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SECTION 5 FINANCIAL INFORMATION 5.2 RESTATED FINANCIAL INFORMATION 5.2.1 Basis of preparation The Restated Financial Information is derived from AGAAP Financial Information set out in Sections 5.3.1 and 5.3.2 with the adjustments outlined below.This Section should be read in conjunction with the AGAAP Financial Information and related disclosures. Adjustments made from the AGAAP Financial Information to arrive at the restated summary of financial performance include: • A constant $:US$ exchange rate of $0.7220 has been used to prepare the summary statements of financial performance for the years ended 31 December 2001, 2002 and 2003.The results for these years were initially prepared in US dollars.This adjustment addresses the impact of the appreciation of the Australian dollar versus the US dollar (from an average rate of $0.5176 in 2001 to an average rate of $0.7220 assumed in the 2004 forecast).The 2005 forecast of financial performance has been restated to the same exchange rates assumed in the 2004 forecasts.The Directors believe that this basis provides a more meaningful insight into the activities and financial performance of Babcock & Brown given the Group’s practice prior to the Offer of managing activities using the US dollar as its benchmark currency • Under AGAAP, certain streams of revenue and expense are required to be shown gross on the face of the statement of financial performance.The Restated Financial Information is based on Net Revenue which represents gross revenue under AGAAP less cost of sales and directly attributable expenses plus net contribution from equity accounted and consolidated non-strategic investments, which in Babcock & Brown’s view, provides a more meaningful view of the true nature of the Group’s revenue streams.This adjustment only relates to the presentation of the Restated Financial Information • The Restated Financial Information for the years ended 31 December 2001, 2002 and 2003 is presented to the level of profit before tax and bonus.This presentation reflects the move from a private partnership to a public company. Following the IPO Babcock & Brown will be structured with a different tax profile and with a different remuneration policy than prior to the IPO. Accordingly, while an allowance for bonus in accordance with the new remuneration policy has been made in respect of the forecast periods and a tax charge is reflected for 2005 (which is the first full year the new tax structure will apply), historical bonuses and tax charges have not been reflected in the accounts The restated summary of financial position separately identifies assets and liabilities that are directly attributable to the five Business Groups and discloses the nature of the remaining assets and liabilities.There are no differences between the measurement criteria used to calculate the restated summary of financial position and the AGAAP pro-forma statement of financial position at 31 December 2003 set out in Section 5.3.1.3. 106
BABCOCK & BROWN PROSPECTUS 5.2.2 Summary restated statement of financial performance Year ended 31 December ($000) 8 10 11 2001A 2002A 2003A 2004F 2005F Net Revenue by division – Real Estate 30,779 25,716 64,198 83,527 117,797 – Infrastructure and Project Finance 42,744 69,456 84,352 104,111 156,717 – Operating Leasing 82,036 83,226 79,704 101,619 122,604 – Structured Finance 171,784 156,998 124,573 96,524 97,127 – Corporate Principal Investment and Funds Management (996) 12,439 38,655 38,328 29,120 Net Revenue 1 326,347 347,835 391,482 424,109 523,365 Other revenue (1,263) 600 1,073 Net corporate interest income/expense 2 (2,780) (1,564) (1,200) 5,759 20,977 Operating costs 3 (118,894) (148,361) (162,543) (159,845) (178,730) Operating profit before bonuses, restructuring costs and goodwill amortisation 203,410 198,510 228,812 270,023 365,612 Bonus expense (pro-forma) 4 (127,509) (150,700) Operating profit before restructuring costs and goodwill amortisation 142,514 214,912 Restructure costs – business closure 5 (8,300) Restructure costs – IPO corporate structure 6 (1,500) Operating profit before tax and goodwill amortisation 7 132,714 214,912 Tax 9 (62,324) NPAT (before goodwill amortisation) 152,588 NOTES 1. Net Revenue represents gross revenue calculated in accordance with AGAAP less cost of sales and directly attributable expenses plus net contribution from equity accounted and consolidated non-strategic investments. 