the United States, who have equal control of Western Power Distribution Holdings Limited. 38 REGISTERED OFFICE: WESTERN POWER DISTRIBUTION HOLDINGS LIMITED Avonbank Feeder Road Bristol BS2 0TB Telephone : 0117 933 2000 Fax : 0117 933 2001 eMail: info@westernpower.co.uk Registered number 4267536 EX-99 4 ex99_2.txt EX. 99.2 - WPD INV. HOLDINGS FIN. INFO. Exhibit 99.2 NOTE: This report is an unchanged copy of a previously issued Arthur Andersen, LLP Accountants' report. Obtaining a consent from Arthur Andersen, LLP is not possible, and this report has not been reissued by Arthur Andersen, LLP. We are filing this copy of the previously issued report as permitted by Regulation S-X 210.2-.02(e). WPD INVESTMENT HOLDINGS LIMITED AND SUBSIDIARY UNDERTAKINGS ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2002 CONTENTS PAGE DIRECTORS' REPORT 1 Statement of directors' responsibilities 3 Independent auditors' report 4 Financial Statements: Group profit and loss account 5 Balance sheets 6 Group statements of cash flows 7 Notes to the financial statements 8 DIRECTORS' REPORT For the year ended 31 March 2002 The directors present their annual report on the affairs of WPD Investment Holdings Limited ("the Company") and its subsidiary undertakings ("the Group"), together with the group financial statements and independent auditors' report for the year ended 31 March 2002. The Company was incorporated on 6 September 2000 as a private limited company. OWNERSHIP The Company is owned 49% indirectly by Mirant Corporation ("Mirant"), a global competitive energy company based in Atlanta, Georgia, United States of America ("US") and 51% indirectly by PPL Corporation ("PPL"), an electricity utility of Allentown, Pennsylvania, US. Both parties share operational and management control equally. PRINCIPAL ACTIVITY AND BUSINESS REVIEW The Group's principal activity, conducted by WPD Limited, was the acquisition and subsequent reorganisation of Hyder Limited ("Hyder", formerly Hyder plc). WPD Limited also provides electrical power generation for standby purposes. In September 2000, WPD Limited acquired the ordinary share capital of Hyder. Hyder's preference shares have since been redeemed at par. Subsequent to the acquisition, WPD Limited commenced a programme of disposals of Hyder's fixed asset investments and by 31 March 2002 it had completed substantially all of these disposals with the exeption of certain minor subsidiaries. As part of this disposal programme, the electricity distribution business, Western Power Distribution (South Wales) plc (formerly South Wales Electricity plc) together with certain investments and properties, was sold indirectly to WPD Holdings UK in March 2001. WPD Holdings UK is owned jointly by Mirant and PPL, and is an indirect parent of Western Power Distribution (South West) plc, owner of the electricity distribution system in the south west of England. Disposals in the year ended 31 March 2002 included Hyder's water and sewarage services business, Dwr Cymru Cyfyngedig, which was subject of a financial restructuring before being sold on 11 May 2002. RESULTS AND DIVIDENDS The Group loss for the financial year, after taxation, amounted to (pound)29,857,700. The directors do not recommend a dividend. 1 DIRECTORS' REPORT For the year ended 31 March 2002 DIRECTORS AND THEIR INTERESTS The directors who served during the year were as follows: Appointed Resigned --------- -------- P Champagne 23 April 2001 20 December 2001 P A Farr 18 January 2002 - M E Fletcher 23 April 2001 - D M Kleppinger 19 December 2000 - D C S Oosthuizen 19 December 2000 - R F Owen 23 April 2001 - R L Petersen 21 December 2001 - B S Rush 23 April 2001 27 March 2002 T J Seelaus 1 June 2001 17 January 2002 R A Symons 19 December 2000 - Subsequent to the year end, on 27 May 2002, C J Edwards was appointed as a director. During and at the end of the financial year, no director was materially interested in any contract of significance in relation to the Group's business. At 31 March 2002, no director had a beneficial interest in any of the Group companies. AUDITORS Arthur Andersen will not be seeking re-appointment as auditors for the forthcoming year. A resolution to appoint a successor will be proposed at the Annual General Meeting. By Order of the Board, R A Symons Director WPD INVESTMENT HOLDINGS LIMITED Avonbank Feeder Road Bristol BS2 0TB 25 July 2002 2 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that year. In preparing those financial statements, the directors are required to: - - select suitable accounting policies and then apply them consistently; - - make judgements and estimates that are reasonable and prudent; - - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 3 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF WPD INVESTMENT HOLDINGS LIMITED We have audited the financial statements of WPD Investment Holdings Limited for the year ended 31 March 2002 which comprise the profit and loss account, balance sheets, cash flow statement and the related notes numbered 1 to 17. These financial statements have been prepared under the accounting policies set out therein. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors' responsibilities for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the Statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the Company and other members of the Group is not disclosed. We read the Directors' report and consider the implications for our report if we become aware of any apparent misstatements within it. BASIS OF OPINION We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group at 31 March 2002 and of the Group's loss for the year then ended and have been properly prepared in accordance with the Companies Act 1985. ARTHUR ANDERSEN Chartered Accountants and Registered Auditors 1 The Square Temple Quay Bristol BS1 6DG 25 July 2002 4
GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 March 2002 2002 2001 Note (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------- TURNOVER - CONTINUING OPERATIONS 34.3 28.6 NET OPERATING COSTS 2 (159.1) (1,326.1) - ------------------------------------------------------------------------------------------------------------- OPERATING LOSS - CONTINUING OPERATIONS (124.8) (1,297.5) Loss on disposal of investments held for resale - (58,776.8) - ------------------------------------------------------------------------------------------------------------- LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (124.8) (60,074.3) Interest receivable 26.7 393.7 Interest payable and similar charges 4 (29,759.6) (22,438.3) - ------------------------------------------------------------------------------------------------------------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (29,857.7) (82,118.9) Tax on loss on ordinary activities 5 - - - ------------------------------------------------------------------------------------------------------------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION, BEING LOSS FOR THE FINANCIAL YEAR (29,857.7) (82,118.9) Dividends declared - - - ------------------------------------------------------------------------------------------------------------- AMOUNTS TRANSFERRED FROM RESERVES 13 (29,857.7) (82,118.9) - -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group profit and loss account. There are no recognised gains or losses other than the loss for each financial year. 5
BALANCE SHEETS At 31 March 2002 GROUP COMPANY 2002 2001 2002 2001 Note (pound)'000 (pound)'000 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------ FIXED ASSETS Tangible assets 6 31.7 41.7 - - Investments 7 - - 0.1 0.1 CURRENT ASSETS Stocks 13.8 13.8 - - Debtors 8 431.1 110.7 0.9 0.9 Investments held for resale 9 480,000.0 527,000.0 - - Cash at bank and in hand 351.1 1,117.4 - - - ------------------------------------------------------------------------------------------------------------------ 480,796.0 528,241.9 0.9 0.9 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 10 (592,793.5) (610,391.7) - - - ------------------------------------------------------------------------------------------------------------------ NET CURRENT (LIABILITIES)/ASSETS (111,997.5) (82,149.8) 0.9 0.9 - ------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS LESS CURRENT LIABILITIES BEING NET (LIABILITIES)/ASSETS (111,965.8) (82,108.1) 1.0 1.0 - ------------------------------------------------------------------------------------------------------------------ CAPITAL AND RESERVES Called up share capital 12 1.0 1.0 1.0 1.0 Other reserves 13 9.8 9.8 - - Profit and loss account 13 (111,976.6) (82,118.9) - - - ------------------------------------------------------------------------------------------------------------------ EQUITY SHAREHOLDERS' FUNDS 14 (111,965.8) (82,108.1) 1.0 1.0 - ------------------------------------------------------------------------------------------------------------------
The financial statements on pages 5 to 15 were approved by the Board of Directors on 25 July 2002 and were signed on its behalf by: R A Symons Director The accompanying notes are an integral part of these balance sheets. 6
GROUP STATEMENT OF CASH FLOWS For the year ended 31 March 2002 2002 2001 Note (pound)'000 (pound)'000 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- NET CASH OUTFLOW FROM OPERATING ACTIVITIES 15a (727.5) (266.4) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 26.5 340.3 Interest paid (6,604.6) (1,312.9) Dividends received 47,000.0 - ---------- -------- Net cash inflow/(outflow) from returns on investments and servicing of finance 40,421.9 (972.6) NET CASH OUTFLOW FROM ACQUISITIONS Acquisition of Hyder Limited (3,460.7) (577,221.8) - ------------------------------------------------------------------------------------------------------------------------- CASH INFLOW/(OUTFLOW) BEFORE FINANCING 36,233.7 (578,460.8) FINANCING Loan from subsidiary undertaking 450,000.0 - Receipt of loans from affiliated companies - 579,578.2 Repayment of affiliated company loans (487,000.0) - ---------- -------- Net cash (outflow)/inflow from financing (37,000.0) 579,578.2 - ------------------------------------------------------------------------------------------------------------------------- (DECREASE)/INCREASE IN CASH IN THE YEAR 15b (766.3) 1,117.4 - ------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- (Decrease)/increase in cash (766.3) 1,117.4 Cash outflow/(inflow) from decrease/(increase) in loans 37,000.0 (579,578.2) - ------------------------------------------------------------------------------------------------------------------------- MOVEMENT IN NET DEBT 36,233.7 (578,460.8) NET DEBT AT 1 APRIL 2001 15b (578,460.8) - - ------------------------------------------------------------------------------------------------------------------------- NET DEBT AT 31 MARCH 2002 15b (542,227.1) (578,460.8) - -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group statement of cash flows. 