Addendum to Annual Report
BHP Billiton Limited
22 October 2002
BHP Billiton Limited is issuing this announcement to fulfil disclosure
obligations arising from its secondary listing on the London Stock Exchange.
The text of this release is identical to that issued by BHP Billiton Plc
earlier.
22nd October 2002
US GAAP Supplementary Note - Revision
BHP Billiton prepares financial statements to reflect the different accounting
standards in operation in each of Australia and the United Kingdom, Australian
GAAP and UK GAAP respectively. These statements remain unchanged.
The Australian and UK GAAP statements are reconciled to US generally accepted
accounting principles (US GAAP) in supplementary note disclosures contained in
the Group's annual reports.
In preparing the US GAAP reconciliation, a tax adjustment was reflected
incorrectly, resulting in the estimated tax expense being inadvertently
overstated. This had the effect of understating the US GAAP net income and
disclosures shown in the supplementary note entitled 'US Generally Accepted
Accounting Principles Disclosures' only. It does not alter any other aspect of
the financial statements.
We have revised the affected note. The Group's auditors have confirmed the
revised supplementary note disclosures reflect the changes required and do not
affect their unqualified audit opinions dated 9 September 2002.
As a US Registrant, BHP Billiton is also required to file an annual report on
Form 20-F with the US Securities & Exchange Commission. This report, which is
due to be filed in December, will incorporate the revised note disclosure.
A copy of the revised note for the BHP Billiton Limited and BHP Billiton Plc
Reports is attached.
Karen Wood
Company Secretary
Addendum to BHP Billiton Limited Annual Report 2002 - Combined Financial
Statements
Note 49 to the financial statements (appears in condensed form as Note 10 to the
Concise Report)- US Generally Accepted Accounting Principles Disclosures - has
been revised. This version supersedes that included in the BHP Billiton Limited
Annual Report 2002 - Combined Financial Statements.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES
The financial statements of the BHP Billiton Group are prepared in accordance
with Australian Generally Accepted Accounting Principles (GAAP). The financial
statements, analyses and reconciliations presented in this note represent the
financial information which would be required if US GAAP had been applied
instead of Australian GAAP.
Certain additional disclosures that would normally accompany these disclosures
were they being prepared in the context of a filing with the US Securities and
Exchange Commission have been omitted.
DLC merger
On 29 June 2001, BHP Billiton Plc (formerly Billiton Plc) consummated the Dual
Listed Companies ('DLC') merger with BHP Billiton Limited (formerly BHP
Limited). A description of the DLC merger structure is provided in 'Dual Listed
Companies Structure and Basis of Preparation of Financial Statements'. In
accordance with Australian GAAP, the assets, liabilities and equity of the BHP
Billiton Plc Group and of the BHP Billiton Limited Group are combined at their
respective book values as at the date of consummation of the merger.
Under US GAAP the DLC merger is accounted for as a purchase business combination
with the BHP Billiton Limited Group acquiring the BHP Billiton Plc Group. The
BHP Billiton Limited Group has been identified as the acquirer because of the
majority ownership interest of BHP Billiton Limited shareholders in the DLC
structure. Under US GAAP, the reconciliation of shareholders' equity includes
the purchase adjustments required under US GAAP to recognise the BHP Billiton
Plc Group assets and liabilities at their fair values, with the excess recorded
as goodwill.
(A) Reconciliation to US GAAP
Material differences between Australian GAAP as followed by the BHP Billiton
Group and US GAAP are described below. Refer 'US GAAP Adjustments'.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following is a summary of the estimated adjustments to net income for 2002,
2001 and 2000 which would be required if US GAAP had been applied instead of
Australian GAAP.
2002 2001 2000
US$M US$M US$M
(restated)
Reconciliation of net income
Net profit attributable to members as reported in the consolidated Statement of 1 648 1 109 1 034
Financial Performance:
add/(deduct)
Estimated adjustment required to accord with US GAAP:
Fair value adjustment on acquisition of BHP Billiton Plc Group
Depreciation, amortisation and other asset movements (412) - -
BHP Steel demerger (333) - -
Employee compensation costs 26 (117) -
Depreciation - write-downs (18) (19) (34)
- revaluations 5 5 8
- reserves (15) - -
Restructuring and employee provisions (55) 31 27
Fair value accounting for derivatives 279 (33) -
Synthetic debt 18 - -
Realised net exchange (losses)/gains on sale of assets/closure of operations 84 7 26
Exploration, evaluation and development expenditures (60) (3) (4)
Start-up costs (2) 5 (16)
Profit on asset sales 2 2 (30)
Pension plans (12) (172) (29)
Other post-retirement benefits 8 - -
Mozal expansion rights 22 - -
Employee Share Plan loans (16) - -
Purchase business combination costs - 38 -
Expenses on spin-off of OneSteel Limited - (30) -
Asset write-downs - - (891)
Consolidation of Tubemakers of Australia Ltd - (1) (4)
Application of Equity accounting - - 164
Tax adjustments (including the tax effect of above adjustments) 80 60 338
Total adjustment (399) (227) (445)
Net income of BHP Billiton Group under US GAAP 1 249 882 589
2002 2001 2000
US$ US$ US$
Earnings per share - US GAAP (a) (b)
Basic 0.207 0.239 0.161
Diluted 0.207 0.238 0.161
Earnings per American Depositary Share (ADS) - US GAAP (b) (c)
Basic 0.414 0.478 0.322
Diluted 0.414 0.476 0.322
(a) Based on the weighted average number of shares on issue for the
period.
(b) Comparative data has been adjusted to take into account the BHP
Billiton Limited bonus share issue effective 29 June 2001. Refer note 31.
(c) For the periods indicated, each ADS represents two ordinary shares.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
2002 2001 2000
US$M US$M US$M
(restated)
Consolidated income statement
Revenues 14 698 9 038 9 401
deduct
Cost of sales 9 968 6 457 7 798
Depreciation and amortisation 1 882 1 137 1 174
General and administrative expenses 174 185 56
Operating income 2 674 1 259 373
deduct
Net interest expense 465 299 457
Income/(loss) before tax, minority interests and equity in net earnings of 2 209 960 (84)
affiliated companies
deduct/(add)
Taxation expense/(benefit) 878 489 (308)
add
Share of profits of joint ventures and associated undertakings 221 15 183
deduct/ (add)
Minority interests 39 (260) (22)
Net income from continuing operations 1 513 746 429
Discontinued operations
Income from discontinued operations 74 205 221
(add)/deduct
Taxation (benefit)/expense from discontinued operations (3) 34 56
deduct
Loss on disposal of operations 333 31 4
deduct
Minority interests in discontinued operations 8 4 1
Net (loss)/income from discontinued operations (264) 136 160
Net income 1 249 882 589
The following statement of comprehensive income reports changes in shareholders'
equity excluding those resulting from investments by shareholders and
distributions to shareholders.
2002 2001 2000
US$M US$M US$M
Statement of comprehensive income
Total changes in equity other than those resulting from transactions with 1 673 1 401 1 264
owners under Australian GAAP
Adjustments to reflect comprehensive income in accordance with US GAAP, net of
income tax:
Total adjustment to net income per above reconciliation (399) (227) (445)
Reclassification adjustment for net exchange gains included in net income (a) (84) (7) (26)
Net loss on qualifying cash flow hedging instruments as at 1 July 2000 - (268) -
Losses on qualifying cash flow hedging instruments - (301) -
Net transfer to earnings on maturity of cash flow hedging instruments 148 150 -
Adjustment for initial adoption of revised accounting standard AASB 1016:
Accounting for investments in associates - - (164)
Changes in fair value of listed investments 5 - -
Comprehensive income - under US GAAP (b) 1 343 748 629
Accumulated other comprehensive income includes:
Exchange fluctuation account 387 446 149
Qualifying cash flow hedging instruments (271) (419) -
Other items 5 - -
(a) Tax benefit/ (expense) of other comprehensive income items: 1 74 40
Movements in exchange fluctuation account
Reclassification adjustment for exchange gains included in net income - - 30
(b) Estimated losses expected to be reclassified from other comprehensive
income to earnings in the year ended 30 June 2003 are approximately
$220 million after tax.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following is a summary of the estimated adjustments to shareholders' equity
as at 30 June 2002 and 2001 that would be required if US GAAP had been applied
instead of Australian GAAP:
2002 2001
US$M US$M
Equity attributable to members
Total equity attributable to members 12 821 11 847
add/ (deduct)
Estimated adjustment required to accord with US GAAP
Fair value adjustments on acquisition of BHP Billiton Plc Group (a)
Inventory - 159
Investments 985 1 034
Property, plant and equipment 2 072 2 156
Undeveloped properties 741 825
Long-term contracts 39 40
Goodwill 2 709 2 770
Long-term debt 13 29
BHP Steel demerger (264) -
Property, plant and equipment revaluations (63) (68)
Asset write-downs 87 174
Reserves (15) -
Restructuring and employee provisions 11 66
Fair value accounting for derivatives (127) (624)
Synthetic debt 31 13
Exploration, evaluation and development expenditures (126) (66)
Start-up costs (55) (53)
Profit on asset sales (20) (22)
Pension plans (109) (78)
Other post-retirement benefits (15) (49)
Mozal expansion rights debtor (39) (61)
Employee Share Plan loans (135) (59)
Change in fair value of listed investments 10 5
Deferred taxation effect of fair value adjustment on acquisition of BHP Billiton Plc Group (1 559) (1 724)
Deferred taxation adjustments (including the deferred taxation effect of other adjustments) 155 288
Total adjustment 4 326 4 755
Total equity attributable to members according to US GAAP 17 147 16 602
(a) In addition to the fair value adjustments on acquisition of the BHP
Billiton Plc Group indicated, various adjustments to the net assets of the
BHP Billiton Plc Group to reflect US GAAP were also reported. These
adjustments have been disclosed in aggregate with similar items relating to
the BHP Billiton Limited Group.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following are the variations in the balance sheet as at 30 June 2002 and
2001 that would be required if US GAAP had been applied instead of Australian
GAAP:
A GAAP Adjustments US GAAP A GAAP Adjustments US GAAP
2002 2002 2002 2001 2001 2001
US$M US$M US$M US$M US$M US$M
Statement of Financial Position
Assets
Current assets
Cash assets 1 413 - 1 413 1 147 - 1 147
Receivables 1 990 (110) 1 880 1 979 (69) 1 910
Other financial assets 116 - 116 215 - 215
Inventories 1 160 - 1 160 1 375 159 1 534
Other assets 100 93 193 122 - 122
Total current assets - continuing 4 779 (17) 4 762 4 838 90 4 928
operations
Total current assets - discontinued 748 - 748 738 - 738
operations
Total current assets 5 527 (17) 5 510 5 576 90 5 666
Non-current assets
Receivables 882 (64) 818 374 (51) 323
Investments accounted for using the equity 1 505 (2) 1 503 1 236 - 1 236
method
Other financial assets 489 1 034 1 523 465 1 085 1 550
Inventories 45 - 45 61 - 61
Property, plant and equipment 17 659 2 246 19 905 16 964 2 844 19 808
Intangible assets 513 2 709 3 222 608 2 770 3 378
Deferred tax assets 462 67 529 442 216 658
Other assets 796 (100) 696 689 (69) 620
Total non-current assets - continuing 22 351 5 890 28 241 20 839 6 795 27 634
operations
Total non-current assets - discontinued 1 984 40 2 024 1 809 123 1 932
operations
Total non-current assets 24 335 5 930 30 265 22 648 6 918 29 566
Total assets 29 862 5 913 35 775 28 224 7 008 35 232
Liabilities and shareholders' equity
Current liabilities
Payables 2 143 100 2 243 1 989 317 2 306
Interest bearing liabilities 1 743 - 1 743 1 743 - 1 743
Tax liabilities 498 - 498 380 - 380
Other provisions 1 009 (9) 1 000 942 (64) 878
Total current liabilities - continuing 5 393 91 5 484 5 054 253 5 307
operations
Total current liabilities - discontinued 448 - 448 375 - 375
operations
Total current liabilities 5 841 91 5 932 5 429 253 5 682
Non-current liabilities
Payables 121 16 137 144 185 329
Interest bearing liabilities 6 329 (33) 6 296 6 458 86 6 544
Tax liabilities 1 364 1 471 2 835 1 152 1 651 2 803
Other provisions 2 661 33 2 694 2 443 69 2 512
Total non-current liabilities 10 475 1 487 11 962 10 197 1 991 12 188
- continuing operations
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
A GAAP Adjustments US GAAP A GAAP Adjustments US GAAP
2002 2002 2002 2001 2001 2001
US$M US$M US$M US$M US$M US$M
Total non-current liabilities
- discontinued operations 393 - 393 366 - 366
Total non-current liabilities 10 868 1 487 12 355 10 563 1 991 12 554
Total liabilities 16 709 1 578 18 287 15 992 2 244 18 236
Equity minority interests 332 9 341 385 9 394
Shareholders' equity
BHP Billiton Limited - Contributed equity 3 143 (628) 2 515 3 039 (533) 2 506
BHP Billiton Plc - Called up capital 1 752 5 697 7 449 1 752 5 699 7 451
Other equity items 471 (247) 224 530 (400) 130
Retained profits 7 455 (496) 6 959 6 526 (11) 6 515
Total shareholders' equity 12 821 4 326 17 147 11 847 4 755 16 602
Total liabilities and shareholders' equity 29 862 5 913 35 775 28 224 7 008 35 232
Basis of presentation under US GAAP
Revenue recognition
SAB 101 'Revenue recognition in Financial Statements' became applicable to the
BHP Billiton Group for the year ended 30 June 2001. The adoption of SAB 101 does
not give rise to any differences in revenue recognition.