2. Net corporate interest income includes interest income on cash and cash-equivalent balances held by the Group and interest expense on corporate debt facilities.The Forecasts assume that net Offer Proceeds of $523 million are raised as at 30 September 2004 and used to extinguish corporate debt and other liabilities and provide capital for certain transactions incorporated in the Forecasts, with the balance forecast to be held as cash on deposit. 3. Operating costs comprise total expenses calculated in accordance with AGAAP but exclude cost of sales, expenses directly related to transactions, expenses of consolidated but non-strategic investments, bonuses and restructure costs. 4. Consistent with Babcock & Brown’s intentions, the forecast bonus for 2004 assumes that the full amount of the bonus pool, calculated in accordance with the remuneration policy outlined in Section 4.7, will be paid in cash or cash equivalents.Therefore the full amount of the forecast bonus pool is expensed during 2004. In 2005 based on constant exchange rates, the total bonus pool is forecast to be $174.5 million consistent with the stated remuneration policy. However, of this amount $23.8 million based on constant exchange rates is expected to treated as Bonus Deferral Rights (see Section 4.7.5). As the Bonus Deferral Rights relate to equity transactions there is no requirement under AGAAP to recognise an expense for this amount.The forecast AGAAP 2005 bonus expense based on constant exchange rates is therefore $150.7 million.Were Babcock & Brown to elect to recognise an expense, the value attributed to the rights would be recognised as an expense over the period to the vesting date of the rights consistent with Australian IFRS (see footnote 5, Section 5.4.1.2). In addition, consistent with current AGAAP, no amount has been forecast as an expense in the pro-forma Forecast in respect of Shares and Options allocated to the Employee Trusts (see Section 4.7.7) in either 2004 or 2005. 5. Restructure costs – business closure relates to redundancy costs and related expenditure in connection with the effective closure in 2004 of the Group’s US cross border leasing activities due to changes in US tax laws and to consequential provisions associated with assigning the lease on the Group’s existing New York office space and moving to smaller premises. 6. Total transaction costs of the IPO and Restructure amount to $28.5 million as set out in Section 8.11. Of this amount, $27 million is directly attributable to the capital raising and has been netted off against the Offer Proceeds consistent with AGAAP.The remainder, amounting to $1.5 million has been included as an expense in the 2004 Forecast. 7. Details of the treatment of goodwill under AGAAP in the Forecast Period are set out in footnote 3, Section 5.3.2.1. 8. As noted above, to facilitate comparison the Restated Financial Information for 2001, 2002 and 2003 is prepared on the basis of a constant $:US$ exchange rate of $0.7220, which represents the average $:US$ exchange rate assumed for the 2004 Forecasts.The 2005 forecast has been restated using various of the exchange rates assumed in the 2004 Forecasts. 9. A forecast tax charge has only been included for 2005 as this is the first full year in which the new corporate and tax structure will apply. 10.As discussed in note 7 above, the Restated Financial Information excludes amortisation of goodwill resulting from the Restructure immediately prior to the IPO.The Restated Financial Information also excludes other AGAAP accounting impacts relating to the Restructure. 11.A reconciliation of the restated statements of financial performance to the AGAAP pro-forma summary of financial performance set out in Section 5.2.2 has not been provided as the only net difference relates to the restatement of the relevant income or expense amount from the historical and the forecast average exchange rates to the constant exchange rates assumed. 107
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BABCOCK & BROWN PROSPECTUS TABLE OF
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BABCOCK & BROWN PROSPECTUS KEY OFFE
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SECTION 3 BUSINESS OVERVIEW 3 BUSIN
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SECTION 3 BUSINESS OVERVIEW Babcock
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SECTION 3 BUSINESS OVERVIEW Babcock
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APPENDIX A PRO-FORMA CONSOLIDATED F
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BABCOCK & BROWN PROSPECTUS CORPORAT
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