The accompanying consolidated financial information has been prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP"). Such principles differ in certain respects from generally accepted accounting principles in the United States ("US GAAP"). A summary of principal differences and additional disclosures applicable to the Group is set out below.

(In £’s million)	Explanation reference	6 months ended 31 March 2004	6 months ended 31 March 2003	Year ended 30 Sept 2003
Profit attributable to shareholders under UK GAAP		189	182	421
US GAAP adjustments:
Pensions	(i)	2	2	2
Amortisation of goodwill	(ii)	100	92	194
Amortisation of brands/trade marks/licences	(ii)	(50)	(44)	(102)
Deferred taxation	(iii)	4	29	57
Mark to market adjustments due to non designation of hedge accounting per SFAS 133	(iv)	(28)	(39)	(82)
Employee share schemes (charge)/credit to the profit and loss account	(vi)	(1)	6	6
Net income under US GAAP		216	228	496

 

(In pence)	Explanation reference	6 months ended 31 March 2004	6 months ended 31 March 2003	Year ended 30 Sept 2003
Amounts in accordance with US GAAP
Basic net income per ordinary share	(vii)	29.8	31.5	68.5
Basic net income per ADS	(vii)	59.6	63.0	137.0
Diluted net income per ordinary share	(vii)	29.7	31.3	68.2
Diluted net income per ADS	(vii)	59.4	62.6	136.4

 

(In £’s million)	Explanation reference	31 March 2004	Restated (see note 2) 31 March 2003	Restated (see note 2) 30 Sept 2003
Equity shareholders’ funds under UK GAAP as previously reported		88	52	76
Prior year adjustments (see note 2)		-	(28)	(36)
Equity shareholders’ funds under UK GAAP as restated		88	24	40
US GAAP adjustments:
Pensions	(i)	346	338	345
Goodwill, less accumulated amortisation of £(290)m (2003: £(89)m)	(ii)	(911)	(1,140)	(1,060)
Brands/trade marks/licences, less accumulated amortisation of £212m (2003: £106m)	(ii)	2,740	2,928	2,921
Deferred taxation	(iii)	(961)	(1,021)	(1,008)
Mark to market adjustments due to non designation of hedge accounting per SFAS 133	(iv)	(15)	56	13
Proposed dividend	(v)	109	86	217
Employee share schemes	(vi)	(2)	1	(1)
Shareholders’ funds under US GAAP		1,394	1,272	1,467

(i) Pensions

Under UK GAAP, pension costs are accounted for under the rules set out in Statement of Standard Accounting Practice No. 24 (SSAP 24). Its objectives and principles are broadly in line with those set out in the US accounting standard for pensions, Statement of Financial Accounting Standard No. 87, "Employers’ Accounting for Pensions" (SFAS 87). However, SSAP 24 is less prescriptive in the application of the actuarial method and assumptions to be applied in the calculation of pension costs.

Group contributions to the Imperial Tobacco Pension Fund are suspended as the Fund is in surplus. Under UK GAAP, in accordance with SSAP 24, no pension expense has been reflected in the profit and loss account and no pension asset has been recognised in the balance sheet for the UK and Irish pension schemes. A pension liability and related pension expense is recognised for the German unfunded pension schemes.

Under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period as determined in accordance with SFAS 87. Under SFAS 87, a pension asset representing the excess of pension fund assets over benefit obligations has been recognised in the balance sheet.

(ii) Intangible assets

Both UK and US GAAP require purchase consideration to be allocated to the net assets acquired at their fair value on the date of acquisition. Under UK GAAP, goodwill arising and separately identifiable and separable intangible assets acquired on acquisitions made on or after 27 September 1998 are capitalised and amortised over their useful life, not exceeding a period of 20 years. Prior to 27 September 1998, all goodwill and separately identifiable and separable intangible assets were written off to reserves on acquisition.

Under US GAAP, identifiable intangible assets are separately valued and amortised over their useful lives. The separately identifiable intangible assets included in the US GAAP balance sheet are principally comprised of brand rights which are being amortised over 25 to 30 years.

The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) with effect from 1 July 2001 and accordingly goodwill generated on acquisitions after this date was not amortised. For purchase transactions prior to 1 July 2001, goodwill was capitalised and amortised over its useful life. From 29 September 2002, in accordance with SFAS 142, the Company no longer amortises goodwill but rather tests such assets for impairment on an annual basis or where there is an indicator of impairment.

The Company completed an annual impairment review under SFAS 142 at 30 September 2003 and no impairment charge of goodwill was indicated.

(iii) Deferred taxation

Under UK GAAP, deferred taxation is provided in full on all material timing differences. Deferred tax assets are recognised where their recovery is considered more likely than not.

US GAAP requires deferred taxation to be provided in full, using the liability method. In addition, US GAAP requires the recognition of the deferred tax consequences of differences between the assigned values and the tax bases of the identifiable intangible assets, with the exception of non tax-deductible goodwill, in a purchase business combination. Consequently, the deferred tax liability attributable to identifiable intangible assets has been recognised and is being amortised over the useful economic lives of the underlying intangible assets.

(iv) Derivative financial instruments

The Group has entered into certain 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.

US GAAP requires the Group to record all derivatives on the balance sheet at fair value. The Group has decided not to satisfy the SFAS 133 requirements to achieve hedge accounting for its derivatives, where permitted, and accordingly movements in the fair value of derivatives are recorded in the profit and loss account.

(v) Proposed dividends

Under UK GAAP, dividends paid and proposed are shown on the face of the profit and loss account as an appropriation of the current period’s earnings. Proposed dividends are provided on the basis of recommendation by the Directors.

Under US GAAP, dividends are recorded in the period in which they are formally declared.

(vi) Employee share schemes

Under UK GAAP, the cost of employee share schemes is charged to the profit and loss account using the quoted market price of shares at the date of grant less the exercise price of the share options granted. The charge is accrued over the vesting period of the shares. There is an exemption from making such a charge for Inland Revenue approved SAYE schemes and equivalent overseas schemes.

Under US GAAP, the 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. For option plans which contain performance criteria, compensation cost is remeasured at each period end until all performance criteria have been met.

(vii) Net income per ordinary share

Basic net income per ordinary share has been computed using US GAAP net income and weighted average ordinary shares. Diluted net income per ordinary share has been calculated by taking into account the weighted average number of shares that would be issued on conversion into ordinary shares of options held under employee share schemes. There would be no significant dilution of earnings if outstanding share options were exercised.

Each American Depositary Share (ADS) represents two Imperial Tobacco Group PLC ordinary shares.

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