This excerpt taken from the ICI 6-K filed Mar 21, 2007.
Accounting for the Impairment or Disposal of Long-Lived Assets a discontinued operation is also defined as a component of an entity that has been disposed of or held for sale, where the component must have operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. However, US GAAP does not require the component to represent a separate major line of business or geographical area of operations or be part of a single co-ordinated plan to dispose of either a separate major line of business or geographical area of operations. SFAS No.144 also requires that the results of operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity following the disposal and the entity will not have any significant ongoing involvement in the operations of the component after the disposal.
Under US GAAP, the Quest Food Ingredients disposal during 2004 met the SFAS No. 144 conditions and therefore was classified as a discontinued operation. The disposal of the National Starch Vinamul Polymers business in 2005 is treated as continuing under US GAAP as Vinamul continues to be a supplier to National Starch and the cash flows of Vinamul are not eliminated from the ongoing operations of National Starch following the disposal transaction. The disposal of Uniqema that completed on 1 September 2006 met the SFAS No. 144 conditions and therefore was classified as a discontinued operation. The disposal of Quest, which is expected to complete in the first quarter of 2007, did not meet the conditions in SFAS No. 144 to be classified as held for sale or discontinued at the balance sheet date, because the completion of the transaction was subject to shareholder approval. Shareholder approval was subsequently granted on 25 January 2007. The assets relating to Quest are set out in note 11. In addition, under US GAAP, balances of £528m goodwill and £3m of intangible assets relate to the Quest business.
Accordingly, under US GAAP, the results of the Quest Food Ingredients operations and the gain on the disposal are classified within discontinued operations. In 2004, Quest Food Ingredients sales were £50m and the pre-tax profit £7m. Under IFRS, the profit on sale in 2004 amounted to £145m. Under US GAAP, goodwill in respect of this business was included on the balance sheet. SFAS No. 142 requires that where part of a reporting unit is disposed, the goodwill written off should be based on the relative fair values of the business being disposed and the portion of the reporting unit to be retained. The goodwill allocated to Quest Food Ingredients under US GAAP was £163m. Quest Food Ingredients also had additional post-retirement benefit liabilities under IFRS of £19m arising due to measurement differences, which were included in the calculation of the profit on sale. Quest Food Ingredients also had an intangible asset of £7m under US GAAP that was not recognised under IFRS. US GAAP also requires the cumulative translation differences of £3m held in reserves to be recycled in the profit/loss on disposal calculation. Consequently, the loss reported under US GAAP amounted to £39m and the adjustments totalling £184m have been included in the US GAAP reconciliation under the headings to which they relate.
The disposal of the Vinamul Polymers business completed in the first quarter of 2005. Sales for the business in 2005 and 2004 were £15m and £163m respectively. Under IFRS, the pre-tax profit for 2005 was £nil (2004 £12m). A loss of £57m was recognised under US GAAP in 2004 on initial write-down of the business to fair value, under the heading Disposal of business.
The disposal of Uniqema completed in September 2006. Sales for the business in 2006, 2005 and 2004 were £435m, £626m and £624m
Notes relating to the Group accounts continued
36 Differences between IFRS and US accounting principles (continued)
and pre-tax profit of £60m, £36m and £28m respectively. Under IFRS, the profit on sale amounted to £48m. Under US GAAP, the profit on sale amounted to £23m as a result of differences relating to pensions of £(27)m, capitalised interest of £(5)m, goodwill of £8m and the recycling of cumulative translation differences of £(1)m.
Under IFRS, neither the disposal of Quest Food Ingredients or Vinamul Polymers business represented a separate major line of business or geographical area of operations or were part of a single co-ordinated plan to dispose of either a separate major line of business or geographical area of operations. As a result, they were both classified as continuing under IFRS. The Uniqema disposal in 2006 and the planned Quest disposal represented separate major lines of business and therefore were treated as discontinued under IFRS.