Associated entities and unincorporated joint ventures
Under US GAAP, all investments classified as associated entities, as detailed in
note 18 'Investments accounted for using the equity method', are accounted for
under the equity method of accounting in accordance with APB 18. All
unincorporated joint ventures, as detailed in note 45 'Major interests in
unincorporated joint ventures', are proportionally accounted for in accordance
with Emerging Issues Task Force Opinion ('EITF') 00-01 Investor Balance Sheet
and Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures.
The BHP Billiton Group's investment in the Richards Bay Minerals joint venture
is comprised of two legal entities Tisand (Pty) Limited and Richards Bay Iron
and Titanium (Pty) Limited. Although the BHP Billiton Group owns 51 per cent of
Tisand (Pty) Limited, it has not been consolidated under US GAAP in accordance
with EITF 96-16 Investor's Accounting for an Investee When the Investor Has a
Majority of the Voting Interest but the Minority Shareholder or Shareholders
Have Certain Approval or Veto Rights. The substantive participating rights of
the minority interests holder in the Richards Bay Minerals joint venture are
embodied in the shareholder agreement between the BHP Billiton Group and Rio
Tinto which ensures that the Richards Bay Minerals joint venture functions as a
single economic entity with the overall profit of the Richards Bay Minerals
joint venture shared equally between the venturers.
The BHP Billiton Group holds a 57.5 per cent ownership interest in Escondida,
which is classified as a joint arrangement. In accordance with EITF 96-16, the
BHP Billiton Group has not consolidated this investment. The substantive
participating rights of the minority interests holders in the Escondida joint
venture include the participation in selection, termination and compensation of
management, approval of sales, expenditure, expansions, curtailments,
borrowings, settlements and policies and procedures.
Period ended 30 June 2000
For the BHP Billiton Limited Group, following a change in balance date from 31
May to 30 June, effective 30 June 2000, all references in this reconciliation to
2000 are to the 13 months ended 30 June 2000 (refer note 1). Under US GAAP, net
income for the 12 months ended 30 June 2000 was US$400 million and comprehensive
income for the 12 months ended 30 June 2000 was US$674 million.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
US GAAP adjustments
Acquisition of BHP Billiton Plc
On 29 June 2001, BHP Billiton Limited and BHP Billiton Plc established a DLC
merger. A full description of the DLC Merger structure is provided in (Dual
Listed Companies Structure and Basis of Preparation of Financial Statements).
Under US GAAP, the DLC merger is accounted for as a purchase business
combination of the BHP Billiton Plc Group by the BHP Billiton Limited Group.
The total assumed purchase consideration of US$11 529 million was calculated by
multiplying the number of shares held by BHP Billiton Plc shareholders of 2 319
147 885 on 29 June 2001 by the US$4.9559 adjusted average share price of BHP
Billiton Limited's ordinary shares. The average share price was calculated over
a period of three days prior to, and subsequent to, the announcement of the DLC
merger on 19 March 2001. The average share price is adjusted for the 1:1
equalisation ratio, which is achieved by BHP Billiton Limited's bonus share
issue of 1 912 154 524 million shares in the ratio of 1.0651 additional bonus
shares for every existing share held - prior to the bonus share adjustment the
average share price would be US$10.2344 (i.e. by a factor of 2.0651). The 2 319
147 885 shares held by BHP Billiton Plc shareholders on 29 June 2001 reflect the
exercise of rights under the Restricted Share Scheme and the Co-Investment Plan.
As such, there were no outstanding stock options, stock appreciation rights or
similar issuances of BHP Billiton Plc, and no purchase consideration is
attributable to such securities. The cost of acquisition was therefore US$11 529
million, including direct external acquisition costs of US$36 million. The
direct external acquisition costs have been expensed as incurred for Australian
GAAP purposes.
Under US GAAP purchase accounting, the cost of the acquisition is allocated to
the fair values of identifiable assets acquired and liabilities assumed. As a
result of the fair value exercise, increases in the values of the BHP Billiton
Plc Group's inventory, investments, long-term contracts and long-term debt were
recognised and fair market values attributed to their other tangible assets
mainly property, plant and equipment and undeveloped properties, together with
appropriate deferred taxation effects. The difference between the cost of
acquisition and the fair value of the assets and liabilities of the BHP Billiton
Plc Group has been recorded as goodwill. Fair value adjustments to the recorded
amount of inventory and long-term contracts are expensed in the period the
inventory is utilised and the long-term contracts are delivered into, and
additional amortisation and depreciation are recorded in respect of the fair
value adjustments of intangible and tangible assets and the resulting goodwill
over the periods of their respective useful economic lives.
The adjustments to the assets and liabilities of the BHP Billiton Plc Group to
reflect the fair values and allocation of the excess purchase consideration over
the fair value of net assets acquired, based on management's best estimates of
fair value, are summarised in the shareholders' equity reconciliation and are
discussed below:
(i) The increase in fair value of inventory was determined based on the
difference between the carrying value and the market value of these assets.
(ii) The increase in investments relates to increases to the BHP Billiton
Plc Group's equity investments. These equity investments have been measured
at fair value and any excess of the fair value over the underlying tangible
assets and liabilities has been attributed to mineral reserves within the
underlying investments. These uplifts to mineral properties are being
amortised over their estimated useful lives on a unit of production and, on
an investment-by-investment basis. The estimated useful lives are not
expected to exceed 30 years.
(iii) The increase in property, plant and equipment relates to increases in
the carrying value of the BHP Billiton Plc Group's property, plant and
equipment to their estimated fair value. The increase in carrying value of
the property, plant and equipment is to be amortised over the estimated
useful life of the property, plant and equipment, primarily on a unit of
production basis. The estimated useful lives range between one year and 33
years.
During December 1998, the BHP Billiton Plc Group acquired certain assets
from the BHP Billiton Limited Group. The BHP Billiton Plc Group recognised
certain fair value adjustments as a result of this acquisition which are
being amortised over their useful lives. For Australian GAAP, the fair value
adjustments are reversed while for US GAAP these fair value adjustments are
reinstated.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
(iv) The amount of total consideration allocated to the BHP Billiton Plc
Group's developed and undeveloped properties has been estimated by the BHP
Billiton Group management using current estimates of the status and
prospects of the BHP Billiton Plc Group's developed and undeveloped property
portfolio as contained in the BHP Billiton Plc Group's strategic plans. The
undeveloped properties include only those identified properties that have
advanced to a stage of development feasibility where management believes
reasonable estimates of projected cash flows can be prepared and proven and
probable reserves exist. The value allocated to the developed and
undeveloped properties was determined utilising a risk adjusted income
approach that included earnings discounted by the appropriate cost of
capital for the investment. Estimates of future cash flows related to
individual developed and undeveloped properties were based on existing
estimates of revenues and contribution margin for the project. The increase
in developed properties is being amortised over their estimated exploitable
useful lives on a project-by-project basis. Amortisation for each project is
deferred until such time as production commences.
(v) The increase in value of the long-term contracts was determined by
attributing a fair value to certain long-term contracts, which were not
accorded a value in the BHP Billiton Plc Group's financial statements.
(vi) Goodwill represents the remainder of unallocated purchase
consideration. Goodwill is currently amortised over its expected useful
economic life and in future years will be subject to further periodic
impairment tests.
(vii) The decrease in long-term debt was as a result of attributing a fair
value to fixed interest rate long-term loans which were not recorded at fair
value in the BHP Billiton Plc Group's financial statements.
(viii) Other differences between Australian GAAP and US GAAP included
adjustments for pensions, post-retirement benefits and start-up costs.
