UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

October 17, 2005

BHP Billiton Limited

(Translation of registrant’s name into English)

180 Lonsdale Street Melbourne VIC 3000 Australia

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: þ Form 20-F o Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

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: o Yes þ No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a

 

 

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.

				BHP Billiton Limited
Date: 17 October 2005		By:		Karen Wood
		Name:		Karen Wood
		Title:		Company Secretary

CONTENTS

Financial Statements		Page
Statement of Financial Performance			2
Statement of Financial Position			3
Statement of Cash Flows			4
Dual Listed Companies Structure and Basis of Preparation of Financial Statements			5
Notes to Financial Statements			6
Directors’ Declaration			99
Independent Audit Report			100

Notes to Financial Statements				Page
1		Statement of accounting policies			6
2		Significant items			15
3		Acquired operations			17
4		Revenue from ordinary activities			20
5		Expenses from ordinary activities, excluding depreciation, amortisation and borrowing costs			20
6		Depreciation and amortisation			20
7		Borrowing costs			21
8		Other profit and loss items			21
9		Income tax			22
10		Segment results			25
11		Dividends			26
12		Earnings per share			27
13		Receivables (current)			27
14		Other financial assets (current)			27
15		Inventories (current)			28
16		Other assets (current)			28
17		Receivables (non-current)			28
18		Investments accounted for using the equity method			29
19		Other financial assets (non-current)			30
20		Inventories (non-current)			30
21		Property, plant and equipment			30
22		Intangible assets			32
23		Other assets (non-current)			32
24		Payables (current)			32
25		Interest bearing liabilities (current)			32
26		Other provisions and liabilities (current)			33
27		Payables (non-current)			33
28		Interest bearing liabilities (non-current)			33
29		Other provisions and liabilities (non-current)			34
30		Contributed equity and called up share capital			37
31		Employee share ownership plans			38
32		Reserves			43
33		Retained profits			44
34		Outside equity interests			44
35		Total equity			44
36		Notes to the Statement of Cash Flows			45
37		Standby arrangements, unused credit facilities			47
38		Financial instruments			48
39		Contingent liabilities			62
40		Commitments			63
41		Superannuation, pensions and post-retirement medical benefits			65
42		Directors’ and executives’ disclosures			75
43		Major interests in joint venture operations			83
44		Elements relating to all joint venture operations			84
45		Major controlled entities			85
46		Non-Director related parties			87
47		Statement of Financial Position – Australian dollars			88
48		BHP Billiton Limited (single parent entity financial statements)			89
49		Impacts of adopting International Financial Reporting Standards			91

BHP Billiton Limited Financial Statements 2005

Statement of Financial Performance

for the year ended 30 June 2005

							2005					2004
		Notes					US$M(a)					US$M(a)
Revenue from ordinary activities
Operating revenue			4					29 649					22 887
Non-operating revenue			4					1 458					626
			10					31 107					23 513
deduct
Expenses from ordinary activities, excluding depreciation, amortisation and borrowing costs			5					20 697					17 084
								10 410					6 429
add
Share of net profit of joint venture and associated entities accounted for using the equity method			10,18					564					223
								10 974					6 652
deduct
Depreciation and amortisation			6					1 994					1 793
Borrowing costs			7					499					490
Profit from ordinary activities before income tax			10					8 481					4 369
deduct
Income tax expense attributable to ordinary activities			9					2 240					870
Net profit								6 241					3 499
deduct
Outside equity interests in net profit of controlled entities								232					96
Net profit attributable to members of the BHP Billiton Group								6 009					3 403
Non-owner transaction changes in equity
Net exchange fluctuations on translation of foreign currency net assets and designated foreign currency interest bearing liabilities net of tax								7					48
Total direct adjustments to equity attributable to members of the BHP Billiton Group								7					48
Total changes in equity other than those resulting from transactions with owners			35					6 016					3 451
Basic earnings per share (US cents)			12					98.1					54.7
Diluted earnings per share (US cents)			12					97.6					54.5

(a)

Financial information for 2005 and 2004 represents the financial performance of the BHP Billiton Group (Refer ‘Dual Listed Companies Structure and Basis of Preparation of Financial Statements’).

The accompanying notes form part of these financial statements.

BHP Billiton Limited Financial Statements 2005

Statement of Financial Position

as at 30 June 2005

							2005					2004
		Notes					US$M(a)					US$M(a)
Current assets
Cash assets			36					1 418					1 818
Receivables			13					3 490					2 778
Other financial assets			14					212					167
Inventories			15					2 542					1 715
Other assets			16					160					176
Total current assets								7 822					6 654
Non-current assets
Receivables			17					619					748
Investments accounted for using the equity method			18					1 525					1 369
Other financial assets			19					97					123
Inventories			20					103					45
Property, plant and equipment			21					30 347					20 945
Intangible assets			22					513					422
Deferred tax assets			9					660					502
Other assets			23					424					371
Total non-current assets								34 288					24 525
Total assets			10					42 110					31 179
Current liabilities
Payables			24					4 091					2 590
Interest bearing liabilities			25					1 500					1 330
Tax liabilities								842					297
Other provisions and liabilities			26					1 226					810
Total current liabilities								7 659					5 027
Non-current liabilities
Payables			27					162					177
Interest bearing liabilities			28					9 626					5 453
Deferred tax liabilities			9					1 318					1 053
Other provisions and liabilities			29					4 981					4 044
Total non-current liabilities								16 087					10 727
Total liabilities			10					23 746					15 754
Net assets								18 364					15 425
Equity
Contributed equity – BHP Billiton Limited			30					1 611					1 851
Called up share capital – BHP Billiton Plc			30					1 752					1 752
Reserves			32					638					547
Retained profits			33					14 022					10 928
Total BHP Billiton interest								18 023					15 078
Outside equity interests			34					341					347
Total equity			35					18 364					15 425

(a)

Financial information for 2005 and 2004 represents the financial position of the BHP Billiton Group (Refer ‘Dual Listed Companies Structure and Basis of Preparation of Financial Statements’).

The accompanying notes form part of these financial statements.

