2.5 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 March 2002

These notes refer to the numbered notes to the statements in Sections 2.1 to 2.4 and are to be read in conjunction with the statements.

SIGNIFICANT EVENT RELEVANT TO THESE FINANCIAL STATEMENTS

On 12 June 2002 UnitedNetworks Limited announced that, following an approach made to it by its principal shareholder, UtiliCorp N.Z. Limited (whose ultimate parent company is Aquila, Inc.), the company is considering a possible sale of its entire operation by way of share or asset sale. The process is expected to be completed early September.

As the final method of the sale has yet to be determined, the directors have presented the financial statements on the basis that the company will continue its existing business. The accounting basis and policies, including the going concern assumption, have therefore been adopted on a consistent basis to the previous year. This assumption has particular relevance to the continued treatment of borrowings as long-term debt and treating financial instruments as hedges.

As a result of the potential sale the company had not yet entered into a subvention and loss-offset agreement with Utilicorp N.Z. Limited for the 1st quarter of the 2002 financial year. This has had the net effect of increasing the tax charge for the year by approximately $1.0 million.

1 STATEMENT OF ACCOUNTING POLICIES

Special purpose financial statements

These financial statements are made pursuant to UnitedNetworks’ obligations under the Electricity (Information Disclosure) Regulations 1999, read with Electricity (Information Disclosure) Amendment Regulations 2000. They are in addition to UnitedNetworks’ financial statements published pursuant to UnitedNetworks’ obligations under the Companies Act 1993 and the Financial Reporting Act 1993.

The Lines Business is treated as the core business and corporate activities are accounted for through the Line and Other Business financial statements. UnitedNetworks has adopted the avoidable cost allocation methodology stipulated in the Electricity Information Disclosure Handbook issued on 30th June 2000.

General accounting policies

The general accounting principles as recommended by the Institute of Chartered Accountants of New Zealand for the measurement and reporting of financial performance, financial position, movements in equity and cash flows under the historical cost method have been followed by the company with the exception of System Fixed Assets, which have been revalued to their Optimised Deprival Value (ODV) in accordance with the treatment outlined in the Electricity Information Disclosure Handbook. This is more fully explained within the particular accounting policy for Fixed Assets.

The following particular accounting policies which materially affect the measurement of the financial performance and position have been applied:

Income tax

These financial statements adopt the liability method of accounting for deferred taxation. The taxation charge against the surplus for the period is the estimated liability in respect of that surplus after allowance for all the permanent differences.

Future taxation benefits attributable to timing differences or losses carried forward are recognised in the financial statements at recoverable value only where there is virtual certainty that the benefit of the timing differences will be realised or any losses utilised.