SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
for the period ended June 30, 2003
BP p.l.c.
(Translation of registrant's name into English)
1 ST JAMES'S SQUARE, LONDON, SW1Y 4PD, ENGLAND
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F |X| Form 40-F
--------- ---------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No |X|
--------- ---------
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE
PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO.
333-9790) OF BP p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON
FORM F-3 (FILE NO. 333-65996) OF BP p.l.c., THE PROSPECTUS INCLUDED IN THE
REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-83180) OF BP AUSTRALIA CAPITAL
MARKETS LIMITED, BP CANADA FINANCE COMPANY, BP CAPITAL MARKETS p.l.c., BP
CAPITAL MARKETS AMERICA INC. AND BP p.l.c., THE REGISTRATION STATEMENT ON FORM
S-8 (FILE NO. 33-21868) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8
(FILE NO. 333-9020) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE
NO. 333-9798) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-79399) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-34968) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-67206) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-74414) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-103924) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-102583) OF BP p.l.c. AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
333-103923) OF BP p.l.c., AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS
REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS
SUBSEQUENTLY FILED OR FURNISHED.
Page 1
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GROUP RESULTS JANUARY - JUNE 2003
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- ----------------------
($ million)
Turnover 56,307 43,655 120,095 79,945
======= ======= ======= =======
Reconciliation of historical cost and
replacement cost profit
Historical cost profit (loss) 1,634 2,058 5,901 3,354
Inventory holding (gains) losses (a) 951 (531) 152 (973)
------- ------- ------- -------
Replacement cost profit (b) 2,585 1,527 6,053 2,381
Exceptional items, net of tax (131) (216) (471) (146)
------- ------- ------- -------
Replacement cost profit before exceptional items 2,454 1,311 5,582 2,235
======= ======= ======= =======
Per Ordinary Share - cents
Historical cost profit 7.41 9.18 26.52 14.96
Replacement cost profit before exceptional items 11.08 5.85 25.09 9.97
Dividends per Ordinary Share - cents 6.50 6.00 12.75 11.75
---------------
(a) Net of minority shareholders' interest.
(b) Replacement cost is not a UK or US GAAP measure. For information on why
management believes that presentation of replacement cost profit provides
useful information to investors and management regarding the results of
operations of BP, see Item 3 - Key Information in BP p.l.c.'s Annual Report
on Form 20-F for the year ended December 31, 2002.
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes provided elsewhere in this Form 6-K
and with the information, including the consolidated financial statements and
related notes, for the year ended December 31, 2002 in BP p.l.c.'s Annual Report
on Form 20-F for the year ended December 31, 2002.
To reflect BP's increased focus on chemical products derived from oil and gas,
the Chemicals segment has been renamed Petrochemicals.
The second quarter and first half results reflect a trading environment that was
more favourable than a year ago. For the three months ended June 30, 2003 the
Brent oil price was up $0.96 per barrel; the Henry Hub gas price was up $2.02
per mmbtu; the Global Indicator refining margin was up $1.21 per barrel and the
Chemicals Indicator margin was up $11 per tonne. For the half year, the Brent
oil price was more than $5.00 per barrel higher; the Henry Hub gas price and the
refining Global Indicator Margin were more than double the level of a year ago.
Petrochemicals margins were above those of a year ago, although weak demand
conditions persist.
Turnover for the three months and six months ended June 30, 2003 was $56,307
million and $120,095 million respectively, compared with $43,655 million and
$79,945 million for the equivalent periods in 2002. The increase in turnover for
the second quarter and half year reflects higher oil, natural gas and product
prices, higher sales volumes and a stronger Euro.
Historical cost profit for the three months ended June 30, 2003 was $1,634
million, after inventory holding losses of $951 million and including net
exceptional gains of $131 million ($280 million before tax) in respect of net
gains on the sale of fixed assets and businesses or termination of operations.
For the equivalent period of 2002, historical cost profit was $2,058 million,
including inventory holding gains of $531 million and net exceptional gains of
$216 million ($376 million before tax) in respect of net gains on the sale of
fixed assets and businesses or termination of operations.
Historical cost profit for the six months ended June 30, 2003 was $5,901
million, after inventory holding losses of $152 million and including net
exceptional gains of $471 million ($674 million before tax) in respect of net
gains on the sale of fixed assets and businesses or termination of operations.
For the equivalent period of 2002, historical cost profit was $3,354 million,
including inventory holding gains of $998 million and net exceptional gains of
$146 million ($267 million before tax) in respect of net gains on the sale of
fixed assets and businesses or termination of operations.
Page 2
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
Performance of operating segments is evaluated by management based on
replacement cost operating profit or loss.
Replacement cost profit before exceptional items (which excludes inventory
holding gains and losses) was $2,454 million and $5,582 million for the three
months and six months ended June 30, 2003 respectively, compared with $1,311
million and $2,235 million for the equivalent periods of 2002.
Replacement cost profit before exceptional items for the three months ended June
30, 2003 included an impairment charge of $108 million related to the Kepadong
field in Indonesia and charges of $12 million in respect of our restructuring
activities in the UK in Exploration and Production, Veba integration costs of
$41 million in Refining and Marketing and a $5 million credit resulting from a
reduction in the provision for costs associated with closure of polypropylene
capacity in Petrochemicals. Replacement cost profit before exceptional items for
the three months ended June 30, 2002 included restructuring charges of $90
million in Exploration and Production; a credit of $184 million for business
interruption insurance proceeds, costs of $47 million related to a pipeline
incident and Veba integration costs of $23 million in Refining and Marketing;
restructuring charges and Solvay and Erdolchemie integration costs of $43
million in Petrochemicals; and a $355 million adjustment to the North Sea
deferred tax balance for the supplementary UK corporation tax rate.
Replacement cost profit before exceptional items for the six months ended June
30, 2003 included an impairment charge of $108 million related to the Kepadong
field in Indonesia, an impairment charge of $103 million related to the Yacheng
field in China, charges of $102 million in respect of our restructuring
activities in North America and the UK and a $49 million write-down of the
Viscount asset in the North Sea in Exploration and Production; Veba integration
costs of $59 million in Refining and Marketing; a $5 million credit resulting
from a reduction in the provision for costs associated with closure of
polypropylene capacity in Petrochemicals; and a $130 million credit related to
tax restructuring benefits. Replacement cost profit before exceptional items for
the six months ended June 30, 2002 included restructuring charges of $162
million and litigation costs of $55 million in Exploration and Production; a
credit of $184 million for business interruption insurance proceeds, costs of
$47 million related to a pipeline incident and $49 million Veba integration
costs in Refining and Marketing; restructuring charges and Solvay and
Erdolchemie integration costs of $75 million in Petrochemicals; and a $355
million adjustment to the North Sea deferred tax balance for the supplementary
UK corporation tax rate.
The increases in both periods reflect higher average liquids and natural gas
realizations, improvement in refining margins, higher marketing margins
(particularly retail margins in the USA and Europe) and increased petrochemical
margins. Improved operating performance generated additional income for the
quarter and half year. Non-cash costs were higher in both periods.
Interest expense for the three months and six months ended June 30, 2003 was
$191 million and $411 million respectively, compared with $314 million and $647
million in the same periods of 2002. The reductions in both periods reflect
lower average debt and lower interest rates.
Net taxation, other than production taxes, charged for the three months and six
months ended June 30, 2003 was $1,768 million and $3,573 million compared with
$1,751 million and $2,504 million in the equivalent periods last year. The tax
on exceptional items was $149 million and $203 million for the second quarter
and half year respectively, compared with $160 million and $121 million for the
equivalent periods in 2002. The effective tax rate on replacement cost profit
before exceptional items was 39% and 37% for the three months and six months
ended June 30, 2003, compared with 54% and 51% for the equivalent periods in
2002. The reduction in the second quarter and half year rate reflects the $355
million adjustment to the North Sea deferred tax provision for the supplementary
UK corporation tax in the second quarter of 2002, partly offset by the rateably
lower impact of goodwill amortization and the depreciation charge on uplifted
asset values (for which no tax deduction is available) on higher income in 2003.
The effective tax rate on historical cost profit was 51% and 37% for the three
months and six months ended June 30, 2003, compared with 46% and 42% for the
equivalent periods in 2002. The higher rate in the three months ended June 30,
2003 was due to non-taxable inventory holding losses arising in that period,
compared with non-taxable inventory holding gains in 2002. For the six months
ended June 30, 2003, the impact of inventory holding losses was not significant.
Capital expenditure and acquisitions in the second quarter and first half of
2003 was $3.3 billion and $6.2 billion respectively. Capital expenditure and
acquisitions for the second quarter and first half of 2002 was $6.1 billion and
$11.8 billion respectively, including $2.4 billion and $5.0 billion for the
acquisition of Veba. Excluding acquisitions, capital expenditure for the three
months and six months ended June 30, 2003 was $3.2 billion and $6.1 billion
respectively, compared with $3.0 billion and $6.1 billion in the equivalent
periods of 2002. Disposal proceeds in the second quarter and first half of 2003
were $1.7 billion and $4.1 billion respectively. Disposal proceeds in the second
quarter of 2002 were $2.5 billion, including $1.5 billion from the sale of the
Veba upstream assets, and $2.9 billion in the first half.
Page 3
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
Net cash inflow for the three months ended June 30, 2003 was $2.4 billion
compared with $1.9 billion for the equivalent period of 2002; higher cash flow
from operating activities was partly offset by higher tax payments and lower
disposal proceeds. Net cash inflow for the six months ended June 30, 2003 was
$5.6 billion, compared with an outflow of $0.5 billion for the equivalent period
of 2002; higher cash flow from operating activities, higher disposal proceeds
and lower acquisition spending were partly offset by higher tax payments. Net
cash inflow from operating activities was $7.3 billion and $13.3 billion for the
three months and six months ended June 30, 2003, compared with $5.1 billion and
$8.8 billion in the equivalent periods in 2002. The increase for the quarter
reflected higher depreciation and a lower requirement for working capital partly
offset by lower profit. The increase for the first half was due to higher
profit, higher depreciation and a lower requirement for working capital.
Net debt at June 30, 2003 was $16.2 billion. The ratio of net debt to net debt
plus equity was 18% at June 30, 2003 compared with 22% at December 31, 2002. In
addition to reported debt, BP uses conventional off balance sheet sources of
finance such as operating leases and joint venture and associated undertaking
borrowings.
The Group has access to other sources of liquidity in the form of committed
facilities and other funding through the capital markets. BP believes that,
taking into account the substantial amounts of undrawn borrowing facilities
available, the Group has sufficient working capital for foreseeable
requirements.
In the normal course of business the Group has entered into certain long term
purchase commitments principally relating to take or pay contracts for the
purchase of natural gas, crude oil and petrochemicals feedstocks and throughput
arrangements for pipelines. The Group expects to fulfil its obligations under
these arrangements with no adverse consequences to the Group's results of
operations or financial condition.
The return on average capital employed on a historical cost basis was 8% for the
second quarter of 2003 compared with 10% for the same period in 2002. Return on
average capital employed is the ratio of profit including minority shareholders'
interest and excluding post-tax interest on finance debt to average capital
employed for the period. Capital employed is the total of BP shareholders'
interest, minority shareholders' interest and finance debt. Management believes
this performance measure is useful as an indication of capital productivity over
the long term. For the six months ended June 30, 2003 the return on average
capital employed was 13% compared with 9% in 2002. The return on average capital
employed on a replacement cost basis for the three months ended June 30, 2003
was 11% compared with 7% for the equivalent period of 2002. For the six months
ended June 30, 2003 the return on average capital employed was 13% compared with
6% in 2002. A reconciliation of return on average capital employed on a
replacement cost basis to return on average capital employed on a historical
cost basis is included on page 62 of this report.
BP announced a second quarterly dividend for 2003 of 6.50 cents per ordinary
share. Holders of ordinary shares will receive 4.039 pence per share and holders
of American Depositary Receipts (ADRs) $0.39 per ADS. The dividend is payable on
September 8, 2003 to shareholders on the register on August 15, 2003.
Participants in the Dividend Reinvestment Plan or the dividend reinvestment
facility in the US Direct Access Plan will receive the dividend in the form of
shares, also on September 8, 2003. The company repurchased for cancellation 144
million of its own shares during the quarter, at a cost of $1 billion. During
the first half, 299 million shares were repurchased and cancelled at a cost of
$2 billion.
Page 4
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
DETAILED REVIEW OF BUSINESSES (EXCLUDING EXCEPTIONAL ITEMS)
EXPLORATION AND PRODUCTION
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- -----------------------
Turnover - $m 7,433 6,539 16,501 12,177
Reconciliation of historical cost and
replacement cost operating profit
Total historical cost operating profit - $m 3,150 2,457 7,482 4,388
Inventory holding (gains) losses - $m 3 1 (3) (2)
------- ------ ------ ------
Total replacement cost operating profit - $m 3,153 2,458 7,479 4,386
======= ====== ====== =====
Results include:
Exploration expense - $m 101 222 213 346
Of which: Exploration expenditure written off - $m 43 147 93 206
Key Statistics:
Crude oil Average prices
realized by BP - $/bbl 25.73 24.27 28.50 22.07
Production - mb/d 1,712 1,808 1,771 1,781
Natural gas liquids Average prices
realized by BP - $/bbl 17.49 12.40 18.76 11.77
Production - mb/d 199 244 216 239
Total liquids(a) Average prices
realized by BP - $/bbl 24.90 22.81 27.47 20.81
Production - mb/d 1,911 2,052 1,987 2,020
Natural gas Average prices
realized by BP - $/mcf 3.39 2.45 3.64 2.36
Production - mmcf/d 8,439 8,667 8,727 8,706
Total hydrocarbons(b) Average prices
realized by BP - $/boe 22.43 19.01 24.49 17.63
Production - mboe/d 3,366 3,546 3,492 3,521
Brent oil price - $/bbl 26.03 25.07 28.77 23.12
West Texas Intermediate oil price - $/bbl 29.02 26.30 31.53 23.94
Alaska North Slope US West Coast - $/bbl 27.04 25.04 30.13 22.42
Henry Hub gas price (c) - $/mmbtu 5.40 3.38 5.96 2.87
UK Gas - National Balancing Point - p/therm 17.44 12.10 19.35 15.63
---------------
(a) Crude oil and natural gas liquids
(b) Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1
million barrels.
(c) Henry Hub First of the Month Index
Turnover for the three months and six months ended June 30, 2003 was $7,433
million and $16,501 respectively compared with $6,539 million and $12,177
million in the corresponding periods in 2002, reflecting higher liquids and
natural gas realizations partly offset by lower production.
Historical cost operating profit for the three months ended June 30, 2003 was
$3,150 million after inventory holding losses of $3 million; for the equivalent
period in 2002 there was a profit of $2,457 million after inventory holding
losses of $1 million. Historical cost operating profit for the six months ended
June 30, 2003 was $7,482 million including inventory holding gains of $3
million; for the equivalent period in 2002 there was a profit of $4,388 million
including inventory holding gains of $2 million.
Replacement cost operating profit for the three months and six months ended June
30, 2003 was $3,153 million and $7,479 million respectively, compared with
$2,458 million and $4,386 million for the equivalent periods in 2002.
Page 5
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
EXPLORATION AND PRODUCTION (concluded)
The replacement cost operating profit for the second quarter of 2003 includes an
impairment charge of $108 million related to the Kepadong field in Indonesia and
charges of $12 million in respect of our ongoing restructuring activities in the
UK. The result for the second quarter of 2002 includes restructuring charges of
$90 million relating to significant restructuring to reposition the business in
North America and the North Sea.