BHP Billiton Limited Financial Statements 2005

Statement of Cash Flows

for the year ended 30 June 2005

							2005					2004
		Notes					US$M(a)					US$M(a)
Cash flows related to operating activities
Receipts from customers								30 711					23 372
Payments in the course of operations								(20 083	)				(16 806	)
Dividends received								292					238
Interest received								79					78
Borrowing costs (includes capitalised interest)								(378	)				(370	)
Operating cash flows before income tax								10 621					6 512
Income taxes paid								(1 695	)				(1 337	)
Net operating cash flows			36					8 926					5 175
Cash flows related to investing activities
Purchases of property, plant and equipment								(3 831	)				(2 589	)
Exploration expenditure (includes capitalised exploration)								(533	)				(454	)
Purchases of investments and funding of joint ventures								(42	)				(35	)
Purchases of, or increased investment in, controlled entities and joint venture interests, net of their cash								(6 198	)				—
Investing cash outflows								(10 604	)				(3 078	)
Proceeds from sale of property, plant and equipment								155					157
Proceeds from sale or redemption of investments								227					89
Proceeds from demerger, sale or partial sale of controlled entities, operations, joint venture and associated entities’ Interests, net of their cash								675					179
Net investing cash flows								(9 547	)				(2 653	)
Cash flows related to financing activities
Proceeds from ordinary share issues								66					76
Proceeds from interest bearing liabilities								5 754					510
Repayment of interest bearing liabilities								(1 975	)				(1 336	)
Purchase of shares by ESOP trusts								(47	)				(25	)
Share repurchase scheme – BHP Billiton Limited								(1 792	)				—
Dividends paid								(1 404	)				(1 501	)
Dividends paid to outside equity interests								(238	)				(75	)
Repayment of finance leases								(22	)				(9	)
Net financing cash inflows/(outflows)								342					(2 360	)
Net (decrease)/increase in cash and cash equivalents								(279	)				162
Cash and cash equivalents at beginning of financial year								1 685					1 531
Effect of foreign currency exchange rate changes on cash and cash equivalents								(3	)				(8	)
Cash and cash equivalents at end of financial year			36					1 403					1 685

(a)

Financial information for 2005 and 2004 represents the cash flows of the BHP Billiton Group (Refer ‘Dual Listed Companies Structure and Basis of Preparation of Financial Statements’).

The accompanying notes form part of these financial statements.

BHP Billiton Limited Financial Statements 2005

Dual Listed Companies Structure and Basis of Preparation of Financial Statements

Merger terms

On 29 June 2001, BHP Billiton Limited (previously known as BHP Limited), an Australian listed company, and BHP Billiton Plc (previously known as Billiton Plc), a UK listed company, entered into a Dual Listed Companies (DLC) merger. This was effected by contractual arrangements between the Companies and amendments to their constitutional documents.

The effect of the DLC merger is that BHP Billiton Limited and its subsidiaries (the BHP Billiton Limited Group) and BHP Billiton Plc and its subsidiaries (the BHP Billiton Plc Group) operate together as a single economic entity (the BHP Billiton Group), with neither assuming a dominant role. Under the arrangements:

	•		the shareholders of BHP Billiton Limited and BHP Billiton Plc have a common economic interest in both Groups;
	•		the shareholders of BHP Billiton Limited and BHP Billiton Plc take key decisions, including the election of Directors, through a joint electoral procedure under which the shareholders of the two Companies effectively vote on a joint basis;
	•		BHP Billiton Limited and BHP Billiton Plc have a common Board of Directors, a unified management structure and joint objectives;
	•		dividends and capital distributions made by the two Companies are equalised; and
	•		BHP Billiton Limited and BHP Billiton Plc each executed a deed poll guarantee, guaranteeing (subject to certain exceptions) the contractual obligations (whether actual or contingent, primary or secondary) of the other incurred after 29 June 2001 together with specified obligations existing at that date.

If either BHP Billiton Limited or BHP Billiton Plc proposes to pay a dividend to its shareholders, then the other Company must pay a matching cash dividend of an equivalent amount per share to its shareholders. If either Company is prohibited by law or is otherwise unable to declare, pay or otherwise make all or any portion of such a matching dividend, then BHP Billiton Limited or BHP Billiton Plc will, so far as it is practicable to do so, enter into such transactions with each other as the Boards agree to be necessary or desirable so as to enable both Companies to pay dividends as nearly as practicable at the same time.

The DLC merger did not involve the change of legal ownership of any assets of BHP Billiton Limited or BHP Billiton Plc, any change of ownership of any existing shares or securities of BHP Billiton Limited or BHP Billiton Plc, the issue of any shares or securities or any payment by way of consideration, save for the issue by each Company of one special voting share to a trustee company which is the means by which the joint electoral procedure is operated. In addition, to achieve a position where the economic and voting interests of one share in BHP Billiton Limited and one share in BHP Billiton Plc were identical, BHP Billiton Limited made a bonus issue of ordinary shares to the holders of its ordinary shares.

Treatment of the DLC merger for accounting purposes

In accordance with the Australian Securities and Investments Commission (ASIC) Practice Note 71 ‘Financial Reporting by Australian Entities in Dual-Listed Company Arrangements’, and an order issued by ASIC under section 340 of the Corporations Act 2001 on 2 September 2002, this annual financial report presents the financial results of the BHP Billiton Group as follows:

	•		Results for the years ended 30 June 2005 and 30 June 2004 are of the combined entity including both BHP Billiton Limited and its subsidiaries and BHP Billiton Plc and its subsidiaries;
	•		Results are presented in US dollars unless otherwise stated; and
	•		Results of the single parent entity, BHP Billiton Limited, are presented in note 48 to the financial statements.

The full single parent entity financial statements of BHP Billiton Limited are available on the Company’s website (www.bhpbilliton.com) and are available to shareholders on request, free of charge.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements

1 Statement of accounting policies

The financial report has been prepared as a general purpose financial report which complies with the requirements of the Corporations Act 2001, Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group Consensus Views.

Basis of accounting

Subject to the exceptions noted in the paragraphs below dealing with valuation of property, plant and equipment, the financial report is drawn up on the basis of historical cost principles.

The accounting policies have been consistently applied by all entities in the BHP Billiton Group and are consistent with those applied in the prior year.

Principles of consolidation

The financial report of the BHP Billiton Group includes the combination of BHP Billiton Limited, BHP Billiton Plc and their respective subsidiaries. Subsidiaries are entities controlled by either parent entity. Control generally exists where the parent owns a majority of voting rights in the subsidiary. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases. Where the BHP Billiton Group’s interest is less than 100 per cent, the share attributable to outside shareholders is reflected in outside equity interests. The effects of all transactions between entities within the BHP Billiton Group have been eliminated.

Currency of presentation

All amounts are expressed in US dollars unless otherwise stated.

Intangible assets

Amounts paid for identifiable (patents, trademarks and licences) and unidentifiable (goodwill) intangible assets are capitalised and then amortised on a straight-line basis over the expected periods of benefit. Goodwill is amortised over its useful life, not exceeding 20 years, and unamortised balances are reviewed at each balance date to assess the probability of continuing future benefits.

On the subsequent disposal or termination of a previously acquired business, the profit or loss on disposal or termination is calculated after charging the amount of the unamortised balance of any goodwill capitalised.

Investments accounted for using the equity method

Investments in joint venture and associated entities are accounted for using the equity method of accounting. Under the equity method, the cost of the investment in joint venture and associated entities is adjusted by the BHP Billiton Group’s proportionate share of the joint venture entity’s net profit or loss.

Joint ventures

Joint venture entities

A joint venture entity is an entity in which the BHP Billiton Group holds a long-term interest and which is jointly controlled by the BHP Billiton Group and one or more other venturers. Decisions regarding the financial and operating policies essential to the activities, economic performance and financial position of that venture require the consent of each of the venturers that together jointly control the entity.

