RNS Number:3013I
Orange S.A.
05 March 2003
Consolidated financial statements
Orange
As at and for the years ended 31 December 2002, 2001 and 2000
Disclaimer:
This English language translation of the consolidated financial statements
prepared in French has been prepared solely for the convenience of English
speaking readers. Despite all the efforts devoted to this translation, certain
errors, omissions or approximations may subsist. Orange, its representatives and
employees decline all responsibility in this regard.
ORANGE - INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated income statements 3
Consolidated balance sheets 4
Consolidated statements of changes in shareholders equity 5
Consolidated cash flow statements 6
Notes to the consolidated financial statements
Note 1 - Description of business 7
Note 2 - Accounting policies 7
Note 3 - Segment reporting 13
Note 4 - Personnel costs 14
Note 5 - Other non-operating expenses, net 14
Note 6 - Income taxes 15
Note 7 - Exceptional items, net of tax 16
Note 8 - Intangible assets 16
Note 9 - Property, plant and equipment 19
Note 10 - Investments accounted for under the equity method 19
Note 11 - Non-consolidated investments 21
Note 12 - Borrowings net of available cash 22
Note 13 - UMTS vendor financing 24
Note 14 - Financial instruments 25
Note 15 - Other long-term liabilities 26
Note 16 - Minority interests 26
Note 17 - Shareholders' equity 26
Note 18 - Share based compensation 27
Note 19 - Provisions 30
Note 20 - Trade and other receivables 31
Note 21 - Comments on the consolidated cash flow statements 32
Note 22 - Commitments and contingencies 32
Note 23 - Contractual obligations and other commitments 39
Note 24 - Related party transactions 39
Note 25 - Post balance sheet events 39
Note 26 - Consolidation scope 40
Note 27 - Compensation of the executive officers and directors
of the Company 45
ORANGE - CONSOLIDATED INCOME STATEMENTS
Note Year Year Year
In millions of euro (except data per share)
Ended Ended Ended
31 December 31 December 31 December
2002 2001 2000 2000
Pro forma
(unaudited)
Turnover 3 17,085 15,087 12,059 -
Cost of sales (6,200) (5,815) (5,358) -
Selling, general and administrative expenses (5,715) (5,942) (4,902) -
Research and development expenses (24) (42) (34) -
Operating income before depreciation 5,146 3,288 1,765 -
and amortisation
Depreciation and amortisation (excluding 8,9 (2,364) (1,848) (1,382) -
goodwill)
Operating income 2,782 1,440 383 -
Interest income (expenses), net (419) (420) (389) 4
Foreign exchange losses (44) (18) (3) -
Other non-operating expenses, net 5 (24) (12) - -
Equity in net loss of affiliates (excluding 10 (385) (604) (400) -
goodwill amortisation)
Income/(loss) before tax, goodwill 1,910 386 (409) 4
amortisation and minority interests
Income taxes before exceptional items 6 (811) (684) (459) -
Income/(loss) before goodwill amortisation 1,099 (298) (868) 4
and minority interests
Goodwill amortisation 8,10 (295) (556) (612) -
Minority interests 16 (171) (32) 159 -
INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS 633 (886) (1,321) 4
Exceptional items, net of tax 6, 7 (5,169) (3,635) - -
NET INCOME / (LOSS) (4,536) (4,521) (1,321) 4
Basic and diluted net income/(loss) before 0.13 (0.18) (0.28) 0.00
exceptional items, net of tax per share
Net income/(loss) per share (0.94) (0.94) (0.28) 0.00
Diluted net income/(loss) per share (0.94) (0.94) (0.28) 0.00
As the Group was formed on 29 December 2000, the consolidated income statement
for 2000 does not reflect any activity. Consequently, a comparative pro forma
consolidated income statement is presented for the year ended 31 December 2000.