7 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year except for the policy on deferred taxation which has been changed to comply with Financial Reporting Standard 19 ("FRS19"). No prior adjustment was required in relation to this change. BASIS OF PREPARATION The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. The financial statements have been prepared on the going concern basis given that WPD Holdings UK, an affiliated company, has confirmed that it will provide the Comapny with such financial support as required for it to remain a going concern for a period of 12 months following the date of these financial statements. BASIS OF CONSOLIDATION The Group financial statements consolidate the financial statements of WPD Investment Holdings Limited and all its subsidiary undertakings drawn to 31 March each year. No profit and loss account is presented for WPD Investment Holdings Limited as permitted by section 230 of the Companies Act 1985. All of the subsidiaries which were acquired as part of the Hyder group have been excluded from consolidation as the Group's interest is held exclusively with a view to subsequent resale. These subsidiaries are recorded as assets held for disposal within current assets. Since the acquisition of Hyder, the Group has disposed of virtually all of its investments in these businesses. On 19 December 2000, WPD Investment Holdings Limited became the parent company of the WPD Limited group through a share for share exchange with WPD Limited's owners, Mirant and PPL. The Group reconstruction was accounted for using the merger principles set out in Financial Reporting Standard 6. TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost of each asset on a straight-line basis over its expected useful life of 5 years. TAXATION Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. 8 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 1. ACCOUNTING POLICIES (CONTINUED) TAXATION (CONTINUED) Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in years different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. INVESTMENTS Current asset investments are stated at the lower of cost and net realisable value. STOCKS Stocks are stated at the lower of cost and net realisable value. Provision is made for obsolete, slow-moving or defective items where appropriate. TURNOVER Turnover represents amounts receivable for goods and services provided in the normal course of business, net of VAT in respect of continuing activities in the United Kingdom. 2. OPERATING LOSS
Operating loss is stated after charging: 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Depreciation - own assets 8.3 8.3 Auditors' remuneration: Audit fees and expenses 6.0 6.0 Other fees and expenses - 1.5 - -------------------------------------------------------------------------------------------------------------------------
9 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 3. DIRECTORS AND EMPLOYEES Emoluments of directors were in respect of their services to affiliated companies. Details are given in the accounts of Western Power Distribution Holdings Limited, Mirant, and PPL. Excluding companies held for resale, the Group had no employees.
4. INTEREST PAYABLE AND SIMILAR CHARGES 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- On loans from Group* and affiliated companies 29,759.6 21,113.2 Other - 1,325.1 - ------------------------------------------------------------------------------------------------------------------------- 29,759.6 22,438.3 - ------------------------------------------------------------------------------------------------------------------------- * Interest payable in 2002 includes that on a loan to the Company from Hyder Limited, which is a subsidiary accounted for as an investment held for resale.
5. TAXATION No UK tax has been provided as the Group has surplus tax losses. Due to the ongoing break-up of the group, these losses may not be utilised against future profits.
6. TANGIBLE FIXED ASSETS PLANT & MACHINERY (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- COST At 1 April 2001 and 31 March 2002 50.0 - ------------------------------------------------------------------------------------------------------------------------- DEPRECIATION At 1 April 2001 8.3 Charge for the year 10.0 - ------------------------------------------------------------------------------------------------------------------------- At 31 March 2002 18.3 - ------------------------------------------------------------------------------------------------------------------------- NET BOOK VALUE AT 31 MARCH 2002 31.7 - ------------------------------------------------------------------------------------------------------------------------- At 1 April 2002 41.7 - -------------------------------------------------------------------------------------------------------------------------
10 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 7. FIXED ASSET INVESTMENTS In December 2000, the Company allotted shares to indirect subsidiaries of Mirant and PPL at par in consideration of the transfer to the Company of all the class A shares, all the class B shares, and all except two of the class C shares in WPD Limited held by them, and the transfer to the Company of the ordinary shares in WPD Guernsey Limited held by them. The two C shares in WPD Limited held by Mirant and PPL were subsequently transferred to WPD Guernsey Limited.