Joint venture operations

The BHP Billiton Group has certain contractual arrangements with other participants to engage in joint activities where all significant matters of operating and financial policy are determined by the participants such that the operation itself has no significant independence to pursue its own commercial strategy. These contractual arrangements do not create a joint venture entity due to the fact that these policies are those of the participants, not a separate entity carrying on a trade or business of its own.

The financial statements of the BHP Billiton Group include its share of the assets, liabilities and cash flows in such joint venture operations, measured in accordance with the terms of each arrangement, which is usually pro-rata to the BHP Billiton Group’s interest in the joint venture operations.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

Foreign currencies

The BHP Billiton Group’s reporting and dominant functional currency is US dollars as this is the principal currency in which BHP Billiton Group companies operate.

Transactions denominated in foreign currencies (currencies other than the functional currency of the entity) are recorded using the exchange rate ruling at the date of the transaction or, if hedged forward, at the rate of exchange under the related forward currency contract. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the Statement of Financial Position date and the gains or losses on retranslation are included in the Statement of Financial Performance, with the exception of foreign exchange gains or losses on foreign currency provisions for site restoration and rehabilitation which are capitalised in property, plant and equipment, and foreign exchange gains and losses on foreign exchange currency borrowings designated as a hedge of foreign currency net assets of self-sustaining operations.

Statements of Financial Performance of subsidiaries and joint venture operations which have functional currencies other than US dollars are translated to US dollars at average rates for the relevant reporting period, other than significant items which are translated at the rate at the date of the transaction. Assets and liabilities are translated at exchange rates prevailing at the relevant Statement of Financial Position date. Exchange variations resulting from the retranslation at closing rate of the net investment in such subsidiaries and joint venture operations, together with differences between their Statements of Financial Performance translated at average and closing rates, are shown as a movement in the exchange fluctuation account. Exchange differences arising on long-term foreign currency borrowings used to finance such investments, together with any related taxation effects, are also shown as a movement in the exchange fluctuation account. The balance of the exchange fluctuation account relating to a foreign operation that is disposed of, or partially disposed of, is transferred to retained profits in the year of disposal.

Sales revenue

Revenue from the sale of goods and disposal of other assets is recognised when persuasive evidence, usually in the form of an executed sales agreement, of an arrangement exists indicating there has been a transfer of risks and rewards to the customer, no further work or processing is required by the BHP Billiton Group, the quantity and quality of the goods has been determined with reasonable accuracy, the price is fixed or determinable, and collectibility is reasonably assured. This is generally when title passes.

In the majority of sales for most commodities, sales agreements specify that title passes on the bill of lading date, which is the date the commodity is delivered to the shipping agent. Revenue is recognised on the bill of lading date. For certain sales (principally coal sales to adjoining power stations and diamond sales), title passes and revenue is recognised when the goods have been delivered.

In cases where the terms of the executed sales agreement allow for an adjustment to the sales price based on a survey of the goods by the customer (for instance an assay for mineral content), recognition of sales revenue is based on the most recently determined estimate product specifications.

Revenue is not reduced for royalties and other taxes payable from production.

Exploration, evaluation and development expenditure

Development expenditure, including deferred overburden removal costs, for both minerals and petroleum activities is capitalised.

In respect of minerals, exploration and evaluation expenditure is predominantly charged to the Statement of Financial Performance as incurred, in limited circumstances such expenditure is capitalised when:

	•		it is expected that the expenditure will be recouped by future exploitation or sale; and
	•		substantial exploration and evaluation activities have identified a mineral resource with sufficient certainty that permits a reasonable assessment of the existence of commercially recoverable reserves.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

In respect of petroleum, exploration and evaluation expenditure is accounted for in accordance with the successful efforts method on an area-of-interest basis where:

	•		significant exploration licence acquisition costs are capitalised and amortised over the term of the licence, except for costs in new unexplored areas which are expensed as incurred;
	•		administrative costs that are not directed to a specific area-of-interest are expensed in the year in which they are incurred;
	•		all other exploration and evaluation expenditure is charged against the Statement of Financial Performance except where the expenditure relates to an area-of-interest and it is expected that the expenditure will be recouped by future exploitation or sale, or, at Statement of Financial Position date exploration and evaluation activities have not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves, in which case the expenditure is capitalised as property, plant and equipment;
	•		exploratory wells that find oil or gas in an area requiring major capital expenditure before production can begin are continually evaluated to assure that commercial quantities of reserves have been found or that additional exploration work is underway or planned. To the extent it is considered that the relevant expenditure will not be recovered, it is written off; and
	•		when proved reserves of oil or gas are determined and development is sanctioned and completed, the relevant expenditure, together with related development expenditure, is amortised on a unit of production basis.

Deferred overburden removal costs

Stripping ratios are a function of the quantity of ore mined compared with the quantity of overburden, or waste, required to be removed to mine the ore. Deferral of costs to the Statement of Financial Position is made, where appropriate, when actual stripping ratios vary from average stripping ratios. Deferral of costs to the Statement of Financial Position is not made where ore is expected to be evenly distributed.

Costs, which have previously been deferred to the Statement of Financial Position (deferred overburden removal costs), are included in the Statement of Financial Performance on a units of production basis utilising average stripping ratios. Changes in estimates of average stripping ratios are accounted for prospectively from the date of the change.

As it is not possible to separately identify cash inflows relating to deferred overburden removal costs, such assets are grouped with other assets of an operation for the purposes of undertaking impairment assessments, where necessary, based on future cash flows for the operation as a whole.

Research and development expenditure

Expenditure for research is included in the Statement of Financial Performance as incurred on the basis that continuing research is part of the overall cost of being in business. To the extent that future benefits deriving from development expenditure are expected beyond any reasonable doubt to exceed such expenditure, these costs are capitalised and amortised over the period of expected benefit.

Borrowing costs

Borrowing costs are generally expensed as incurred except where they relate to the financing of construction or development of assets requiring a substantial period of time to prepare for their intended future use. Borrowing costs are capitalised up to the date when the asset is ready for its intended use. The amount of borrowing costs capitalised (gross of tax) for the period is determined by applying the interest rate applicable to appropriate borrowings outstanding during the period to the average amount of accumulated expenditure for the assets during the period.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

Property, plant and equipment

Valuation in financial statements
Property, plant and equipment has been recorded at cost.

Recoverable amounts of non-current assets

All non-current assets are reviewed at least annually to determine whether their carrying amounts require write-down to recoverable amounts. Assets are reviewed more regularly if an event or change in circumstances indicates that the carrying amount of an asset may not be recoverable. If the asset is determined to be impaired, an impairment loss will be recorded and the asset written down, based on the amount by which the asset carrying amount exceeds the higher of net realisable value and estimated recoverable amount. Estimated recoverable amount is determined by discounting expected future cash flows using a risk-adjusted pre-tax discount rate appropriate to the risks inherent in the asset. Future cash flows are estimated based on expected production and sales volumes, commodity prices (considering current and historical prices, price trends and related factors), recoverable reserves, operating costs, reclamation costs and capital costs. These estimates are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverability of these assets.