See Note 2
ORANGE - CONSOLIDATED BALANCE SHEETS
In millions of euro Note As at 31 December
ASSETS 2002 2001 2000
2
Goodwill, net 8 2,527 3,804 3,962
Intangible assets, net (excluding goodwill) 8 8,341 8,903 7,651
Property, plant and equipment, net 9 10,640 9,768 8,216
Investments accounted for under the equity method 10 1,956 4,897 8,591
Non consolidated investments 11 299 344 428
Other long term assets 20 132 6 131
Deferred income taxes 6 65 476 528
Total long-term assets 23,960 28,198 29,507
Inventories 19 204 184 435
Trade accounts receivable, less allowances 19, 20 2,332 2,909 2,602
Deferred income taxes 6 314 92 68
Prepaid expenses and other current assets 20 1,182 1,440 1,128
Marketable securities 12 4 - -
Cash and cash equivalents 12 828 754 11,612
Total current assets 4,864 5,379 15,845
TOTAL ASSETS 28,824 33,577 45,352
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity 17 13,709 18,830 22,499
Minority interests 16 411 142 (58)
Long-term debt, less current portion 12 2,733 3,900 4,363
UMTS vendor financing, less current portion 13 287 234 -
Other long-term liabilities 6, 15 472 284 200
Total long-term liabilities 3,492 4,418 4,563
Current portion of long-term debt, bank overdrafts
and other short-term borrowings 12 3,969 3,056 6,312
Current portion of UMTS vendor financing 13 244 - -
Trade accounts payable 4,476 4,391 3,867
Accrued expenses and other current liabilities 1,980 2,279 7,697
Deferred income taxes 6 10 53 75
Deferred income 533 408 397
Total current liabilities 11,212 10,187 18,348
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 28,824 33,577 45,352
ORANGE -CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Foreign currency
Number of shares Additional translation
issued Share paid-in Retained adjustment Total
In millions of euro capital capital earnings Shareholders'
(except number of shares) equity
Balance at 31 December 4,801,915,818 4,802 60,392 (42,711) 16 22,499
2000
Net loss for the year - - - (4,521) - (4,521)
Increase in capital 12,647,072 13 83 - - 96
Translation adjustment - - - - 176 176
Other changes - - - 580 - 580
Balance at 31 December 4,814,562,890 4,815 60,475 (46,652) 192 18,830
2001
Net loss for the year - - - (4,536) - (4,536)
Increase in capital 3,350 - - - - -
Translation adjustment - - - - (594) (594)
Other changes - - - 9 - 9
Balance at 31 December 4,814,566,240 4,815 60,475 (51,179) (402) 13,709
2002
See Note 17.
ORANGE - CONSOLIDATED CASH FLOW STATEMENTS
In millions of euro
Note Year Ended 31 December Year Ended
31 December
2002 2001 2000
OPERATING ACTIVITIES
Net loss/(income) (4,536) (4,521) 4
Depreciation and amortisation of property, plant and 8, 2,659 2,404 -
equipment, intangible assets and goodwill 9, 10
Exceptional items before tax 7 5,236 3,635 -
Loss/(gain) on disposal of assets 19 (17) -
Changes in valuation allowances and other provisions, before (4) 240 -
exceptional items
Equity in net loss of affiliates (excluding goodwill 10 385 604 -
amortisation)
Deferred income taxes 6 104 74 -
Minority interests 16 171 32 -
Other elements 1 (3) -
Funds generated from operations 4,035 2,448 4
Change in other operating assets and liabilities - 208 15
Securitisation of receivables/sale of receivables 20 582 - -
Net cash provided by operating activities 4,617 2,656 19
INVESTING ACTIVITIES
Purchase of property, plant and equipment and intangible 8, 9 (3,538) (3,018) -
assets (excluding UMTS licences and net of movements on fixed
assets creditors (1)
Purchase of UMTS licences 8 (35) (873) -
Cash paid for investment securities and acquired business, net
of cash acquired 21 (834) (669) 1,822
Proceeds from sale of investments and other assets 11,21 8 545 -
Net cash used in investing activities (4,399) (4,015) 1,822
FINANCING ACTIVITIES
Increase/(decrease) in long-term borrowings 106 (251) -
Increase /(decrease) in bank overdrafts and short-term
borrowings (516) (3,631) -
Decrease in other liabilities 21 - (5,960) -
Increase in UMTS vendor financing 13 297 234 -
Increase in shareholder's contribution and dividends paid to
minority shareholders (5) 104 9,771
Net cash (used)/provided by financing activities (118) (9,504) 9,771
(Decrease)/increase in cash and cash equivalents 100 (10,863) 11,612
Impact of changes in exchange rates on cash and cash
equivalents (26) 5 -
Cash and cash equivalents at beginning of period 12 754 11,612 -
Cash and cash equivalents at end of period 12 828 754 11,612
(1)Movements on fixed assets creditors resulted in a cash inflow/(outflow) of
euro (204) million in 2002 (compared to euro 338 million in 2001 and nil in
2000).
ADDITIONAL INFORMATION
Cash paid during the year for:
- Interest (418) (428) -
- Income taxes (595) (832) -
As the Group was formed on 29 December 2000, the consolidated cash flow
statement for 2000 only reflects activity from that date. See Note 2.
ORANGE - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Orange S.A. ("the Company") is listed on Premier Marche of Euronext Paris and
the London Stock Exchange.
The Company, its subsidiaries, jointly controlled entities, associates and
investments (together "the Group") offer a broad range of mobile voice and data
communications services in France, United Kingdom and in selected markets in
continental Europe and in the rest of the world.