Shares in group undertakings GROUP COMPANY (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- At 1 April 2001 and 31 March 2002 - 0.1 - ------------------------------------------------------------------------------------------------------------------------- 8. DEBTORS 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Other debtors 377.5 57.3 Prepayments and accrued income 53.6 53.4 - ------------------------------------------------------------------------------------------------------------------------- 431.1 110.7 - -------------------------------------------------------------------------------------------------------------------------
9. INVESTMENTS HELD FOR RESALE In September 2000, WPD Limited acquired control of the ordinary share capital of Hyder Limited (formerly Hyder plc) at 365p per ordinary share. In October 2000 acceptances of the 365p offer exceeded 90% of shares in issue and WPD Limited exercised its statutory right to acquire all of the remaining shares in issue. Following Hyder's acquisition by WPD Limited, a fixed asset investment disposal programme was commenced, and by 31 March 2002 Hyder had disposed of its interests in substantially all of its subsidiary companies. As part of this disposal programme, the electricity distribution business, Western Power Distribution (South Wales) plc (formerly South Wales Electricity plc) together with certain investments and properties, was sold indirectly to WPD Holdings UK in March 2001. The US $ loan notes in Hyder Limited were exchanged for similar notes issued by WPD Holdings UK. As part of this exchange a payment of (pound)306.1m was made to WPD Holdings UK. 11 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 9. INVESTMENTS HELD FOR RESALE (CONTINUED) All of the subsidiaries which were acquired as part of the acquisition of Hyder Limited have been excluded from consolidation because they were held exclusively with a view to subsequent resale and accordingly, the investment has been accounted for as a current asset, at the lower of cost and net realisable value. 10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Loans from Group and affiliated companies (see note 11) 542,578.2 579,578.2 Other creditors 5,474.7 7,785.0 Accruals and deferred income 44,740.6 23,028.5 - ------------------------------------------------------------------------------------------------------------------------- 592,793.5 610,391.7 - ------------------------------------------------------------------------------------------------------------------------- The Company had no creditors at the end of either period. 11. LOANS FROM GROUP AND AFFILIATED COMPANIES 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Loan from Hyder Limited 450,000.0 - Loan from WPD Holdings UK 92,578.2 354,578.2 Loan from Western Power Distribution (South West) plc - 85,000.0 Loan from Mirant - 68,600.0 Loan from PPL - 71,400.0 - ------------------------------------------------------------------------------------------------------------------------- 542,578.2 579,578.2 - -------------------------------------------------------------------------------------------------------------------------
The loan from Hyder Limited carries interest at LIBOR plus 0.2%. The loan from WPD Holdings UK carries interest at LIBOR plus 1%. On 11 May 2001, (pound)347 million of the loan was repaid. WPD Holdings UK is owned jointly by subsidiaries of Mirant and PPL. On 3 May 2001, the (pound)85m loan from Western Power Distribution (South West) plc was assigned to WPD Holdings UK. 12 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002
12. CALLED-UP SHARE CAPITAL 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Authorised 490 "A" Ordinary shares of(pound)1 each 0.5 0.5 490 "B" Ordinary shares of(pound)1 each 0.5 0.5 20 "C" Ordinary shares of(pound)1 each - - 100 Ordinary shares of(pound)1 each 0.1 0.1 - ------------------------------------------------------------------------------------------------------------------------- 1.1 1.1 - ------------------------------------------------------------------------------------------------------------------------- Allotted, called-up and fully paid 490 "A" Ordinary shares of(pound)1 each 0.5 0.5 490 "B" Ordinary shares of(pound)1 each 0.5 0.5 20 "C" Ordinary shares of(pound)1 each - - - ------------------------------------------------------------------------------------------------------------------------- 1.0 1.0 - ------------------------------------------------------------------------------------------------------------------------- 13. GROUP RESERVES OTHER PROFIT AND RESERVES LOSS ACCOUNT (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- At 1 April 2001 9.8 (82,118.9) Loss for the year - (29,857.7) - ------------------------------------------------------------------------------------------------------------------------- At 31 March 2002 9.8 (111,976.6) - -------------------------------------------------------------------------------------------------------------------------