Current values of land and buildings

The current value of land is determined mainly by reference to rating authority valuations or cost for recent acquisitions, except where land is an integral part of a producing asset with no significant value beyond such use, in which case book value is used. The current value of buildings is based primarily on depreciated replacement value. Buildings which are integral parts of producing plant are classified as plant and equipment and accordingly excluded from this valuation.

Disposals

Disposals are taken to account in profit/(loss) from ordinary activities. Where they represent the sale or abandonment of a significant business or all of the assets associated with such a business, they are treated as significant items.

Mineral rights

Mineral rights acquired by the BHP Billiton Group are accounted for at cost with provisions made where impairments in value have occurred. Exploitable mineral rights are capitalised and depreciated from commencement of production over the production life of the asset.

Mineral leases

The BHP Billiton Group’s mineral leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the leased properties to be mined in accordance with current production schedules.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

Depreciation of property, plant and equipment

The carrying amount of property, plant and equipment (including the original capital expenditure and any subsequent capital expenditure) is depreciated to its estimated residual value over the useful economic lives of the specific assets concerned or the life of the mine or lease, if shorter. The major categories of property, plant and equipment are depreciated on a units of production and/or straight-line basis as follows:

•		Buildings				– 25 to 50 years straight-line
•		Freehold land				– not depreciated
•		Plant, machinery and equipment				– 4 to 30 years straight-line
•		Mineral rights				– based on the estimated life of reserves on a units of production basis
•		Exploration, evaluation and development expenditure of minerals assets and other mining assets				– over the life of the proven and probable reserves on a units of production basis
•		Petroleum interests				– over the life of the proved developed oil and gas reserves on a units of production basis
•		Leasehold land and buildings				– over the life of the lease up to a maximum of 50 years
•		Vehicles				– 3 to 5 years straight-line
•		Capitalised leased assets				– up to 50 years or life of lease, whichever is shorter
•		Computer systems				– up to 8 years straight-line

Changes in estimates are accounted for over the estimated remaining economic life or the remaining commercial reserves as applicable.

Leased assets

Assets held under leases which result in the BHP Billiton Group receiving substantially all the risks and rewards of ownership of the asset (finance leases) are capitalised as property, plant and equipment at the estimated present value of the minimum lease payments.

The corresponding finance lease obligation is included within interest bearing liabilities. The interest element is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period.

Operating lease assets are not capitalised and rental payments are generally included in the Statement of Financial Performance on a straight-line basis over the lease term. Provision is made for future operating lease payments in relation to surplus lease space when it is first determined that the space will be of no probable future benefit. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and the liability.

Other financial assets

Non-current other financial assets are stated individually at cost less provision for impairments.

Current other financial assets are recorded at the lower of cost and net realisable value and dividends are included in the Statement of Financial Performance on a receivable basis. Interest is included in the Statement of Financial Performance on an accrual basis. In determining net realisable values, market values are used in the case of listed investments and Directors’ estimates are used in the case of unlisted investments.

Inventories

Inventories, including work in progress, are valued at the lower of cost and net realisable value. Cost is determined primarily on the basis of average costs. In some cases, the first-in-first-out method or actual cost is used. For processed inventories, cost is derived on an absorption costing basis. Cost comprises cost of purchasing raw materials and cost of production, including attributable mining and manufacturing overheads.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

Taxation

Tax-effect accounting is applied in respect of income tax and resource rent tax. Deferred tax liabilities, the provision for resource rent tax (non-current liabilities) and deferred tax assets (non-current assets) represent the tax effect of timing differences which arise from the recognition in the financial statements of items of revenue and expense in periods different to those in which they are assessable or allowable for income tax or resource rent tax purposes.

Income taxes have not been provided on undistributed overseas earnings of controlled entities to the extent the earnings are intended to remain indefinitely invested in those entities.

Deferred tax is not recognised on the difference between the carrying amounts and fair value of non-monetary assets arising on acquisitions or purchased fixed assets which have subsequently been revalued unless there is a binding agreement to sell such an asset and the gain or loss expected to arise has been recognised.

Future income tax and capital gains tax benefits in respect of losses incurred by BHP Billiton Group companies together with carried forward resource rent tax benefits are included in the Statement of Financial Performance where realisation of the benefits is considered to be virtually certain. In so doing it is recognised that the realisation of the benefits will depend upon:

(a)		an expectation that legislation will not change in a manner which would adversely affect the ability of the companies concerned to realise the benefits;
(b)		the ability of the companies concerned to comply with the conditions for deductibility imposed by law; and
(c)		the ability of the companies concerned to derive future assessable income of a nature and of sufficient amount to enable the benefits to be realised, or to transfer tax losses to related companies.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply when the timing differences are expected to reverse.

Capital gains tax, if applicable, is provided for in establishing period income tax expense when an asset is sold.

Tax consolidation

During the year ended 30 June 2004, the Group elected to consolidate its Australian subsidiaries under the Australian tax consolidation regime, as introduced by the Australian Federal Government.

As a consequence, and in accordance with Urgent Issues Group Abstract 52, the head entity in each of the tax consolidated groups recognises current and deferred tax amounts relating to transactions, events and balances of the wholly-owned Australian controlled entities in that group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising from its own transactions, events and balances. Entities within a tax consolidated group enter into a tax sharing agreement and tax contribution agreement with the head entity of each tax consolidated group. Amounts receivable or payable under a tax sharing and contribution agreement with the tax consolidated entities are recognised separately as tax-related amounts receivable or payable. Expenses and revenues arising under the tax contribution agreement are recognised as a component of income tax expense or revenue.

Upon initial implementation, the deferred tax balances in relation to a wholly-owned entity joining each tax consolidated group are measured as if it were a stand alone entity and essentially this method of calculating the contribution requires calculation of the tax as if the entity had not been a member of the tax consolidated group, with one exception. The deferred tax balances relating to assets that have their tax values reset on joining a tax consolidated group are remeasured based on the carrying amount of those assets at a tax consolidated group level and their reset tax values. The remeasurement adjustments to these deferred tax balances are recognised in the consolidated financial statements as income tax expense or revenue.

Provision for employee benefits

Provision is made in the financial statements for all employee benefits, including on-costs. In relation to industry-based long service leave funds, the BHP Billiton Group’s share of receivables and payables, including obligations for funding shortfalls, have been recognised.

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other creditors or provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefits and is measured in accordance with annual leave above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Employee share awards

The estimated cost of share awards made by the BHP Billiton Group is charged to the Statement of Financial Performance over the period from grant date to the date of expected vesting (where there are no performance hurdles) or the performance period, as appropriate. The accrued employee entitlement is recorded as an equal credit to the Employee Share Awards reserve. The estimated cost of awards is based on the market value of shares at the grant date (in the case of Long Term Incentive Plan Performance Shares, Group Incentive Scheme Performance Shares, Performance Rights, the Bonus Equity Plan, the Restricted Share Scheme and Co-Investment Plan) or the intrinsic value of options awarded (being the difference between the exercise price and the market price at the date of granting the award), adjusted to reflect the impact of performance conditions, where applicable.