The replacement cost operating profit for the half year 2003 includes an
impairment charge of $108 million related to the Kepadong field in Indonesia, an
impairment charge of $103 million related to the Yacheng field in China, charges
of $102 million in respect of restructuring activities in North America and the
UK and a $49 million write-down of the Viscount asset in the North Sea. The
result for the quarter and half year 2002 includes restructuring charges of $162
million relating to significant restructuring to reposition the business in
North America and the North Sea and litigation costs of $55 million.
The results for the quarter reflected higher realizations, with liquids up
$2.09/bbl and natural gas up $0.94/mcf on a year ago. North American basin
differentials to the Henry Hub marker price narrowed over the quarter following
the opening of pipeline expansion routes. The results include a credit of $106
million, reflecting a reduction in the provision for Unrealized Profit in Stock
(UPIS), which removes the upstream margin from downstream inventories, following
a decrease in the Alaska North Slope oil price. This compares with a charge of
$83 million in the equivalent quarter last year.
The half year results also reflected the impact of higher realizations, with
liquids up $6.66/bbl and gas up $1.28/mcf. The results include a charge of $19
million for UPIS to remove the additional upstream margin from downstream
inventories following an increase in the Alaska North Slope oil price. This
compares with a charge of $139 million in the same period of 2002.
Second quarter production was down 5% (2% after adjusting for divestments). The
decrease, which follows an increase of over 3% in the first quarter, reflects
the impact of higher prices on production sharing contract volumes, the pattern
of planned quarterly maintenance and lower NGL production owing to strong US gas
prices. For the half year, production was down 1% (up 1% after adjusting for
divestments). Declines in existing profit centres were as expected and more than
offset by growth from new profit centres, particularly Trinidad and Deepwater
Gulf of Mexico.
During the quarter we had two exploration successes in Angola: Saturno in Block
31 and Clochas in Block 15; along with Saqqara in the Gulf of Suez in Egypt.
Atlantic LNG Train 3 started up ahead of schedule in April and the government of
Trinidad and Tobago approved the Atlantic Train 4 project in June. Construction
of the Baku-Tbilisi-Ceyhan pipeline began in May. Progress in Angola continued
with the approval of the Dalia development by Sonangol in April.
We have continued our programme to improve returns and enhance value by
high-grading our portfolio. During the second quarter of 2003 we have completed
the divestment of several US onshore and Gulf of Mexico shelf properties and
agreed the sale of the Liuhua and QHD fields in China to the China National
Offshore Oil Corporation. On May 19, 2003 the sale of our interest in the Gyda
field in Norway to Talisman was announced. We also announced an agreement in
principle to sell 50% of the In Amenas gas condensate project and 49% of our
interest in In Salah gas in Algeria to Statoil.
Progress continues in the establishment of our new joint venture TNK-BP with the
signing of the agreement with the Alfa Group and Access-Renova on June 26, 2003.
This agreement finalizes all the material commercial arrangements for the
formation of the TNK-BP joint venture company, which will be effective from
January 1, 2003, subject to the approval of regulatory authorities including
those at the European Union, in Ukraine and in Russia.
Page 6
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
GAS, POWER AND RENEWABLES
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- -----------------------
Turnover - $m 14,875 8,235 32,873 16,003
Reconciliation of historical cost and
replacement cost operating profit
Total historical cost operating profit - $m 31 118 252 233
Inventory holding (gains) losses - $m 72 (4) 45 (8)
------- ------- ------- -------
Total replacement cost operating profit - $m 103 114 297 225
======= ======= ======= =======
Turnover for the three months and six months ended June 30, 2003 was $14,875
million and $32,873 million respectively compared with $8,235 million and
$16,003 million in the same periods in 2002. The increase for the quarter and
first half reflects higher natural gas prices and sales volumes.
Historical cost operating profit for the three months ended June 30, 2003 was
$31 million after inventory holding losses of $72 million; for the equivalent
period in 2002 there was a profit of $118 million including inventory holding
gains of $4 million. Historical cost operating profit for the six months ended
June 30, 2003 was $252 million after inventory holding losses of $45 million;
for the equivalent period in 2002 there was a profit of $233 million including
inventory holding gains of $8 million.
Replacement cost operating profit for the three months and six months ended June
30, 2003 was $103 million and $297 million respectively, compared with $114
million and $225 million for the same periods in 2002.
The reduction in the second quarter results is due to the absence of a $40
million contribution from Ruhrgas following the sale of our interest last year,
mostly offset by improved performance. The half-year results increased due to
improved performance which more than offset the loss of the $96 million Ruhrgas
contribution.
The second quarter and half year results reflected an increase in gas sales
volumes and strong performance from the global LNG business. Second quarter gas
sales volumes were up 23%, and equity LNG sales up 58%. During the quarter, the
first cargo of LNG was sold from the newly commissioned Train 3 of Atlantic
LNG's facility in Trinidad and Tobago. On 1 July, BP took delivery of the LNG
ship, the British Merchant, which is the third and final ship to be delivered
under the initial phase of the global LNG strategy. Also during the quarter, BP
and Oman LNG signed a memorandum of understanding for the supply of up to 4
million tonnes of LNG over a six-year period to strengthen BP's gas marketing
position in Spain.
Higher gas prices relative to liquids prices in North America in the second
quarter have led to lower production and sales volumes in the natural gas
liquids business and a lower result compared with a year ago. The half year
result was similar to a year ago.
Page 7
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
REFINING AND MARKETING
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- -----------------------
Turnover - $m 36,949 31,870 78,384 56,759
Reconciliation of historical cost and
replacement cost operating profit
Total historical cost operating profit - $m 116 1,047 1,367 1,610
Inventory holding (gains) losses - $m 773 (444) 153 (939)
------- ------ ------- -------
Total replacement cost operating profit - $m 889 603 1,520 671
======= ====== ======= =======
Total refined product sales - mb/d 7,023 6,479 6,914 6,491
Refinery throughputs - mb/d 3,265 3,103 3,146 3,049
Refining availability (a) - % 96.7 95.8 95.4 95.8
Global Indicator Refining Margin (b) - $/bbl 3.27 2.06 3.89 1.85
---------------
(a) Refining availability is the weighted average percentage of the period that
refinery units are available for processing, after accounting for downtime
such as turnarounds.
(b) The Global Indicator Refining Margin (GIM) is the average of six regional
indicator margins weighted for BP's crude refining capacity in each region.
Each regional indicator margin is based on a single representative crude
with product yields characteristic of the typical level of upgrading
complexity. The regional indicator margins may not be representative of the
margins achieved by BP in any period because of BP's particular refinery
configurations and crude and product slate.
Turnover for the three months and six months ended June 30, 2003 was $36,949
million and $78,384 million respectively, compared with $31,870 million and
$56,759 million for the same periods in the prior year. The increase in turnover
for the second quarter and first half is principally due to a stronger Euro and
higher product prices. The increase in turnover for the first half is due to a
stronger Euro, higher product prices, particularly in the USA, and an additional
month of contribution from Veba.
Historical cost operating profit for the three months ended June 30, 2003 was
$116 million after inventory holding losses of $773 million; for the equivalent
period in 2002 there was a profit of $1,047 million including inventory holding
gains of $444 million. Historical cost operating profit for the six months ended
June 30, 2003 was $1,367 million after inventory holding losses of $153 million;
for the equivalent period in 2002 there was a profit of $1,610 million including
inventory holding gains of $939 million.
Replacement cost operating profit for the three months and six months ended June
30, 2003 was $889 million and $1,520 million respectively, compared with $603
million and $671 million for the corresponding periods of 2002.
The results for the second quarter of 2003 include Veba integration costs of $41
million. The results for the second quarter of 2002 include a credit to income
for business interruption insurance proceeds of $184 million, partly offset by
costs of $47 million associated with an Olympic pipeline incident in 1999 and
Veba integration costs of $23 million.
The results for the first half of 2003 include Veba integration costs of $59
million. The results for the first half of 2002 include a credit to income for
business interruption insurance proceeds of $184 million, partly offset by costs
of $47 million associated with an Olympic pipeline incident in 1999 and Veba
integration costs of $49 million.
The results for the quarter and half year reflect improved worldwide refining
margins and higher marketing margins, particularly retail margins in the USA and
Europe, with some offset from higher utility costs. Improved operating
performance also contributed to the results in the marketing businesses.
Refining throughputs for the three months and six months ended June 30, 2003
increased by 5% and 3% respectively, compared with a year ago. Refining
availability for the three months and six months ended June 30, 2003 was 96.7%
and 95.4% respectively compared with 95.8% and 95.8% for the equivalent periods
in 2002. Marketing volumes for the three months and six months ended June 30,
2003 were 1.8% and 0.5% lower than a year ago.
An additional 760 sites were reimaged during the second quarter, bringing the
total number of sites with the BP Helios to some 12,000 worldwide.
Page 8
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
PETROCHEMICALS
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- ----------------------
Turnover - $m 4,003 3,584 7,941 6,226
Reconciliation of historical cost and
replacement cost operating profit
Total historical cost operating profit - $m 210 281 495 328
Inventory holding (gains) losses - $m 103 (78) (43) (49)
------- ------ ------ ------
Total replacement cost operating profit - $m 313 203 452 279
======= ====== ====== ======
Production (a) - kte 6,770 6,889 13,750 13,500
Chemicals Indicator Margin (b) - $/te 120(c) 109 108(c) 95
---------------
(a) Includes BP share of joint ventures, associated undertakings and other
interests in production.
(b) The Chemicals Indicator Margin (CIM) is a weighted average of
externally-based product margins. It is based on market data collected by
Nexant (formerly Chem Systems) in their quarterly market analyses, then
weighted based on BP's product portfolio. It does not cover our entire
portfolio of products, and consequently is only indicative rather than
representative of the margins achieved by BP in any particular period.
Amongst the products and businesses covered in the CIM are olefins and
derivatives, the aromatics and derivatives, linear alpha-olefins (LAOs),
acetic acid, vinyl acetate monomers and nitriles. Not included are fabrics
and fibres, plastic fabrications, poly alpha-olefins (PAOs), anhydrides,
speciality intermediates, and the remaining parts of the solvents and
acetyls businesses.
(c) Provisional. The data for the second quarter is based on two months' actual
and one month of provisional data.
Turnover for the three months and six months ended June 30, 2003 was $4,003
million and $7,941 million respectively, compared with $3,584 million and $6,226
million for the equivalent periods in 2002. The increase in turnover for the
second quarter of 2003 as compared with 2002 primarily reflects higher product
prices, with the increase for the first half also reflecting higher production
as a result of improved plant utilization and organic growth.
Historical cost operating profit for the three months ended June 30, 2003 was
$210 million after inventory holding losses of $103 million; for the equivalent
period in 2002 there was a profit of $281 million including inventory holding
gains of $78 million. Historical cost operating profit for the six months ended
June 30, 2003 was $495 million including inventory holding gains of $43 million;
for the equivalent period in 2002 there was a profit of $328 million including
inventory holding gains of $49 million.
Replacement cost operating profit for the three months and six months ended June
30, 2003, was $313 million and $452 million respectively, compared with $203
million and $279 million for the equivalent periods in 2002.
The results for the three months and six months ended June 30, 2003 include a
credit of $5 million resulting from a reduction in the provision for costs
associated with the closure of polypropylene capacity in the USA. The second
quarter 2002 results include charges of $29 million for restructuring our
Research and Technology facilities and Solvay and Erdolchemie integration costs
of $14 million. The results for the first half of 2002 include charges of $29
million for restructuring our Research and Technology facilities and costs of
$46 million related to major site restructuring and Solvay and Erdolchemie
integration.
The higher profits for the second quarter compared with a year ago, were due
primarily to lower feedstock costs and improved margins across several
businesses. Production of 6,770 thousand tonnes in the second quarter was 2%
below the second quarter of 2002. Although demand in Europe showed continuing
weakness, overall sales remained flat.
The first half results were higher than that of a year ago, reflecting improved
margins, cost management and improved reliability of operations. First half
production was 250 thousand tonnes higher than a year ago due to core business
sales growth from Asian PTA and acetic acid plant start-ups and an additional
month of production from Veba.
During the second quarter we completed the divestment of our interest in
Petrokimia Nusantara Interindo, PT (PT Peni), our polyethylene joint venture in
Indonesia.
Page 9
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - continued
OTHER BUSINESSES AND CORPORATE
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
-------------------- ---------------------
Turnover - $m 129 136 240 271
Total historical cost operating (loss) - $m (134) (128) (299) (253)
Other businesses and corporate comprises Finance, the group's coal asset and
aluminium asset, its investments in PetroChina and Sinopec, interest income and
costs relating to corporate activities. In July, BP announced that it has agreed
to sell its 50 per cent interest in the Indonesian coal mining company PT Kaltim
Prima Coal to PT Bumi Resources, subject to the receipt of certain shareholder
and other approvals.
EXCEPTIONAL ITEMS
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
Profit (loss) on sale of fixed assets and
businesses or termination of operations - $m 280 376 674 267
Taxation credit (charge) - $m (149) (160) (203) (121)
------- ------ ------ ------
Exceptional items after taxation - $m 131 216 471 146
======= ====== ====== ======
Exceptional items for the second quarter include a gain on the sale of our
interest in the North Sea Forties oil field, partly offset by a provision for
the loss on disposal of QHD in China.
OUTLOOK
World economic activity has continued to grow only slowly during the second
quarter, with OECD industrial production weakening. US consumer confidence
remains below the levels of last June, but with some signs of modest improvement
compared with the first quarter of this year. The impact of SARS was discernible
in lower economic activity in the second quarter in Asia, but there are already
signs that the region is recovering into the second half of the year.
Crude oil markets continue to be characterized by relative tightness. On the
basis of preliminary estimates, OECD commercial inventories ended the quarter at
the lowest seasonal level for over a decade. Crude oil prices have been well
supported, averaging $26.03 per barrel (Dated Brent) in the second quarter and
over $28 per barrel in July to date. The seasonal pick-up in oil demand in the
second half of the year, OPEC's June production cuts and an anticipated slow
recovery in Iraqi oil production point to continued price support in coming
months.
US natural gas prices fell back in the second quarter but remained high, with
the Henry Hub first of the month index averaging $5.40/mmbtu. Gas price
differentials in the Rockies have narrowed significantly following the opening
of the Kern River pipeline expansion. High prices have instigated a number of
market reactions. These, together with mild weather, have led to a series of
very high storage injections in recent weeks, despite falling domestic
production. Prices look set to stay above residual fuel oil parity during the
third quarter.
Refining margins have started the third quarter at similar levels to the second
quarter (BP GIM $3.27/bbl) and remain firm in most regions. OECD commercial
product inventories are still at five-year lows and should continue to underpin
refining fundamentals in the short term.
The strong retail margins experienced in the second quarter have softened and
are projected to revert to more typical levels in the third quarter.
Petrochemical margins in the first half of 2003 were above those of last year,
with higher product prices for the majority of petrochemical products. Recent
increases in feedstock costs and flat demand are expected to result in a
challenging environment in the third quarter.
Page 10
BP p.l.c. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - concluded
Consistent with our financial framework and plan for the year, we expect capital
expenditure to be in the range of $14 to 14.5 billion, excluding acquisitions.
As previously indicated, 2003 is expected to be the peak year for our medium
term capital spending programme. The $14 to 14.5 billion range excludes the
initial cash payment due on completion of the TNK-BP transaction, expected to
complete later in the summer. In addition, subject to the trading environment,
we expect to make payments of up to $2 billion to a number of the Group's
pension funds in the second half of 2003. At the end of 2002, our expectation
with respect to pension contributions in 2003 was in the range of $0.5 billion
to $0.7 billion. This increase in the level of contributions follows
finalization of the actuarial valuations and further review of the funding
requirements. If additional funds are available after making the pension
contributions, we will pursue further share buybacks. We expect gearing to
return to the lower half of our 25-35% target range following these events.