(ix) Deferred taxes have been computed on the excess of fair value over
book value, other than for goodwill, using the applicable statutory tax
rates.
Preliminary fair value assessments of the assets and liabilities of the BHP
Billiton Plc Group were undertaken through the quantification of the purchase
price and the preliminary allocation of this to individual businesses and to the
underlying assets and liabilities of the individual businesses. Minor revisions
to the provisional fair values were undertaken in the year ended 30 June 2002.
The revised values of assets and liabilities acquired compared to the
provisional values are shown in the table on the following page. Prior period
fair value adjustments have not been restated for the revisions.
Final Provisional
US$M US$M
Statement of Financial Position at 30 June 2001
Current assets
Cash assets 687 687
Receivables 883 883
Inventories 1 022 1 022
Other financial assets 132 132
Non-current assets
Property, plant and equipment 11 567 11 540
Intangibles 3 307 3 278
Other financial assets 2 929 2 971
Current liabilities
Payables 1 048 1 048
Interest bearing liabilities 1 300 1 300
Other provisions 221 221
Non-current liabilities
Interest bearing liabilities 3 329 3 329
Tax liabilities 2 129 2 161
Other provisions 634 588
Equity minority interests 337 337
Net assets 11 529 11 529
Shareholders' equity
Shareholders' equity 11 529 11 529
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
BHP Steel demerger
Under Australian GAAP, the BHP Steel demerger is treated in two components - a
distribution to BHP Billiton Limited shareholders of 94 per cent of BHP Steel
shares (accounted for as a capital reduction) and a sale of 6 per cent of BHP
Steel shares (accounted for as a sale of assets). Under US GAAP, the BHP Steel
demerger is classified as a non pro-rata distribution to shareholders and is
required to be accounted for as a 100 per cent sale of assets. The implied
consideration for the sale of the additional 94 per cent of BHP Steel shares is
based on the market price of BHP Steel shares used in determining the bonus
issue of BHP Billiton Plc shares to BHP Billiton Plc shareholders. The remaining
6 per cent is measured at the respective sale price. The implied consideration,
when compared to the book value of the BHP Steel net assets to be demerged,
indicates a shortfall, which is required to be recognised in the result for the
period ended 30 June 2002 for US GAAP. The calculation of the book value of the
BHP Steel net assets to be demerged includes US GAAP net asset adjustments
attributable to BHP Steel.
Employee compensation costs
In these accounts, the expected cost of awards under various employee ownership
plans is charged to the profit and loss account over the vesting period. Under
US GAAP, compensation expense arising from variable equity award plans is
recognised based on movements in their intrinsic value.
Depreciation
Revaluations of property, plant and equipment and investments have resulted in
upward adjustments to the historical cost values reflected in a revaluation
reserve, which is part of total equity. In the case of property, plant and
equipment, the depreciation charged against income increases as a direct result
of such a revaluation. Since US GAAP does not permit property, plant and
equipment to be valued at above historical cost, the depreciation charge has
been restated to reflect historical cost depreciation.
Following smaller asset write-downs under US GAAP, the higher asset values under
US GAAP are being depreciated in accordance with asset utilisation. Refer 'Asset
write-downs' below.
Asset write-downs
At 31 May 1998, the BHP Billiton Limited Group changed its impairment test
policy for determining the recoverable amount of non-current assets from an
undiscounted to a discounted basis. The discount rate is a risk adjusted market
rate which is applied both to determine impairment and to calculate the
write-down.
Under US GAAP, where an asset is reviewed for impairment, an impairment test is
required utilising undiscounted cash flows. If the asset's carrying value
exceeds the sum of undiscounted future cash flows, the asset is considered
impaired and it is written down to its fair value.
These differences created adjustments to the profit and loss account in prior
years representing the lower charge to profit and resultant higher asset values
for the write-downs calculated under US GAAP. In subsequent financial periods,
the difference in asset carrying values is reduced through the inclusion of
additional depreciation charges in the profit and loss account. Refer '
Depreciation' above.
The movement in the shareholders' equity reconciliation in 2002 for this item
largely reflects impacts of the BHP Steel demerger and has been included in that
item in the income reconciliation. The charge to profit for the period ended 30
June 2000 reflects the additional write-off of the West Australian HBI plant for
US GAAP.
Reserves
The BHP Billiton Group prepares mineral reserve statements based on the
Australasian Code for reporting of Mineral Resources and Ore Reserves, September
1999 (the JORC Code). The information contained in those statements differs in
certain respects from that reported to the US Securities and Exchange Commission
(SEC) which is prepared with reference to the SEC's Industry Guide 7. This
adjustment reflects the impact on depreciation of the difference.
Restructuring and employee provisions
These accounts include provisions for redundancies associated with
organisational restructuring that can be recognised where positions have been
identified as being surplus to requirements, provided the circumstances are such
that a constructive liability exists. Under US GAAP, a provision for
redundancies involving voluntary severance offers is restricted to employees who
have accepted these offers. The adjustment is reversed over subsequent periods
as the offers are accepted.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Fair value accounting for derivatives
Under Australian GAAP, when undertaking risk mitigation transactions, hedge
accounting principles are applied, whereby derivatives are matched to the
specifically identified commercial risks being hedged. These matching principles
are applied to both matured and unmatured transactions. Derivatives undertaken
as hedges of anticipated transactions are recognised when such transactions are
recognised. Upon recognition of the underlying transaction, derivatives are
valued at the appropriate market spot rate.
When an underlying transaction can no longer be identified, gains or losses
arising from a derivative that has been designated as a hedge of a transaction
will be included in the profit and loss account whether or not such derivative
is terminated. When a hedge is terminated, the deferred gain or loss that arose
prior to termination is:
(a) Deferred and included in the measurement of the anticipated
transaction when it occurs; or
(b) Included in the profit and loss account where the anticipated
transaction is no longer expected to occur.
The premiums paid on interest rate options and foreign currency put and call
options are included in other assets and are deferred and included in the
settlement of the underlying transaction. When undertaking strategic or
opportunistic financial transactions, all gains and losses are included in the
profit and loss account at the end of each reporting period. The premiums paid
on strategic financial transactions are included in the profit and loss account
at the inception of the contract.
For the purpose of deriving US GAAP information, Statement of Financial
Accounting Standards No. 133: Accounting for Derivative Instruments and Hedging
Activities (SFAS 133) requires that each derivative instrument be recorded in
the Statement of Financial Position as either an asset or liability measured at
its fair value. On initial application of this Standard the BHP Billiton Limited
Group recognised an accumulated loss of US$268 million in respect of the fair
value of derivative instruments held on 1 July 2000, which qualified as cash
flow hedge transactions. This amount was reported as a component of other
comprehensive income. An accumulated gain of US$11 million was recognised in
respect of the fair value of derivative instruments which qualified as fair
value hedge transactions, offset by a corresponding loss on their associated
hedged liabilities held at 1 July 2000. The BHP Billiton Plc Group does not
apply hedging principles in accordance with SFAS 133 and marks to market all
derivative instruments, taking movements in the fair value of derivative
instruments to the profit and loss account.
In the year ended 30 June 2001, subsequent gains and losses on cash flow hedges
were taken to other comprehensive income and reclassified to profit and loss in
the same period the hedged transaction was recognised. Gains and losses on fair
value hedges continue to be taken to profit and loss in subsequent periods, as
are offsetting gains and losses on hedged liabilities. In both cases, these
gains and losses are not recognised under Australian GAAP until the hedged
transaction is recognised.
Effective 1 July 2001, for US GAAP purposes, the BHP Billiton Limited Group
de-designated existing derivative instruments as hedges of underlying
transactions. Amounts previously included in other comprehensive income in
relation to those derivative instruments previously designated as cash flow
hedges will remain until the transactions originally being hedged are
recognised, at which time the amounts will be taken to the profit and loss
account. Movements in the fair value of derivative instruments since 30 June
2001 are taken to the profit and loss account.
Synthetic debt
An operating subsidiary, whose functional currency is the US dollar, has
obtained financing in various foreign currencies. The operating subsidiary
entered into forward exchange contracts to fix the exchange rate between the
rand and the various foreign currencies. In these accounts, the arrangement is
treated as a synthetic rand debt which at each period end is retranslated into
US dollars at the spot rate with the exchange gain or loss that is recognised
being included in the profit and loss account.
Under US GAAP, synthetic debt accounting is not permitted. As a result, the
foreign loan amounts and forward exchange contracts are accounted for
separately. Foreign loans are recorded at the exchange rate in effect on the
date of the borrowing, with gains and losses arising from currency movements
taken to the profit and loss account. The forward exchange contracts are marked
to market annually with the resulting gain or loss also taken to the profit and
loss account.
Realised net exchange gains on sale of assets/closure of operations
Net exchange gains or losses reported in shareholders' equity, which relate to
assets that have been sold, closed or written down are transferred to retained
earnings. US GAAP requires these net exchange gains or losses be recognised in
the profit and loss account reflecting that they have, in substance, been
realised.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Exploration, evaluation and development expenditures
The BHP Billiton Group follows the 'area of interest' method in accounting for
petroleum exploration, evaluation and development expenditures. This method
differs from the 'successful efforts' method followed by some US companies, and
adopted in this reconciliation to US GAAP, in that it permits certain
exploration costs in defined areas of interest to be capitalised. Such
expenditure capitalised by the BHP Billiton Group is amortised in subsequent
years. In respect of Minerals properties, the BHP Billiton Group capitalises
exploration and evaluation expenditure where it is expected that the expenditure
will be recouped by future exploitation or sale or where a mineral resource has
been identified but activities have not reached a stage which permits a
reasonable assessment of the existence of commercially recoverable reserves.
Under US GAAP, a final feasibility study indicating the existence of
commercially recoverable reserves at greenfield properties serves as the trigger
point for capitalisation. US GAAP permits expenditure to be capitalised for the
purpose of extending or further delineating existing reserves. In subsequent
financial periods, amounts amortised (which have been expensed for US GAAP
purposes) will be added back when determining the profit result according to US
GAAP.
Costs of start-up activities
The BHP Billiton Group capitalises as part of property, plant and equipment,
costs associated with start-up activities at new plants or operations which are
incurred prior to commissioning date. These capitalised costs are depreciated in
subsequent years. Under US GAAP, costs of start-up activities should be expensed
as incurred.
Profit on asset sales
Under US GAAP, profits arising from the sale of assets cannot be recognised in
the period in which the sale occurs where the vendor has a significant
continuing association with the purchaser. In such circumstances, any profit
arising from a sale is recognised over the life of the continuing arrangements.
For the period ended 30 June 2000, the profit on the sale and leaseback of plant
and equipment was deferred for US GAAP purposes and will be recognised over the
life of the operating lease.