Where awards are satisfied by on-market purchases, the cost of acquiring the shares is carried in the Employee Share Awards reserve, and any difference between the cost of awards and the consideration paid to purchase shares on-market is transferred to retained earnings when the shares vest to the employees unconditionally. In addition, the assets and liabilities of Employee Share Ownership Plan trusts utilised by the BHP Billiton Group to hold shares for employee remuneration schemes are consolidated.

Superannuation, pensions and other post-retirement benefits

The BHP Billiton Group operates or participates in a number of pension (including superannuation) schemes throughout the world. The funding of the schemes complies with local regulations. The assets of the schemes are generally held separately from those of the BHP Billiton Group and are administered by trustees or management boards. For schemes of the defined-contribution type or those operated on an industry-wide basis, where it is not possible to identify assets attributable to the participation by the BHP Billiton Group’s employees, the pension charge is calculated on the basis of contributions payable.

For defined benefit schemes, the cost of providing pensions is charged to the Statement of Financial Performance so as to allocate the cost systematically over the employees’ service lives on the basis of independent actuarial advice. This is consistent with the principles of the UK Statement of Standard Accounting Practice (SSAP) 24 ‘Accounting for Pension Costs’. This basis of measurement takes into account the performance of scheme assets and changes in the funded status of each scheme, to the extent that deficits represent a legal or constructive obligation of the Group to its employees and that surpluses are recoverable by the Group over the expected remaining service lives of employees. A pension liability or asset is consequently recognised in the Statement of Financial Position to the extent that the contributions payable either lag or precede expense recognition. The liability or asset therefore represents those funding deficits or surpluses together with changes in the funding status of the schemes that will be recognised in the Statement of Financial Performance in future periods.

Certain BHP Billiton Group companies provide post-retirement medical benefits to qualifying employees. In some cases the benefits are provided through medical care schemes to which the company, the employees, the retirees and covered family members contribute. In some schemes there is no funding of the benefits before retirement. For the unfunded schemes and for funded schemes, where it is possible to identify assets that are attributable to current and future retirees of the BHP Billiton Group companies, the cost of providing the post-retirement benefits is charged to the Statement of Financial Performance so as to allocate the cost systematically over the employees’ service lives on the basis of independent actuarial advice, in a manner similar to that applied for defined benefit pension schemes. For other funded schemes the charge to the Statement of Financial Performance is calculated on the basis of premiums payable.

Provision for restoration and rehabilitation

BHP Billiton Group companies are generally required to restore mines, oil and gas facilities and processing sites, either during or at the end of their producing lives to a condition acceptable to the relevant authorities and consistent with the BHP Billiton Group’s environmental policies.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

The expected cost of any approved decommissioning or restoration programme, discounted to its net present value, is provided when the related environmental disturbance occurs, based on the BHP Billiton Group’s interpretation of environmental and regulatory requirements and its own environmental policies where these are more stringent and this has created an obligation on the BHP Billiton Group. The cost is capitalised where it gives rise to future benefits, whether the rehabilitation activity is expected to occur over the life of the operation or at the time of closure. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision is included in borrowing costs. Expected decommissioning and restoration costs are based on the estimated current cost of detailed plans prepared for each site. Where there is a change in the expected decommissioning and restoration costs, an adjustment is recorded against the carrying value of the provision and any related asset, and the effect is then recognised in the Statement of Financial Performance on a prospective basis over the remaining life of the operation.

The provisions referred to above do not include any amounts related to remediation costs associated with unforeseen circumstances. Such costs are recognised where environmental contamination as a result of oil and chemical spills, seepage or other unforseen events give rise to a loss which is probable and reliably estimable.

The cost of other activities to prevent and control pollution and to rehabilitate the environment that is not included in provisions is charged to the Statement of Financial Performance as incurred.

Financial instruments

The BHP Billiton Group is exposed to changes in interest rates, foreign currency exchange rates and commodity prices and, in certain circumstances, uses derivative financial instruments (including cash settled commodity contracts) to hedge these risks.

When undertaking risk mitigation transactions, hedge accounting principles are applied, whereby derivatives are matched to the specifically identified commercial risks being hedged. These matching principles are applied to both realised and unrealised transactions. Derivatives undertaken as hedges of anticipated transactions are recognised when such transactions are recognised. Upon recognition of the underlying transaction, derivatives are valued at the appropriate market spot rate.

When an underlying transaction can no longer be identified, gains or losses arising from a derivative that has been designated as a hedge of that transaction will be included in the Statement of Financial Performance whether or not such derivative is terminated.

When a hedge is terminated, the deferred gain or loss that arose prior to termination is:

(a)		deferred and included in the measurement of the anticipated transaction when it occurs; or
(b)		included in the Statement of Financial Performance where the anticipated transaction is no longer expected to occur.

The premiums paid on interest rate options and foreign currency put and call options are included in other assets and are deferred and included in the settlement of the underlying transaction.

Use of estimates

The preparation of the BHP Billiton Group’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported revenue and costs during the period. On an ongoing basis, management evaluates its estimates and judgements in relation to assets, liabilities, contingent liabilities, revenue and costs. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Rounding of amounts

Amounts in this financial report have, unless otherwise indicated, been rounded to the nearest million dollars.

Comparatives

Where applicable, comparatives have been adjusted to disclose them on a comparable basis with current period figures. Amounts owing to joint venture participants of US$196 million at 30 June 2004 were reclassified from current payables to current interest bearing liabilities to better reflect the funding nature of these amounts.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

1 Statement of accounting policies continued

Exchange rates

The following exchange rates against the US dollar have been utilised in these financial statements:

			Average					Average					As at					As at
			2005					2004					30 June 2005					30 June 2004
Australian dollar (a)				0.75					0.71					0.76					0.69
Brazilian real				2.73					2.94					2.36					3.11
Canadian dollar				1.25					1.35					1.23					1.35
Chilean peso				595					634					579					637
Colombian peso				2 454					2 779					2 329					2 699
South African rand				6.21					6.89					6.67					6.27
Euro				0.79					0.84					0.83					0.83
UK pound sterling				0.54					0.58					0.55					0.56

(a)

Displayed as US$ to A$1 based on common convention.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

2 Significant items

Individually significant items (before outside equity interests) included within the BHP Billiton Group’s net profit are detailed below.

