Reported results - 2000
Differences between UK and US generally accepted accounting principles - Interim

Differences between UK and US generally accepted accounting principles

As at 30 June 2000

The Group prepares its financial statements in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP") which differ from those generally accepted in the United States ("US GAAP"). The following statements summarise the significant adjustments which reconcile profit on ordinary activities after taxation and equity shareholders' funds under UK GAAP to the amounts which would have been reported had US GAAP been applied in respect of the six months ended 30 June 2000.

Profit on ordinary activities after taxation

 

Note

Six months ended
30 June 2000
US$m*

Six months ended
30 June 2000
£m

Profit on ordinary activities after taxation as reported in the Group profit and loss account under UK GAAP

 

158.7

104.8

Significant adjustments:

 

 

 

  Pension costs

(a)

1.7

1.1

  Capitalised interest

(b)

(0.2)

(0.1)

  Shares held by employee benefit trust

(c)

(2.7)

(1.8)

  Savings-related share option scheme

(d)

(0.6)

(0.4)

  Mark to market adjustments on interest rate derivatives

(e)

15.9

10.5

  Deferred taxation on adjustments

 

(5.3)

(3.5)

Net income under US GAAP

 

167.5

110.6


Equity shareholders' funds

 

Note

At
30 June 2000
US$m*

At
30 June 2000
£m

Equity shareholders' funds as reported in the Group balance sheet under UK GAAP

 

(836.6)

(552.6)

Significant adjustments:

 

 

 

  Pension costs

(a)

169.5

112.0

  Capitalised interest

(b)

4.2

2.8

  Shares held by employee benefit trust

(c)

(5.1)

(3.4)

  Mark to market adjustments on interest rate derivatives

(e)

3.5

2.3

  Deferred taxation on adjustments

 

(51.6)

(34.1)

  Proposed dividend

(f)

71.9

47.5

Equity shareholders' funds under US GAAP

 

(644.2)

(425.5)

*

US dollar equivalents are provided for reader convenience at the 30 June 2000 exchange rate of £1:US$1.514.

Notes

  1. Pension costs
    Under UK GAAP, pension costs are determined in accordance with the UK Statement of Standard Accounting Practice ("SSAP") No. 24, with costs being expensed over employees' working lives. Under US GAAP, pension costs are determined in accordance with the requirements of the Statements of Financial Accounting Standards ("FAS") Nos. 87 and 88. US GAAP requires valuation of plan assets and obligations to be based on the fair value of plan assets and assumed discount rates in measurement of plan objectives. UK GAAP requires valuation to be based on actuarial long-term assumptions of both liabilities and the expected rate of return on assets.
  2. Capitalised interest
    Under US GAAP, interest incurred as part of the cost of constructing fixed assets is capitalised and amortised over the lives of the qualifying assets in accordance with FAS No. 34. In accordance with common UK practice, Gallaher does not capitalise such interest in its financial statements.
  3. Shares held by the employee benefit trust ("EBT")
    Under UK GAAP, shares of the Company held by the EBT to satisfy rights to shares arising from Gallaher's long-term share incentive plans are recorded at cost as fixed asset investments and amortised over a period of three years, after which the share awards are expected to vest. Under US GAAP, these shares are recorded at cost and reflected as a deduction from shareholders' funds. In addition, under US GAAP, the estimated fair value of the benefits accruing to individuals during the year from share awards is charged to the income statement.
  4. Savings-related share option scheme
    Under UK GAAP, the Company is not required to charge to the profit and loss account any benefits accruing to individuals under its savings-related share option scheme. Under US GAAP, the difference between the share price at the date of the option grant and the option exercise price, must be charged to the income statement over the option period, being three, five or seven years.
  5. Derivative financial instruments
    The Group has entered into certain interest rate swap transactions with contractual maturities exceeding those of the underlying debt being hedged, in anticipation of there being additional floating rate debt when the existing debt matures. Under UK GAAP, derivative financial instruments that reduce exposures on anticipated future transactions may be accounted for using hedge accounting. Under US GAAP, derivative financial instruments must meet specific criteria before hedge accounting can be applied. Instruments that do not meet the specified criteria are marked to market.
  6. Ordinary dividends
    Under UK GAAP, ordinary dividends are provided in the financial statements in the period in which they are proposed by the board. Under US GAAP, dividends are not provided for until declared.

Source: Interim results 2000 news release