Pension plans
In these accounts, the net periodic pension cost assessed on an actuarial basis
is charged to profit and loss so as to allocate the costs systematically over
the employees' service lives. This policy has been adopted for by the BHP
Billiton Limited Group to conform with the BHP Billiton Plc Group and was
applied in the year ended 30 June 2001. Previously, charges were taken to the
profit and loss account as contributions were made to pension plans.
Consequently, the BHP Billiton Group recognises periodic pension cost based on
actuarial advice in a manner generally consistent with US GAAP. However,
differences in the actuarial method used and the timing of recognition of
expense components results in different periodic costs and pension assets or
liabilities. In addition, any associated foreign exchange gains or losses are
required to be eliminated from net income.
Other post-retirement benefits
In these accounts, post-retirement benefits other than pensions have been
accounted for in a manner which is generally consistent with US GAAP except for
certain scenarios such as in accounting for plan amendments.
In these accounts, amendments to post-retirement benefits provided are taken
into account from the date upon which plan amendments are announced. Under US
GAAP, plan amendments are only taken into account from the date upon which the
plan amendments become effective.
Mozal expansion rights
In June 2001, BHP Billiton announced an agreement to sell-down a portion of its
preferential rights in the Mozal Phase II project to two of its project
partners. In these accounts, the consideration was recognised as revenue in the
year ended 30 June 2001. A portion of the consideration will be paid in cash and
another portion will be delivered to BHP Billiton via a marketing arrangement
once production has commenced. This deferred portion will be amortised to the
profit and loss account over the period of the sales contract. Under US GAAP,
the consideration paid in cash will be recognised as profit from asset sales
when received and the deferred consideration portion is considered a derivative
and has been recognised on the balance sheet and marked to market with movements
in fair value being taken to the profit and loss account.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Change in UK corporate tax rate for petroleum companies
Australian GAAP requires tax liabilities and assets to be measured at the rates
expected to apply when the underlying timing differences reverse. US GAAP
requires the measurement of tax liabilities and assets using tax rates based on
enacted tax law. The effect of a change in the UK corporate tax rate for
petroleum companies was recognised in June 2002 in these accounts on the basis
that the legislation was substantively enacted. This tax rate change will not be
recognised for US GAAP purposes until the legislation is enacted. For 2002, an
adjustment of US$61 million is reported in the item 'taxation adjustments'.
Purchase business combination costs
Costs incurred in relation to the DLC merger that were expensed under Australian
GAAP represent costs of acquisition that were capitalised under US GAAP.
Expenses on spin-off of OneSteel Limited
Costs associated with completion of the spin-off of OneSteel Limited are
recognised directly in equity for Australian GAAP but are charged as expenses
for US GAAP. The financial statements included in the 2001 Form 20-F incorrectly
recognised these costs directly in equity. This change in accounting in the year
ended 30 June 2001 decreased US GAAP net income by US$30 million, and decreased
US GAAP earnings per share by US$0.008 per share.
Restoration and rehabilitation costs
In these accounts, the expected cost of any committed decommissioning or
restoration program, discounted to its net present value, is provided and
capitalised at the beginning of each project. The capitalised cost is amortised
over the life of the operation and the increase in the net present value of the
provision as the discount unwinds is included in net interest and similar items
payable. The BHP Billiton Limited Group adopted this policy in the year ended 30
June 2001 to conform with the BHP Billiton Plc Group. In fiscal 2000 and prior
years, the provision was determined under US GAAP on an undiscounted basis and
the charge to profit was generally based on units of production, so that full
provision was made by the end of the assets' economic life.
Consolidation of Tubemakers of Australia Ltd (TOA)
Prior to consolidation, TOA was accounted for as an associated entity and
included in the equity accounting calculations. Under US GAAP equity accounting
is included in the consolidated results, while prior to the year ended 30 June
1999 only disclosure by way of note to the accounts was permitted. Thus the
carrying value of the original equity interest in TOA is higher under US GAAP,
and this is reflected in higher goodwill capitalised and amortised in accordance
with US GAAP. The spin-off of OneSteel Limited eliminated this reconciling item.
Equity accounting
For years ended on or after 30 June 1999, Australian GAAP requires the effect of
accounting for associated entities on an equity basis to be shown in the
consolidated results, as required by US GAAP. In prior periods, Australian GAAP
permitted the effect of accounting for associated companies on an equity basis
to be shown as supplementary information. The Australian GAAP adjustment to
retained earnings on initial adoption of equity accounting is recognised in the
result for the period ended 30 June 2000 for US GAAP.
Employee Share Plan loans
Under the Employee Share Plan, loans have been made to employees for the
purchase of shares in BHP Billiton Limited. Under US GAAP, the amount
outstanding as an obligation to the BHP Billiton Limited Group, which has
financed equity, is required to be eliminated from total shareholders' equity.
In addition, any foreign exchange gains or losses on the outstanding loan
balances are required to be eliminated from net income.
Investments
In these accounts, certain unlisted investments are marked to market annually
based on third party valuations. The increase/ (decrease) in the value of the
investments is recognised in the profit and loss account. Under US GAAP such
investments are adjusted to reflect the increase in guaranteed surrender value
of the investment, but are not permitted to be marked to market.
In these accounts, certain investments in marketable securities are classified
as exploration assets and are carried at estimated recoverable amount. Under US
GAAP, such investments are classified as available for sale and are marked to
market with changes in fair value recognised as a component of comprehensive
income.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Secondary share issuance
During September 2000, BHP Billiton Plc undertook a secondary issuance of shares
on the London Stock Exchange. The shares were issued in pounds sterling, however
to fix the proceeds received on the share issuance in US dollars, BHP Billiton
Plc utilised a number of hedging instruments to lock in the exchange rate
between pounds sterling and US dollars. This hedging activity gave rise to a
loss being realised due to the movement in the pound sterling against the US
dollar. BHP Billiton Plc reported this loss as an offset against the share
proceeds, which was then credited to paid in capital.
Under US GAAP, the loss would not qualify as a hedged item under SFAS 133. As
such, the loss is recognised in the profit and loss in the period the loss was
realised.
Taxation adjustments
In these accounts, potential tax expense of US$47 million has not been
recognised in 2002, mainly relating to the tax impact of unrealised foreign
exchange gains or losses on US dollar net debt held by subsidiaries which retain
local currency records for tax purposes. For US GAAP, a tax expense is
recognised reflecting the existence of the foreign exchange gains or losses in
the accounts of the respective entity. This adjustment is reported in the item '
taxation adjustments'.
(B) Employee compensation costs
The BHP Billiton Group has applied the principles of US Accounting Principles
Board Opinion No. 25 in the determination of employee compensation costs arising
from the various employee ownership plans. Had the fair value basis of
accounting in US Statement of Financial Accounting Standards No. 123 been used
to account for compensation costs, the following net income and earnings per
share amounts would result:
2002 2001 2000
US$M US$M US$M
Net income
As reported 1 249 882 589
Proforma 1 224 897 589
Basic earnings per share (a) (b)
As reported 0.207 0.239 0.161
Proforma 0.203 0.243 0.161
Diluted earnings per share (b) (c)
As reported 0.207 0.238 0.161
Proforma 0.203 0.242 0.161
(a) Based on net profit attributable to members of BHP Billiton Group.
(b) Comparative data has been adjusted to take into account the bonus
share issue effective 29 June 2001. Refer note 31.
(c) Refer note 12.
(C) Impact of new accounting standards
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141: Business Combinations (SFAS141) and
Statement of Financial Accounting Standards No. 142: Goodwill and Other
Intangible Assets (SFAS142). In August 2001, the FASB also issued Statement of
Financial Accounting Standards No. 143: Accounting for Asset Retirement
Obligations (SFAS143) and Statement of Financial Accounting Standards No. 144:
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS144). In
July 2002, the FASB issued Statement of Financial Accounting Standards No. 146:
Accounting for Costs Associated with Exit or Disposal Activities (SFAS146).
For the purpose of deriving US GAAP financial information of the BHP Billiton
Group, SFAS141 applies to purchase business combinations entered into after 30
June 2001. SFAS142 , SFAS143 and SFAS144 will apply for the year ending 30 June
2003, while SFAS146 is effective for exit or disposal activities initiated after
31 December 2003. The BHP Billiton Group has not adopted any of these standards
early for the purpose of the June 2002 financial statements.
NOTE 49. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
SFAS141 changes the accounting for business combinations to a single purchase
accounting method. SFAS141 also changes the recognition criteria for intangible
assets other than goodwill, and expands disclosure requirements in relation to
business combinations. SFAS142 changes the accounting for acquired goodwill and
other intangible assets by requiring that goodwill and intangible assets with
indefinite useful lives not be amortised. Under SFAS142, the carrying amount of
such assets will be subject to impairment tests at least on an annual basis.
SFAS143 changes accounting for the retirement of tangible long-lived assets by
requiring that the fair value of legal obligations associated with the
retirement of such assets be recognised as a liability and capitalised as part
of the cost of those assets. SFAS144 requires one accounting model to be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and will broaden the presentation of discontinued
operations to include more disposal transactions. SFAS146 requires that costs
associated with exit or disposal activities be recognised when they are incurred
rather than at the date of a commitment to an exit or disposal plan.
The BHP Billiton Group has not evaluated the potential impact of any of these
new standards on its future financial performance or financial position.
Addendum to BHP Billiton Plc Annual Report 2002
Note 34 to the financial statements - US Generally Accepted Accounting
Principles Disclosures - has been revised.
This version supersedes that included in the BHP Billiton Plc Annual Report
2002.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES
The financial statements of the BHP Billiton Group are prepared in accordance
with UK Generally Accepted Accounting Principles (GAAP). The financial
statements, analyses and reconciliations presented in this note represent the
financial information which would be required if US GAAP had been applied
instead of UK GAAP.
Certain additional disclosures that would normally accompany these disclosures
were they being prepared in the context of a filing with the US Securities and
Exchange Commission have been omitted.
DLC merger
On 29 June 2001, BHP Billiton Plc (formerly Billiton Plc) consummated the Dual
Listed Companies (DLC) merger with BHP Billiton Limited (formerly BHP Limited).