Created on 29 December 2000, the Group consists of (i) FTM SA (renamed
OrangeFrance S.A. -"Orange France"- in 2001), formed as a result of the transfer
of FTM (the mobile division of France Telecom until 31 December 1999) to FTM
S.A. on 22 August 2000, with a retroactive legal effect as from 1 January 2000,
(ii) the operations of Orange plc, which are mainly located in the United
Kingdom and which were acquired by France Telecom from Vodafone group in August
2000 and (iii) France Telecom's operations and investments in a number of
European and international subsidiaries, jointly controlled entities, associates
and investments.
2. ACCOUNTING POLICIES
The Group's consolidated financial statements are prepared in accordance with
French generally accepted accounting principles under Rule 99-02 of the "Comite
de la Reglementation Comptable" ("CRC").
FIRST APPLICATION OF NEW ACCOUNTING RULES
- Rule 00-06 of the CRC, applicable as of 1 January 2002, defines
liabilities and prescribes the accounting and measurement for provisions. The
Group had conducted a review of its provisions recorded at 31 December 2001 and,
as anticipated, the first application of Rule 00-06 had no impact on the Group's
consolidated financial statements for the year ended 31 December 2002.
- Rule 02-10 of the CRC provides new definitions for depreciation and
impairment of long-lived assets. It becomes effective for financial statements
covering periods beginning on or after 1 January 2005 but its adoption can be
anticipated as of 1 January 2002. The Group did not anticipate the adoption of
this new rule for the year ended 31 December 2002.
However, the Group conducted impairment tests in accordance with the
recommendation of the Commission des Operations de Bourse ("COB") dated 27
December 2002. The Group provides information on the methodology and assumptions
used in testing goodwill and other long-lived assets, i.e. tangible and other
intangible assets, for impairment. See below and also refer to Note 8.
- In accordance with the joint recommendation of the COB and the
Commission Bancaire dated 15 November 2002, and the subsequent statement issued
by the Compagnie Nationale des Commissaires aux Comptes dated 10 January 2003,
addressing off balance sheet transactions and derecognition of assets, the Group
reviewed all its existing transactions at 31 December 2002. This review had no
impact on the Group's net result and net shareholders'equity for the year ended
31 December 2002.
BASIS FOR PREPARATION OF THE PRO FORMA INCOME STATEMENT FOR THE year ENDED 31
December 2000
As a result of the inception of the Group on 29 December 2000, the following
financial information is presented:
* The audited consolidated financial statements as at 31 December 2002
and 2001;
* The audited consolidated financial statements as at 31 December 2000,
reflecting the effects of the legal transfer which occurred on 29 December 2000;
* The unaudited pro forma consolidated income statement for the year
ended 31 December 2000, as no operations are reflected in the consolidated
income statement prior to 29 December 2000.
The Group's pro forma consolidated income statement for the twelve months ended
31 December 2000 is intended to reflect the Group's results of operations as if
the Group, which was created on 29 December 2000, had existed over that period.
This pro forma consolidated income statement is presented for illustrative
purposes only and is not necessarily indicative of what the Group's results of
operations would have been had the Group's inception occurred at an earlier
date.
Operations legally transferred to the Group before 31 December 2000 have been
consolidated or accounted for under the equity method over the twelve months
ended 31 December 2000, based on the Group's ownership interest at 31 December
2000.
Borrowings contracted to finance (i) the acquisition of assets from France
Telecom at the Group's inception and, (ii) the UK and Dutch UMTS licences and,
(iii) the investments in BITCO and Ananova are deemed to have been extinguished
by the share capital increases of Orange plc and the Company. Consequently,
interest expenses incurred on those borrowings are not reflected in the pro
forma consolidated income statement. In addition, the remaining cash balance
resulting from the above mentioned share capital increases is deemed to have
been placed with France Telecom during the second half of 2000 and the related
interest revenues have been reflected in the pro forma consolidated income
statement.
No synergies have been reflected in the pro forma consolidated income statement.
PRESENTATION OF THE FINANCIAL STATEMENTS
* In the consolidated income statement, operating charges are presented
on a functional basis, except for net depreciation and amortisation, which are
shown under two separate headings being "Depreciation and amortisation
(excluding goodwill)" and "Goodwill amortisation".
* "Other non-operating income/(expense), net" primarily relate to:
* Gains and losses on the disposal of consolidated subsidiaries and
investment securities, including dilution results;
* Losses on disposal of securitised receivables.
* All income taxes, except income taxes relating to extraordinary items,
are shown under the heading "Income taxes before extraordinary items". Total
income taxes are presented in Note 6.
* The heading" Goodwill amortisation" includes goodwill of all
consolidated companies as well as those accounted for using the equity method.
* Exceptional items, net of tax relate to:
* Exceptional impairment charges recorded as a result of the
impairment reviews conducted on the Group's goodwill and other
long-lived assets at each closing date;
* Exceptional costs arising from discontinued activities or
projects, where their relative significance exceeds ordinary activity.