FORWARD-LOOKING STATEMENTS
In order to utilize the 'Safe Harbor' provisions of the United States Private
Securities Litigation Reform Act of 1995, BP is providing the following
cautionary statement. The foregoing discussion, in particular, although not
limited to, the statements under 'Group Results' and the statements under
'Outlook', with regard to hydrocarbon production growth, the economic outlook,
trends in the trading environment, the timing of acquisitions and divestments,
share repurchases, the timing of new projects, oil, gas and petrochemicals
margins, refining margins, retail margins, realizations on gas sales, inventory
and product stock levels, capacity utilization, capital expenditure trends,
gearing, working capital, profitability, results of operations, dividend
payments, pension scheme funding, long term purchase commitments and liquidity
or financial position are all forward-looking in nature. Forward-looking
statements are also identified by such phrases as 'will', 'expects', 'is
expected to', 'should', 'may', 'is likely to', 'intends' and 'believes'. By
their nature, forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the future
and are outside the control of BP. Actual results may differ materially from
those expressed in such statements, depending on a variety of factors, including
the specific factors identified in the discussions accompanying such
forward-looking statements, future levels of industry product supply, the timing
of bringing new fields onstream, demand and pricing, exchange rate fluctuations,
operational problems, political stability and economic growth in relevant areas
of the world, development and use of new technology, successful partnering, the
actions of competitors, the actions of third party suppliers of facilities and
services, natural disasters and other changes to business conditions, prolonged
adverse weather conditions, wars and acts of terrorism or sabotage, and other
factors discussed elsewhere in this report. These and other factors may cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements. Additional information, including
information on factors which may affect BP's business, is contained in BP's
Annual Report and Annual Accounts for 2002 and the Annual Report on Form 20-F
for 2002 filed with the US Securities and Exchange Commission.
2003 DIVIDENDS
On July 29, 2003, BP p.l.c. announced a second quarterly dividend for 2003 of
6.50 cents per ordinary share of 25 cents (ordinary shares), representing $0.39
per American Depositary Share (ADS) amounting to $1,433 million in total. The
record date for qualifying US resident holders of American Depositary Shares as
well as holders of ordinary shares is August 15, 2003, with payment to be made
on September 8, 2003.
Under the former US-UK Income Tax Treaty, dividends paid to qualifying ADS
holders entitled them to a refund of a deemed UK tax credit equal to 1/9th of
the announced dividend. This credit was exactly offset by an amount deemed by
the former US-UK Income Tax Treaty to be a UK withholding tax. The net effect
for ADS holders was a cash payment equal to the amount of the announced
dividend, a potential foreign tax credit equal to 1/9th of the announced
dividend, and a gross dividend equal to the sum of those two amounts. Under the
new US-UK Tax Treaty, this deemed tax credit is no longer available on dividends
paid to qualifying ADS shareholders, beginning with the first quarterly dividend
for 2003.
A dividend reinvestment facility is available for holders of ADSs through
JPMorgan Chase Bank (formerly known as Morgan Guaranty Trust Company).
Participants in the dividend reinvestment facility included in the US Direct
Access Plan will receive the dividend in the form of shares on September 8,
2003.
Page 11
BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
------------------------- ------------------------
($ million, except per share amounts)
Turnover - Note 2 56,671 44,059 120,857 80,628
Less: joint ventures 364 404 762 683
--------- ---------- --------- --------
Group turnover 56,307 43,655 120,095 79,945
Cost of sales 49,449 36,652 103,888 67,730
Production taxes - Note 3 382 315 886 562
--------- ---------- --------- --------
Gross profit 6,476 6,688 15,321 11,653
Distribution and administration expenses 3,406 3,123 6,650 5,814
Exploration expense - Note 4 101 222 213 346
--------- ---------- --------- --------
2,969 3,343 8,458 5,493
Other income 197 147 328 272
--------- ---------- --------- --------
Group operating profit 3,166 3,490 8,786 5,765
Share of profits of joint ventures 104 89 222 159
Share of profits of associated undertakings 103 196 289 382
--------- ---------- --------- --------
Total operating profit 3,373 3,775 9,297 6,306
Profit (loss) on sale of fixed assets and
businesses 280 376 674 267
or termination of operations - Note 5
--------- ---------- --------- --------
Profit before interest and tax 3,653 4,151 9,971 6,573
Interest expense - Note 6 191 314 411 647
--------- ---------- --------- --------
Profit before taxation 3,462 3,837 9,560 5,926
Taxation - Note 7 1,768 1,751 3,573 2,504
--------- ---------- --------- --------
Profit after taxation 1,694 2,086 5,987 3,422
Minority shareholders' interest 60 28 86 68
--------- ---------- --------- --------
Profit for the period (a) 1,634 2,058 5,901 3,354
========= ========== ========= ========
Earnings per ordinary share - cents (a)
Basic 7.41 9.18 26.52 14.96
Diluted 7.39 9.13 26.44 14.88
--------- ---------- --------- --------
Earnings per American Depositary Share - cents (a)
Basic 44.46 55.08 159.12 89.76
Diluted 44.34 54.78 158.64 89.28
---------- ---------- ---------- ----------
Average number of outstanding ordinary
shares (thousand) 22,164,026 22,426,830 22,244,797 22,414,904
========== ========== ========== ==========
---------------
(a) A summary of the material adjustments to profit for the period which would
be required if generally accepted accounting principles in the United
States had been applied instead of those generally accepted in the United
Kingdom is given in Note 13.
Page 12
BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2003 December 31, 2002
(Unaudited)
--------------------- -----------------------
($ million)
Fixed assets
Intangible assets 13,896 15,566
Tangible assets 89,285 87,682
Investments 10,684 10,811
-------- --------
113,865 114,059
Current assets
Inventories 9,759 10,181
Receivables 36,892 33,150
Investments 329 215
Cash at bank and in hand 2,115 1,520
------- -------
49,095 45,066
------- -------
Current liabilities - falling due within one year
Finance debt 5,885 10,086
Accounts payable and accrued liabilities 39,337 36,215
------- -------
45,222 46,301
------- -------
Net current assets (liabilities) 3,873 (1,235)
------- -------
Total assets less current liabilities 117,738 112,824
Noncurrent liabilities
Finance debt 12,709 11,922
Accounts payable and accrued liabilities 3,509 3,455
Provisions for liabilities and charges
Deferred tax 14,322 13,514
Other 14,117 13,886
------- -------
44,657 42,777
-------- --------
Net assets 73,081 70,047
Minority shareholders' interest - equity 1,016 638
-------- --------
BP shareholders' interest (a) - Note 10 72,065 69,409
======== ========
Represented by:
Capital shares
Preference 21 21
Ordinary 5,526 5,595
Paid-in surplus 4,393 4,243
Merger reserve 27,057 27,033
Retained earnings 34,919 32,344
Other reserves 149 173
-------- --------
72,065 69,409
======== ========
---------------
(a) A summary of the material adjustments to BP shareholders' interest which
would be required if generally accepted accounting principles in the United
States had been applied instead of those generally accepted in the United
Kingdom is given in Note 13.
Page 13
BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- -----------------------
($ million)
Net cash inflow from operating activities 7,346 5,133 13,307 8,769
------- ------- ------- -------
Dividends from joint ventures 28 16 41 99
------- ------- ------- -------
Dividends from associated undertakings 177 154 232 207
------- ------- ------- -------
Servicing of finance and returns on investments
Interest received 52 57 83 105
Interest paid (446) (342) (653) (651)
Dividends received 42 58 48 60
Dividends paid to minority shareholders (11) (3) (13) (16)
------- ------- ------- -------
Net cash outflow from servicing of finance
and returns on investments (363) (230) (535) (502)
------- ------- ------- -------
Taxation
UK corporation tax (280) (167) (592) (354)
Overseas tax (1,573) (760) (1,893) (1,018)
------- ------- ------- -------
Tax paid (1,853) (927) (2,485) (1,372)
------- ------- ------- -------
Capital expenditure and financial investment
Payments for fixed assets (2,760) (2,793) (5,637) (5,592)
Proceeds from the sale of fixed assets 1,652 939 3,969 1,256
------- ------- ------- -------
Net cash outflow for capital expenditure and
financial investment (1,108) (1,854) (1,668) (4,336)
------- ------- ------- -------
Acquisitions and disposals
Investments in associated undertakings (331) (488) (517) (631)
Acquisitions, net of cash acquired (150) (139) (150) (1,689)
Net investment in joint ventures (2) (68) (16) (114)
Proceeds from the sale of businesses 19 1,584 179 1,615
------- ------- ------- -------
Net cash (outflow) inflow for acquisitions
and disposals (464) 889 (504) (819)
------- ------- ------- -------
Equity dividends paid (1,386) (1,290) (2,783) (2,578)
------- ------- ------- -------
Net cash inflow (outflow) 2,377 1,891 5,605 (532)
======= ======= ======= =======
Financing 1,355 2,017 4,948 (266)
Management of liquid resources 93 33 106 (132)
Increase (decrease) in cash 929 (159) 551 (134)
------- ------- ------- -------
2,377 1,891 5,605 (532)
======= ======= ======= =======
---------------
(a) This cash flow statement has been prepared in accordance with UK GAAP. A
cash flow statement presented on a SFAS 95 format is included in Note 13.
Page 14
BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - concluded
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------- -----------------------
($ million)
Reconciliation of historical cost profit before interest
and tax to net cash inflow from operating activities
Profit before interest and tax 3,653 4,151 9,971 6,573
Depreciation and amounts provided 2,653 2,227 5,362 4,380
Exploration expenditure written off 43 147 93 206
Share of profits of joint ventures and associated
undertakings (207) (288) (511) (544)
Interest and other income (100) (118) (148) (181)
(Profit) loss on sale of fixed assets and businesses (280) (374) (674) (265)
Charge for provisions 204 325 406 494
Utilization of provisions (316) (373) (544) (611)
Decrease (increase) in inventories 193 (807) 569 (1,303)
Decrease (increase) in debtors 3,252 (1,614) (3,683) (2,024)
(Decrease) increase in creditors (1,749) 1,857 2,466 2,044
------- ------- ------- -------
Net cash inflow from operating activities 7,346 5,133 13,307 8,769
======= ======= ======= =======
Financing
Long-term borrowing (208) (752) (1,223) (2,498)
Repayments of long-term borrowing 607 663 1,010 897
Short-term borrowing (418) (753) (1,044) (4,252)
Repayments of short-term borrowing 388 2,891 4,287 5,710
------- ------- ------- -------
369 2,049 3,030 (143)
Issue of ordinary share capital (14) (32) (81) (123)
Repurchase of ordinary share capital 1,000 - 1,999 -
------- ------- ------- -------
Net cash outflow (inflow) from financing 1,355 2,017 4,948 (266)
======= ======= ======= =======
---------------
(a) This cash flow statement has been prepared in accordance with UK GAAP. A
cash flow statement presented on a SFAS 95 format is included in Note 13.
Page 15
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the interim periods are unaudited and in the opinion of
management include all adjustments necessary for a fair presentation of the
results for the periods presented. The interim financial statements and
notes included in this Report should be read in conjunction with the
consolidated financial statements and related notes for the year ended
December 31, 2002 included in BP's Annual Report on Form 20-F filed with
the Securities and Exchange Commission.