A description of the DLC merger structure is provided in 'Dual Listed Companies
Structure and Basis of Preparation of Financial Statements'. In accounting for
this transaction, the most significant difference between UK GAAP and US GAAP is
that under UK GAAP, the DLC merger has been accounted for as a merger (pooling
of interests) in accordance with UK Financial Reporting Standard 6: Acquisitions
and Mergers, whereas under US GAAP the DLC merger is accounted for as a purchase
business combination with the BHP Billiton Limited Group acquiring the BHP
Billiton Plc Group. The BHP Billiton Limited Group has been identified as the
acquirer because of the majority ownership interest of BHP Billiton Limited
shareholders in the DLC structure. In a merger, the assets, liabilities and
equity of the BHP Billiton Plc Group and of the BHP Billiton Limited Group are
combined at their respective book values as determined under UK GAAP. Under US
GAAP, the reconciliation of shareholders' equity includes the purchase
adjustments required under US GAAP to recognise the BHP Billiton Plc Group
assets and liabilities at their fair values, with the excess recorded as
goodwill.
Although UK GAAP and US GAAP both require the consolidation of the BHP Billiton
Plc Group with the BHP Billiton Limited Group at 30 June 2001, UK GAAP also
requires that their respective financial statements for periods prior to the
date the DLC merger was consummated are combined. Under purchase accounting, the
retroactive combination of financial statements is not appropriate. As the BHP
Billiton Limited Group is the accounting acquirer, and is the 'predecessor' to
the BHP Billiton Group, for the years ended 30 June 2001 and 2000, the BHP
Billiton Group's net income under UK GAAP, as presented in the financial
statements of the BHP Billiton Group, when represented under US GAAP, becomes
the net income of the BHP Billiton Limited Group
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
(A) Reconciliation to US GAAP
Material differences between UK GAAP as followed by the BHP Billiton Group and
US GAAP are described below. Refer 'US GAAP Adjustments'.
The following is a summary of the estimated adjustments to net income for 2002,
2001 and 2000 which would be required if US GAAP had been applied instead of UK
GAAP.
2002 2001 2000
US$M US$M US$M
(restated)
Reconciliation of net income
Attributable profit as reported under UK GAAP 1 690 1 529 1 506
add/(deduct)
Estimated adjustment required to accord with US GAAP:
BHP Billiton Plc Group's pre-acquisition profit attributable to shareholders - (565) (566)
under UK GAAP
Fair value adjustment on acquisition of BHP Billiton Plc Group
(454) (11) (11)
Depreciation, amortisation and other asset movements
BHP Steel demerger (333) - -
Employee compensation costs 26 (117) -
Depreciation - write-downs (18) (19) (31)
- revaluations 5 5 7
- reserves (15) - -
Restructuring and employee provisions (55) 31 26
Fair value accounting for derivatives 279 (33) -
Synthetic debt 18 - -
Realised net exchange (losses)/gains on sale of assets/closure of operations 84 7 26
Exploration, evaluation and development expenditures (60) (3) (4)
Start-up costs (2) 5 (15)
Profit on asset sales 2 2 (30)
Pension plans (12) 24 21
Other post-retirement benefits 8 - -
Mozal expansion rights 22 - -
Employee Share Plan loans (16) - -
Purchase business combination costs - 38 -
Expenses on spin-off of OneSteel Limited - (30) -
Restoration and rehabilitation costs - 50 61
Asset write-downs - - (891)
Consolidation of Tubemakers of Australia Ltd - (1) (4)
Tax adjustments (including the tax effect of above adjustments) 80 (30) 305
Total adjustment (441) (647) (1 106)
Net income of BHP Billiton Group under US GAAP 1 249 882 400
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
2002 2001 2000
US$ US$ US$
Earnings per share - US GAAP (a) (b)
Basic 0.207 0.239 0.109
Diluted 0.207 0.238 0.109
Earnings per American Depositary Share (ADS) - US GAAP (b) (c)
Basic 0.414 0.478 0.218
Diluted 0.414 0.476 0.218
(a) Based on the weighted average number of shares on issue for the period.
(b) Comparative data has been adjusted to take into account the BHP Billiton
Limited bonus share issue effective 29 June 2001. Refer note 23.
(c) For the periods indicated, each ADS represents two ordinary shares in BHP
Billiton Limited.
2002 2001 2000
US$M US$M US$M
(restated)
Consolidated income statement
Revenues 14 698 9 038 8 653
Deduct
Cost of sales 9 968 6 457 7 165
Depreciation and amortisation 1 882 1 137 1 106
General and administrative expenses 174 185 57
Operating income 2 674 1 259 325
deduct
Net interest expense 465 299 418
Income/(loss) before tax, minority interests and equity in net earnings of 2 209 960 (93)
affiliated companies
deduct/(add)
Taxation expense/(benefit) 878 489 (310)
add
Share of profits of joint ventures and associated undertakings 221 15 19
deduct/(add)
Minority interests 39 (260) (21)
Net income from continuing operations 1 513 746 257
Discontinued operations
Income from discontinued operations 74 205 196
(add)/deduct
Taxation (benefit)/expense from discontinued operations (3) 34 48
deduct
Loss on disposal of operations 333 31 4
deduct
Minority interests in discontinued operations 8 4 1
Net (loss)/income from discontinued operations (264) 136 143
Net income 1 249 882 400
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following statement of comprehensive income reports changes in shareholders'
equity excluding those resulting from investments by shareholders and
distributions to shareholders.
2002 2001 2000
US$M US$M US$M
Statement of comprehensive income
Total changes in equity other than those resulting from transactions with 1 715 1 401 1 240
owners under UK GAAP(a)
Adjustments to reflect comprehensive income in accordance with US GAAP, net
of income tax:
Total adjustment to net income per above reconciliation excluding adjustments
mainly related to the acquisition of BHP Billiton Plc Group (441) (227) (540)
Reclassification adjustment for net exchange gains included in net income (b) (84) (7) (26)
Net loss on qualifying cash flow hedging instruments as at 1 July 2000 - (268) -
Losses on qualifying cash flow hedging instruments - (301) -
Net transfer to earnings on maturity of cash flow hedging instruments 148 150 -
Changes in fair value of listed investments 5 - -
Comprehensive income - under US GAAP (c) 1 343 748 674
Accumulated other comprehensive income includes:
Exchange fluctuation account 387 446 149
Qualifying cash flow hedging instruments (271) (419) -
Other items 5 - -
(a) 2002 represents the BHP Billiton Group. 2001 and 2000 represents the '
predecessor' being the BHP Billiton Limited Group.
(b) Tax benefit/(expense) of other comprehensive income items:
• Movements in exchange fluctuation account 1 74 40
• Reclassification adjustment for exchange gains included in net income - - 30
(c) Estimated losses expected to be reclassified from other comprehensive
income to earnings in the year ended 30 June 2003 are approximately
$220 million after tax.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following is a summary of the estimated adjustments to shareholders' equity
as at 30 June 2002 and 2001 that would be required if US GAAP had been applied
instead of UK GAAP:
2002 2001
US$M US$M
Reconciliation of Shareholders' Equity
Shareholders' equity under UK GAAP 12 356 11 340
add/(deduct)
Estimated adjustment required to accord with US GAAP:
Fair value adjustments on acquisition of BHP Billiton Plc Group (a)
Inventory - 159
Investments 985 1 034
Property, plant and equipment 2 072 2 156
Undeveloped properties 741 825
Long-term contracts 39 40
Goodwill 3 174 3 277
Long-term debt 13 29
BHP Steel demerger (264) -
Property, plant and equipment revaluations (63) (68)
Asset write-downs 87 174
Reserves (15) -
Restructuring and employee provisions 11 66
Fair value accounting for derivatives (127) (624)
Synthetic debt 31 13
Exploration, evaluation and development expenditures (126) (66)
Start-up costs (55) (53)
Profit on asset sales (20) (22)
Pension plans (109) (78)
Other post-retirement benefits (15) (49)
Mozal expansion rights debtor (39) (61)
Employee Share Plan loans (135) (59)
Change in fair value of listed investments 10 5
Deferred taxation effect of fair value adjustment on acquisition of BHP Billiton Plc Group (1 559) (1 724)
Deferred taxation adjustments (including the deferred taxation effect of other 155 288
adjustments)
Total adjustment 4 791 5 262
Shareholders' equity under US GAAP 17 147 16 602
(a) In addition to the fair value adjustments on acquisition of the BHP
Billiton Plc Group indicated, various adjustments to the net assets of the
BHP Billiton Plc Group to reflect US GAAP were also reported. These
adjustments have been disclosed in aggregate with similar items relating to
the BHP Billiton Limited Group.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The following are the variations in the balance sheet as at 30 June 2002 and
2001 that would be required if US GAAP had been applied instead of UK GAAP:
The column headed 'Unadjusted' represents a US GAAP format presentation of the
assets and liabilities and shareholders' equity which have been measured in
accordance with UK GAAP. The column headed 'Adjustments' represents the
allocation of those measurement differences (presented in the Reconciliation of
Shareholders' Equity) which are required to derive a balance sheet in accordance
with US GAAP.
Unadjusted Adjustments US GAAP Unadjusted Adjustments US GAAP
2002 2002 2002 2001 2001 2001
US$M US$M US$M US$M US$M US$M
Balance Sheet
Assets
Current assets
Cash assets 1 413 - 1 413 1 147 - 1 147
Receivables 2 131 (251) 1 880 2 120 (210) 1 910
Other financial assets 116 - 116 215 - 215
Inventories 1 160 - 1 160 1 375 159 1 534
Other assets 100 93 193 122 - 122
Total current assets -
continuing operations 4 920 (158) 4 762 4 979 (51) 4 928
Total current assets -
discontinued operations 748 - 748 738 - 738
Total current assets 5 668 (158) 5 510 5 717 (51) 5 666
Non-current assets
Receivables 882 (64) 818 511 (188) 323
Investments accounted for
using the equity method 1 505 (2) 1 503 1 236 - 1 236
Other financial assets 489 1 034 1 523 465 1 085 1 550
Inventories 45 - 45 61 - 61
Property, plant and equipment 17 659 2 246 19 905 16 964 2 844 19 808
Intangible assets 42 3 180 3 222 95 3 283 3 378
Deferred tax assets 462 67 529 442 216 658
Other assets 796 (100) 696 689 (69) 620
Total non-current assets -
continuing operations 21 880 6 361 28 241 20 463 7 171 27 634
Total non-current assets -
discontinued operations 1 984 40 2 024 1 809 123 1 932
Total non-current assets 23 864 6 401 30 265 22 272 7 294 29 566
Total assets 29 532 6 243 35 775 27 989 7 243 35 232
Liabilities and shareholders'
equity
Current liabilities
Payables 2 143 100 2 243 1 988 318 2 306
Interest bearing liabilities 1 884 (141) 1 743 1 884 (141) 1 743
Tax liabilities 498 - 498 380 - 380
Other provisions 1 009 (9) 1 000 942 (64) 878
Total current liabilities -
continuing operations 5 534 (50) 5 484 5 194 113 5 307
Total current liabilities -
discontinued operations 448 - 448 375 - 375
Total current liabilities 5 982 (50) 5 932 5 569 113 5 682
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Unadjusted Adjustments US GAAP Unadjusted Adjustments US GAAP
2002 2002 2002 2001 2001 2001
US$M US$M US$M US$M US$M US$M
Balance Sheet continued
Non-current liabilities
Payables 121 16 137 144 185 329
Interest bearing liabilities 6 329 (33) 6 296 6 595 (51) 6 544
Tax liabilities 1 364 1 471 2 835 1 152 1 651 2 803
Other provisions 2 661 33 2 694 2 443 69 2 512
Total non-current liabilities
- continuing operations 10 475 1 487 11 962 10 334 1 854 12 188
Total non-current liabilities
- discontinued operations 393 - 393 366 - 366
Total non-current liabilities 10 868 1 487 12 355 10 700 1 854 12 554
Total liabilities 16 850 1 437 18 287 16 269 1 967 18 236
Equity minority interests 326 15 341 380 14 394
Shareholders' equity
BHP Billiton Limited -
contributed equity 3 143 (628) 2 515 3 039 (533) 2 506
BHP Billiton Plc - called up 1 752 5 697 7 449 1 752 5 699 7 451
capital
Other equity items 471 (247) 224 530 (400) 130
Retained profits 6 990 (31) 6 959 6 019 496 6 515
Total shareholders' equity 12 356 4 791 17 147 11 340 5 262 16 602
Total liabilities and
shareholders' equity 29 532 6 243 35 775 27 989 7 243 35 232
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
The BHP Billiton Group Statement of Consolidated Cash Flows has been prepared in
accordance with UK accounting standard FRS1, the objectives and principles of
which are similar to those set out in US accounting standard SFAS 95, Statement
of Cash Flows. The principal differences between the standards relate to
classification of items within the cash flow statement as well as the definition
of cash and cash equivalents.