Such costs generally include write-off of fixed assets, restructuring
provisions and other closure or termination expenses.
Extraordinary items before income taxes and the related income taxes are
presented in Note 7.
* The balance sheet classifies assets and liabilities based on liquidity
or maturity dates, and presents short-term balances (due within one year)
separately from long-term balances.
* The cash flow statement excludes from changes in cash any changes in
bank overdrafts and marketable securities having maturity in excess of three
months at the time of purchase, which are presented respectively as financing
and investing activities.
CONSOLIDATION PRINCIPLES
The consolidation principles are as follows:
* Subsidiaries, which the Company controls either directly or indirectly,
are fully consolidated.
* Companies in which the Group and a limited number of other shareholders
have agreed to exercise joint control are accounted for using the proportionate
consolidation method.
* Companies over which the Group exercises significant influence but does
not control (generally a 20% to 50% voting interest) are accounted for under the
equity method.
All material inter-company balances and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION OF THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES
The financial statements of foreign subsidiaries presented in local currency are
translated as follows:
* assets and liabilities are translated at the closing rate,
* items in the consolidated income statement are translated at the
average rate for the period,
* the resulting translation adjustment is included as a separate
component of shareholders' equity. Translation adjustments relating to
subsidiaries within the euro zone have been fixed based on the parities
determined on 31 December 1998.
The financial statements of entities which operate in a hyper inflationary
environment have been remeasured into their functional currency, prior to
converting to euro, using the following method:
* monetary elements of the balance sheet are translated at the closing
rate,
* non monetary elements are converted at the historic rate,
* items in the consolidated income statement are translated at the
average rate for the period except for depreciation and provision charges and
reversals which are translated at the historic rate.
* the resulting translation adjustment is recorded in the consolidated
income statement as an exchange gain or loss.
TRANSACTIONS IN FOREIGN CURRENCIES
At year-end, monetary balances denominated in foreign currencies are translated
using closing exchange rates. Unrealised gains and losses on balances
denominated in foreign currencies which are not hedged are recognised in the
consolidated income statement of the corresponding period.
REVENUE RECOGNITION
Turnover includes airtime revenue (including fixed monthly access charges),
roaming revenue, revenue from sales of telecommunication equipment and other
revenues and services.
Revenues from airtime, roaming and other services are recognised when the
service is rendered.
Revenues from sales of telecommunication equipment and connection charges are
recognised upon delivery to the customer or activation by the customer, as
appropriate.
SUBSCRIBER ACQUISITION AND LOYALTY COSTS
Subscriber acquisition and loyalty costs are expensed as incurred. Subscriber
acquisition costs are analysed separately (see Note 3) by:
* subtracting revenue received from handset sales from the total cost
of handsets included in "cost of sales",
* and adding this amount to the commissions and rebates paid to
distributors, which are included in "selling, general and administrative
expenses".
ADVERTISING COSTS
Advertising costs are expensed as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
WEBSITE DEVELOPMENT COSTS
Costs relating to the development of websites are capitalised or expensed
depending on the phase of development of sites: costs relating to the planning
and operating stages are expensed, costs related to development and creation of
the design are capitalised.
MARKETABLE SECURITIES
Marketable securities are valued at historical cost. When necessary, a provision
is recorded on an investment by investment basis to adjust this value to the
average market value over the month prior to period end or their estimated
trading value for securities not publicly traded.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments, with no
capital risk, with maturities generally of three months or less at the time of
purchase, and are stated at cost which approximates realisable value.
CREDIT RISK ON TRADE ACCOUNTS RECEIVABLE AND SECURITISATION OF RECEIVABLES
Allowances are set up against the estimated cost of non-recovery of receivables.
Allowances are based on an individual or statistical evaluation of the risk of
non-recovery.
In view of its diverse customer base (residential, professional and large
business customers) operating in numerous industries and located in many regions
and countries, the Group does not consider itself exposed to a concentration of
credit risk.
Securitised receivables are derecognised from "Trade accounts receivable, less
allowances" when the rights and obligations attached to such receivables are
transferred to third parties and the resulting loss is included in "other
non-operating income/(expense), net". Interests retained by the Group (i.e.
through deferred purchase prices which are subordinated for risk of non-recovery
of the underlying securitised receivables) are recorded in "Other long term
assets" in the balance sheet (see Note 19). Depreciation of such retained
interests is determined based on the risk of non-recovery of the receivables
sold and movements in this depreciation provision are included within "selling,
general and administrative expenses" in the income statement.
INVENTORIES
Inventories principally comprise of handsets. Inventories are stated at the
lower of cost or probable net realisable value, taking into account future
revenues expected from subscriptions. Cost is determined on a first in first out
basis or using weighted average cost formulae.
