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35. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
The assumption for the expected return in scheme assets is a weighted average based on an assumed expected return for each
asset class and the proportions held of each asset class at the beginning of the year. The expected returns on bonds are based on
the gross redemption yields at the start of the year. Expected returns on equities and property are based on a combination of an
estimate of the risk premium above, yields on government bonds and consensus economic forecasts of future returns. The
expected return of 7.11% per annum used for the calculation of pension costs for the year ended 31 March 2006 is consistent with
that adopted for IAS 19.
(V) INCOME STATEMENT IN US GAAP FORMAT
The group income statements on page 73 comply with IFRS and the directors believe they are in the most appropriate format for
shareholders to understand the results of our business. We believe that it is important to show our results before deducting specific
items because these items predominantly relate to corporate transactions rather than the trading activities of the group. For SEC
reporting purposes this presentation may be considered ‘non GAAP’ and therefore the group has also prepared the following
income statement which meets the SEC reporting format set forth in Item 10 of Regulation S-X. The numbers disclosed in the
following income statement are prepared under IFRS.
2006
£m
2005
£m
Revenue 19,514 18,429
Operating expenses:
Payroll costs 4,066 3,832
Depreciation and amortisation 2,884 2,844
Payments to telecommunication operators 4,045 3,725
Other operating expenses 6,251 5,587
Total operating expenses 17,246 15,988
Net operating income 2,268 2,441
Other income, net 228 551
Net interest expense (472) (599)
Income taxes (492) (525)
Equity in earnings (losses) of investees 16 (39)
Minority interests (1) 1
Net income 1,547 1,830
Earnings per share – basic 18.4p 21.5p
Earnings per share – diluted 18.1p 21.3p
(VI) US GAAP DEVELOPMENTS
In November 2005, the FASB issued Financial Staff Position (‘FSP’) FAS 115-1 and FAS 124-1, ‘The Meaning of Other-Than-
Temporary Impairment and Its Application to Certain Investments,’ which nullifies certain requirements of Emerging Issues Task
Force (‘EITF’) Issue No. 03-1, ‘The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments’ and
supersedes EITF Abstracts Topic No. D-44, ‘Recognition of Other-Than-Temporary Impairment Upon the Planned Sale of a
Security whose Cost Exceeds Fair Value.’ The guidance in this FSP is applied to reporting periods beginning after
15 December 2005. BT does not expect that the adoption of this guidance will have a material effect on its financial position,
results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20
and FASB Statement No. 3’. SFAS No. 154 requires retrospective application of prior periods’financial statements for changes in
accounting principles. SFAS No. 154 applies to accounting periods beginning after 15 December 2005. The adoption of SFAS
No. 154 is not expected to have a material effect on the results or net assets of the group.
In February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4, ‘Classification of Options and Similar Instruments
Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event’ (‘FSP FAS 123(R)-
4’). FSP FAS 123(R)-4 addresses the classification of options and similar instruments issued as employee compensation that allow
for cash settlement upon the occurrence of a contingent event. An option or similar instrument that is classified as equity, but
subsequently becomes a liability because the contingent cash settlement event is probable of occurring, shall be accounted for
similar to a modification from an equity to liability award. The application of this FSP did not have a material impact on the results
or net assets of the group.
BT Group plc Annual Report and Form 20-F 2006 Notes to the consolidated financial statements120