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
------------------------ ------------------------
($ million)
2. Turnover
By business
Exploration and Production 7,433 6,539 16,501 12,177
Gas, Power and Renewables 14,875 8,235 32,873 16,003
Refining and Marketing 36,949 31,870 78,384 56,759
Petrochemicals 4,003 3,584 7,941 6,226
Other businesses and corporate 129 136 240 271
------- ------- ------- -------
63,389 50,364 135,939 91,436
Less: sales between businesses 7,082 6,709 15,844 11,491
------- ------- ------- -------
Group excluding joint ventures 56,307 43,655 120,095 79,945
Share of sales of joint ventures 364 404 762 683
------- ------- ------- -------
56,671 44,059 120,857 80,628
======= ======= ======= =======
By geographical area
Group excluding joint ventures
UK 13,456 12,509 28,883 23,504
Rest of Europe 12,206 12,219 25,228 21,338
USA 25,984 19,663 57,082 34,928
Rest of World 12,102 8,035 25,838 15,019
------- ------- ------- -------
63,748 52,426 137,031 94,789
Less: sales between areas 7,441 8,771 16,936 14,844
------- ------- ------- -------
56,307 43,655 120,095 79,945
======= ======= ======= =======
3. Production taxes
UK petroleum revenue tax 58 90 191 153
Overseas production taxes 324 225 695 409
------- ------- ------- -------
382 315 886 562
======= ======= ======= =======
4. Exploration expense
Exploration and Production
UK 2 4 5 10
Rest of Europe 5 13 9 36
USA 47 133 84 175
Rest of World 47 72 115 125
------- ------- ------- -------
101 222 213 346
======= ======= ======= =======
Page 16
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
------------------------ ------------------------
($ million)
5. Analysis of exceptional items
Profit (loss) on sale of fixed assets and
businesses or termination of operations
Exploration and Production 333 427 766 432
Gas, Power and Renewables 6 (1) 6 (1)
Refining and Marketing (49) 31 (101) (14)
Petrochemicals 2 (85) 9 (145)
Other businesses and corporate (12) 4 (6) (5)
------- ------- ------- -------
Exceptional items before taxation 280 376 674 267
Taxation charge (149) (160) (203) (121)
------- ------- ------- -------
Exceptional items after taxation 131 216 471 146
======= ======= ======= =======
6. Interest expense
Group interest payable 163 261 350 528
Capitalized (43) (25) (77) (40)
------- ------- ------- -------
120 236 273 488
Joint ventures 17 15 30 29
Associated undertakings 12 21 22 45
Unwinding of discount on provisions 42 42 86 85
------- ------- ------- -------
191 314 411 647
======= ======= ======= =======
7. Charge for taxation
Current 1,406 1,040 2,987 1,573
Deferred (a) 362 711 586 931
------- ------- ------- -------
1,768 1,751 3,573 2,504
======= ======= ======= =======
UK (a) 413 646 898 835
Overseas 1,355 1,105 2,675 1,669
------- ------- ------- -------
1,768 1,751 3,573 2,504
======= ======= ======= =======
(a) Includes the adjustment to the North Sea
deferred tax balance for the supplementary
UK corporation tax of 10% - 355 - 355
------- ------- ------- -------
Page 17
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
8. Business and geographical analysis
Gas, Other
Exploration Power Refining businesses
By business and and and Petro- and
Production Renewables Marketing Chemicals corporate Eliminations Total
----------- ---------- --------- --------- ---------- ------------ ------
($ million)
Three months
ended June 30, 2003
Group turnover
- third parties 2,125 14,420 35,785 3,848 129 - 56,307
- sales between businesses 5,308 455 1,164 155 - (7,082) -
----------- ---------- --------- --------- ---------- ------------ ------
7,433 14,875 36,949 4,003 129 (7,082) 56,307
----------- ---------- --------- --------- ---------- ------------ ------
Share of sales by joint ventures 168 - 112 84 - - 364
----------- ---------- --------- --------- ---------- ------------ ------
Equity accounted income 161 (2) 37 2 9 - 207
----------- ---------- --------- --------- ---------- ------------ ------
Total operating profit (loss) 3,150 31 116 210 (134) - 3,373
Exceptional items 333 6 (49) 2 (12) - 280
----------- ---------- --------- --------- ---------- ------------ ------
Profit (loss) before interest
and tax 3,483 37 67 212 (146) - 3,653
----------- ---------- --------- --------- ---------- ------------ ------
Capital expenditure and
acquisitions 2,462 98 385 198 183 - 3,326
Three months
ended June 30, 2002
Group turnover
- third parties 1,246 7,816 30,922 3,535 136 - 43,655
- sales between businesses 5,293 419 948 49 - (6,709) -
----------- ---------- --------- --------- ---------- ------------ ------
6,539 8,235 31,870 3,584 136 (6,709) 43,655
----------- ---------- --------- --------- ---------- ------------ ------
Share of sales by joint ventures 137 - 102 165 - - 404
----------- ---------- --------- --------- ---------- ------------ ------
Equity accounted income 127 38 51 57 12 - 285
----------- ---------- --------- --------- ---------- ------------ ------
Total operating profit (loss) 2,457 118 1,047 281 (128) - 3,775
Exceptional items 427 (1) 31 (85) 4 - 376
----------- ---------- --------- --------- ---------- ------------ ------
Profit (loss) before interest
and tax 2,884 117 1,078 196 (124) - 4,151
----------- ---------- --------- --------- ---------- ------------ ------
Capital expenditure and
acquisitions 2,573 132 2,965 170 267 - 6,107
Page 18
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
8. Business and geographical analysis - continued
Rest of Rest of
By geographical area UK Europe USA World Eliminations Total
------- -------- ------- -------- ------------- -------
($ million)
Three months ended June 30, 2003
Group turnover -third parties 9,991 9,934 25,520 10,862 - 56,307
-sales between areas 3,465 2,272 464 1,240 (7,441) -
------- -------- ------- -------- ------------- -------
13,456 12,206 25,984 12,102 (7,441) 56,307
------- -------- ------- -------- ------------- -------
Share of sales by joint ventures 18 66 45 235 - 364
------- -------- ------- -------- ------------- -------
Equity accounted income 4 5 28 170 - 207
------- -------- ------- -------- ------------- -------
Total operating profit (loss) 285 429 1,487 1,172 - 3,373
Exceptional items 537 10 (91) (176) - 280
------- -------- ------- -------- ------------- -------
Profit before interest and tax 822 439 1,396 996 - 3,653
------- -------- ------- -------- ------------- -------
Capital expenditure and acquisitions 361 167 1,542 1,256 - 3,326
Three months ended June 30, 2002
Group turnover -third parties 8,172 10,311 18,643 6,529 - 43,655
-sales between areas 4,337 1,908 1,020 1,506 (8,771) -
------- -------- ------- -------- ------------- -------
12,509 12,219 19,663 8,035 (8,771) 43,655
------- -------- ------- -------- ------------- -------
Share of sales by joint ventures 72 70 60 202 - 404
------- -------- ------- -------- ------------- -------
Equity accounted income (3) 50 74 164 - 285
------- -------- ------- -------- ------------- -------
Total operating profit (loss) 516 596 1,518 1,145 - 3,775
Exceptional items (24) (45) 482 (37) - 376
------- -------- ------- -------- ------------- -------
Profit before interest and tax 492 551 2,000 1,108 - 4,151
------- -------- ------- -------- ------------- -------
Capital expenditure and acquisitions 400 2,953 1,467 1,287 - 6,107
Page 19
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
8. Business and geographical analysis - continued
Gas, Other
Exploration Power Refining businesses
By business and and and -Petro and
Production Renewables Marketing Chemicals corporate Eliminations Total
----------- ---------- --------- --------- ---------- ------------ ------
($ million)
Six months
ended June 30, 2003
Group turnover
- third parties 4,156 31,869 76,165 7,665 240 - 120,095
- sales between businesses 12,345 1,004 2,219 276 - (15,844) -
----------- ---------- --------- --------- ---------- ------------ ------
16,501 32,873 78,384 7,941 240 (15,844) 120,095
----------- ---------- --------- --------- ---------- ------------ ------
Share of sales by joint ventures 349 - 212 201 - - 762
----------- ---------- --------- --------- ---------- ------------ ------
Equity accounted income 395 (3) 74 27 18 - 511
----------- ---------- --------- --------- ---------- ------------ ------
Total operating profit (loss) 7,482 252 1,367 495 (299) - 9,297
Exceptional items 766 6 (101) 9 (6) - 674
----------- ---------- --------- --------- ---------- ------------ ------
Profit (loss) before interest
and tax 8,248 258 1,266 504 (305) - 9,971
----------- ---------- --------- --------- ---------- ------------ ------
Capital expenditure and
acquisitions 4,599 166 922 294 219 - 6,200
Six months
ended June 30, 2002
Group turnover
- third parties 3,337 15,129 55,143 6,065 271 - 79,945
- sales between businesses 8,840 874 1,616 161 - (11,491) -
----------- ---------- --------- --------- ---------- ------------ ------
12,177 16,003 56,759 6,226 271 (11,491) 79,945
----------- ---------- --------- --------- ---------- ------------ ------
Share of sales by joint ventures 232 - 179 272 - - 683
----------- ---------- --------- --------- ---------- ------------ ------
Equity accounted income 252 92 102 66 29 - 541
----------- ---------- --------- --------- ---------- ------------ ------
Total operating profit (loss) 4,388 233 1,610 328 (253) - 6,306
Exceptional items 432 (1) (14) (145) (5) - 267
----------- ---------- --------- --------- ---------- ------------ ------
Profit (loss) before interest
and tax 4,820 232 1,596 183 (258) - 6,573
----------- ---------- --------- --------- ---------- ------------ ------
Capital expenditure and
acquisitions 4,886 178 6,102 358 319 - 11,843
Page 20
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
8. Business and geographical analysis - concluded
Rest of Rest of
By geographical area UK Europe USA World Eliminations Total
------- -------- ------- -------- ------------- -------
($ million)
Six months ended June 30, 2003
Group turnover -third parties 21,205 20,696 56,132 22,062 - 120,095
-sales between areas 7,678 4,532 950 3,776 (16,936) -
------- -------- ------- -------- ------------- -------
28,883 25,228 57,082 25,838 (16,936) 120,095
------- -------- ------- -------- ------------- -------
Share of sales by joint ventures 46 155 87 474 - 762
------- -------- ------- -------- ------------- -------
Equity accounted income 3 2 63 443 - 511
------- -------- ------- -------- ------------- -------
Total operating profit 1,403 1,119 3,976 2,799 - 9,297
Exceptional items 525 (31) (237) 417 - 674
------- -------- ------- -------- ------------- -------
Profit before interest and tax 1,928 1,088 3,739 3,216 - 9,971
------- -------- ------- -------- ------------- -------
Capital expenditure and acquisitions 662 369 2,938 2,231 - 6,200
Six months ended June 30, 2002
Group turnover -third parties 16,584 17,629 33,641 12,091 - 79,945
-sales between areas 6,920 3,709 1,287 2,928 (14,844) -
------- -------- ------- -------- ------------- -------
23,504 21,338 34,928 15,019 (14,844) 79,945
------- -------- ------- -------- ------------- -------
Share of sales by joint ventures 104 126 103 350 - 683
------- -------- ------- -------- ------------- -------
Equity accounted income (5) 111 129 306 - 541
------- -------- ------- -------- ------------- -------
Total operating profit 1,092 1,094 1,960 2,160 - 6,306
Exceptional items (33) (35) 373 (38) - 267
------- -------- ------- -------- ------------- -------
Profit before interest and tax 1,059 1,059 2,333 2,122 - 6,573
------- -------- ------- -------- ------------- -------
Capital expenditure and acquisitions 809 5,805 2,998 2,231 - 11,843
Page 21
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- ----------------------
($ million)
9. Analysis of changes in net debt
Opening balance
Finance debt 19,042 24,531 22,008 21,417
Less: Cash 1,151 1,379 1,520 1,358
Current asset investments 228 286 215 450
------- ------- ------- -------
Opening net debt 17,663 22,866 20,273 19,609
------- ------- ------- -------
Closing balance
Finance debt 18,594 21,409 18,594 21,409
Less: Cash 2,115 1,284 2,115 1,284
Current asset investments 329 285 329 285
------- ------- ------- -------
Closing net debt 16,150 19,840 16,150 19,840
------- ------- ------- -------
Decrease (increase) in net debt 1,513 3,026 4,123 (231)
======= ======= ======= =======
Movement in cash/bank overdrafts 929 (159) 551 (134)
Increase (decrease) in current asset investments 93 33 106 (132)
Net cash outflow (inflow) from financing
(excluding share capital) 369 2,049 3,030 (143)
Partnership interests exchanged for BP loan notes - 1,135 - 1,135
Exchange of Exchangeable Bonds for
Lukoil American Depositary Shares - - 420 -
Other movements 106 19 170 44
Debt acquired - - - (999)
------- ------- ------- -------
Movements in net debt before exchange effects 1,497 3,077 4,277 (229)
Exchange adjustments 16 (51) (154) (2)
------- ------- ------- -------
Decrease (increase) in net debt 1,513 3,026 4,123 (231)
======= ======= ======= =======
10. Movement in BP shareholders' interest $ million
Balance at December 31, 2002 69,409
Profit for the period 5,901
Distribution to shareholders (2,820)
Currency translation differences (net of tax) 1,493
Issue of ordinary share capital for employee share schemes 81
Repurchase of ordinary share capital (1,999)
-------
Balance at June 30, 2003 72,065
=======
Page 22
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
11. Earnings per share
Basic earnings per share excludes the dilutive effects of options, warrants
and convertible securities. Diluted earnings per share reflects the
potential dilution that could occur if options, warrants or convertible
securities were exercised or converted into ordinary shares that shared in
the earnings of the Group. The dilutive effect of outstanding share options
is as follows:
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------------------------- ----------------------------
(shares thousand)
Weighted average number of ordinary shares 22,164,026 22,426,830 22,244,797 22,414,904
Ordinary shares issuable under employee
share schemes 54,194 112,433 70,293 118,702
------------ ------------ ------------- -------------
22,218,220 22,539,263 22,315,090 22,533,606
============ ============ ============= =============
12. Share-based compensation
BP accounts for share options granted to employees using the
intrinsic-value method. If the fair value of options granted in any
particular year is estimated and this value amortized over the vesting
period of the options, an indication of the cost of granting options to
employees can be made. The fair value of each share option granted has been
estimated using a Black-Scholes option pricing model.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, `Accounting for Stock-Based Compensation', to share
based employee compensation.
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
------------------------ ------------------------
($ million)
Profit for the period applicable to ordinary shares,
as reported 1,634 2,058 5,901 3,354
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (23) (22) (47) (48)
------- ------- ------- -------
Pro forma net income 1,611 2,036 5,854 3,306
======= ======= ======= =======
(cents)
Earnings per ordinary share
Basic - as reported 7.41 9.18 26.52 14.96
Basic - pro forma 7.31 9.08 26.31 14.75
Diluted - as reported 7.39 9.13 26.44 14.88
Diluted - pro forma 7.28 9.03 26.23 14.67
Page 23
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles
The consolidated financial statements of the BP Group are prepared in
accordance with UK GAAP which differs in certain respects from US GAAP. The
principal differences between US GAAP and UK GAAP for BP Group reporting
relate to the following:
(i) Group consolidation
Where the Group conducts activities through a joint arrangement that
is not carrying on a trade or business in its own right, the Group
accounts for its own assets, liabilities and cash flows of the
activity measured according to the terms of the arrangement. For the
Group this method of accounting applies to certain oil and natural gas
activities and undivided interests in pipelines. US GAAP permits these
activities to be accounted for by proportional consolidation, which is
equivalent to UK GAAP.
Joint ventures and associated undertakings are accounted for by the
equity method. UK GAAP requires the consolidated financial statements
to show separately the Group proportion of operating profit or loss,
exceptional items, interest expense and taxation of joint ventures and
associated undertakings. In addition the Group's share of turnover of
joint ventures should be disclosed. For US GAAP the after tax profits
or losses (i.e. operating results after exceptional items, inventory
holding gains or losses, interest expense and taxation) are included
in the income statement as a single line item.
UK GAAP requires the Group's share of the gross assets and gross
liabilities of joint ventures to be shown on the face of the balance
sheet whereas under US GAAP the net investment is included as a single
line item.
The following summarizes the reclassifications for joint ventures and
associated undertakings necessary to accord with US GAAP.
Three months ended June 30, 2003
(Unaudited)
------------------------------------------------
As US GAAP
Increase (decrease) in caption heading Reported Reclassification Presentation
------------------------------------------------
($ million)
Consolidated statement of income
Other income 197 175 372
Share of profits of JVs and associated undertakings 207 (207) -
Exceptional items before taxation 280 - 280
Interest expense 191 (29) 162
Taxation 1,768 (3) 1,765
Profit for the period 1,634 - 1,634
Six months ended June 30, 2003
(Unaudited)
------------------------------------------------
As US GAAP
Reported Reclassification Presentation
------------------------------------------------
($ million)
Consolidated statement of income
Other income 328 391 719
Share of profits of JVs and associated undertakings 511 (511) -
Exceptional items before taxation 674 - 674
Interest expense 411 (52) 359
Taxation 3,573 (68) 3,505
Profit for the year 5,901 - 5,901
Page 24
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(i) Group consolidation (concluded)
Three months ended June 30, 2002
(Unaudited)
------------------------------------------------
As US GAAP
Increase (decrease) in caption heading Reported Reclassification Presentation
------------------------------------------------
($ million)
Consolidated statement of income
Other income 147 192 339
Share of profits of JVs and associated undertakings 285 (285) -
Exceptional items before taxation 376 (2) 374
Interest expense 314 (36) 278
Taxation 1,751 (59) 1,692
Profit for the period 2,058 - 2,058
Six months ended June 30, 2002
(Unaudited)
------------------------------------------------
As US GAAP
Reported Reclassification Presentation
------------------------------------------------
($ million)
Consolidated statement of income
Other income 272 345 617
Share of profits of JVs and associated undertakings 541 (541) -
Exceptional items before taxation 267 (2) 265
Interest expense 647 (74) 573
Taxation 2,504 (124) 2,380
Profit for the year 3,354 - 3,354
(ii) Exceptional items
Under UK GAAP certain exceptional items are shown separately on the
face of the income statement after operating profit. These items are
profits or losses on the sale of fixed assets and businesses or
termination of operations and fundamental restructuring charges. Under
US GAAP these items are classified as operating income or expenses.
Page 25
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(iii)Deferred taxation/business combinations
US GAAP requires the recognition of a deferred tax asset or liability
for the tax effects of differences between the assigned values and the
tax bases of assets acquired and liabilities assumed in a purchase
business combination, whereas under UK GAAP no such deferred tax asset
or liability is recognized. Under US GAAP the deferred tax asset or
liability is amortized over the same period as the assets and
liabilities to which it relates.
The adjustments to profit for the period and to BP shareholders'
interest to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales 457 139 1,149 290
Taxation (455) (80) (1,183) (174)
Profit for the period (2) (59) 34 (116)
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Tangible assets 6,374 7,408
Deferred taxation 6,432 7,486
BP shareholders' interest (58) (78)
====== ======
(iv) Provisions
UK GAAP requires provisions for decommissioning, environmental
liabilities and onerous contracts to be determined on a discounted
basis if the effect of the time value of money is material. The
provisions for decommissioning and environmental liabilities are
estimated using costs based on current prices and discounted using
real discount rates. Unwinding of the discount and the effect of a
change in the discount rate is included in interest expense in the
period. When a decommissioning provision is set up, a tangible fixed
asset of the same amount is also recognized and is subsequently
depreciated as part of the capital costs of the facilities.
On January 1, 2003 the Group adopted Statement of Financial Accounting
Standards No. 143 `Accounting for Asset Retirement Obligations' (SFAS
143). SFAS 143 requires companies to record liabilities equal to the
fair value of their asset retirement obligations when they are
incurred (typically when the asset is installed at the production
location). When the liability is initially recorded, companies
capitalize an equivalent amount as part of the cost of the asset. Over
time the liability is accreted for the change in its present value
each period, and the initial capitalized cost is depreciated over the
useful life of the related asset.
The provisions for decommissioning under SFAS 143 are set up on a
similar basis to UK GAAP except that estimated future cash outflows
are discounted using a credit-adjusted risk-free rate rather than a
real discount rate.