PURCHASE ACCOUNTING
Upon acquisition of a business, its cost of acquisition is allocated on a fair
value basis to the identifiable assets and liabilities of the business acquired.
The excess of the purchase price over the fair value of the share of
identifiable assets and liabilities of the business acquired is recorded under
the heading "Goodwill, net" for the consolidated entities and included in the
heading "Investments accounted for under the equity method" for entities over
which the Group has significant influence.
Goodwill arising on the acquisition of a foreign entity is treated as assets and
liabilities of the foreign entity and translated at the closing exchange rate.
Goodwill is amortised over a period ranging from 5 to 20 years depending on the
specific nature of the business acquired and on the strategic value of each
acquisition.
The fair value of goodwill is subject to impairment review at each closing date,
when events or circumstances occur indicating that impairment might exist. Such
events or circumstances include significant adverse changes, other than
temporary, in the assumptions or expectations considered at the time of the
acquisition.
The Group assesses the fair value of goodwill for all its controlled operations
and affiliates on a country by country basis.
The need to recognise impairment is assessed by reference to the estimated fair
value of each entity, which is compared with its carrying value in the Group's
consolidated financial statements. The fair value is defined as the higher of
the market value and value in use.
The market value is the estimated selling price less the costs of disposal,
which could be obtained by the Group through the divestiture of an operation in
an arm's length transaction. Such estimate is based on the best information
available at the closing date, taking into account specific circumstances. Due
to the volatility of the market capitalization in the telecommunication
industry, the value in use of goodwill is preferably assessed with reference to
the discounted cash flow methodology. Discounted cash flows are assessed for
each operation based on reasonable and supportable assumptions, that represent
management's best estimate of the set of economic assumptions that will exist
over future years, and are determined as follows:
- Future cash flow projections are based on the most recent business
plans approved by the management of the Group and cover a period of 5 to 10
years as appropriate;
- Cash flow projections beyond the period covered by the business plans
are estimated by extrapolating the projections using a perpetual growth rate
specific to each operation;
- The appropriate discount rates are applied to these future cash
flows.
For operations to be divested, the fair value of goodwill is determined based on
the operation's estimated net selling price.
In accordance with the purchase method of accounting under paragraph 215 of "
Comite de la Reglementation Comptable" Rule 99-02, the historical carrying value
of the business acquired is reflected in the acquirers' financial statements
when the acquisition meets the criteria set out in paragraph 215 (amongst other
criteria the acquisition must cover at least 90% of the shares of the company in
a single transaction and must be settled through a share issue by the acquirer).
PLANT, PROPERTY AND EQUIPMENT
AND INTANGIBLE ASSETS
Licences to operate mobile networks are recorded within intangible assets. They
are recorded at cost of acquisition (i.e. up front payment or present value of
future payments if they can be reasonably estimated, as appropriate), excluding
interest arising from debt incurred to finance the licences, and are amortised
on a straight-line basis over the period over which the Group expects to benefit
from use of the licence, taking into account the likelihood of licence renewal
as appropriate. They are amortised from the date of commercialisation of
services.
The Orange France UMTS licence has been accounted for in compliance with the
statement issued by the Emergency Task Force of the "Conseil National de la
Comptabilite" ("CNC"). Accordingly, the up front fee paid on 30 September 2001
for an amount of euro 619 million was recorded as an intangible asset. An
additional variable fee (equaling 1% of Orange France future UMTS turnover) will
be payable annually and expensed as incurred.
Subscriber relationships (see Note 8) are not amortised but subject to a regular
impairment review on a cash flow basis relating to the subscribers'
concentration in Switzerland and in The Netherlands at each closing date (see
impairment of long-lived assets).
Purchases of capacity transmission on Land and submarine cables (Indeafisable
Rights of Use "IRU's") are recorded within intangible assets and amortised on a
straight line basis over the estimated useful life.
Plant, property and equipment are recorded at cost of acquisition or at
construction cost, including, for the cost of networks, planning and
construction costs, site installation and equipment upgrade costs.
Interest arising from debt incurred to finance construction and development of
tangible assets is capitalised as part of the cost of the assets during the
construction period.
Repairs and maintenance and removal costs are expensed when incurred.
Depreciation of property, plant and equipment is calculated on a straight-line
basis over their estimated useful lives.
Main estimated useful lives are as follows:
Analogue and GSM network 5 to 8 years
Buildings and fittings 10 to 30 years
Computer equipment and software excluding network
equipment 3 to 5 years
Other 3 to 10 years
Leased assets are recorded as a fixed asset and a related liability when the
terms of the lease effectively transfer the risks and rewards of ownership of
the asset to the Group.
