HSBC 2002 Annual Report Download - page 305

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The following table presents US GAAP reported net income for comparative periods reconciled to net income
adjusted as if the provisions of SFAS 142 had been applied to those previous periods:
2002 2001 2000
US$m US$m US$m
Net income:
Reported net income.................................................................. 4,900 4,911 6,236
add back: goodwill amortisation ...................................................
–
1,316 812
Adjusted net income...................................................................... 4,900 6,227 7,048
Basic earnings per share:
Reported basic earnings per share .............................................. 0.52 0.53 0.71
add back: goodwill amortisation ...................................................
–
0.14 0.09
Adjusted basic earnings per share ................................................. 0.52 0.67 0.80
Diluted earnings per share:
Reported diluted earnings per share............................................ 0.52 0.53 0.70
add back: goodwill amortisation ...................................................
–
0.14 0.09
Adjusted diluted earnings per share .............................................. 0.52 0.67 0.79
On the acquisition of Grupo Financiero Bital S.A. de C.V. on 25 November 2002 an intangible asset estimated
at US$223 million would have been recognised on a US GAAP basis, relating to non-contractual customer
relationships. The weighted-average amortisation period for these assets is 20 years and there is no significant
residual value. No other significant intangible assets would have been recognised for US GAAP purposes on
business acquisitions during 2002. No amortisation had been charged on these assets at 31 December 2002. The
intangible asset amortisation expense for 2003 to 2007 is estimated to be US$11 million per year.
(f) Internal software costs
Under UK GAAP, costs of software developed for internal use are generally expensed as they are incurred.
Under US GAAP, costs incurred in the application development stage of internal software must be capitalised as
part of intangible assets and amortised over their estimated useful life. HSBC recognises an adjustment in
calculating its US GAAP net income, reflecting the impact of current year software development costs
capitalised under US GAAP, offset by the US GAAP amortisation of these and previous years’ costs and by any
provisions for impairment of these capitalised costs.
hsbc.com, Inc., has been engaged, in development activities to provide a global website and web hosting
services to HSBC companies. A provision of US$35 million was made in 2002 (2001: US$50 million) for
impairment against the US GAAP capitalised amount of development costs. As at 31 December 2002,
capitalised amounts in respect of hsbc.com totalled US$144 million.
(g) Purchase accounting adjustments
Under UK GAAP, certain costs which relate to either post-acquisition management decisions or decisions made
prior to the acquisition are required to be expensed to the profit and loss account and cannot be capitalised as
goodwill.
(h) Accruals accounted derivatives
Under UK GAAP, internal derivatives used to hedge banking book transactions may be accruals accounted but,
under US GAAP, all derivatives are held at fair value. With the exception of certain subsidiaries in North
America, HSBC has not elected to satisfy the more prescriptive hedge documentation requirements of SFAS
133 in respect of external derivative contracts.
At 1 January 2001 contracts which had previously qualified as fair value hedges under US GAAP were marked
to market with a corresponding revaluation of the hedged item. There was no material ineffectiveness of these
hedges and therefore no adjustment was required to US GAAP reported income. There were no significant
contracts at 1 January 2001 which had previously qualified as cash flow hedges under US GAAP.