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SECTION 5 FINANCIAL INFORMATION Year ended 31 December ($000) 8 2003A 2004F 2005F Amortisation of goodwill (9,072) (36,287) Operating profit before tax 123,642 181,627 Tax (63,195) NPAT (before deduction of BBIPL outside equity interest) 118,432 Outside equity interest – 30% BBIPL 9 (35,530) Profit after tax attributable to members 82,902 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. To facilitate comparison with historical periods, and consistent with excluding the AGAAP accounting implications for the Restructure in the presentation shown above, profits or losses on the forecast sale of investments included in 2004 and 2005 Net Revenue are based on the AGAAP carrying amount of the investments at 31 December 2003 (before the fair value adjustments required as part of the Restructure) rather than the fair value of those investments which is reflected in the pro-forma statement of financial position at 31 December 2003. Net Revenue from the sale of any investments included in the statutory results of the Babcock & Brown Group for the period from 1 October 2004 to 31 December 2004 will be based on the fair value of those investments as at the date of the Restructure. Had 2004 and 2005 Forecast Net Revenue (and earnings) been based on fair value at 31 December 2003, forecast operating profit before goodwill amortisation and tax in 2004 and 2005 would decrease by $9.6 million and $0.3 million respectively. It should be noted that these amounts are discussed in this note for completeness only. In particular the pro-forma consolidated net profit before tax and goodwill amortisation of the restructured Group for the year ending 31 December 2004 that is discussed in Section 5.3.2.4 in relation to the allocation of carrying between pre- and post-IPO shareholders will calculate profits or losses on the sale of investments in 2004 based on the AGAAP carrying amount of those investments at 31 December 2004 and not their fair value. 3. The forecast financial information for 2004 and 2005 includes amortisation of goodwill. Goodwill of approximately $726 million is reflected in the AGAAP pro-forma balance sheet at 31 December 2003.The actual amount of goodwill that will be reflected in the Group’s statutory financial statements will only become known after the Restructure. Under AGAAP, this goodwill must be amortised over a period not exceeding 20 years. Goodwill is not amortised under Australian IFRS and because of accounting for the Restructure under Australian IFRS (see (a) in Section 5.4.4) no goodwill is expected to arise. 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 Sections 4.7.2 and 4.7.4, 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 forecast exchange rates, the total bonus pool is forecast to be $178.4 million consistent with the stated remuneration policy. However, of this amount $24.5 million is expected to be 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 forecast exchange rates is therefore $153.9 million.Were Babcock & Brown to elect to recognise an expense, the value attributed to the rights would be recognised as an expense over the vesting period of the rights consistent with Australian IFRS (see footnote 5, Section 5.4.2). In addition, consistent with current AGAAP, no amount has been forecast as an expense in the AGAAP pro-forma Forecasts in respect of Shares and Options allocated to the Employee Trusts (see Section 4.7.7) in either 2004 or 2005. 5. The forecast bonus expense in 2004 and 2005 includes forecast amounts payable in connection with forecast ringfenced revenue as discussed in Section 4.7.3. 6. Restructure costs – business closure relates to redundancy costs and related expenditure in connection with the effective closure in 2004 of the Group’s US tax exempt cross border leasing activities due to changes in US tax laws and to provisions associated with assignment of the lease on the Group’s existing New York Office space and moving to smaller premises. 7. 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 will be expensed during 2004. 8. The difference between Net Revenue, net corporate interest income, operating costs, operating profit before bonuses and bonuses set out above for 2005 and the equivalent amounts in the Restated Financial Information in Section 5.2.2, relates solely to the application of forecast exchange rates for 2005 compared to the constant exchange rates based on the 2004 forecast exchange rate assumptions used in the Restated Financial Information. 9. For statutory purposes Babcock & Brown will only own 70% of BBIPL. In Babcock & Brown’s consolidated financial statements the 30% interest in BBIPL held by the pre-IPO US Executive Stakeholders will be treated as an outside equity interest.The final interest may be subject to adjustment as referred to in Section 4.7.8. 10.At 31 December 2003 and at the date of this Prospectus, Babcock & Brown held an effective 19.9% interest in Primelife Corporation Ltd which is reflected in the pro-forma statement of financial position at 31 December 2003 and in the Forecasts as an equity accounted investment. In August 2004, PrimeLife announced an expected loss for the year ended 30 June 2004 of $78 million.The equity accounted portion of this loss has been offset by a gain on the settlement of a financing liability for this investment. 11.As noted in Section 5.3.2, the Forecast has been prepared before currency gains, losses and costs.The Group expects to make currency gains of approximately $3.8 million in 2004 on the close-out of hedges relating to the Group’s Australian operations and earnings and other foreign exchange differences. 118
BABCOCK & BROWN PROSPECTUS 5.3.2.2 Key assumptions General assumptions The 2004 and 2005 forecasts are based on the following general assumptions: • No material adverse change in the legislative regimes and regulatory environments (including in relation to tax) in the jurisdictions in which Babcock & Brown or its key customers or suppliers operate which will materially impact on the Forecasts, including, inter alia, the extension of the PTC regime in the US (see further discussion in Sections 3 and 7) • No material amendment to any material agreement or arrangement relating to Babcock & Brown.The parties to those agreements and arrangements are assumed to continue to comply with the terms of all material agreements and arrangements • No material changes to Babcock & Brown’s accounting policies or to Australian Accounting Standards, International Financial Reporting Standards, Statements of Accounting Concepts or other mandatory professional reporting requirements including Urgent Issues Group Consensus Views or the Corporations Act which will have a material impact on the forecast financial information • Retention of key personnel • No material adverse change in interest rate environment • No material adverse change in the competitive environment in the industries in which Babcock & Brown operates • No material adverse changes in the prevailing political conditions in countries in which Babcock & Brown operates or that will materially impact on the forecast financial information • No material business acquisitions or disposals (other than those in the ordinary course of business) and included in the forecast financial information • No significant disruption to the operations, material disturbances, environmental costs or legal claims • No change in Babcock & Brown’s capital structure other than as set out in, or contemplated by, this Prospectus • The gross amount raised through the Offer totals approximately $550 million.The gross proceeds, less the costs of the Offer of approximately $27 million, will be retained by the Babcock & Brown with allocation occurring in line with the timetable • No significant change in the economic conditions prevailing in the countries and industries in which Babcock & Brown operates other than as set out in, or contemplated by, this Prospectus • Commitment of counterparties to new transaction structures and products developed by the Group 119
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BABCOCK & BROWN PROSPECTUS TABLE OF
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BABCOCK & BROWN PROSPECTUS KEY OFFE
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SECTION 1 SUMMARY OF KEY INFORMATIO
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BABCOCK & BROWN PROSPECTUS 2.11 ASX
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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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SECTION 3 BUSINESS OVERVIEW Financi
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SECTION 3 BUSINESS OVERVIEW Backgro
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SECTION 3 BUSINESS OVERVIEW Princip
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SECTION 3 BUSINESS OVERVIEW In 1996
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APPENDIX A PRO-FORMA CONSOLIDATED F
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BABCOCK & BROWN PROSPECTUS CORPORAT
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