IMPAIRMENT OF LONG-LIVED ASSETS
Plant, property and equipment and intangible assets (excluding goodwill) are
written down when, as a result of events or changes in circumstances, which
include evidence of obsolescence or physical damage or economic performance
below initial expectations or other internal or external indicators, their fair
value appears to be permanently less than their carrying value. Fair value is
defined as the higher of the market value and value in use.
Impairment is determined for each group of assets by comparing their carrying
value with their fair value. Should the above comparison indicate that an asset
is permanently impaired, the write-down recognised is equivalent to the
difference between carrying value and fair value. For assets to be held and
used, fair value is principally determined based on the estimated value in use,
which is represented by the future economic benefits expected to arise from the
continuing use of an asset and from its disposal at the end of its useful life.
Fair value is determined on the basis of discounted cash flows, which are based
on reasonable and supportable assumptions that represent management's best
estimate of the set of economic conditions that will exist over the remaining
useful life of the asset, or by reference to replacement cost for used equipment
or cost of alternative technologies.
For assets to be disposed of, fair value is determined based on the estimated
net selling price, with reference to market prices.
NON CONSOLIDATED INVESTMENTS
Non consolidated investments are stated at cost. An allowance is recorded when
the fair value, as estimated by management based on a multi-criteria analysis,
which includes the review of indicators such as market prices, potential
commercial developments, return on investment and revalued net
shareholders'equity, and taking into consideration the specific nature of each
investment, is permanently less than carrying value.
DEFERRED INCOME TAXES
Deferred income taxes are accounted for on temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
for tax purposes, as well as those arising from tax loss carry forwards.
Deferred tax assets are provided for to the extent that the recovery of these
taxes is not considered probable.
Deferred taxes are calculated using the liability method, applying the enacted
tax rates applicable at the time the temporary difference is expected to
reverse.
DEBT ISSUE COSTS
Debt issue costs are deferred and expensed through income over the term of the
facility.
PROVISION FOR RISKS AND LIABILITIES
Provisions for identified risks and liabilities of uncertain timing or amount
are recorded when the Group has a present obligation (legal or constructive) to
a third-party as a result of a past event and when it is probable that an
outflow of resources embodying economic benefits will be required to settle the
obligation.
RETIREMENT INDEMNITIES
In France, legislation requires that lump sum retirement indemnities be paid to
employees based upon their service life and level of compensation upon
retirement. The actuarial cost of this unfunded obligation is charged to the
consolidated income statement over the employees' service lives. The effect of
changes in assumptions is accounted for in the consolidated income statement
over the average remaining service life of employees.
In England, Orange plc operates a defined contribution pension scheme and funded
unapproved retirement benefit schemes for eligible employees. Contributions to
these two plans are expensed as incurred (see Note 4).
FINANCIAL INSTRUMENTS
Interest rate and foreign currency risks are managed using derivative financial
instruments, primarily interest rate swaps, forward exchange contracts, currency
swaps and exchange rate options. All such instruments are entered into for
hedging purposes.
Income and costs resulting from the use of these instruments are recorded in the
consolidated income statement in the same manner as compared with the underlying
transaction being hedged:
* differences between interest receivable and interest payable on swaps
are recorded in the consolidated income statement over the life of the contract
as an adjustment to the interest expense;
* the gains and losses generated by forward exchange contracts and
currency swaps designated as hedging operations are recorded as exchange rate
corrections resulting from the item hedged;
* the gains and losses resulting from forward exchange contracts and
currency swaps designated as hedging operations and allocated to the hedging of
firm commitments or identifiable future transactions are deferred and taken into
account in the valuation of the transaction at maturity.
EARNINGS PER SHARE
Basic earnings per share are calculated based on the weighted average number of
shares outstanding during the year.
Diluted earnings per share take account of conversion into ordinary shares of
existing potentially dilutive instruments. Diluted earnings are calculated as
net income adjusted for the financial charges of dilutive instruments, net of
their effect on taxation and employee profit sharing.
SHARE BASED COMPENSATION
Shares issued upon exercise of subscription options granted to employees are
reflected as a share capital increase on the exercise date at the exercise price
of the option.
Treasury shares acquired by the Group in connection with purchase options
granted to employees are presented within "Marketable securities". An allowance
is recorded, whenever their cost is higher than the exercise price of the
options.
Social charges relating to the share option plans are provided for when it is
probable that the options will be exercised.
3. SEGMENT REPORTING
The main changes in the Group consolidation scope, which occurred in 2002 and
2001 are presented in note 26.
The Group operates within the mobile telecommunication sector in three segments
identified as follows:
- The segment "France" includes mobile telephony within mainland
France, the French West Indies and La Reunion as both operator and service
provider.