The statement below shows the adjustments to be made to the UK GAAP cash flow
statement to reclassify it to comply with US GAAP:
2002 2001 2000
US$M US$M US$M
Reconciliation of Cash Flows
Net cash inflow/outflow from operating activities in accordance with UK 4 641 4 805 4 444
GAAP
Dividends received 187 193 150
Returns on investments and servicing of finance (375) (524) (651)
Tax paid (515) (587) (532)
Net cash provided by operating activities in accordance with US GAAP 3 938 3 887 3 411
Capital expenditures (2 671) (3 040) (1 262)
Acquisition and disposals (38) (1 399) 458
Net (purchase)/sale of investments 50 (595) (117)
Net cash used in investing activities in accordance with US GAAP (2 659) (5 034) (921)
Proceeds from issuance of ordinary shares 85 937 132
(Decrease)/increase in interest bearing liabilities (324) 982 (1 687)
Equity dividends paid (831) (801) (395)
Net cash provided by financing activities in accordance with US GAAP (1 070) 1 118 (1 950)
Exchange translation effects 5 (117) 73
Net (decrease)/increase in cash and cash equivalents in accordance with US 214 (146) 613
GAAP
Cash and cash equivalents at beginning of period 1 285 1 431 818
Cash and cash equivalents at end of period 1 499 1 285 1 431
At year end cash and cash equivalents is made up of:
Cash at bank and in hand 1 199 836 708
Money market deposits* 300 449 723
Cash and cash equivalents at end of period 1 499 1 285 1 431
* Money market deposits with financial institutions have a maturity up to
but not more than three months.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Basis of presentation under US GAAP
Revenue recognition
SAB 101 'Revenue recognition in Financial Statements' became applicable to the
BHP Billiton Group for the year ended 30 June 2001. The adoption of SAB 101 does
not give rise to any differences in revenue recognition.
Debtors
In accordance with UK GAAP, certain debtors are included on the balance sheet,
which are considered to have been sold and are not included on the balance sheet
under US GAAP. The value of debtors at 30 June 2002 which were the subject of
such treatment was US$141 million (2001: US$278 million).
Joint ventures and joint arrangements
Under US GAAP, all investments classified as joint ventures, as detailed under
the heading 'Joint ventures' in note 1 'Principal subsidiaries, joint ventures,
associates and joint arrangements', are accounted for under the equity method of
accounting in accordance with APB 18. All joint arrangements, as detailed under
the heading 'Proportionally included joint arrangements' in note 1, are also
proportionally accounted for in accordance with Emerging Issues Task Force
Opinion ('EITF') 00-01 Investor Balance Sheet and Income Statement Display under
the Equity Method for Investments in Certain Partnerships and Other Ventures.
As disclosed in note 1, the BHP Billiton Group's investment in the Richards Bay
Minerals joint venture is comprised of two legal entities Tisand (Pty) Limited
and Richards Bay Iron and Titanium (Pty) Limited. Although the BHP Billiton
Group owns 51 per cent of Tisand (Pty) Limited, it has not been consolidated
under US GAAP in accordance with EITF 96-16 Investor's Accounting for an
Investee When the Investor Has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or Veto Rights. The
substantive participating rights of the minority interests holder in the
Richards Bay Minerals joint venture are embodied in the shareholder agreement
between the BHP Billiton Group and Rio Tinto which ensures that the Richards Bay
Minerals joint venture functions as a single economic entity with the overall
profit of the Richards Bay Minerals joint venture shared equally between the
venturers.
As disclosed in note 1, the BHP Billiton Group holds a 57.5 per cent ownership
interest in Escondida, which is classified as a joint arrangement. In accordance
with EITF 96-16, the BHP Billiton Group has not consolidated this investment.
The substantive participating rights of the minority interests holder in the
Escondida joint venture include the participation in selection, termination and
compensation of management, approval of sales, expenditure, expansions,
curtailments, borrowings, settlements and policies and procedures.
Cash flows
Under US GAAP, dividends from joint ventures and associates, cash flows from
returns on investments and servicing of finance, and tax paid are included in
operating activities. In addition, capital expenditure and acquisitions and
disposals are included as investing activities. Proceeds from the issuance of
shares, increases and decreases in debt, and dividends paid, are included as
financing activities.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Under UK GAAP, cash is defined as cash in hand and deposits repayable on demand,
less overdrafts repayable on demand. Under US GAAP, cash is defined as cash in
hand and deposits but also includes cash equivalents, which are short term
investments with original maturities of less than three months.
US GAAP adjustments
Elimination of the BHP Billiton Plc Group financial information
This adjustment eliminates the pre-acquisition net income of the BHP Billiton
Plc Group recorded in the BHP Billiton Group UK GAAP financial statements for
the years ended 30 June 2001 and 30 June 2000. This elimination is not
applicable at 30 June 2002 or for subsequent post-acquisition periods.
Acquisition of BHP Billiton Plc
On 29 June 2001, BHP Billiton Limited and BHP Billiton Plc established a DLC
merger. A full description of the DLC Merger structure is provided in 'Dual
Listed Companies Structure and Basis of Preparation of Financial Statements'.
Under US GAAP, the DLC merger is accounted for as a purchase business
combination of the BHP Billiton Plc Group by the BHP Billiton Limited Group.
The total assumed purchase consideration of US$11 529 million was calculated by
multiplying the number of shares held by BHP Billiton Plc shareholders of 2 319
147 885 on 29 June 2001 by the US$4.9559 adjusted average share price of BHP
Billiton Limited's ordinary shares. The average share price was calculated over
a period of three days prior to, and subsequent to, the announcement of the DLC
merger on 19 March 2001. The average share price is adjusted for the 1:1
equalisation ratio, which is achieved by BHP Billiton Limited's bonus share
issue of 1 912 154 524 million shares in the ratio of 1.0651 additional bonus
shares for every existing share held - prior to the bonus share adjustment the
average share price would be US$10.2344 (i.e. by a factor of 2.0651). The 2 319
147 885 shares held by BHP Billiton Plc shareholders on 29 June 2001 reflect the
exercise of rights under the Restricted Share Scheme and the Co-Investment Plan.
As such, there were no outstanding stock options, stock appreciation rights or
similar issuances of BHP Billiton Plc, and no purchase consideration is
attributable to such securities. The cost of acquisition was therefore US$11 529
million, including direct external acquisition costs of US$36 million. The
direct external acquisition costs have been expensed as incurred for UK GAAP
purposes.
Under US GAAP purchase accounting, the cost of the acquisition is allocated to
the fair values of identifiable assets acquired and liabilities assumed. As a
result of the fair value exercise, increases in the values of the BHP Billiton
Plc Group's inventory, investments, long-term contracts and long-term debt were
recognised and fair market values attributed to their other tangible assets
mainly property, plant and equipment and undeveloped properties, together with
appropriate deferred taxation effects. The difference between the cost of
acquisition and the fair value of the assets and liabilities of the BHP Billiton
Plc Group has been recorded as goodwill. Fair value adjustments to the recorded
amount of inventory and long-term contracts are expensed in the period the
inventory is utilised and the long-term contracts are delivered into, and
additional amortisation and depreciation are recorded in respect of the fair
value adjustments of intangible and tangible assets and the resulting goodwill
over the periods of their respective useful economic lives.
The adjustments to the assets and liabilities of the BHP Billiton Plc Group to
reflect the fair values and allocation of the excess purchase consideration over
the fair value of net assets acquired, based on management's best estimates of
fair value, are summarised in the shareholders' equity reconciliation and are
discussed below:
i. The increase in fair value of inventory was determined based on the
difference between the carrying value and the market value of these assets.
(ii) The increase in investments relates to increases to the BHP Billiton
Plc Group's equity investments. These equity investments have been measured
at fair value and any excess of the fair value over the underlying tangible
assets and liabilities has been attributed to mineral reserves within the
underlying investments. These uplifts to mineral properties are being
amortised over their estimated useful lives on a unit of production and, on
an investment-by-investment basis. The estimated useful lives are not
expected to exceed 30 years.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
(iii) The increase in property, plant and equipment relates to increases in
the carrying value of the BHP Billiton Plc Group's property, plant and
equipment to their estimated fair value. The increase in carrying value of
the property, plant and equipment is to be amortised over the estimated
useful life of the property, plant and equipment, primarily on a unit of
production basis. The estimated useful lives range between one year and 33
years.
During December 1998, the BHP Billiton Plc Group acquired certain assets
from the BHP Billiton Limited Group. The BHP Billiton Plc Group recognised
certain fair value adjustments as a result of this acquisition which are
being amortised over their useful lives. As a result of the application of
merger accounting under UK GAAP, the fair value adjustments are reversed.
For US GAAP these fair value adjustments are reinstated.