Other reserves represents the merger reserve of (pound)9,800 arising as a result of the merger of WPD Investment Holdings Limited and WPD Limited in December 2000. 13 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 14. RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Loss for the financial year (29,857.7) (82,118.9) Net proceeds of issue of ordinary share capital - 1.0 Merger adjustment - 9.8 - ------------------------------------------------------------------------------------------------------------------------- Net reduction to equity shareholders' funds (29,857.7) (82,108.1) Equity shareholders' funds at 1 April 2001 (82,108.1) - - ------------------------------------------------------------------------------------------------------------------------- Equity shareholders' funds at 31 March 2002 (111,965.8) (82,108.1) - ------------------------------------------------------------------------------------------------------------------------- 15. NOTES TO THE STATEMENT OF CASH FLOWS (a) Reconciliation of operating loss to net cash outflow from operating activities 2002 2001 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Operating loss (124.8) (1,297.5) Depreciation 10.0 8.3 Increase in stocks - (13.8) Increase in debtors (320.2) (46.5) (Decrease)/increase in creditors (292.5) 1,083.1 - ------------------------------------------------------------------------------------------------------------------------- Net cash outflow from operating activities (727.5) (266.4) - ------------------------------------------------------------------------------------------------------------------------- (b) Analysis of changes in net debt AT 1 APRIL CASH AT 31 MARCH 2001 flow 2002 (pound)'000 (pound)'000 (pound)'000 - ------------------------------------------------------------------------------------------------------------------------- Cash at bank 1,117.4 (766.3) 351.1 Debt due within one year (579,578.2) 37,000.0 (542,578.2) - ------------------------------------------------------------------------------------------------------------------------- (578,460.8) 36,233.7 (542,227.1) - -------------------------------------------------------------------------------------------------------------------------
14 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2002 16. RELATED PARTY TRANSACTIONS Loans from affiliated companies are shown in note 11. 17. ULTIMATE PARENT UNDERTAKINGS The ultimate controlling parties are Mirant Corporation and PPL Corporation, both registered in the United States, who have equal control of WPD Investment Holdings Limited. REGISTERED OFFICE: WPD INVESTMENT HOLDINGS LIMITED Avonbank Feeder Road Bristol BS2 0TB Telephone : 0117 933 2000 Fax : 0117 933 2001 eMail: info@westernpower.co.uk Registered number : 4066211 15 EX-99 5 ex99_3.txt EX. 99.3 - PPL CORPORATION FIN. INFO. EXHIBIT 99.3 ------------ PPL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED INFORMATION -------------------------------------------- The pro forma information that follows is presented to give effect to the acquisition of Mirant Corporation's 49% indirect equity interest in Western Power Distribution Holdings Limited and WPD Investment Holdings Limited (together, "WPD") on the income statements of PPL. The pro forma results are based on assumptions set forth below, as well as in the Notes to Unaudited Pro Forma Consolidated Financial Information, and are not necessarily indicative of the results of operations which would actually have occurred if the transactions had occurred in such periods, or which may exist or occur in the future. The WPD acquisition is described in Item 2 of this Current Report on Form 8-K/A, of which this Exhibit 99.3 is a part. The acquisition was completed on September 6, 2002. Pro forma adjustments are provided to the consolidated income statements of PPL for the nine months ended September 30, 2002, and for the twelve months ended December 31, 2001. The adjustments are to the income statements filed in PPL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and in its Annual Report on Form 10-K for the year ended December 31, 2001. The pro forma adjustments assume that the acquisition was consummated at the beginning of the income statement periods. The PPL pro forma income statement for the nine months ended September 30, 2002 includes the operating results of WPD for the nine months ended August 31, 2002. The PPL pro forma income statement for the twelve months ended December 31, 2001 includes the operating results of WPD for the twelve months ended November 30, 2001. This treatment is consistent with PPL's policy of recording results of its international operations on a lag basis. The September 30, 2002 Balance Sheet filed in PPL's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 included the consolidation of the accounts of WPD. Because the accounts have already been consolidated, there is no presentation of a pro forma balance sheet in this Current Report on Form 8-K/A. The Notes to Unaudited Pro Forma Consolidated Financial Information provide additional descriptions of the adjustments to the income statements. The pro forma financial information should be read in conjunction with the reports of PPL as noted above, as well as the audited financial statements of Western Power Distribution Holdings Limited and WPD Investment Holdings Limited for the year ended March 31, 2002. These financial statements are included as Exhibit 99.1 and Exhibit 99.2 in this Current Report on Form 8-K/A. 1 PPL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (Millions of Dollars, except per share data)