Page 26
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(iv) Provisions - continued
The cumulative effect of adopting SFAS 143 at January 1, 2003 resulted
in an after tax credit to income, as adjusted to accord with US GAAP,
of $1,002 million. The effect of adoption also included an increase in
total assets, as adjusted to accord with US GAAP, of $687 million and
a reduction in total liabilities, as adjusted to accord with US GAAP,
of $315 million. The effect of adoption on the three months and six
months ended June 30, 2003 was to decrease profit for the period
before cumulative effect of accounting changes as adjusted to accord
with US GAAP by $84 million and $107 million respectively.
Under US GAAP environmental liabilities are discounted only where the
timing and amounts of payments are fixed and reliably determinable.
The adjustments to profit for the period and to BP shareholders'
interest to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales (15) 32 (37) 109
Interest expense 18 (42) 12 (85)
Taxation (2) (8) - (16)
Profit for the period before cumulative
effect of accounting changes (1) 18 25 (8)
Cumulative effect of accounting changes - - 1,002 -
Profit for the period (1) 18 1,027 (8)
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Tangible assets (694) (1,297)
Provisions (660) 412
Deferred taxation (7) (621)
BP shareholders' interest (27) (1,088)
====== ======
Page 27
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(iv) Provisions (concluded)
The following pro forma data summarize the results of operations
assuming SFAS 143 was applied retroactively with effect from January
1, 2002 for the three and six months ended June 30, 2003 and 2002.
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
----- ----- ----- -----
($ million)
Profit for the period applicable to ordinary
shares as adjusted to accord with US GAAP
As reported 2,266 2,434 7,000 4,485
Pro forma 2,266 2,458 7,000 4,530
Per ordinary share - cents
Basic - as reported 10.26 10.85 31.46 20.01
Basic - pro forma 10.26 10.96 31.46 20.21
Diluted - as reported 10.22 10.79 31.36 19.90
Diluted - pro forma 10.22 10.90 31.36 20.10
Per American Depositary Share - cents
Basic - as reported 61.56 65.10 188.76 120.06
Basic - pro forma 61.56 65.76 188.76 121.26
Diluted - as reported 61.32 64.74 188.16 119.40
Diluted - pro forma 61.32 65.40 188.16 120.60
The pro forma asset retirement obligation at January 1, 2002 and
December 31, 2002, assuming SFAS 143 was applied retroactively with
effect from January 1, 2002, amounts to $3,268 million and $3,469
million, respectively.
(v) Sale and leaseback
The sale and leaseback of an office building in Chicago, Illinois in
1998 was treated as a sale for UK GAAP whereas it was treated as a
financing transaction under US GAAP. The remaining interest in this
building was sold in January 2003.
Provisions were recognized under UK GAAP in 1999 and 2002 to cover the
likely shortfall on rental income from subletting the Chicago office
building. As the original sale and leaseback was not treated as a sale
for US GAAP the provision was reversed for US GAAP. Following the
disposal of the building a provision has now been recognized for US
GAAP.
Under UK GAAP the profit arising on the sale and operating leaseback
of certain railcars in 1999 was taken to income in the period in which
the transaction occurred. Under US GAAP this profit was not recognized
immediately but amortized over the term of the operating lease.
Page 28
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(v) Sale and leaseback (concluded)
The adjustments to profit for the period and BP shareholders' interest
to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales (4) 2 (112) 7
Taxation 2 (1) 39 (2)
Profit for the period 2 (1) 73 (5)
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Tangible assets - 161
Other accounts payable and accrued liabilities 26 27
Provisions 23 (117)
Finance debt - 413
Deferred taxation (17) (56)
BP shareholders' interest (32) (106)
====== ======
(vi) Goodwill and intangible assets
Various differences in the basis for determining goodwill between UK
and US GAAP result in goodwill for US GAAP reporting differing from
the amount recognized under UK GAAP.
On January 1, 2002 the Group adopted Statement of Financial Accounting
Standards No. 142 `Goodwill and Other Intangible Assets' (SFAS 142)
for US GAAP reporting. This standard eliminates the requirement to
amortize goodwill and indefinite lived intangible assets. Rather, such
assets are subject to periodic impairment testing. Intangible assets
that are not deemed to have an indefinite life continue to be
amortized over their estimated useful lives. Amortization of goodwill
charged to income under UK GAAP has been reversed for US GAAP.
The adjustments to profit for the period and to BP shareholders'
interest to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales (343) (322) (685) (643)
Profit for the period 343 322 685 643
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Intangible assets 618 (84)
BP shareholders' interest 618 (84)
====== ======
Page 29
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(vi) Goodwill and intangible assets (concluded)
Changes to exploration expenditure, goodwill and other intangible
assets, as adjusted to accord with US GAAP, during the three months
ended June 30, 2003 are shown below.
Exploration Other
expenditure Goodwill intangibles Total
--------------------------------------------------------
($ million)
Net book amount
At January 1, 2003 4,944 10,354 488 15,786
Amortization expense (93) - (38) (131)
Other movements (754) (140) 46 (848)
--------------------------------------------------------
At June 30, 2003 4,097 10,214 496 14,807
========================================================
Amortization expense relating to other intangibles is expected to be
in the range $100-$200 million in each of the succeeding five years.
During the second quarter of 2003 the Group completed a goodwill
impairment review using the two-step process prescribed in SFAS 142.
The first step includes a comparison of the fair value of a reporting
unit to its carrying value, including goodwill. Where the carrying
value exceeds the fair value, the goodwill of the reporting unit is
potentially impaired and the second step is then completed in order to
measure the impairment loss, if any. No impairment charge resulted
from this review.
(vii) Derivative financial instruments and hedging activities
SFAS 133 `Accounting for Derivative Instruments and Hedging
Activities' requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. To the extent that certain criteria are met, SFAS 133
permits, but does not require, hedge accounting.
In the normal course of business the Group is a party to derivative
financial instruments with off-balance sheet risk, primarily to manage
its exposure to fluctuations in foreign currency exchange rates and
interest rates, including management of the balance between floating
rate and fixed rate debt. The Group also manages certain of its
exposures to movements in oil and natural gas prices. In addition, the
Group trades derivatives in conjunction with these risk management
activities.
All oil price derivatives and all derivatives held for trading are
carried on the Group's balance sheet at fair value with changes in
that value recognized in earnings of the period for both UK and US
GAAP. Certain financial derivatives used to manage foreign currency
and interest rate risk that qualify for hedge accounting under UK GAAP
are marked to market under SFAS 133. Under US GAAP the fair values of
derivative financial instruments are shown as current assets and
liabilities as appropriate.
The Group has a number of long-term natural gas contracts which have
been in place for many years. The pricing structure for certain of
these contracts is not directly related to the market price of natural
gas but to the price of other commodities or indices, such as fuel oil
or consumer price indices. Under US GAAP, these contracts are
marked-to-market.
Page 30
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(vii) Derivative financial instruments and hedging activities (concluded)
In October 2002, the FASB Emerging Issues Task Force (EITF) reached a
consensus which rescinded EITF Issue No. 98-10, 'Accounting for
Contracts Involved in Energy Trading and Risk Management Activities'
(EITF 98-10). As a result of this consensus, all energy-related,
non-derivative contracts (such as transportation, storage, tolling,
and requirements contracts that do not meet the definition of a
derivative) and trading inventories that are accounted for at fair
value pursuant to EITF 98-10 are no longer accounted for at fair value
upon application of the consensus. Rather, such contracts are
accounted for as executory contracts on an accruals basis.
The consensus is applicable for all contracts executed after October
25, 2002. Application of the consensus to contracts existing prior to
October 26, 2002 is required to be accounted for as a cumulative
effect of a change in accounting principle effective for periods
beginning after December 15, 2002.
For BP's reporting under UK GAAP, energy-related non-derivative
contracts associated with trading activities are marked to market with
gains and losses recognized in the income statement.
The cumulative effect of adopting the consensus at January 1, 2003
resulted in an after tax credit to income, as adjusted to accord with
US GAAP, of $50 million.
Also in October 2002, the FASB Emerging Issues Task Force (EITF)
reached a consensus with regards to EITF Issue No. 02-3, `Issues
Involved in Accounting for Contracts Under EITF Issue No. 98-10
"Accounting for Contracts Involved in Energy Trading and Risk
Management Activities"' (EITF 02-3). Under this consensus trading
inventories are recorded on the balance sheet at historical cost. The
Group marks trading inventories to market at the balance sheet date.
Thus a UK/US GAAP difference arises which impacts both profit for the
year and BP shareholders' interest due to the difference in inventory
valuations.
The adjustments to profit for the period and to BP shareholders'
interest to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales (447) (163) (435) (967)
Taxation 156 65 152 346
Profit for the period before cumulative
effect of accounting changes 291 98 283 621
Cumulative effect of accounting changes - - 50 -
Profit for the period 291 98 333 621
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Inventories 9 (209)
Accounts payable and accrued liabilities 307 13
Deferred taxation 118 (61)
BP shareholders' interest 208 (135)
====== ======
Page 31
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(viii) Gain arising on asset exchange
For UK GAAP the transaction with Solvay in the fourth quarter of 2001,
which led to the exchange of businesses for an interest in a joint
venture and an associated undertaking, has been treated as an asset
swap which does not give rise to a gain or loss. Under US GAAP the
transaction has been treated as a disposal and acquisition at fair
value which gave rise to a gain on disposal.
The adjustments to profit for the period and to BP shareholders'
interest to accord with US GAAP are summarized below.
Three months ended Six months ended
June 30 June 30
Increase (decrease) in caption heading (Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- -----------------------
($ million)
Cost of sales 6 6 11 15
Taxation (2) (1) (4) (5)
Profit for the period (4) (5) (7) (10)
======= ======= ======= =======
At At
June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Intangible assets 158 167
Accounts payable and accrued liabilities (51) (52)
Deferred taxation 73 77
BP shareholders' interest 136 142
====== ======
(ix) Ordinary shares held for future awards to employees
Under UK GAAP, Company shares held by an Employee Share Ownership Plan
to meet future requirements of employee share schemes are recorded in
the balance sheet as Fixed assets - investments. Under US GAAP, such
shares are recorded in the balance sheet as a reduction of
shareholders' interest.
The adjustment to BP shareholders' interest to accord with US GAAP is
shown below.
At At
Increase (decrease) in caption heading June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Fixed assets - Investments (106) (159)
BP shareholders' interest (106) (159)
====== ======
Page 32
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
(x) Dividends
Under UK GAAP, dividends are recorded in the period in respect of
which they are announced or declared by the board of directors to the
shareholders. Under US GAAP, dividends are recorded in the period in
which dividends are declared.
The adjustment to BP shareholders' interest to accord with US GAAP is
shown below.
At At
Increase (decrease) in caption heading June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Other accounts payable and accrued liabilities (1,434) (1,398)
BP shareholders' interest 1,434 1,398
====== ======
(xi) Investments
Under UK GAAP certain of the Group's equity investments are reported
as either fixed asset or current asset investments and carried on the
balance sheet at cost subject to review for impairment. For US GAAP
these investments are classified as available-for-sale securities.
Consequently they are reported at fair value, with unrealized holding
gains and losses, net of tax, reported in accumulated other
comprehensive income. If a decline in fair value below cost is 'other
than temporary' the unrealized loss is accounted for as a realized
loss and charged against income.
The adjustment to BP shareholders' interest to accord with US GAAP is
shown below.
At At
Increase (decrease) in caption heading June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Fixed assets - Investments 514 52
Deferred taxation 180 18
BP shareholders' interest 334 34
====== ======
(xii) Additional minimum pension liability
Where a pension plan has an unfunded accumulated benefit obligation,
US GAAP requires such amount to be recognized as a liability in the
balance sheet. The adjustment resulting from the recognition of any
such minimum liability, including the elimination of amounts
previously recognized as a prepaid benefit cost, is reported as an
intangible asset to the extent of unrecognized prior service cost with
the remaining amount reported in comprehensive income.
The adjustments to BP shareholders' interest to accord with US GAAP
are summarized below.
At At
Increase (decrease) in caption heading June 30, December 31,
2003 2002
(Unaudited)
----------- ------------
($ million)
Other receivables falling due after more than one year 137 137
Noncurrent liabilities - accounts payable and accrued liabilities (1,211) (1,211)
Deferred taxation 2,459 2,459
BP shareholders' interest (1,247) (1,247)
Intangible assets (2,286) (2,286)
====== ======
Page 33
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
The following is a summary of the adjustments to profit for the period and
to BP shareholders' interest which would be required if generally accepted
accounting principles in the USA (US GAAP) had been applied instead of
those generally accepted in the United Kingdom (UK GAAP).
Profit for the period Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
-------------------- ---------------------
($ million)
Profit as reported in the consolidated statement of income 1,634 2,058 5,901 3,354
Adjustments:
------ ------ ------ ------
Deferred taxation/business combinations (iii) (2) (59) 34 (116)
Provisions (iv) (1) 18 25 (8)
Sale and leaseback (v) 2 (1) 73 (5)
Goodwill (vi) 343 322 685 643
Derivative financial instruments (vii) 291 98 283 621
Gain arising on asset exchange (viii) (4) (5) (7) (10)
Other 3 3 6 6
------ ------ ------ ------
632 376 1,099 1,131
------ ------ ------ ------
Profit for the period as adjusted to accord with US
GAAP before cumulative effect of accounting changes 2,266 2,434 7,000 4,485
Cumulative effect of accounting changes:
Provisions - - 1,002 -
Derivative financial instruments - - 50 -
------ ------ ------ ------
Profit for the period as adjusted to accord with US GAAP 2,266 2,434 8,052 4,485
====== ====== ====== ======
Profit for the period as adjusted:
Per ordinary share - cents
Basic - before cumulative effect of accounting changes 10.26 10.85 31.46 20.01
Cumulative effect of accounting changes
Provisions - - 4.50 -
Derivative financial instruments - - 0.23 -
------ ------ ------ ------
10.26 10.85 36.19 20.01
====== ====== ====== ======
Diluted - before cumulative effect of accounting changes 10.22 10.79 31.36 19.90
Cumulative effect of accounting changes
Provisions - - 4.50 -
Derivative financial instruments - - 0.22 -
------ ------ ------ ------
10.22 10.79 36.08 19.90
====== ====== ====== ======
Per American Depositary Share - cents (a)
Basic - before cumulative effect 61.56 65.10 188.76 120.06
of accounting changes
Cumulative effect of accounting changes
Provisions - - 27.00 -
Derivative financial instruments - - 1.38 -
------ ------ ------ ------
61.56 65.10 217.14 120.06
====== ====== ====== ======
Diluted - before cumulative effect of accounting changes 61.32 64.74 188.16 119.40
Cumulative effect of accounting changes
Provisions - - 27.00 -
Derivative financial instruments - - 1.32 -
------ ------ ------ ------
61.32 64.74 216.48 119.40
====== ====== ====== ======
Page 34
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
BP shareholders' interest June 30, 2003
(Unaudited) December 31, 2002
------------------------------------------
($ million)
BP shareholders' interest as reported
in the consolidated balance sheet 72,065 69,409
Adjustments:
------ ------
Deferred taxation/business combinations (iii) (58) (78)
Provisions (iv) (27) (1,088)
Sale and leaseback (v) (32) (106)
Goodwill (vi) 618 (84)
Derivative financial instruments (vii) 208 (135)
Gain arising on asset exchange (viii) 136 142
Ordinary shares held for future awards to employees (ix) (106) (159)
Dividends (x) 1,434 1,398
Investments (xi) 334 34
Additional minimum pension liability (xii) (2,286) (2,286)
Other (48) (48)
------ ------
173 (2,410)
------ ------
BP shareholders' interest as adjusted
to accord with US GAAP 72,238 66,999
======= =======
---------------
(a) One American Depositary Share is equivalent to six ordinary shares.