			Gross					Tax					Net
Year ended 30 June 2005			US$M					US$M					US$M
Significant items by Category
Sale of equity interest in North West Shelf Project				56					—					56
Sale of Laminaria and Corallina				134					(10	)				124
Disposal of Chrome operations				142					(6	)				136
Restructuring provisions				(79	)				23					(56	)
Provision for termination of operations				(266	)				80					(186	)
Closure plans				(121	)				17					(104	)
Total by category				(134	)				104					(30	)
Significant items by Customer Sector Group
Petroleum				190					(10	)				180
Base Metals				(30	)				(4	)				(34	)
Carbon Steel Materials				(285	)				80					(205	)
Energy Coal				(93	)				27					(66	)
Diamonds and Specialty Products				(6	)				1					(5	)
Stainless Steel Materials				137					(5	)				132
Group and unallocated items				(47	)				15					(32	)
Total by Customer Sector Group				(134	)				104					(30	)

Sale of equity interest in North West Shelf Project

During the year ended 30 June 2005, BHP Billiton sold an equity participation in the North West Shelf (NWS) Project to China National Offshore Oil Corporation (CNOOC). CNOOC purchased an interest in a new joint venture that is being established within the NWS Project to supply LNG to the Guangdong LNG Project in China. CNOOC will acquire title to approximately 5.8per cent of current NWS Project gas reserves and rights to process its gas and associated LPG and condensate through NWS venture offshore and onshore infrastructure. CNOOC paid each joint venture partner US$59 million resulting in a profit on sale of US$56 million (no tax effect).

Sale of Laminaria and Corallina

In January 2005, the Group disposed of its interest in the Laminaria and Corallina oil fields to Paladin Resources plc. Proceeds on the sale were US$130 million resulting in a profit before tax of US$134 million (US$10 million tax expense).

Disposal of Chrome operations

Effective 1 June 2005, BHP Billiton disposed of its economic interest in the majority of its South African chrome business to the Kermas Group. The total proceeds on the sale were US$421 million, resulting in a profit of US$127 million (US$1 million tax expense) in accordance with Australian GAAP. In addition, the Group sold its interest in the Palmiet chrome business to Mogale Alloys in May 2005 for proceeds of US$12 million, resulting in a profit of US$15 million (US$5 million tax expense).

The BHP Billiton share of profit before tax on disposal of the Chrome operations is US$90 million (US$4 million tax expense), whilst the minority interest in the profit after tax of the disposal was US$50 million.

Restructuring provisions

The Group is required to record a charge against earnings in respect of restructuring certain operations. This totalled US$79 million (US$56 million after tax) and related to a charge of US$50 million (US$15 million tax benefit) in respect of restructuring associated with the acquisition of WMC in June 2005 primarily relating to redundancy and termination costs, office closures and termination of previous contractual arrangements and a charge of US$29 million (US$8 million tax benefit) for other restructurings, primarily for redundancies at Ingwe (South Africa).

Provision for termination of operations

The Group decided to decommission the Boodarie Iron (Australia) operations and a charge of US$266 million (US$80 million tax benefit) relating to termination of the operation was recognised. The charge primarily relates to settlement of existing contractual arrangements, plant decommissioning, site rehabilitation, redundancy and other closure related costs/charges associated with the closure.

Closure plans

As part of the Group’s regular review of decommissioning and site restoration plans, the Group reassessed plans in respect of certain closed operations. A total charge of US$121 million (US$104 million after tax) was recorded and included a charge of US$73 million (US$21 million tax benefit) for closed mines at Ingwe (South Africa) in relation to revision of the Group’s assessed rehabilitation obligation, predominantly resulting from revised water management plans and a charge of US$48 million (US$4 million tax expense) in relation to other closed mining operations.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

2 Significant items continued

			Gross					Tax					Net
Year ended 30 June 2004			US$M					US$M					US$M
Significant items by category
Introduction of tax consolidation regime in Australia				—					267					267
Litigation settlement				66					(18	)				48
US and Canadian taxation deductions				—					238					238
Closure plans				(534	)				22					(512	)
Total by category				(468	)				509					41
Significant items by Customer Sector Group
Petroleum				66					(18	)				48
Base Metals				(482	)				11					(471	)
Stainless Steel Materials				(10	)				3					(7	)
Group and unallocated items				(42	)				513					471
Total by Customer Sector Group				(468	)				509					41

Introduction of tax consolidation regime in Australia

During the year ended 30 June 2004, BHP Billiton elected to consolidate its Australian subsidiaries under the Australian tax consolidation regime, as introduced by the Australian Federal Government. Under the transitional rules, the Group chose to reset the tax cost base of certain depreciable assets which will result in additional tax depreciation over the lives of these assets. This resulted in the restatement of deferred tax balances and a tax benefit of US$267 million being recorded in accordance with Urgent Issues Group Abstract 52.

Litigation settlement

In December 2003, BHP Billiton announced that it was part of a consortium that had reached a settlement with Dalmine SpA with respect to a claim brought against Dalmine in April 1998. The claim followed the failure of an underwater pipeline installed in 1994 in the Liverpool Bay area of the UK continental shelf. As a result of the settlement, BHP Billiton recorded a gain of US$66 million, before tax expense of US$18 million.

US and Canadian taxation deductions

During the year ended 30 June 2004, the level of certainty regarding potential benefits arising from prior period taxation deductions and foreign tax credits available in the US and Canada increased to the extent that some of the provisions against deferred tax assets established in prior years were no longer necessary. This was a result of higher income generation, changes in legislation and effective utilisation of tax credits during the year, along with increasing confidence regarding the ability to realise benefits in the future. Accordingly, the Group recorded a tax benefit of US$238 million.

Closure plans

During the year ended 30 June 2004, the Group refined its plans in relation to certain closed operations. In relation to the Group’s Southwest Copper business in the US, this resulted in a charge of US$425 million resulting from a re-estimation of short-term closure costs and the inclusion of residual risks, longer-term water management and other costs, and an increase in the residual value of certain assets. Additionally, at other closed sites a charge of US$109 million (before a tax benefit of US$22 million) was recorded, mainly in relation to the Island Copper mine, the Newcastle Steelworks and the Selbaie copper mine. Accordingly, the Group has recorded a net after-tax loss of US$512 million. Refer note 29.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

3 Acquired operations

On 3 June 2005 the BHP Billiton Group obtained control of WMC Resources Ltd (WMC) with acceptance for 76.25 per cent of the equity shares. On 17 June the BHP Billiton Group had acquired more than 90 per cent of the equity shares in WMC, which triggered the compulsory acquisition of all remaining shareholdings. Payment for 100 per cent ownership was completed on 2 August. WMC was acquired for a total cash consideration of US$7 229 million made up of a price of A$7.85 per share plus acquisition related costs.

WMC was one of Australia’s leading resource companies. WMC’s major assets are:

•		the Olympic Dam copper/uranium/gold mine and related treatment plants located in South Australia;
•		an integrated nickel mining, refining and smelting business with operations in Western Australia;
•		The Queensland Fertilizer Operation (QFO) which consists of an integrated phosphate mine and ammonium phosphate fertiliser production facility; and
•		the Corridor Sands mineral sands project in Mozambique.

Olympic Dam produces copper, uranium, gold and silver. It is the fourth largest copper reserve, the fourth largest gold reserve and the largest uranium reserve in the world, and is the largest underground mine in Australia. Olympic Dam consists of an underground mine and a mineral processing plant, smelter and refinery with associated supporting infrastructure. Copper and uranium sales are the major revenue stream for Olympic Dam. Gold and silver are also mined and sold. Uranium oxide concentrate is sold under long-term contracts with major international power companies.