PRO FORMA NOTE AS REPORTED ADJUSTMENTS REF AS ADJUSTED ----------- ----------- ---- ----------- OPERATING REVENUES Utility................................................... $ 2,774 $ 2,774 Unregulated retail electric and gas....................... 137 137 Wholesale energy marketing................................ 693 693 Net energy trading margins................................ 21 21 Energy related businesses................................. 430 430 -------- -------- -------- Total..................................................... 4,055 4,055 -------- -------- -------- OPERATING EXPENSES Operation Fuel.................................................... 435 435 Energy purchases........................................ 619 619 Other................................................... 596 596 Amortization of recoverable transition costs............ 165 165 Maintenance............................................... 216 216 Depreciation.............................................. 269 269 Taxes, other than income.................................. 172 172 Energy related businesses................................. 439 439 Other charges Write-down of international energy projects............. 100 100 Workforce reduction..................................... 75 75 -------- -------- -------- Total..................................................... 3,086 3,086 -------- -------- -------- OPERATING INCOME............................................ 969 969 Other Income - net.......................................... 18 18 Interest Expense............................................ 423 $ 4 1) 427 -------- -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 564 (4) 560 Income Taxes................................................ 194 2) 194 Minority Interest........................................... 76 (72) 3) 4 -------- -------- -------- INCOME BEFORE DIVIDENDS AND DISTRIBUTIONS ON PREFERRED SECURITIES................................................. 294 68 362 Dividends and Distributions - Preferred Securities.......... 52 52 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS........................... $ 242 $ 68 $ 310 ======== ======== ======== EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING OPERATIONS Basic..................................................... $ 1.63 $ 0.46 $ 2.09 Diluted................................................... $ 1.63 $ 0.46 $ 2.08 AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS)............... 148,758 148,758
See Notes to Unaudited Pro Forma Consolidated Financial Information 2 PPL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2001 (Millions of Dollars, except per share data)
PRO FORMA NOTE AS REPORTED ADJUSTMENTS REF AS ADJUSTED ----------- ----------- ---- ----------- OPERATING REVENUES Wholesale energy marketing and trading.................... $ 3,357 $ 3,357 Retail electric and gas................................... 1,712 $ 550 4) 2,262 Energy related businesses................................. 656 (51) 5) 605 -------- -------- -------- Total..................................................... 5,725 499 6,224 -------- -------- -------- OPERATING EXPENSES Operation Fuel.................................................... 602 602 Energy purchases........................................ 1,526 1,526 Other................................................... 755 31 4) 786 Amortization of recoverable transition costs............ 251 251 Maintenance............................................... 269 59 4) 328 Depreciation.............................................. 254 105 4) 359 Taxes, other than income.................................. 155 39 4) 194 Energy related businesses................................. 572 6 4) 578 Other charges Write-down of international energy projects............. 336 336 Cancellation of generation projects..................... 150 150 -------- -------- -------- Total..................................................... 4,870 240 5,110 -------- -------- -------- OPERATING INCOME............................................ 855 259 1,114 Other Income - net.......................................... 12 26 4) 38 -------- -------- -------- INCOME BEFORE INTEREST EXPENSE.............................. 867 285 1,152 Interest Expense............................................ 387 139 1) 526 -------- -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 480 146 626 Income Taxes................................................ 261 79 2) 340 Minority Interest........................................... (2) (2) -------- -------- -------- INCOME BEFORE DIVIDENDS ON PREFERRED SECURITIES............. 221 67 288 Dividends - Preferred Securities............................ 52 7 4) 59 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS........................... $ 169 $ 60 $ 229 ======== ======== ======== EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING OPERATIONS Basic..................................................... $ 1.16 $ 0.41 $ 1.57 Diluted................................................... $ 1.15 $ 0.41 $ 1.56 AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS)............... 145,974 145,974
