BT 2004 Annual Report Download - page 127

Had the cessation of goodwill amortisation requirement of SFAS No. 142 been applied in prior periods, results of
operations would have been as follows:
2003
£m
2002
£m
Net income (loss) as adjusted for US GAAP 4,134 (732)
Add back: goodwill amortisation –34
Adjusted net income (loss) 4,134 (698)
Adjusted basic earnings per American Depositary Share £4.80 £(0.84)
Adjusted diluted earnings per American Depositary Share £4.80 £(0.84)
(f) Mobile cellular telephone licences, software and other intangible assets
Certain intangible fixed assets recognised under US GAAP purchase accounting requirements are subsumed
within goodwill under UK GAAP. Under US GAAP these separately identified intangible assets are valued and
amortised over their useful lives of 20 years.
(g) Financial instruments
Under UK GAAP, investments are held on the balance sheet at historical cost, and own shares held in trust for
share schemes are recorded in fixed asset investments. Gains and losses on instruments used for hedges are not
recognised until the exposure being hedged is recognised. Under US GAAP, trading securities and available-for-
sale securities are carried at market value with appropriate valuation adjustments recorded in profit and loss and
shareholders’ equity, respectively.
Certain derivative financial instruments which qualify for hedge accounting under UK GAAP do not qualify for
hedge accounting under US GAAP. Under US GAAP, financial instruments do not qualify for hedge accounting
due to the extensive documentation requirements. These financial instruments, under US GAAP, are carried
at market value with valuation adjustments recorded in the profit and loss account. The reassessment and
purchase of derivatives in the year ended 31 March 2004 gave rise to an adjustment reducing net income by
£133 million net of tax (2003 – increase £610 million). The net unrealised holding gain on equity investments
held as available-for-sale securities for the year ended 31 March 2004 was £5 million (2003 – £22 million,
2002 – £271 million). SFAS 133 became effective for BT on 1 April 2001 and the unamortised transitional
adjustment of £9 million net of tax remains in shareholders’ equity at 31 March 2004.
(h) Deferred gain
Under UK GAAP, assets contributed to a joint venture by the group’s partners are measured at their net
replacement cost. Any difference between the group’s share of the joint venture’s resulting net assets and the
net book value of assets contributed by the group to the joint venture, including certain accrued start up costs, is
immediately reflected by adjusting the group’s investment in the joint venture and recording a deferred
difference in shareholders’ equity. Under US GAAP, the assets contributed by all joint venture partners are
carried at their historical net book value and any difference between the group’s share of the joint venture’s
resulting net assets and the net book value of assets contributed by the group to the joint venture is amortised
over the life of the items giving rise to the difference.
(i) Employee share plans
Certain share options have been granted under BT save-as-you-earn plans at a 20% discount. Under UK GAAP,
the share issues are recorded at their discounted price when the options are exercised. Under US GAAP, a plan
is considered compensatory when the discount to market price is in excess of 15%. Compensation cost is
recognised for the difference between the exercise price of the share options granted and the quoted market
price of the shares at the date of grant or measurement date and accrued over the vesting period of the options.
Under UK GAAP, shares held by employee share ownership trusts are recorded as fixed asset investments
at cost less amounts written off. Under US GAAP, those shares not fully vested are regarded as treasury stock
and recorded at cost as a deduction from shareholders’ equity.
(j) Investments in associates
Under UK GAAP, the economic interest in the associates’ operating profits before minority interest is reported as
part of the total operating profit. For those associates in which a minority interest is recognised in their
respective statements of profit and loss, such minority interest is reported as minority interest in the consolidated
profit and loss account. Under US GAAP, the minority interest in the associates is reclassified from minority
interest and reported within the share of results of associates.
BT Annual Report and Form 20-F 2004126 United States Generally Accepted Accounting Principles