- The segment "United Kingdom" includes mobile telephony within the
United Kingdom. In the consolidated income statements, all amounts in pounds
sterling were converted into euro at the average rates of euro 1.5909, euro
1.6084 and euro 1.6413 per pound sterling for the year ended 31 December 2002,
2001 and 2000, respectively. All pound sterling denominated balance sheet
amounts were converted into euro at the applicable period end rates. The change
in the sterling to euro translation rate during the year ended 31 December 2002
resulted in a significant decrease in all pound sterling denominated balance
sheet amounts (see Note 17).
- The segment "Rest of world" includes mobile telephony in all the
other European and International subsidiaries.
The Group shared functions include all the activities related to the development
of wirefree multimedia services conducted through Orange World and Group
overheads and other common expenses.
The main operating indicators by segment for the periods presented are as
follows:
Year ended 31 Year ended 31
(in millions of euro, except number December December
of employees) 2002 2001 2000
Pro forma
(unaudited)
France
Turnover 7,651 6,876 5,690
Operating income before depreciation 3,548 3,105 2,564
and amortisation and before SAC's
SAC's (686) (920) (1,035)
Operating income before depreciation 2,862 2,185 1,529
and amortisation
Depreciation and amortisation (1) (666) (561) (501)
Operating income 2,196 1,624 1,028
Total plant, property and equipment 3,691 3,569 2,692
and intangible assets (2)
Average number of 7,833 6,971 6,077
employees (3)
United Kingdom
Turnover 5,961 5,337 4,211
Operating income before depreciation 2,383 1,976 1,553
and amortisation and before SAC's
SAC's (582) (699) (794)
Operating income before depreciation 1,801 1,277 759
and amortisation
Depreciation and amortisation (1) (803) (665) (433)
Operating income 998 612 326
Total plant, property and equipment 10,006 10,330 9,501
and intangible assets (2)
Average number of 11,437 12,734 10,132
employees (3)
Rest of world
Turnover 3,657 2,941 2,193
Operating income/(loss) before 880 57 (426)
depreciation and amortisation
Depreciation and amortisation(1) (882) (618) (446)
Operating loss (2) (561) (872)
Equity in net loss of affiliates(1) (385) (601) (400)
Total plant, property and equipment 7,726 8,535 7,366
and intangible assets (2)
Investments accounted for under the 1,956 4,895 8,583
equity method (2)
Average number of 10,722 9,761 7,709
employees (3)
Group shared functions
Turnover - - -
Operating loss before depreciation (397) (231) (97)
and amortisation (4)
Depreciation and amortisation(1) (13) (4) (2)
Operating loss (410) (235) (99)
Equity in net loss of affiliates(1) - (3) -
Total plant, property and equipment 85 41 270
and intangible assets (2)
Investments accounted for under the - 2 8
equity method (2)
Average number of 884 504 364
employees (3)
Year ended Year ended
31 December 31 December
(in millions of euro, except number
of employees)
2002 2001 2000
Pro forma
(unaudited)
Reconciling Item
Turnover - Inter-segment (184) (67) (35)
elimination
Total Group
Turnover 17,085 15,087 12,059
Operating income before 5,146 3,288 1,765
depreciation and amortisation
Depreciation and amortisation (1) (2,364) (1,848) (1,382)
Operating income 2,782 1,440 383
Equity in net loss of affiliates(1) (385) (604) (400)
Total of plant, property and 21,508 22,475 19,829
equipment and intangible assets (2)
Investments accounted for under the 1,956 4,897 8,591
equity method (3)
Average number of employees(3) 30,876 29,970 24,282
(1) Excluding goodwill amortisation.
(2) Including goodwill.
(3) Average full time equivalents.
(4) The operating loss before depreciation and amortisation of the Group shared
functions includes the contribution of Orange World amounting to euro (89)
million, euro (41) million and euro (11) million in 2002, 2001 and 2000
respectively and also management fees from France Telecom amounting to euro 41
million in 2002 (compared to nil in 2001 and 2000).
MobiNil for Telecommunications ("MobiNil") was proportionally consolidated as of
1 July 2002 and generated revenue of euro 246 million, operating income before
depreciation and amortisation of euro 142 million and an operating income of
euro 90 million over the last 6 months of 2002.
4. PERSONNEL COSTS
Year ended Year ended
31 December 31 December
(in millions of euro, 2002 2001 2000
except employee numbers)
Pro forma
(unaudited)
Average number of 30,876 29,970 24,282
employees (1)
Personnel costs:
Wages and salaries 1,279 1,177 824
Social charges and other 281 232 175
pension related charges
Total 1,560 1,409 999
(1) Average full time equivalents.
Profit sharing in France
In addition, personnel costs include employee profit-sharing expenses of the
French operating entities totaling euro 44 million in 2002, compared to euro 33
million in 2001 and euro 19 million in 2000 (on a pro forma basis).