See Notes to Unaudited Pro Forma Consolidated Financial Information 3 PPL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION INCOME STATEMENT ADJUSTMENTS: - ----------------------------- 1) The cost of the WPD acquisition, $236 million, was financed through commercial paper issued by an affiliate of PPL. For purposes of calculating the pro forma information, an interest rate of 2.0% and 4.3% were assumed for the nine months ended September 30, 2002 and for the twelve months ended December 31, 2001, respectively. The twelve-month period also includes $129 million of interest expense included in WPD's results. 2) Giving effect to the acquisition of Mirant's interest in WPD as of the beginning of the periods, U.S. income taxes were not provided on undistributed earnings of WPD as such earnings are deemed permanently reinvested. The pro forma results reflect the incremental U.S. income taxes that would have been payable with respect to WPD had a tax return for those periods been prepared, offset by the U.S. federal income tax benefit on the interest expense incurred on commercial paper borrowings. The incremental U.S. income taxes associated with the additional earnings from WPD were $1 million for the nine months ended September 30, 2002 and $20 million for the year ended December 31, 2001. 3) The September 30, 2002 Income Statement filed in PPL's Form 10-Q provided for the consolidation of WPD's results of operations as of January 1, 2002. The minority interest account represented Mirant's 49% interest in WPD. This proforma adjustment is made to reverse Mirant's share of WPD earnings, thereby, reflecting PPL's 100% ownership of WPD. 4) Represents WPD's U.S. GAAP results for the twelve months ended November 30, 2001. An average interbank exchange rate of 1.4799 was assumed for the period. 5) Includes WPD's U.S. GAAP results for the twelve months ended November 30, 2001, less PPL's equity earnings in WPD of $91 million prior to the acquisition. 4 EX-99 6 ex99_4.txt EX. 99.4 - PPL ENERGY SUPPLY FIN. INFO. EXHIBIT 99.4 ------------ PPL ENERGY SUPPLY AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED INFORMATION -------------------------------------------- The pro forma information that follows is presented to give effect to the acquisition of Mirant Corporation's 49% indirect equity interest in Western Power Distribution Holdings Limited and WPD Investment Holdings Limited (together, "WPD") on the income statements of PPL Energy Supply. The pro forma results are based on assumptions set forth below, as well as in the Notes to Unaudited Pro Forma Consolidated Financial Information, and are not necessarily indicative of the results of operations which would actually have occurred if the transactions had occurred in such periods, or which may exist or occur in the future. The WPD acquisition is described in Item 2 of this Current Report on Form 8-K/A, of which this Exhibit 99.4 is a part. The acquisition was completed on September 6, 2002. Pro forma adjustments are provided to the consolidated income statements of PPL Energy Supply for the nine months ended September 30, 2002, and for the twelve months ended December 31, 2001. The adjustments are to the income statements filed in PPL Energy Supply's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and in its Annual Report on Form 10-K for the year ended December 31, 2001. The pro forma adjustments assume that the acquisition was consummated at the beginning of the income statement periods. The PPL Energy Supply pro forma income statement for the nine months ended September 30, 2002 includes the operating results of WPD for the nine months ended August 31, 2002. The PPL Energy Supply pro forma income statement for the twelve months ended December 31, 2001 includes the operating results of WPD for the twelve months ended November 30, 2001. This treatment is consistent with PPL Energy Supply's policy of recording results of its international operations on a lag basis. The September 30, 2002 Balance Sheet filed in PPL Energy Supply's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 included the consolidation of the accounts of WPD. Because the accounts have already been consolidated, there is no presentation of a pro forma balance sheet in this Current Report on Form 8-K/A. The Notes to Unaudited Pro Forma Consolidated Financial Information provide additional descriptions of the adjustments to the income statements. The pro forma financial information should be read in conjunction with the reports of PPL Energy Supply as noted above, as well as the audited financial statements of Western Power Distribution Holdings Limited and WPD Investment Holdings Limited for the year ended March 31, 2002. These financial statements are included as Exhibit 99.1 and Exhibit 99.2 in this Current Report on Form 8-K/A. 1 PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (Millions of Dollars)
PRO FORMA NOTE AS REPORTED ADJUSTMENTS REF AS ADJUSTED ----------- ----------- ---- ----------- OPERATING REVENUES Wholesale energy marketing................................ $ 693 $ 693 Wholesale energy marketing to affiliates.................. 1,081 1,081 Utility................................................... 755 755 Unregulated retail electric and gas....................... 137 137 Net energy trading margins................................ 21 21 Energy related businesses................................. 423 423 -------- -------- -------- Total..................................................... 3,110 3,110 -------- -------- -------- OPERATING EXPENSES Operation Fuel.................................................... 376 376 Energy purchases........................................ 443 443 Energy purchases from affiliates........................ 129 129 Other operation and maintenance......................... 600 600 Transmission............................................ 18 18 Depreciation.............................................. 194 194 Taxes, other than income.................................. 