(iv) The amount of total consideration allocated to the BHP Billiton Plc
Group's developed and undeveloped properties has been estimated by the BHP
Billiton Group management using current estimates of the status and
prospects of the BHP Billiton Plc Group's developed and undeveloped property
portfolio as contained in the BHP Billiton Plc Group's strategic plans. The
undeveloped properties include only those identified properties that have
advanced to a stage of development feasibility where management believes
reasonable estimates of projected cash flows can be prepared and proven and
probable reserves exist. The value allocated to the developed and
undeveloped properties was determined utilising a risk adjusted income
approach that included earnings discounted by the appropriate cost of
capital for the investment. Estimates of future cash flows related to
individual developed and undeveloped properties were based on existing
estimates of revenues and contribution margin for the project. The increase
in developed properties is being amortised over their estimated exploitable
useful lives on a project-by-project basis. Amortisation for each project is
deferred until such time as production commences.
(v) The increase in value of the long-term contracts was determined by
attributing a fair value to certain long-term contracts, which were not
accorded a value in the BHP Billiton Plc Group's financial statements.
(vi) Goodwill represents the remainder of unallocated purchase
consideration. Goodwill is currently amortised over its expected useful
economic life and in future years will be subject to periodic impairment
tests.
(vii) The decrease in long-term debt was as a result of attributing a fair
value to fixed interest rate long-term loans which were not recorded at fair
value in the BHP Billiton Plc Group's financial statements.
(viii) Other differences between UK GAAP and US GAAP included adjustments
for pensions, post-retirement benefits and start up costs.
(ix) Deferred taxes have been computed on the excess of fair value over book
value, other than for goodwill, using the applicable statutory tax rates.
Preliminary fair value assessments of the assets and liabilities of the BHP
Billiton Plc Group were undertaken through the quantification of the purchase
price and the preliminary allocation of this to individual businesses and to the
underlying assets and liabilities of the individual businesses. Minor revisions
to the provisional fair values were undertaken in the year ended 30 June 2002.
The revised values of assets and liabilities acquired compared to the
provisional values are shown in the table below. Prior period fair value
adjustments have not been restated for the revisions.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Final Provisional
US$M US$M
Balance Sheet at 30 June 2001
Current assets
Cash assets 687 687
Receivables 883 883
Inventories 1 022 1 022
Other financial assets 132 132
Non-current assets
Property, plant and equipment 11 567 11 540
Intangibles 3 307 3 278
Other financial assets 2 929 2 971
Current liabilities
Payables 1 048 1 048
Interest bearing liabilities 1 300 1 300
Other provisions 221 221
Non-current liabilities
Interest bearing liabilities 3 329 3 329
Tax liabilities 2 129 2 161
Other provisions 634 588
Equity minority interests 337 337
Net assets 11 529 11 529
Shareholders' equity
Shareholders' equity 11 529 11 529
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
BHP Steel demerger
Under UK GAAP, the BHP Steel demerger is treated in two components - a
distribution to BHP Billiton Limited shareholders of 94 per cent of BHP Steel
shares (accounted for as a capital reduction) and a sale of 6 per cent of BHP
Steel shares (accounted for as a sale of assets). Under US GAAP, the BHP Steel
demerger is classified as a non pro-rata distribution to shareholders and is
required to be accounted for as a 100 per cent sale of assets. The implied
consideration for the sale of the additional 94 per cent of BHP Steel shares is
based on the market price of BHP Steel shares used in determining the bonus
issue of BHP Billiton Plc shares to BHP Billiton Plc shareholders. The remaining
6 per cent is measured at the respective sale price. The implied consideration,
when compared to the book value of the BHP Steel net assets to be demerged,
indicates a shortfall, which is required to be recognised in the result for the
period ended 30 June 2002 for US GAAP.The calculation of the book value of the
BHP Steel net assets to be demerged includes US GAAP net asset adjustments
attributable to BHP Steel.
Employee compensation costs
In these accounts, the expected cost of awards under various employee ownership
plans is charged to the profit and loss account over the vesting period. Under
US GAAP, compensation expense arising from variable equity award plans is
recognised based on movements in their intrinsic value.
Depreciation
Revaluations of property, plant and equipment and investments have resulted in
upward adjustments to the historical cost values reflected in a revaluation
reserve, which is part of total equity. In the case of property, plant and
equipment, the depreciation charged against income increases as a direct result
of such a revaluation. Since US GAAP does not permit property, plant and
equipment to be valued at above historical cost, the depreciation charge has
been restated to reflect historical cost depreciation.
Following smaller asset write-downs under US GAAP, the higher asset values under
US GAAP are being depreciated in accordance with asset utilisation. Refer 'Asset
write-downs' below.
Asset write-downs
At 31 May 1998, the BHP Billiton Limited Group changed its impairment test
policy for determining the recoverable amount of non-current assets from an
undiscounted to a discounted basis. The discount rate is a risk adjusted market
rate which is applied both to determine impairment and to calculate the
write-down.
Under US GAAP, where an asset is reviewed for impairment, an impairment test is
required utilising undiscounted cash flows. If the asset's carrying value
exceeds the sum of undiscounted future cash flows, the asset is considered
impaired and it is written down to its fair value.
These differences created adjustments to the profit and loss account in prior
years representing the lower charge to profit and resultant higher asset values
for the write-downs calculated under US GAAP. In subsequent financial periods,
the difference in asset carrying values is reduced through the inclusion of
additional depreciation charges in the profit and loss account. Refer '
Depreciation' above.
The movement in the shareholders' equity reconciliation in 2002 for this item
largely reflects impacts of the BHP Steel demerger and has been included in that
item in the income reconciliation. The charge to profit for the period ended 30
June 2000 reflects the additional write-off of the West Australian HBI plant for
US GAAP.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Reserves
The BHP Billiton Group prepares mineral reserve statements based on the
Australasian Code for reporting of Mineral Resources and Ore Reserves, September
1999 (the JORC Code). The information contained in these statements differs in
certain respects from that reported to the US Securities and Exchange Commission
(SEC) which is prepared with reference to the SEC's Industry Guide 7. This
adjustment reflects the impact on depreciation of the difference.
Restructuring and employee provisions
These accounts include provisions for redundancies associated with
organisational restructuring that can be recognised where positions have been
identified as being surplus to requirements, provided the circumstances are such
that a constructive liability exists. Under US GAAP, a provision for
redundancies involving voluntary severance offers is restricted to employees who
have accepted these offers. The adjustment is reversed over subsequent periods
as the offers are accepted.
Fair value accounting for derivatives
Under UK GAAP, when undertaking risk mitigation transactions, hedge accounting
principles are applied, whereby derivatives are matched to the specifically
identified commercial risks being hedged. These matching principles are applied
to both matured and unmatured transactions. Derivatives undertaken as hedges of
anticipated transactions are recognised when such transactions are recognised.
Upon recognition of the underlying transaction, derivatives are valued at the
appropriate market spot rate.
When an underlying transaction can no longer be identified, gains or losses
arising from a derivative that has been designated as a hedge of a transaction
will be included in the profit and loss account whether or not such derivative
is terminated. When a hedge is terminated, the deferred gain or loss that arose
prior to termination is:
(a) Deferred and included in the measurement of the anticipated transaction
when it occurs; or
(b) Included in the profit and loss account where the anticipated
transaction is no longer expected to occur.
The premiums paid on interest rate options and foreign currency put and call
options are included in other assets and are deferred and included in the
settlement of the underlying transaction. When undertaking strategic or
opportunistic financial transactions, all gains and losses are included in the
profit and loss account at the end of each reporting period. The premiums paid
on strategic financial transactions are included in the profit and loss account
at the inception of the contract.
For the purpose of deriving US GAAP information, Statement of Financial
Accounting Standards No. 133: Accounting for Derivative Instruments and Hedging
Activities (SFAS 133) requires that each derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value. On
initial application of this Standard the BHP Billiton Limited Group recognised
an accumulated loss of US$268 million in respect of the fair value of derivative
instruments held on 1 July 2000, which qualified as cash flow hedge
transactions. This amount was reported as a component of other comprehensive
income. An accumulated gain of US$11 million was recognised in respect of the
fair value of derivative instruments which qualified as fair value hedge
transactions, offset by a corresponding loss on their associated hedged
liabilities held at 1 July 2000. The BHP Billiton Plc Group does not apply
hedging principles in accordance with SFAS 133 and marks to market all
derivative instruments, taking movements in the fair value of derivative
instruments to the profit and loss account.
In the year ended 30 June 2001, subsequent gains and losses on cash flow hedges
were taken to other comprehensive income and reclassified to profit and loss in
the same period the hedged transaction was recognised. Gains and losses on fair
value hedges continue to be taken to profit and loss in subsequent periods, as
are offsetting gains and losses on hedged liabilities. In both cases, these
gains and losses are not recognised under UK GAAP until the hedged transaction
is recognised.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Effective 1 July 2001, for US GAAP purposes, the BHP Billiton Limited Group
de-designated existing derivative instruments as hedges of underlying
transactions. Amounts previously included in other comprehensive income in
relation to those derivative instruments previously designated as cash flow
hedges will remain until the transactions originally being hedged are
recognised, at which time the amounts will be taken to the profit and loss
account. Movements in the fair value of derivative instruments since 30 June
2001 are taken to the profit and loss account.
Synthetic debt
An operating subsidiary, whose functional currency is the US dollar, has
obtained financing in various foreign currencies. The operating subsidiary
entered into forward exchange contracts to fix the exchange rate between the
rand and the various foreign currencies. In these accounts, the arrangement is
treated as a synthetic rand debt which at each period end is retranslated into
US dollars at the spot rate with the exchange gain or loss that is recognised
being included in the profit and loss account.
Under US GAAP, synthetic debt accounting is not permitted. As a result, the
foreign loan amounts and forward exchange contracts are accounted for
separately. Foreign loans are recorded at the exchange rate in effect on the
date of the borrowing, with gains and losses arising from currency movements
taken to the profit and loss account. The forward exchange contracts are marked
to market annually with the resulting gain or loss also taken to the profit and
loss account.
Realised net exchange gains on sale of assets/closure of operations
Net exchange gains or losses reported in shareholders' equity, which relate to
assets that have been sold, closed or written down are transferred to retained
earnings. US GAAP requires these net exchange gains or losses be recognised in
the profit and loss account reflecting that they have, in substance, been
realised.
Exploration, evaluation and development expenditures
The BHP Billiton Group follows the 'successful efforts' method under UK GAAP in
accounting for petroleum exploration, evaluation and development expenditures.
