UNISON NETWORKS - LINES BUSINESS

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended 31 March 2007

21 OTHER MATTERS

Unison is subject to the Commerce Commission’s Price and Quality Threshold Regime which applies to electricity lines businesses.

In September 2005 the Commerce Commission published an intention to declare control of Unison’s distribution prices.

Unison provided the Commerce Commission with an administrative settlement offer during August through to October 2006. In May 2007 the Commerce Commission issued its final decision which was to accept Unison’s administrative settlement offer and to not take control of Unison’s prices.

Judicial Review

On 17 May 2004 Unison commenced proceedings in the High Court for a judicial review of the Commerce Commission’s targeted control regime. Those proceedings and a subsequent appeal in the Court of Appeal were decided in favour of the Commission, although the Court of Appeal did find that the Commission’s initial price thresholds were unlawful. For this reason and because of the failure of the Court of Appeal to grant relief to Unison, the Court of Appeal’s findings have been appealed to the Supreme Court. The Supreme Court hearing is pending. Unison may face court costs as a result of this action.

22 Impacts of the Adoption to international Financial Reporting Standards

For the reporting period beginning 1 April 2007 Unison will comply with New Zealand International Financial Reporting Standards (NZIFRS). In complying with NZIFRS for the first time, Unison will restate comparative balances.

The major issues identified that impact on Unison’s financial statements include deferred tax, financial instruments, and assets valuation/impairment.

Unison currently recognises a deferred tax liability in the Statement of Financial Position only if the income tax effect of all timing differences are expected to reverse in the foreseeable future, i.e. the partial basis. NZIFRS requires a more comprehensive reflection of future tax liabilities/assets which will result in a deferred tax liability being recognised in the Statement of Financial Position. This liability represents the difference between the fair value of fixed assets as shown in the Statement of Financial Position and their corresponding tax book value. On transition date, the Deferred Tax Liability amount expected to be recognised in the Statement of Financial Position is approximately $65 million with a corresponding decrease in Shareholders Funds.

Unison utilises interest rate swaps to hedge against interest rate volatility. The value of these hedges are not recognised in the Statement of Financial Position. Under NZIFRS these hedges and any other defined financial instruments will be recognised in the Statement of Financial Position with any changes in fair value being reflected in the Statement of Financial Performance, unless specific hedge accounting criteria is achieved. Unison expects to achieve hedge accounting and therefore any volatility in the fair value of its hedges is not required to be taken through the Statement of Financial Performance but through the Statement of Equity. The financial impact of the fair value of these hedges is unknown but could be material.

Under NZ Financial Reporting Standards Unison records its revaluation surplus arising on the revaluation of a class of assets directly to the asset revaluation reserve in the Statement of Equity. A revaluation deficit in excess of the asset revaluation reserve balance for that class is recognised in the Statement of Financial Performance. Under NZIFRS revaluations must be accounted for on an individual asset basis and not by asset class. Any revaluation surplus is recorded in the Statement of Equity and any revaluation deficit goes first to the Statement of Equity per asset, and then any deficit in excess of the individual asset revaluation reserve balance goes into the Statement of Financial Performance. The financial impact of this change is unknown but could be material.

Unison amortises goodwill arising on acquisition under NZ Financial Reporting Standards over 20 years and subject to an annual impairment test. NZIFRS does not permit amortisation of goodwill but instead requires an annual impairment test only.