60 60 Energy related businesses................................. 402 402 Other charges Write-down of international energy projects............. 100 100 Workforce reduction..................................... 41 41 -------- -------- -------- Total..................................................... 2,363 2,363 -------- -------- -------- OPERATING INCOME............................................ 747 747 Other Income - net.......................................... 28 28 Interest Expense............................................ 160 $ 4 1) 164 Interest Expense with Affiliate............................. 2 2 -------- -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 613 (4) 609 Income Taxes................................................ 236 2) 236 Minority Interest........................................... 76 (72) 3) 4 -------- -------- -------- INCOME BEFORE DISTRIBUTIONS ON PREFERRED SECURITIES......... 301 68 369 Distributions - Preferred Securities........................ 6 6 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS........................... $ 295 $ 68 $ 363 ======== ======== ========
See Notes to Unaudited Pro Forma Consolidated Financial Information 2 PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2001 (Millions of Dollars)
PRO FORMA NOTE AS REPORTED ADJUSTMENTS REF AS ADJUSTED ----------- ----------- ---- ----------- OPERATING REVENUES Wholesale energy marketing and trading.................... $ 3,010 $ 550 4) $ 3,560 Retail electric and gas................................... 764 764 Energy related businesses................................. 501 40 4) 541 Equity in earnings of unconsolidated affiliates........... 127 (91) 5) 36 -------- -------- -------- Total..................................................... 4,402 499 4,901 -------- -------- -------- OPERATING EXPENSES Operation Fuel.................................................... 500 500 Energy purchases........................................ 1,491 1,491 Other operation and maintenance......................... 758 90 4) 848 Transmission............................................ 52 52 Depreciation.............................................. 157 105 4) 262 Taxes, other than income.................................. 38 39 4) 77 Project development....................................... 30 30 Energy related businesses................................. 468 6 4) 474 Other charges Write-down of international energy projects............. 336 336 Cancellation of generation projects..................... 150 150 -------- -------- -------- Total..................................................... 3,980 240 4,220 -------- -------- -------- OPERATING INCOME............................................ 422 259 681 Other Income - net.......................................... 68 26 4) 94 -------- -------- -------- INCOME BEFORE INTEREST EXPENSE.............................. 490 285 775 Interest Expense............................................ 47 139 1) 186 -------- -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 443 146 589 Income Taxes................................................ 274 79 2) 353 Minority Interest........................................... (2) (2) -------- -------- -------- INCOME BEFORE DISTRIBUTIONS ON PREFERRED SECURITIES......... 171 67 238 Distributions - Preferred Securities........................ 7 4) 7 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS........................... $ 171 $ 60 $ 231 ======== ======== ========
See Notes to Unaudited Pro Forma Consolidated Financial Information 3 PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION INCOME STATEMENT ADJUSTMENTS: - ----------------------------- 1) The cost of the WPD acquisition, $236 million, was financed through commercial paper issued by an affiliate of PPL Energy Supply. For purposes of calculating the pro forma information, an interest rate of 2.0% and 4.3% were assumed for the nine months ended September 30, 2002 and for the twelve months ended December 31, 2001, respectively. The twelve-month period also includes $129 million of the interest expense included in WPD's results. 2) Giving effect to the acquisition of Mirant's interest in WPD as of the beginning of the periods, U.S. income taxes were not provided on undistributed earnings of WPD as such earnings are deemed permanently reinvested. The pro forma results reflect the incremental U.S. income taxes that would have been payable with respect to WPD had a tax return for those periods been prepared, offset by the U.S. federal income tax benefit of the interest expense incurred on commercial paper borrowings. The incremental U.S. income taxes associated with the additional earnings from WPD were $1 million for the nine months ended September 30, 2002 and $20 million for the year ended December 31, 2001. 3) The September 30, 2002 Income Statement filed in PPL Energy Supply's Form 10-Q provided for the consolidation of WPD's results of operations as of January 1, 2002. The minority interest account represented Mirant's 49% interest in WPD. This proforma adjustment is made to reverse Mirant's share of WPD earnings, thereby, reflecting PPL Energy Supply's 100% ownership of WPD. 4) Represents WPD's U.S. GAAP results for the twelve months ended November 30, 2001. An average interbank exchange rate of 1.4799 was assumed for the period. 5) PPL Energy Supply's equity earnings in WPD of $91 million prior to the acquisition. 4 -----END PRIVACY-ENHANCED MESSAGE-----