The WMC nickel operations consist of ore treatment facilities at Kambalda, mining and milling operations at Mt Keith and Leinster, a nickel smelter in Kalgoorlie and a refinery in Kwinana. WMC purchases nickel ore from a variety of mines for processing through the treatment facility at Kambalda. Kambalda concentrate is transported to the nickel smelter at Kalgoorlie. Mt Keith is a large open-cut mine where ore is mined and the concentrate transported to Leinster for drying. Leinster comprises both underground and open-cut mines as well as treatment and drying facilities. Blended concentrate from Leinster and Mt Keith is transported to the smelter. The smelter processes the concentrate received and produces nickel matte, of which the majority is further processed at the Kwinana refinery to produce high purity nickel briquettes, nickel powder and other nickel intermediate products. The nickel concentrate, matte and metal production is exported to Asia, Europe and North America and is principally used in making stainless steels.

WMC’s fertiliser operations consists of QFO, which is an ammonium phosphate manufacturing facility with distribution and marketing operations, and a one-third investment in Hi-Fert, which distributes and markets fertiliser products. QFO produces and markets di-ammonium phosphate and mono-ammonium phosphate. The QFO includes a sulphuric acid plant at Mt Isa, a mining operation and fertiliser plant at Phosphate Hill and storage and port facilities at Townsville. The finished product is distributed in Australia by Incitec Pivot, Hi-Fert, Summitt and Impact, and by Cargill internationally under a marketing agreement. Hi-Fert procures, markets and distributes all major fertilisers into eastern Australia and is the second largest distributor to that region. Hi-Fert owns patented coating technology that it uses to provide value-added products including zinc and sulphur-coated products.

WMC’s Corridor Sands mineral sands project is located in Mozambique and is expected to culminate in an integrated mining, concentration and smelting operation to produce titanium dioxide slag. Titanium dioxide feedstocks are used to produce pigments, titanium metal and other specialist products.

BHP Billiton expects the acquisition of WMC to provide a number of benefits. These include the following:

•		WMC’s nickel business comprises an outstanding set of assets, in terms of operating capability, country risk, scale and environmental standards, which complements BHP Billiton’s existing nickel business. The combined business will have a range of operations, products and technologies that will provide a robust and flexible platform for further growth.
•		BHP Billiton now operates two of the world’s four largest copper deposits. BHP Billiton’s track record in developing and operating Escondida, the world’s largest copper mine, will allow the Group to maximise the value of the large, long-life Olympic Dam resource base.
•		BHP Billiton is now a major producer of uranium with the largest resource base in the world. Uranium is an important energy source in an increasingly energy intensive world. Not only is this valuable on a stand-alone basis, but it complements BHP Billiton’s existing energy portfolio of oil, gas and coal.
•		BHP Billiton can maximise synergies in the nickel and copper business, marketing and other corporate functions. BHP Billiton will eliminate duplicate functions by using the proven systems and processes that were successfully used following the BHP Billiton merger in 2001.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

3 Acquired operations continued

The following table details the fair value of the net assets acquired:

								Adjustment
								for					Provisional					Provisional
								accounting					fair value					fair value
			Book value					policies					adjustments					value
			US$M					US$M					US$M					US$M
Cash assets				396					—					—					396
Receivables				444					—					(162	)				282
Inventories				520					(21	)				116					615
Investments accounted for using the equity method				33					—					(8	)				25
Property, plant and equipment				4 428					—					2 708					7 136
Other assets				84					—					(1	)				83
Current liabilities				(477	)				(5	)				35					(447	)
Non-current liabilities				(1 454	)				(42	)				452					(1 044	)
Net assets acquired				3 974					(68	)				3 140					7 046
Goodwill																			183
Total cost of acquisition																			7 229
Total cost of acquisition satisfied by the following consideration:
Cash paid																			6 594
Cash payable																			635
																			7 229

The book values included in the table above are the Australian dollar values of WMC assets and liabilities acquired converted to US dollars at the acquisition day rate of 0.7556.

Due to the complexity and timing of this acquisition, the fair values currently established are provisional and are subject to review during the year ended 30 June 2006.

The material provisional fair value adjustments principally relate to:

•		Property, plant and equipment reflecting the fair value of mineral assets, together with revaluation of property, plant and equipment representing replacement cost and estimated remaining useful lives;
•		Investments have been revalued to reflect current market values;
•		An upward revaluation of inventory balances held at Olympic Dam and nickel operations. This is a result of the fair value principles applying where the fair value is broadly defined as selling prices less costs to sell, less a reasonable profit margin for the selling effort of the acquirer. Essentially this results in a ‘sales price’ being applied to value inventory as opposed to the cost recorded in the acquirer’s balance sheet. As a result of this treatment, sales margins have been recognised in advance of the inventory being sold external to the Group. When the inventory on hand at the date of acquisition is subsequently sold external to the Group, effectively no margin will be realised;
•		Debtors and creditors have been revalued to reflect the expected timing and amount of settlements. External fixed rate debt and derivative financial instruments have been revalued to reflect current market terms. Deferred gains and losses relating to commodity price and foreign currency hedging arrangements have been de-recognised;
•		Provisions include the recognition of accumulated unfunded pension liabilities; and
•		Deferred tax asset and liability balances have been adjusted to take into account revised fair values for book purposes and resetting of tax bases as a result of the acquisition, where applicable. Deferred tax balances relating to tax losses have been adjusted where it is not virtually certain that the Group will be able to utilise the losses.

BHP Billion Limited Financial Statements 2005

Notes to Financial Statements continued

3 Acquired operations continued

A number of the revaluation adjustments have resulted in policy alignment with BHP Billiton accounting policies and relate to:

•

BHP Billiton policy in respect of decommissioning, site restoration and environmental rehabilitation provisions requires that the present value of estimated future costs of rehabilitation of operating sites is capitalised where it gives rise to future benefits and amortised over the life of the operation. Additional provisions have been raised in accordance with this policy.

•

Under BHP Billiton’s accounting policies, mined ore stocks held underground are not recorded as inventory until the ore is brought above ground. Accordingly, underground stocks held by WMC at the date of acquisition have been adjusted to a value of nil.

At the date of acquisition, the application of BHP Billiton policy will result in WMC adopting the US dollar as the functional currency for the majority of its operations. The provisional fair values for non-monetary items in US dollars included in the table above will represent the acquisition historical rate for WMC by BHP Billiton. The treatment of foreign currencies is detailed in the Accounting Policies section of these financial statements.

Since the acquisition, WMC cash flows have contributed US$16 million to the Group’s net operating cash flows, US$50 million to net investing cash outflows and US$2 million to net financing cash inflows.

The unaudited Summarised Statement of Financial Performance of WMC for the period 1 January 2005 to 3 June 2005 prepared in accordance with the accounting policies applicable to WMC for that period prior to acquisition by BHP Billiton were as follows:

Summarised Statement of Financial Performance for the period 1 January 2005 to 3 June 2005

			US$M
Revenue from ordinary activities				1 322
Profit from ordinary activities before income tax				394
Income tax expense attributable to ordinary activities				(108	)
Net profit				286
Net exchange differences recognised directly to equity				2
Total changes in equity other than those resulting from transactions with owners				288

The amounts included in the table above are the Australian dollar values converted to US dollars at an average rate for the period of A$1 = US$0.7739.