Comprehensive income
The components of comprehensive income, net of related tax are as follows:
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- ----------------------
($ million)
Profit for the period as adjusted to
accord with US GAAP 2,266 2,434 8,052 4,485
Currency translation differences 1,775 1,941 1,493 1,585
Net unrealized gain (loss) on investments 300 20 327 181
Additional minimum pension liability - - - -
------ ------ ------ ------
Comprehensive income 4,341 4,395 9,872 6,251
====== ====== ====== ======
Accumulated other comprehensive income at June 30, 2003 and December 31,
2002 comprised losses of $1,889 million and $3,709 million, respectively.
Page 35
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
Consolidated statement of cash flows
The Group's financial statements include a consolidated statement of cash
flows in accordance with the revised UK Financial Reporting Standard No. 1
(FRS 1). The statement prepared under FRS 1 presents substantially the same
information as that required under FASB Statement of Financial Accounting
Standards No. 95 'Statement of Cash Flows' (SFAS 95).
Under FRS 1 cash flows are presented for (i) operating activities; (ii)
dividends from joint ventures; (iii) dividends from associated
undertakings; (iv) servicing of finance and returns on investments; (v)
taxation; (vi) capital expenditure and financial investment; (vii)
acquisitions and disposals; (viii) dividends; (ix) financing; and (x)
management of liquid resources. SFAS 95 only requires presentation of cash
flows from operating, investing and financing activities.
Cash flows under FRS 1 in respect of dividends from joint ventures and
associated undertakings, taxation and servicing of finance and returns on
investments are included within operating activities under SFAS 95.
Interest paid includes payments in respect of capitalized interest, which
under SFAS 95 are included in capital expenditure under investing
activities. Cash flows under FRS 1 in respect of capital expenditure and
acquisitions and disposals are included in investing activities under SFAS
95. Dividends paid are included within financing activities. All short-term
investments are regarded as liquid resources for FRS 1. Under SFAS 95
short-term investments with original maturities of three months or less are
classified as cash equivalents and aggregated with cash in the cash flow
statement. Cash flows in respect of short-term investments with original
maturities exceeding three months are included in operating activities.
Page 36
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
The consolidated statement of cash flows presented in accordance with SFAS
95 is as follows:
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
----------------------- ----------------------
($ million)
Operating activities
Profit after taxation 1,694 2,086 5,987 3,422
Adjustments to reconcile profits after tax to
net cash provided by operating activities
Depreciation and amounts provided 2,653 2,227 5,362 4,380
Exploration expenditure written off 43 147 93 206
Share of profits of joint ventures and associated
undertakings less dividends received 30 (23) (118) (40)
(Profit) loss on sale of businesses and fixed assets (280) (374) (674) (265)
Working capital movement (a) 1,107 (652) (368) (1,321)
Deferred taxation 362 711 586 931
Other (220) 52 (218) (56)
------ ------ ------ ------
Net cash provided by operating activities 5,389 4,174 10,650 7,257
------ ------ ------ ------
Investing activities
Capital expenditures (2,803) (2,818) (5,714) (5,632)
Acquisitions, net of cash acquired (150) (139) (150) (1,689)
Investment in associated undertakings (331) (488) (517) (631)
Net investment in joint ventures (2) (68) (16) (114)
Proceeds from disposal of assets 1,671 2,523 4,148 2,871
------ ------ ------ ------
Net cash used in investing activities (1,615) (990) (2,249) (5,195)
------ ------ ------ ------
Financing activities
Net proceeds from shares issued (repurchased) (986) 32 (1,918) 123
Proceeds from long-term financing 208 752 1,223 2,498
Repayments of long-term financing (607) (663) (1,010) (897)
Net increase (decrease) in short-term debt 30 (2,138) (3,243) (1,458)
Dividends paid - BP Shareholders (1,386) (1,290) (2,783) (2,578)
- Minority shareholders (11) (3) (13) (16)
------ ------ ------ ------
Net cash used in financing activities (2,752) (3,310) (7,744) (2,328)
------ ------ ------ ------
Currency translation differences relating to cash
and cash equivalents 43 30 52 27
------ ------ ------ ------
Increase (decrease) in cash and cash equivalents 1,065 (96) 709 (239)
Cash and cash equivalents at beginning of period 1,379 1,665 1,735 1,808
------ ------ ------ ------
Cash and cash equivalents at end of period 2,444 1,569 2,444 1,569
====== ====== ====== ======
(a) Working capital:
Inventories (increase) decrease 193 (807) 569 (1,303)
Receivables (increase) decrease 3,234 (1,691) (3,712) (2,134)
Current liabilities - excluding finance debt
increase (decrease) (2,320) 1,846 2,775 2,116
------ ------ ------ ------
1,107 (652) (368) (1,321)
====== ====== ====== ======
Page 37
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - continued
Impact of new US accounting standards
Guarantees: In November 2002, the FASB issued FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" (Interpretation
45). Interpretation 45 elaborates on existing disclosure requirements for
guarantees and clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of Interpretation 45 apply on a prospective basis to
guarantees issued or modified after December 31, 2002.
Consolidation: In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" (Interpretation 46).
Interpretation 46 clarifies the application of existing consolidation
requirements to entities where a controlling financial interest is achieved
through arrangements that do not involve voting interests. Under
Interpretation 46, a variable interest entity is consolidated if a company
is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns. Interpretation 46 applies to variable interest entities
created or acquired after January 31, 2003. For variable interest entities
existing at January 31, 2003, Interpretation 46 is effective for accounting
periods beginning after June 15, 2003.
The Company is currently carrying out the analysis necessary to adopt
Interpretation 46 in the third quarter of 2003 for existing entities. The
Company does not expect that the adoption of Interpretation 46 will have a
significant effect on profit, as adjusted to accord with US GAAP, or BP
shareholders' interest, as adjusted to accord with US GAAP.
Financial instruments: In April 2003, the FASB issued Statement of
Financial Accounting Standards No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends
and clarifies the financial accounting and reporting of derivative
instruments and hedging activities under SFAS 133. SFAS 149 applies to
contracts entered into or modified after June 30, 2003, and hedging
relationships designated after June 30, 2003.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards
for classifying and measuring certain financial instruments that have
characteristics of both liabilities and equity. SFAS 150 applies to
instruments entered into or modified after May 31, 2003. For instruments
existing at May 31, 2003, SFAS 150 is effective for accounting periods
beginning after June 15, 2003.
The Company is currently carrying out the analysis necessary to adopt SFAS
149 and SFAS 150. The Company does not expect that the adoption of SFAS 149
and SFAS 150 will have a significant effect on profit, as adjusted to
accord with US GAAP, or BP shareholders' interest, as adjusted to accord
with US GAAP.
Page 38
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
13. US generally accepted accounting principles - concluded
Impact of new UK accounting standards
Retirement benefits: In December 2000, the UK Accounting Standards Board
issued Financial Reporting Standard No. 17 'Retirement Benefits' (FRS 17).
This standard was to be fully effective for accounting periods ending on or
after June 22, 2003 with certain of the disclosure requirements effective
for periods prior to 2003. FRS 17 requires that financial statements
reflect at fair value the assets and liabilities arising from an employer's
retirement benefit obligations and any related funding. The operating costs
of providing retirement benefits are recognized in the period in which they
are earned together with any related finance costs and changes in the value
of related assets and liabilities.
In November 2002, the UK Accounting Standards Board issued an amendment to
FRS 17, which defers full adoption until January 1, 2005.
Impact of International accounting standards
In June 2002, the European Union Council of Ministers adopted a Regulation
which would require the Group to prepare its primary consolidated financial
statements in accordance with International Accounting Standards (IAS)
beginning January 1, 2005, with restatement of prior periods presented. IAS
differ in several respects from UK and US GAAP. In addition, significant
revisions to IAS are currently being contemplated and other revisions may
be adopted prior to January 1, 2005. The Group has not determined the
effects of adopting IAS.
14. Condensed consolidating information
The following information is presented in accordance with the financial
reporting rules of the Securities and Exchange Commission regarding issuers
and guarantors of guaranteed securities.
BP p.l.c. fully and unconditionally guarantees the payment obligations of
its 100% owned subsidiary BP Exploration (Alaska) Inc. under the Prudhoe
Bay Royalty Trust.
BP p.l.c. also fully and unconditionally guarantees securities issued by BP
Australia Capital Markets Limited, BP Canada Finance Company, BP Capital
Markets p.l.c. and BP Capital Markets America Inc. These companies are
100%-owned finance subsidiaries of BP p.l.c.
Page 39
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Income statement Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2003
Turnover 750 - 56,671 (750) 56,671
Less: Joint ventures - - 364 - 364
-----------------------------------------------------------------------------
Group turnover 750 - 56,307 (750) 56,307
Cost of sales 329 - 49,941 (821) 49,449
Production taxes 58 - 324 - 382
-----------------------------------------------------------------------------
Gross profit 363 - 6,042 71 6,476
Distribution and administration expenses - (25) 3,431 - 3,406
Exploration expense 7 - 94 - 101
-----------------------------------------------------------------------------
356 25 2,517 71 2,969
Other income 5 235 173 (216) 197
-----------------------------------------------------------------------------
Group operating profit 361 260 2,690 (145) 3,166
Share of profits of joint ventures - - 104 - 104
Share of profits of associated undertakings - - 103 - 103
Equity accounted income of subsidiaries 103 3,198 - (3,301) -
-----------------------------------------------------------------------------
Total operating profit 464 3,458 2,897 (3,446) 3,373
Profit (loss) on sale of fixed assets
and businesses or termination of operations 1 282 279 (282) 280
-----------------------------------------------------------------------------
Profit before interest and tax 465 3,740 3,176 (3,728) 3,653
Interest expense 70 336 286 (501) 191
-----------------------------------------------------------------------------
Profit before taxation 395 3,404 2,890 (3,227) 3,462
Taxation 178 1,768 1,619 (1,797) 1,768
-----------------------------------------------------------------------------
Profit after taxation 217 1,636 1,271 (1,430) 1,694
Minority shareholders' interest - - 60 - 60
-----------------------------------------------------------------------------
Profit for the period 217 1,636 1,211 (1,430) 1,634
=============================================================================
Page 40
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Income statement (continued)
The following is a summary of the adjustments to the profit for the period
which would be required if generally accepted accounting principles in the
United States (US GAAP) had been applied instead of those generally
accepted in the United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2003
Profit as reported 217 1,636 1,211 (1,430) 1,634
Adjustments:
Deferred taxation/business combinations (3) (2) 1 2 (2)
Provisions (1) (1) 1 - (1)
Sale and leaseback - 2 2 (2) 2
Goodwill - 343 343 (343) 343
Derivative financial instruments - 291 291 (291) 291
Gain arising on asset exchange - (4) (4) 4 (4)
Other (16) 3 3 13 3
-----------------------------------------------------------------------------
Profit for the period as adjusted to
accord with US GAAP 197 2,268 1,848 (2,047) 2,266
=============================================================================
Page 41
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Income statement (continued) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2002
Turnover 588 - 43,995 (524) 44,059
Less: Joint ventures - - 404 - 404
-----------------------------------------------------------------------------
Group turnover 588 - 43,591 (524) 43,655
Cost of sales 322 - 36,886 (556) 36,652
Production taxes 53 - 262 - 315
-----------------------------------------------------------------------------
Gross profit 213 - 6,443 32 6,688
Distribution and administration expenses - 272 2,851 - 3,123
Exploration expense 7 - 215 - 222
-----------------------------------------------------------------------------
206 (272) 3,377 32 3,343
Other income 6 155 106 (120) 147
-----------------------------------------------------------------------------
Group operating profit 212 (117) 3,483 (88) 3,490
Share of profits of joint ventures - - 89 - 89
Share of profits of associated undertakings - - 196 - 196
Equity accounted income of subsidiaries 77 3,955 - (4,032) -
-----------------------------------------------------------------------------
Total operating profit 289 3,838 3,768 (4,120) 3,775
Profit (loss) on sale of fixed assets
and businesses or termination of operations - 1,213 1,213 (2,050) 376
-----------------------------------------------------------------------------
Profit before interest and tax 289 5,051 4,981 (6,170) 4,151
Interest expense 27 423 367 (503) 314
-----------------------------------------------------------------------------
Profit before taxation 262 4,628 4,614 (5,667) 3,837
Taxation 95 1,751 1,666 (1,761) 1,751
-----------------------------------------------------------------------------
Profit after taxation 167 2,877 2,948 (3,906) 2,086
Minority shareholders' interest - - 28 - 28
-----------------------------------------------------------------------------
Profit for the period 167 2,877 2,920 (3,906) 2,058
=============================================================================
Page 42
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Income statement (continued)
The following is a summary of the adjustments to the profit for the period
which would be required if generally accepted accounting principles in the
United States (US GAAP) had been applied instead of those generally
accepted in the United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2002
Profit as reported 167 2,877 2,920 (3,906) 2,058
Adjustments:
Deferred taxation/business combinations (32) (59) (38) 70 (59)
Provisions (1) 18 18 (17) 18
Sale and leaseback - (1) (1) 1 (1)
Goodwill - 322 322 (322) 322
Derivative financial instruments - 98 98 (98) 98
Gain arising on asset exchange - (5) (5) 5 (5)
Other - 3 3 (3) 3
-----------------------------------------------------------------------------
Profit for the period as adjusted to
accord with US GAAP 134 3,253 3,317 (4,270) 2,434
=============================================================================
Page 43
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Income statement (continued) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2003
Turnover 1,630 - 120,857 (1,630) 120,857
Less: Joint ventures - - 762 - 762
-----------------------------------------------------------------------------
Group turnover 1,630 - 120,095 (1,630) 120,095
Cost of sales 729 - 104,936 (1,777) 103,888
Production taxes 126 - 760 - 886
-----------------------------------------------------------------------------
Gross profit 775 - 14,399 147 15,321
Distribution and administration expenses - 39 6,611 - 6,650
Exploration expense 8 - 205 - 213
-----------------------------------------------------------------------------
767 (39) 7,583 147 8,458
Other income 11 382 302 (367) 328
-----------------------------------------------------------------------------
Group operating profit 778 343 7,885 (220) 8,786
Share of profits of joint ventures - - 222 - 222
Share of profits of associated undertakings - - 289 - 289
Equity accounted income of subsidiaries 228 9,088 - (9,316) -
-----------------------------------------------------------------------------
Total operating profit 1,006 9,431 8,396 (9,536) 9,297
Profit (loss) on sale of fixed assets
and businesses or termination of operations - 676 674 (676) 674
-----------------------------------------------------------------------------
Profit before interest and tax 1,006 10,107 9,070 (10,212) 9,971
Interest expense 138 631 524 (882) 411
-----------------------------------------------------------------------------
Profit before taxation 868 9,476 8,546 (9,330) 9,560
Taxation 389 3,573 3,259 (3,648) 3,573
-----------------------------------------------------------------------------
Profit after taxation 479 5,903 5,287 (5,682) 5,987
Minority shareholders' interest - - 86 - 86
-----------------------------------------------------------------------------
Profit for the period 479 5,903 5,201 (5,682) 5,901
=============================================================================
Page 44
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Income statement (continued)
The following is a summary of the adjustments to the profit for the period
which would be required if generally accepted accounting principles in the
United States (US GAAP) had been applied instead of those generally
accepted in the United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2003
Profit as reported 479 5,903 5,201 (5,682) 5,901
Adjustments:
Deferred taxation/business combinations (6) 34 40 (34) 34
Provisions (5) 25 26 (21) 25
Sale and leaseback - 73 73 (73) 73
Goodwill - 685 685 (685) 685
Derivative financial instruments - 283 283 (283) 283
Gain arising on asset exchange - (7) (7) 7 (7)
Other - 6 6 (6) 6
-----------------------------------------------------------------------------
Profit for the period before cumulative
effect of accounting changes as adjusted
to accord with US GAAP 468 7,002 6,307 (6,777) 7,000
Cumulative effect of accounting changes:
Provisions 214 1,313 1,099 (1,313) 1,313
Derivative financial instruments - - - - -
-----------------------------------------------------------------------------
Profit for the period as adjusted to
accord with US GAAP 682 8,315 7,406 (8,090) 8,313
=============================================================================
Page 45
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Income statement (continued) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2002
Turnover 1,094 - 80,564 (1,030) 80,628
Less: Joint ventures - - 683 - 683
-----------------------------------------------------------------------------
Group turnover 1,094 - 79,881 (1,030) 79,945
Cost of sales 641 - 68,159 (1,070) 67,730
Production taxes 97 - 465 - 562
-----------------------------------------------------------------------------
Gross profit 356 - 11,257 40 11,653
Distribution and administration expenses - 326 5,488 - 5,814
Exploration expense 13 - 333 - 346
-----------------------------------------------------------------------------
343 (326) 5,436 40 5,493
Other income 21 308 162 (219) 272
-----------------------------------------------------------------------------
Group operating profit 364 (18) 5,598 (179) 5,765
Share of profits of joint ventures - - 159 - 159
Share of profits of associated undertakings - - 382 - 382