This method differs from the 'successful efforts' method followed by some US
companies, and adopted in this reconciliation to US GAAP, in that it permits
certain exploration costs in defined areas of interest to be capitalised. Such
expenditure capitalised by the BHP Billiton Group is amortised in subsequent
years. In respect of Minerals properties, the BHP Billiton Group capitalises
exploration and evaluation expenditure where it is expected that the expenditure
will be recouped by future exploitation or sale or where a mineral resource has
been identified but activities have not reached a stage which permits a
reasonable assessment of the existence of commercially recoverable reserves.
Under US GAAP, a final feasibility study indicating the existence of
commercially recoverable reserves at greenfield properties serves as the trigger
point for capitalisation. US GAAP permits expenditure to be capitalised for the
purposes of extending or further delineating existing reserves. In subsequent
financial periods, amounts amortised (which have been expensed for US GAAP
purposes) will be added back when determining the profit result according to US
GAAP.
Costs of start-up activities
The BHP Billiton Group capitalises as part of property, plant and equipment,
costs associated with start-up activities at new plants or operations which are
incurred prior to commissioning date. These capitalised costs are depreciated in
subsequent years. Under US GAAP, costs of start-up activities should be expensed
as incurred.
Profit on asset sales
Under US GAAP, profits arising from the sale of assets cannot be recognised in
the period in which the sale occurs where the vendor has a significant
continuing association with the purchaser. In such circumstances, any profit
arising from a sale is recognised over the life of the continuing arrangements.
For the period ended 30 June 2000, the profit on the sale and leaseback of plant
and equipment was deferred for US GAAP purposes and will be recognised over the
life of the operating lease.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Pension plans
Under UK GAAP, the net periodic pension cost assessed on an actuarial basis is
charged to profit and loss so as to allocate the costs systematically over the
employees' service lives. Under UK GAAP, this policy has been adopted for all
periods presented and resulted in changes in policy by the BHP Billiton Limited
Group to conform with the BHP Billiton Plc Group in the year ended 30 June 2001.
Previously, charges were taken to the profit and loss account as contributions
were made to pension plans.
Consequently, the BHP Billiton Group recognises periodic pension cost based on
actuarial advice in a manner generally consistent with US GAAP. However,
differences in the actuarial method used and the timing of recognition of
expense components results in different periodic costs and pension assets or
liabilities. In addition, any associated foreign exchange gains or losses are
required to be eliminated from net income.
Post-retirement benefits
In these accounts, post-retirement benefits other than pensions have been
accounted for in accordance with the provisions of SSAP 24, which are generally
consistent with the provisions of SFAS 106 for the purposes of US GAAP except
for certain scenarios such as in accounting for plan amendments.
Under UK GAAP, amendments to post-retirement benefits provided are taken into
account from the date upon which plan amendments are announced. Under US GAAP,
plan amendments are only taken into account from the date upon which the plan
amendments become effective.
Mozal expansion rights
In June 2001, BHP Billiton announced an agreement to sell-down a portion of its
preferential rights in the Mozal Phase II project to two of its project
partners. In these accounts, the consideration was recognised as revenue in the
year ended 30 June 2001. A portion of the consideration will be paid in cash and
another portion will be delivered to BHP Billiton via a marketing arrangement
once production has commenced. This deferred portion will be amortised to the
profit and loss account over the period of the sales contract. Under US GAAP,
the consideration paid in cash will be recognised as profit from asset sales
when received and the deferred consideration portion is considered a derivative
and has been recognised on the balance sheet and marked to market with movements
in fair value being taken to the profit and loss account.
Change in UK corporate tax rate for petroleum companies
UK GAAP requires tax liabilities and assets to be measured at the amounts
expected to apply using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. US GAAP requires the
measurement of tax liabilities and assets using tax rates based on enacted tax
law. The effect of a change in the UK corporate tax rate for petroleum companies
was recognised in June 2002 for UK GAAP on the basis that the legislation was
substantively enacted. This tax rate change will not be recognised for US GAAP
purposes until the legislation is enacted. For 2002, an adjustment of US$61
million is reported in the item 'taxation adjustments'.
Purchase business combination costs
Costs incurred in relation to the DLC merger that were expensed under UK GAAP
represent costs of acquisition that were capitalised under US GAAP.
Expenses on spin-off of OneSteel Limited
Costs associated with completion of the spin-off of OneSteel Limited are
recognised directly in equity for UK GAAP but are charged as expenses for US
GAAP. Previously published financial statements incorrectly recognised these
costs directly in equity. This change in accounting in the year ended 30 June
2001 decreased US GAAP net income by US$30 million, and decreased US GAAP
earnings per share by US$0.008 per share.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
Restoration and rehabilitation costs
Under UK GAAP, the expected cost of any committed decommissioning or restoration
program, discounted to its net present value, is provided and capitalised at the
beginning of each project. The capitalised cost is amortised over the life of
the operation and the increase in the net present value of the provision as the
discount unwinds is included in net interest and similar items payable. Under UK
GAAP, this policy has been adopted for all periods presented. In fiscal 2000 and
prior years, the provision was determined under US GAAP on an undiscounted basis
and the charge to profit was generally based on units of production, so that
full provision was made by the end of the assets' economic life.
Consolidation of Tubemakers of Australia Ltd (TOA)
Prior to consolidation, TOA was accounted for as an associated entity and
included in the equity accounting calculations. Under US GAAP equity accounting
is included in the consolidated results, while prior to the year ended 30 June
1999 only disclosure by way of note to the accounts was permitted. Thus the
carrying value of the original equity interest in TOA is higher under US GAAP,
and this is reflected in higher goodwill capitalised and amortised in accordance
with US GAAP. The spin-off of OneSteel Limited eliminated this reconciling item.
Employee Share Plan loans
Under the Employee Share Plan, loans have been made to employees for the
purchase of shares in BHP Billiton Limited. Under US GAAP, the amount
outstanding as an obligation to the BHP Billiton Limited Group, which has
financed equity, is required to be eliminated from total shareholders' equity.
In addition, any foreign exchange gains or losses on the outstanding loan
balances are required to be eliminated from net income
Investments
Under UK GAAP certain unlisted investments are marked to market annually based
on third party valuations. The increase/(decrease) in the value of the
investments is recognised in the profit and loss account. Under US GAAP such
investments are adjusted to reflect the increase in guaranteed surrender value
of the investment, but are not permitted to be marked to market.
Under UK GAAP certain investments in marketable securities are classified as
exploration assets and are carried at estimated recoverable amount. Under US
GAAP, such investments are classified as available for sale and are marked to
market with changes in fair value recognised as a component of comprehensive
income.
Secondary share issuance
During September 2000, BHP Billiton Plc undertook a secondary issuance of shares
on the London Stock Exchange. The shares were issued in pounds sterling, however
to fix the proceeds received on the share issuance in US dollars, BHP Billiton
Plc utilised a number of hedging instruments to lock in the exchange rate
between pounds sterling and US dollars. This hedging activity gave rise to a
loss being realised due to the movement in the pound sterling against the US
dollar. BHP Billiton Plc reported this loss as an offset against the share
proceeds, which was then credited to paid in capital.
Under US GAAP, the loss would not qualify as a hedged item under SFAS 133. As
such, the loss is recognised in the profit and loss in the period the loss was
realised.
Taxation adjustments
In these accounts, potential tax expense of US$47 million has not been
recognised in 2002, mainly relating to the tax impact of unrealised foreign
exchange gains or losses on US dollar net debt held by subsidiaries which retain
local currency records for tax purposes. For US GAAP, a tax expense is
recognised reflecting the existence of the foreign exchange gains or losses in
the accounts of the respective entity. This adjustment is reported in the item '
taxation adjustments'.
NOTE 34. US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES continued
(B) Employee compensation costs
The BHP Billiton Group has applied the principles of US Accounting Principles
Board Opinion No. 25 in the determination of employee compensation costs arising
from the various employee ownership plans. Had the fair value basis of
accounting in US Statement of Financial Accounting Standards No. 123 been used
to account for compensation costs, the following net income and earnings per
share amounts would result:
2002 2001 2000
US$M US$M US$M
Net income
As reported 1 249 882 400
Proforma 1 224 897 400
Basic earnings per share (a) (b)
As reported 0.207 0.239 0.109
Proforma 0.203 0.243 0.109
Diluted earnings per share (b) (c)
As reported 0.207 0.238 0.109
Proforma 0.203 0.242 0.109
(a) Based on net profit attributable to members of BHP Billiton Group.
(b) Comparative data has been adjusted to take into account the bonus share
issue effective 29 June 2001. Refer note 23.
(c) Refer note 12.
(C) Impact of new accounting standards
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141: Business Combinations (SFAS141) and
Statement of Financial Accounting Standards No. 142: Goodwill and Other
Intangible Assets (SFAS142). In August 2001, the FASB also issued Statement of
Financial Accounting Standards No. 143: Accounting for Asset Retirement
Obligations (SFAS143) and Statement of Financial Accounting Standards No. 144:
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS144). In
July 2002, the FASB issued Statement of Financial Accounting Standards No. 146:
Accounting for Costs Associated with Exit or Disposal Activities (SFAS146).
For the purpose of deriving US GAAP financial information of the BHP Billiton
Group, SFAS141 applies to purchase business combinations entered into after 30
June 2001. SFAS142, SFAS143 and SFAS144 will apply for the year ending 30 June
2003 while SFAS146 is effective for exit or disposal activities initiated after
31 December 2003. The BHP Billiton Group has not adopted any of these standards
early for the purpose of the June 2002 financial statements.
SFAS141 changes the accounting for business combinations to a single purchase
accounting method. SFAS141 also changes the recognition criteria for intangible
assets other than goodwill, and expands disclosure requirements in relation to
business combinations. SFAS142 changes the accounting for acquired goodwill and
other intangible assets by requiring that goodwill and intangible assets with
indefinite useful lives not be amortised. Under SFAS142, the carrying amount of
such assets will be subject to impairment tests at least on an annual basis.
SFAS143 changes accounting for the retirement of tangible long-lived assets by
requiring that the fair value of legal obligations associated with the
retirement of such assets be recognised as a liability and capitalised as part
of the cost of those assets. SFAS144 requires one accounting model to be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and will broaden the presentation of discontinued
operations to include more disposal transactions. SFAS146 requires that costs
associated with exit or disposal activities be recognised when they are incurred
rather than at the date of a commitment to an exit or disposal plan.
The BHP Billiton Group has not evaluated the potential impact of any of these
new standards on its future financial performance or financial position.
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 600 Bourke Street Melbourne Victoria Registered Office: 1-3 Strand London WC2N 5HA United Kingdom
3000 Telephone +44 20 7747 3800 Facsimile +44 20 7747 3900
Telephone +61 3 9609 3333 Facsimile +61 3 9609 3015
The BHP Billiton Group is headquartered in Australia
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