Statement of Financial Performance for the year ended 31 December 2004

For the year ended 31 December 2004, WMC reported an audited post-tax profit of A$1 327 million (US$977 million) prepared in accordance with the accounting policies used by WMC for the financial year to 31 December 2004.

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

4 Revenue from ordinary activities

			2005					2004
			US$M					US$M
Operating revenue
Sale of goods (a)				28 805					22 123
Rendering of services				844					764
Total operating revenue				29 649					22 887
Non-operating revenue
Interest income				99					73
Discounting on assets				8					5
Exchange differences on cash assets				9					5
Interest revenue				116					83
Dividend income				37					35
Proceeds from sales of non-current assets				472					277
Proceeds from sales of operations				563					—
Other income				270					231
Total non-operating revenue				1 458					626

(a)		Cost of goods sold for the BHP Billiton Group was US$17 012 million (2004: US$14 279 million).

5 Expenses from ordinary activities, excluding depreciation, amortisation and borrowing costs

			2005					2004
			US$M					US$M
Changes in inventories of finished goods and work in progress				(232	)				(184	)
Raw materials and consumables used				4 015					3 116
External services (including transportation)				4 802					3 450
Third party commodity purchases				6 329					5 837
Employee benefits expense (a)				2 652					2 177
Net book value of non-current assets sold				304					176
Diminution in value of non-current assets				16					116
Net book value of operations sold				287					—
Resource rent taxes				498					432
Rental expense in respect of operating leases (b)				232					172
Government royalties paid and payable (c)				629					421
Royalties other				87					36
Other				1 078					1 335
Total expenses from ordinary activities, excluding depreciation, amortisation and borrowing costs				20 697					17 084

(a)		Includes US$122 million (2004: US$96 million) for employee share awards.
(b)		Represents minimum lease payments.
(c)		Includes amounts paid or payable to Australian governments of US$446 million (2004: US$262 million) and to other governments of US$183 million (2004: US$159 million).

6 Depreciation and amortisation

			2005					2004
			US$M					US$M
Depreciation relates to
Buildings				135					122
Plant, machinery and equipment				1 417					1 299
Mineral rights and other mineral assets				266					188
Exploration, evaluation and development expenditure				128					131
Capitalised leased assets				4					9
Total depreciation				1 950					1 749
Amortisation relates to
Goodwill				44					44
Total amortisation				44					44
Total depreciation and amortisation				1 994					1 793

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

7 Borrowing costs

			2005					2004
			US$M					US$M
Borrowing costs paid or due and payable
On interest bearing liabilities				379					365
On finance leases				6					2
Total borrowing costs				385					367
deduct
Amounts capitalised (a)				85					97
				300					270
add
Discounting on provisions and other liabilities				175					111
Exchange differences on Group borrowings (b)				24					109
Borrowing costs charged against net profit from ordinary activities				499					490

(a)		Interest has been capitalised at the rate of interest applicable to the specific borrowings financing the assets under construction or, where financed through general borrowings, at a capitalisation rate representing the average borrowing cost of the Group’s interest bearing liabilities. The capitalisation rate was 4.6 per cent (2004: 4.6 per cent).
(b)		Exchange differences primarily represent the effect on borrowings of the movement in the South African rand against the US dollar.

8 Other profit and loss items

			2005					2004
			US$M					US$M
Net profit before tax from ordinary activities is after crediting the following items:
Profits from sales of
Investments				43					6
Property, plant and equipment				130					98
Operations				276					—
Net movement in the doubtful debts provision in respect of
Trade receivables				—					1
Sundry receivables				2					5
Reversals of impairment losses				—					95
Net profit before tax from ordinary activities is after charging the following items:
Losses from sales of
Property, plant and equipment				5					3
Diminution in value of
Investments				—					3
Property, plant and equipment (excluding depreciation)				14					61
Exploration, evaluation and development expenditures
Incurred and expensed in current period				351					284
Previously capitalised, written off as unsuccessful or abandoned				2					52
Net foreign exchange loss
Borrowings				24					109
Other				103					65
Bad debts written off in respect of
Sundry receivables				1					1
Research and development costs before crediting related grants				33					19
Material transfers to/(from) provision for
Resource rent tax				34					30
Employee benefits				408					391
Restoration and rehabilitation				331					791
Restructuring				283					(29	)
Post-retirement benefits				48					62
Remuneration of auditors
Audit fees payable by the BHP Billiton Group to:
Auditors of the BHP Billiton Group (a)
KPMG				10.087					7.751
PricewaterhouseCoopers				0.577					0.537
Total audit fees				10.664					8.288

BHP Billiton Limited Financial Statements 2005

Notes to Financial Statements continued

8 Other profit and loss items continued

			2005					2004
			US$M					US$M
Fees payable by the BHP Billiton Group to auditors for other services
Auditors of the BHP Billiton Group
Audit related services (b)
KPMG				1.141					0.354
Taxation services (c)
KPMG				1.500					1.525
Other services (d)
KPMG				0.110					0.313
PricewaterhouseCoopers				1.457					0.418
Total other services				4.208					2.610
Total fees				14.872					10.898

(a)		During the year ended 30 June 2004, the BHP Billiton Group completed a review of its joint external audit arrangements and KPMG was selected to continue as sole auditor. Audit fees for PricewaterhouseCoopers in 2005 arose as a result of the acquisition of WMC where PricewaterhouseCoopers were auditors of WMC up to 30 June 2005.
(b)		Mainly includes accounting advice and services associated with securities offerings. For the year ended 30 June 2005, audit fees of US$0.328 million (2004: US$0.252 million) relating to pension plans, which are not directly payable by the BHP Billiton Group, have been excluded from the above analysis.
(c)		Mainly includes tax compliance services and employee expatriate taxation services.
(d)		Mainly includes certifications and non-financial audits.

9 Income tax

			2005					2004
			US$M					US$M
Income tax expense
Prima facie tax calculated at 30 per cent on profit from ordinary activities				2 544					1 311
add/(deduct) tax-effect of permanent differences:
Investment and development allowance				(153	)				(83	)
Amounts under/(over) provided in prior years				60					(14	)
Recognition of prior year tax losses and tax credits				(84	)				(316	)
Non-deductible accounting depreciation and amortisation				75					68
Non-deductible dividends on redeemable preference shares				9					8
Non tax-effected operating losses				84					222
Tax rate differential on non-Australian income				10					(49	)
Non tax-effected capital gains				(70	)				(5	)
Foreign expenditure including exploration not presently deductible				7					5
South African secondary tax on companies				32					—
Foreign exchange losses on current and deferred tax balances				37					76
Other foreign exchange gains and translation adjustments				(156	)				(26	)
Tax rate changes				(17	)				13
Introduction of Australian tax consolidation regime				—					(267	)
Other				(138	)				(73	)
Income tax expense attributable to ordinary activities				2 240					870