Equity accounted income of subsidiaries 126 6,438 - (6,564) -
-----------------------------------------------------------------------------
Total operating profit 490 6,420 6,139 (6,743) 6,306
Profit (loss) on sale of fixed assets
and businesses or termination of operations - 1,104 1,104 (1,941) 267
-----------------------------------------------------------------------------
Profit before interest and tax 490 7,524 7,243 (8,684) 6,573
Interest expense 40 847 760 (1,000) 647
-----------------------------------------------------------------------------
Profit before taxation 450 6,677 6,483 (7,684) 5,926
Taxation 177 2,504 2,352 (2,529) 2,504
-----------------------------------------------------------------------------
Profit after taxation 273 4,173 4,131 (5,155) 3,422
Minority shareholders' interest - - 68 - 68
-----------------------------------------------------------------------------
Profit for the period 273 4,173 4,063 (5,155) 3,354
=============================================================================
Page 46
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Income statement (concluded)
The following is a summary of the adjustments to the profit for the period
which would be required if generally accepted accounting principles in the
United States (US GAAP) had been applied instead of those generally
accepted in the United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2002
Profit as reported 273 4,173 4,063 (5,155) 3,354
Adjustments:
Deferred taxation/business combinations (65) (116) (74) 139 (116)
Provisions (1) (8) (7) 8 (8)
Sale and leaseback - (5) (5) 5 (5)
Goodwill - 643 643 (643) 643
Derivative financial instruments - 621 621 (621) 621
Gain arising on asset exchange - (10) (10) 10 (10)
Other - 6 6 (6) 6
-----------------------------------------------------------------------------
Profit for the period as adjusted to
accord with US GAAP 207 5,304 5,237 (6,263) 4,485
=============================================================================
Page 47
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Balance sheet Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
At June 30, 2003
Fixed assets
Intangible assets 424 - 13,472 - 13,896
Tangible assets 6,373 - 82,912 - 89,285
Investments
Subsidiaries - equity accounted basis 2,680 80,931 - (83,611) -
Other - 108 10,576 - 10,684
-----------------------------------------------------------------------------
2,680 81,039 10,576 (83,611) 10,684
-----------------------------------------------------------------------------
Total fixed assets 9,477 81,039 106,960 (83,611) 113,865
-----------------------------------------------------------------------------
Current assets
Inventories 80 - 9,679 - 9,759
Receivables 19,543 27,684 56,776 (67,111) 36,892
Investments - - 329 - 329
Cash at bank and in hand (11) 18 2,108 - 2,115
-----------------------------------------------------------------------------
19,612 27,702 68,892 (67,111) 49,095
-----------------------------------------------------------------------------
Current liabilities - falling due within one year
Finance debt 8,080 - 5,830 (8,025) 5,885
Accounts payable and accrued liabilities 868 10,373 38,717 (10,621) 39,337
-----------------------------------------------------------------------------
Net current assets (liabilities) 10,664 17,329 24,345 (48,465) 3,873
-----------------------------------------------------------------------------
Total assets less current liabilities 20,141 98,368 131,305 (132,076) 117,738
Noncurrent liabilities
Finance debt - - 12,709 - 12,709
Accounts payable and accrued liabilities 5,492 49 46,433 (48,465) 3,509
Provisions for liabilities and charges
Deferred taxation 1,707 - 12,615 - 14,322
Other provisions 498 124 13,495 - 14,117
-----------------------------------------------------------------------------
Net assets 12,444 98,195 46,053 (83,611) 73,081
Minority shareholders' interest - equity - - 1,016 - 1,016
-----------------------------------------------------------------------------
BP shareholders' interest 12,444 98,195 45,037 (83,611) 72,065
=============================================================================
Page 48
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Balance sheet (contined) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
At June 30, 2003
Capital and reserves
Capital shares 1,903 5,547 - (1,903) 5,547
Paid-in surplus 3,145 4,393 - (3,145) 4,393
Merger reserve - 26,360 697 - 27,057
Other reserves - 149 - - 149
Retained earnings 7,396 61,746 44,340 (78,563) 34,919
-----------------------------------------------------------------------------
12,444 98,195 45,037 (83,611) 72,065
=============================================================================
The following is a summary of the adjustments to BP shareholders' interest which
would be required if generally accepted accounting principles in the United
States (US GAAP) had been applied instead of those generally accepted in the
United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Shareholders' interest as reported 12,444 98,195 45,037 (83,611) 72,065
Adjustments:
Deferred taxation/business combinations 68 (58) (126) 58 (58)
Provisions 25 (27) (53) 28 (27)
Sale and leaseback - (32) (32) 32 (32)
Goodwill - 618 618 (618) 618
Derivative financial instruments (50) 208 208 (158) 208
Gain arising on asset exchange - 136 136 (136) 136
Ordinary shares held for future
awards to employees - (106) - - (106)
Quarterly dividend - 1,434 - - 1,434
Investments - 334 334 (334) 334
Additional minimum pension liability - (2,286) (2,286) 2,286 (2,286)
Other - (48) (48) 48 (48)
-----------------------------------------------------------------------------
Shareholders' interest as adjusted
to accord with US GAAP 12,487 98,368 43,788 (82,405) 72,238
=============================================================================
Page 49
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Balance sheet (contined) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
At December 31, 2002
Fixed assets
Intangible assets 427 - 15,139 - 15,566
Tangible assets 6,405 - 81,277 - 87,682
Investments
Subsidiaries - equity accounted basis 2,561 91,939 - (94,500) -
Other - 162 10,649 - 10,811
-----------------------------------------------------------------------------
2,561 92,101 10,649 (94,500) 10,811
-----------------------------------------------------------------------------
Total fixed assets 9,393 92,101 107,065 (94,500) 114,059
-----------------------------------------------------------------------------
Current assets
Inventories 102 - 10,079 - 10,181
Receivables 18,169 13,581 51,022 (49,622) 33,150
Investments - - 215 - 215
Cash at bank and in hand (11) 1 1,530 - 1,520
-----------------------------------------------------------------------------
18,260 13,582 62,846 (49,622) 45,066
-----------------------------------------------------------------------------
Current liabilities - falling due within
one year
Finance debt 1,768 - 10,031 (1,713) 10,086
Accounts payable and accrued liabilities 1,129 9,906 35,369 (10,189) 36,215
-----------------------------------------------------------------------------
Net current assets (liabilities) 15,363 3,676 17,446 (37,720) (1,235)
-----------------------------------------------------------------------------
Total assets less current liabilities 24,756 95,777 124,511 (132,220) 112,824
Noncurrent liabilities
Finance debt - - 11,922 - 11,922
Accounts payable and accrued liabilities 10,586 98 30,491 (37,720) 3,455
Provisions for liabilities and charges
Deferred taxation 1,686 - 11,828 - 13,514
Other provisions 489 142 13,255 - 13,886
-----------------------------------------------------------------------------
Net assets 11,995 95,537 57,015 (94,500) 70,047
Minority shareholders' interest - equity - - 638 - 638
-----------------------------------------------------------------------------
BP shareholders' interest 11,995 95,537 56,377 (94,500) 69,409
=============================================================================
Page 50
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Balance sheet (concluded) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
At December 31, 2002
Capital and reserves
Capital shares 1,903 5,616 - (1,903) 5,616
Paid-in surplus 3,145 4,243 - (3,145) 4,243
Merger reserve - 26,336 697 - 27,033
Other reserves - 173 - - 173
Retained earnings 6,947 59,169 55,680 (89,452) 32,344
-----------------------------------------------------------------------------
11,995 95,537 56,377 (94,500) 69,409
=============================================================================
The following is a summary of the adjustments to BP shareholders' interest
which would be required if generally accepted accounting principles in the
United States (US GAAP) had been applied instead of those generally
accepted in the United Kingdom.
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Shareholders' interest as reported 11,995 95,537 56,377 (94,500) 69,409
Adjustments:
Deferred taxation/business combinations 74 (78) (152) 78 (78)
Provisions (190) (1,088) (902) 1,092 (1,088)
Sale and leaseback - (106) (106) 106 (106)
Goodwill - (84) (84) 84 (84)
Derivative financial instruments (50) (135) (135) 185 (135)
Gain arising on asset exchange - 142 142 (142) 142
Ordinary shares held for future
awards to employees - (159) - - (159)
Quarterly dividend - 1,398 - - 1,398
Investments - 34 34 (34) 34
Additional minimum pension liability - (2,286) (2,286) 2,286 (2,286)
Other - (48) (48) 48 (48)
-----------------------------------------------------------------------------
Shareholders' interest as adjusted
to accord with US GAAP 11,829 93,127 52,840 (90,797) 66,999
=============================================================================
Page 51
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Cash flow statement Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2003
Net cash inflow (outflow) from
operating activities 372 (15,793) 22,767 - 7,346
Dividends from joint ventures - - 28 - 28
Dividends from associated undertakings - - 177 - 177
Dividends from subsidiaries - 18,133 - (18,133) -
Net cash inflow (outflow) from servicing of
finance and returns on investments - 43 (406) - (363)
Tax paid (47) (3) (1,803) - (1,853)
Net cash inflow (outflow) for capital
expenditure and financial investment (115) 22 (1,015) - (1,108)
Net cash inflow (outflow) for acquisitions
and disposals 3 - (467) - (464)
Equity dividends paid - (1,386) (18,133) 18,133 (1,386)
-----------------------------------------------------------------------------
Net cash inflow (outflow) 213 1,016 1,148 - 2,377
=============================================================================
Financing 214 987 154 - 1,355
Management of liquid resources - - 93 - 93
Increase (decrease) in cash (1) 29 901 - 929
-----------------------------------------------------------------------------
213 1,016 1,148 - 2,377
=============================================================================
The consolidated statement of cash flows presented in accordance with SFAS 95 is
as follows:
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Net cash provided by (used in)
operating activities 328 2,379 20,763 (18,081) 5,389
Net cash provided by (used in)
investing activities (115) 24 (1,482) (42) (1,615)
Net cash provided by (used in)
financing activities (214) (2,374) (18,287) 18,123 (2,752)
Currency translation differences relating to
cash and cash equivalents - - 43 - 43
-----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (1) 29 1,037 - 1,065
Cash and cash equivalents at beginning
of period (10) (11) 1,400 - 1,379
-----------------------------------------------------------------------------
Cash and cash equivalents at end
of period (11) 18 2,437 - 2,444
=============================================================================
Page 52
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Cash flow statement (continued) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Three months ended June 30, 2002
Net cash inflow (outflow) from
operating activities 227 434 3,708 764 5,133
Dividends from joint ventures - - 16 - 16
Dividends from associated undertakings - - 154 - 154
Dividends from subsidiaries - - - - -
Net cash inflow (outflow) from servicing of
finance and returns on investments - 61 (291) - (230)
Tax paid (46) (1) (880) - (927)
Net cash inflow (outflow) for capital
expenditure and financial investment (138) (1) (1,715) - (1,854)
Net cash inflow (outflow) for acquisitions
and disposals - 764 889 (764) 889
Equity dividends paid - (1,290) - - (1,290)
-----------------------------------------------------------------------------
Net cash inflow (outflow) 43 (33) 1,881 - 1,891
=============================================================================
Financing 38 (32) 2,011 - 2,017
Management of liquid resources - - 33 - 33
Increase (decrease) in cash 5 (1) (163) - (159)
-----------------------------------------------------------------------------
43 (33) 1,881 - 1,891
=============================================================================
The consolidated statement of cash flows presented in accordance with SFAS 95 is
as follows:
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Net cash provided by (used in)
operating activities 181 494 2,707 792 4,174
Net cash provided by (used in)
investing activities (138) 763 (826) (789) (990)
Net cash provided by (used in)
financing activities (38) (1,258) (2,011) (3) (3,310)
Currency translation differences relating to
cash and cash equivalents - - 30 - 30
-----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 5 (1) (100) - (96)
Cash and cash equivalents at beginning
of period (11) 3 1,673 - 1,665
-----------------------------------------------------------------------------
Cash and cash equivalents at end
of period (6) 2 1,573 - 1,569
=============================================================================
Page 53
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
14. Condensed consolidating information - continued
Issuer Guarantor
--------------------------
BP Eliminations
Cash flow statement (continued) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2003
Net cash inflow (outflow) from
operating activities 890 (13,540) 25,957 - 13,307
Dividends from joint ventures - - 41 - 41
Dividends from associated undertakings - - 232 - 232
Dividends from subsidiaries 10 18,133 - (18,143) -
Net cash inflow (outflow) from servicing of
finance and returns on investments (22) 70 (583) - (535)
Tax paid (47) (3) (2,435) - (2,485)
Net cash inflow (outflow) for capital
expenditure and financial investment (212) 58 (1,514) - (1,668)
Net cash inflow (outflow) for acquisitions
and disposals 9 - (513) - (504)
Equity dividends paid - (2,783) (18,143) 18,143 (2,783)
-----------------------------------------------------------------------------
Net cash inflow (outflow) 628 1,935 3,042 - 5,605
=============================================================================
Financing 628 1,918 2,402 - 4,948
Management of liquid resources - - 106 - 106
Increase (decrease) in cash - 17 534 - 551
-----------------------------------------------------------------------------
628 1,935 3,042 - 5,605
=============================================================================
The consolidated statement of cash flows presented in accordance with SFAS 95 is
as follows:
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Net cash provided by (used in)
operating activities 862 4,659 23,212 (18,083) 10,650
Net cash provided by (used in)
investing activities (212) 60 (2,027) (70) (2,249)
Net cash provided by (used in)
financing activities (650) (4,702) (20,545) 18,153 (7,744)
Currency translation differences relating to
cash and cash equivalents - - 52 - 52
-----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents - 17 692 - 709
Cash and cash equivalents at beginning
of period (11) 1 1,745 - 1,735
-----------------------------------------------------------------------------
Cash and cash equivalents at end
of period (11) 18 2,437 - 2,444
=============================================================================
Page 54
BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
14. Condensed consolidating information - concluded
Issuer Guarantor
--------------------------
BP Eliminations
Cash flow statement (concluded) Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Six months ended June 30, 2002
Net cash inflow (outflow) from
operating activities 594 1,485 5,827 863 8,769
Dividends from joint ventures - - 99 - 99
Dividends from associated undertakings - - 207 - 207
Dividends from subsidiaries 15 - - (15) -
Net cash inflow (outflow) from servicing of
finance and returns on investments - 126 (628) - (502)
Tax paid (46) (1) (1,325) - (1,372)
Net cash inflow (outflow) for capital
expenditure and financial investment (288) (18) (4,030) - (4,336)
Net cash inflow (outflow) for acquisitions
and disposals - 863 (819) (863) (819)
Equity dividends paid - (2,578) (15) 15 (2,578)
-----------------------------------------------------------------------------
Net cash inflow (outflow) 275 (123) (684) - (532)
=============================================================================
Financing 252 (122) (396) - (266)
Management of liquid resources - - (132) - (132)
Increase (decrease) in cash 23 (1) (156) - (134)
-----------------------------------------------------------------------------
275 (123) (684) - (532)
=============================================================================
The consolidated statement of cash flows presented in accordance with SFAS 95 is
as follows:
Issuer Guarantor
--------------------------
BP Eliminations
Exploration Other and BP
(Alaska) Inc. BP p.l.c. subsidiaries reclassifications Group
-----------------------------------------------------------------------------
($ million)
Net cash provided by (used in)
operating activities 563 1,610 4,195 889 7,257
Net cash provided by (used in)
investing activities (288) 846 (4,864) (889) (5,195)
Net cash provided by (used in)
financing activities (252) (2,457) 381 - (2,328)
Currency translation differences relating to
cash and cash equivalents - - 27 - 27
-----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 23 (1) (261) - (239)
Cash and cash equivalents at beginning
of period (40) 6 3,507 - 3,473
-----------------------------------------------------------------------------
Cash and cash equivalents at end
of period (17) 5 3,246 - 3,234
=============================================================================
Page 55
BP p.l.c. AND SUBSIDIARIES
ENVIRONMENTAL INDICATORS
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
Average crude oil realizations - $/bbl
UK 25.16 25.15 28.60 23.09
USA 27.09 24.53 29.48 21.86
Rest of World 24.16 22.75 26.90 20.92
BP average 25.73 24.27 28.50 22.07
Average natural gas liquids realizations - $/bbl
UK 11.97 13.95 18.86 14.08
USA 17.80 11.91 18.05 11.12
Rest of World 20.16 13.63 21.63 12.73
BP average 17.49 12.40 18.76 11.77
Average liquids realizations (a) - $/bbl
UK 24.45 24.59 28.04 22.59
USA 25.61 21.81 27.55 19.61
Rest of World 23.93 22.20 26.58 20.43
BP average 24.90 22.81 27.47 20.81
Average natural gas realizations - $/mcf
UK 2.84 2.50 3.11 2.81
USA 4.52 2.76 4.91 2.44
Rest of World 2.53 2.04 2.63 1.98
BP average 3.39 2.45 3.64 2.36
Total hydrocarbons - $/boe
UK 21.15 20.91 23.99 20.31
USA 25.88 19.24 27.96 17.18
Rest of World 18.75 16.62 20.09 15.57
BP average 22.43 19.01 24.49 17.63
Average oil marker prices (a) - $/bbl
Brent oil price 26.03 25.07 28.77 23.12
West Texas Intermediate oil price 29.02 26.30 31.53 23.94
Alaska North Slope US West Coast 27.04 25.04 30.13 22.42
Henry Hub gas price (b) ($/mmbtu) 5.40 3.38 5.96 2.87
UK Gas - National Balancing point (p/therm) 17.44 12.10 19.35 15.63
Global Indicator Refining Margins (c) - $/bbl
Northwest Europe 2.15 0.59 2.92 0.34
US Gulf Coast 3.59 2.62 4.86 2.33
Midwest 4.73 3.76 4.44 2.91
US West Coast 6.34 4.46 6.55 4.95
Singapore 0.66 0.18 1.81 0.20
BP average 3.27 2.06 3.89 1.85
Chemicals Indicator Margin (d) - $/te 120(e) 109 108(e) 95
Page 56
BP p.l.c. AND SUBSIDIARIES
ENVIRONMENTAL INDICATORS
---------------
(a) Crude oil and natural gas liquids.
(b) Henry Hub First of Month Index.
(c) The Global Indicator Refining Margin (GIM) is the average of six regional
indicator margins weighted for BP's crude refining capacity in each region.
Each regional indicator margin is based on a single representative crude
with product yields characteristic of the typical level of upgrading
complexity. The regional indicator margins may not be representative of the
margins achieved by BP in any period because of BP's particular refinery
configurations and crude and product slate.
(d) The Chemicals Indicator Margin (CIM) is a weighted average of
externally-based product margins. It is based on market data collected by
Nexant (formerly Chem Systems) in their quarterly market analyses, then
weighted based on BP's product portfolio. It does not cover our entire
portfolio of products, and consequently is only indicative rather than
representative of the margins achieved by BP in any particular period.
Amongst the products and businesses covered in the CIM are olefins and
derivatives, the aromatics and derivatives, linear alpha-olefins (LAOs),
acetic acid, vinyl acetate monomers and nitriles. Not included are fabrics
and fibres, plastic fabrications, poly alpha-olefins (PAOs), anhydrides,
speciality intermediates, and the remaining parts of the solvents and
acetyls businesses.
(e) Provisional. The data for the second quarter is based on two months'
actuals and one month of provisional data.
The table below shows the US dollar/sterling exchange rates used in the
preparation of the financial statements. The period-end rate is the mid-point
closing rate as published in the London edition of the Financial Times on the
last day of the period. The average rate for the period is the average of the
daily mid-point closing rates for the period.
Three months ended Six months ended
June 30 June 30
US dollar/sterling exchange rates (Unaudited) (Unaudited)
2003 2002 2003 2002
-------------------- ---------------------
Average rate for the period 1.62 1.46 1.61 1.44
Period-end rate 1.65 1.52 1.65 1.52
Page 57
BP p.l.c. AND SUBSIDIARIES
OPERATING INFORMATION
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
Crude oil production
(thousand barrels per day) (net of royalties)
UK 325 457 383 457
Rest of Europe 80 102 85 100
USA 569 605 588 594
Rest of World 738 644 715 630
------ ------ ------ ------
Total crude oil production 1,712 1,808 1,771 1,781
====== ====== ====== ======
Natural gas liquids production
(thousand barrels per day) (net of royalties)
UK 18 24 24 24
Rest of Europe 5 6 5 6
USA 144 186 155 181
Rest of World 32 28 32 28
------ ------ ------ ------
Total natural gas liquids production 199 244 216 239
====== ====== ====== ======
Liquids production (a)
(thousand barrels per day) (net of royalties)
UK 343 481 407 481
Rest of Europe 85 108 90 106
USA 713 791 743 775
Rest of World 770 672 747 658
------ ------ ------ ------
Total liquids production 1,911 2,052 1,987 2,020
====== ====== ====== ======
Natural gas production (million cubic feet per day)
(net of royalties)
UK 1,407 1,602 1,602 1,615
Rest of Europe 103 157 117 159
USA 3,145 3,565 3,290 3,563
Rest of World 3,784 3,343 3,718 3,369
------ ------ ------ ------
Total natural gas production 8,439 8,667 8,727 8,706
====== ====== ====== ======
Total production (b)
(thousand barrels of oil equivalent per day)
(net of royalties)
UK 586 757 683 759
Rest of Europe 103 135 110 133
USA 1,255 1,406 1,310 1,389
Rest of World 1,422 1,248 1,388 1,239
------ ------ ------ ------
Total production 3,366 3,546 3,491 3,520
====== ====== ====== ======
Page 58
BP p.l.c. AND SUBSIDIARIES
OPERATING INFORMATION - concluded
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
Natural gas sales volumes (million cubic feet per day)
UK 2,581 2,349 2,896 2,483
Rest of Europe 421 390 447 402
USA 10,441 8,451 11,084 8,591
Rest of World 10,839 8,618 11,194 8,952
------ ------ ------ ------
Total natural gas sales volumes (c) 24,282 19,808 25,621 20,428
====== ====== ====== ======
NGL sales volumes (thousand barrels per day)
UK - - - -
Rest of Europe - - - -
USA 136 189 131 171
Rest of World 124 196 178 214
------ ------ ------ ------
Total NGL sales volumes 260 385 309 385
====== ====== ====== ======
Oil sales volumes (thousand barrels per day)
Refined products
UK 279 230 279 243
Rest of Europe 1,358 1,444 1,338 1,360
USA 1,822 1,941 1,787 1,888
Rest of World 607 522 626 561
------ ------ ------ ------
Total marketing sales 4,066 4,137 4,030 4,052
Trading/supply sales 2,957 2,342 2,884 2,439
------ ------ ------ ------
Total refined product sales 7,023 6,479 6,914 6,491
Crude oil 5,679 4,915 5,104 4,862
------ ------ ------ ------
Total oil sales 12,702 11,394 12,018 11,353
====== ====== ====== ======
Refinery throughputs (thousand barrels per day)
UK 416 376 397 384
Rest of Europe 991 924 973 879
USA 1,465 1,464 1,384 1,429
Rest of World 393 339 392 357
------ ------ ------ ------
Total throughput 3,265 3,103 3,146 3,049
====== ====== ====== ======
Petrochemicals production (thousand tonnes)
UK 714 837 1,583 1,666
Rest of Europe 2,681 2,595 5,444 5,178
USA 2,503 2,695 5,039 5,184
Rest of World 872 762 1,684 1,472
------ ------ ------ ------
Total production 6,770 6,889 13,750 13,500
====== ====== ====== ======
---------------
(a) Crude oil and natural gas liquids.
(b) Expressed in thousand barrels of oil equivalent per day (mboe/d). Natural
gas is converted to oil equivalent at 5.8 billion cubic feet: 1 million
barrels.
(c) Encompasses sales by Exploration and Production and Gas, Power and
Renewables, including marketing, trading and supply sales.
Page 59
BP p.l.c. AND SUBSIDIARIES
TOTAL REPLACEMENT COST OPERATING PROFIT
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
($ million)
By business
Exploration and Production
UK 473 649 1,607 1,376
Rest of Europe 141 172 334 324
USA 1,441 771 3,246 1,093
Rest of World 1,098 866 2,292 1,593
------ ------ ------ ------
3,153 2,458 7,479 4,386
------ ------ ------ ------
Gas, Power and Renewables
UK 18 1 21 3
Rest of Europe (5) 35 (14) 82
USA 85 13 121 (12)
Rest of World 5 65 169 152
------ ------ ------ ------
103 114 297 225
------ ------ ------ ------
Refining and Marketing
UK (31) (61) (5) (185)
Rest of Europe 423 249 760 388
USA 323 279 420 200
Rest of World 174 136 345 268
------ ------ ------ ------
889 603 1,520 671
------ ------ ------ ------
Petrochemicals
UK 25 (10) (9) (41)
Rest of Europe 199 64 287 111
USA 65 84 107 107
Rest of World 24 65 67 102
------ ------ ------ ------
313 203 452 279
------ ------ ------ ------
Other businesses and corporate (134) (128) (299) (253)
------ ------ ------ ------
4,324 3,250 9,449 5,308
====== ====== ====== ======
By geographical area
UK 363 504 1,416 1,034
Rest of Europe 756 526 1,358 912
USA 1,863 1,103 3,745 1,261
Rest of World 1,342 1,117 2,930 2,101
------ ------ ------ ------
4,324 3,250 9,449 5,308
====== ====== ====== ======
Page 60
BP p.l.c. AND SUBSIDIARIES
CAPITAL EXPENDITURE AND ACQUISITIONS
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
($ million)
By business
Exploration and Production
UK 220 247 416 508
Rest of Europe 73 57 124 128
USA 1,009 1,077 1,975 2,244
Rest of World (a) 1,160 1,192 2,084 2,006
------ ------ ------ ------
2,462 2,573 4,599 4,886
------ ------ ------ ------
Gas, Power and Renewables
UK 24 5 32 21
Rest of Europe (b) 9 87 24 91
USA 48 32 86 48
Rest of World 17 8 24 18
------ ------ ------ ------
98 132 166 178
------ ------ ------ ------
Refining and Marketing
UK 66 100 139 176
Rest of Europe (c) 64 2,556 168 5,288
USA 228 260 564 563
Rest of World 27 49 51 75
------ ------ ------ ------
385 2,965 922 6,102
------ ------ ------ ------
Petrochemicals
UK 30 17 30 25
Rest of Europe 21 60 52 105
USA 95 55 141 97
Rest of World 52 38 71 131
------ ------ ------ ------
198 170 294 358
------ ------ ------ ------
Other businesses and corporate (d) 183 267 219 319
------ ------ ------ ------
3,326 6,107 6,200 11,843
====== ====== ====== ======
By geographical area
UK 361 400 662 809
Rest of Europe 167 2,953 369 5,805
USA 1,542 1,467 2,938 2,998
Rest of World 1,256 1,287 2,231 2,231
------ ------ ------ ------
3,326 6,107 6,200 11,843
====== ====== ====== ======
------------
(a) 2Q and first half 2002 included the acquisition of an additional interest
in Sidanco.
(b) 2Q and first half 2002 included the acquisition of a 5% stake in Enagas.
(c) 1Q 2002 and 2Q 2002 included the acquisition of 51% and 49% of Veba
respectively.
(d) 2Q and first half 2002 included the acquisition of the minority interest in
Veba's upstream oil and gas assets.
Page 61
BP p.l.c. AND SUBSIDIARIES
RETURN ON AVERAGE CAPITAL EMPLOYED
Three months ended Six months ended
June 30 June 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
--------------------- ----------------------
($ million)
Historical cost profit for the period 1,634 2,058 5,901 3,354
Interest (a) 78 153 177 317
Minority shareholders' interest 60 28 86 68
------ ------ ------ ------
Adjusted historical cost profit 1,772 2,239 6,164 3,739
Inventory holding (gains) losses 951 (525) 152 (998)
Exceptional items, net of tax (131) (216) (471) (146)
------ ------ ------ ------
Adjusted replacement cost profit 2,592 1,498 5,845 2,595
====== ====== ====== ======
Capital employed at beginning of period:
BP shareholders' interest 71,076 64,902 69,409 65,161
Minority shareholders' interest 1,047 2,579 638 598
Finance debt 19,042 24,531 22,008 21,417
------ ------ ------ ------
Capital employed 91,165 92,012 92,055 87,176
====== ====== ====== ======
Capital employed at end of period:
BP shareholders' interest 72,065 67,568 72,065 67,568
Minority shareholders' interest 1,016 558 1,016 558
Finance debt 18,594 21,409 18,594 21,409
------ ------ ------ ------
Capital employed 91,675 89,535 91,675 89,535
====== ====== ====== ======
91,420 90,774 91,865 88,356
Average capital employed
====== ====== ====== ======
ROACE - historical cost basis 7.8% 9.9% 13.4% 8.5%
ROACE - replacement cost basis 11.3% 6.6% 12.7% 5.9%
------------
(a) Excludes interest on joint venture and associated undertakings debt as well
as unwinding of discount on provisions and effect of change in discount
rate on provisions, and is on a post-tax basis, using a deemed tax rate
equal to the US statutory tax rate.
Page 62
BP p.l.c. AND SUBSIDIARIES
NET DEBT RATIO
At June 30
(Unaudited) At December 31
2003 2002
---------- ----------
($ million)
Net debt ratio - net debt: net debt + equity
Gross finance debt 18,594 22,008
Cash and current asset investments 2,444 1,735
------- -------
Net debt 16,150 20,273
------- -------
Equity 73,081 70,047
Net debt ratio 18% 22%
------- -------
Acquisition adjustment (a) 14,469 16,672
------- -------
Net debt ratio - pro forma basis (b) 22% 28%
======= =======
---------------
(a) Acquisition adjustment refers to the fixed asset revaluation adjustments
and goodwill consequent upon the ARCO and Burmah Castrol acquisitions.
(b) Based on equity excluding the fixed asset revaluation adjustment and
goodwill resulting from the ARCO and Burmah Castrol acquisitions.
Page 63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BP p.l.c.
(Registrant)
Dated: August 1, 2003 /s/ D. J. Pearl
.........................................
D. J. PEARL
Deputy Company Secretary
Page 64