Civil servants in France
Civil servants employed by France Telecom and performing functions for Orange
France pursuant to contracts or outsourcing arrangements between France Telecom
and Orange France are included in the Group's average number of employees: they
represented 549 average full time equivalents at 31 December 2002, compared to
707 at 31 December 2001 and 984 at 31 December 2000. The related costs incurred
by Orange France (primarily arising from the recharge by France Telecom of
salaries and social charges) are reflected in the reported personnel costs: they
amounted to euro 26 million in 2002, compared to euro 32 million in 2001 and
euro 20 million in 2000 (on a pro forma basis).
Retirement indemnities
In France, the net present value of future payments in relation to the
obligation to pay a lump sum indemnity to employees upon retirement (see Note 2)
reflected in the Group's consolidated financial statements was inferior to euro
1 million at 31 December 2002 and 2001, due to the age profile of the employees
and high turnover rates.
In the United Kingdom, contributions under defined contribution pension schemes
(see Note 2) amounted to euro 22 million in 2002, compared to euro 19 million in
2001 and euro 13 million in 2000 (on a pro forma basis).
Incentive plans
As part of the formation of the Group, various incentive plans, such as share
option schemes, have been put in place for the employees and management of the
Group (see Note 18).
5. OTHER NON-OPERATING EXPENSES, NET
- In 2002, other non-operating expenses, net primarily include losses
on disposal of securitised receivables amounting to euro 12 million (see Note
19).
6. INCOME TAXES
The income tax charge is analysed as follows:
Year Year
ended ended
31 December 31 December
(in millions of euro) 2002 2001 2000
Pro forma
(unaudited)
Current income taxes (640) (610) (418)
before exceptional items
Deferred income taxes (171) (74) (41)
before exceptional items
Income taxes before (811) (684) (459)
exceptional items
Deferred income taxes 67 - -
on exceptional items
Total (744) (684) (459)
Including:
France (532) (596) (414)
United Kingdom (238) (39) (18)
Other tax jurisdictions 26 (49) (27)
At 31 December 2002, given the foreseeable taxable results of Mobistar S.A. for
the following years, a net deferred tax asset of euro 95 million was recognised
with respect to this company's tax losses carried forward.
The Company has filed a consolidated tax return for all French subsidiaries in
which it holds 95% or more of the share capital as of 1 January 2002.
The reconciliation between the income tax expense computed at the French
statutory tax rate and the effective income tax expense is as follows:
Year Year
ended ended
31 December 31 December
(in millions of euro) 2002 2001 2000
Pro forma
(unaudited)
Income tax calculated at the enacted (677) (140) 154
tax rate (1)
Impact of equity in net losses from (136) (220) (151)
affiliates
Impact of unused tax losses carried 27 (378) (340)
forward and other temporary
differences (2)
Impact of non French tax rates, (25) 54 (122)
permanent differences and changes in
income tax rate
Effective income tax (811) (684) (459)
(1) Enacted income tax rate was 35.43% at 31 December 2002 (36.43% at 31
December 2001 and 37.76% at 31 December 2000), applied to the (income)/loss
before tax, goodwill amortisation, minority interests and exceptional items, net
of tax.
(2) Relates to start up operations in respect of which deferred tax assets are
fully provided for (refer to Note 2). In 2002, this line also includes the
impact arising from the first recognition of a deferred tax asset with respect
to the tax losses carried forward of Mobistar S.A. (see above).
The analysis of deferred tax assets net of deferred tax liabilities and
valuation allowance, by nature of temporary differences, is as follows:
At 31 December
(in millions of euro) 2002 2001
Losses carried forward 1,215 1,412
Tax accelerated depreciation (77) (54)
Other deferred tax assets/(liabilities) 170 214
Valuation allowance (1,048) (1,096)
Deferred tax assets, net 260 476
Including:
France 64 32
United Kingdom 139 477
Other tax jurisdictions 57 (33)
The analysis of deferred tax assets and liabilities by maturity is as follows:
At 31 December
(in millions of euro) 2002 2001
Deferred tax assets
Current portion 314 92
Long-term portion 65 476
Total deferred tax assets 379 568
Deferred tax liabilities
Current portion 10 53
Long-term portion 109 39
Total deferred tax liabilities 119 92
The long-term deferred tax assets mainly relate to OPCS and Mobistar S.A. at 31
December 2002, of which euro 38 million relate to Mobistar S.A. and are expected
to be utilised within a period of 3 years. The decrease in long-term deferred
tax assets compared to 31 December 2001 mainly relates to the partial
reclassification of OPCS's deferred tax assets from long-term to current
portion, partially offset by the reversal of the valuation allowance in respect
of the long-term deferred tax assets of Mobistar S.A.
7. EXCEPTIONAL ITEMS, NET OF TAX
In 2002, exceptional items, net of tax totalling a negative euro 5,169 million
were recorded. They comprise the following elements:
- Impairment charges and other related charges amounting to euro 4,730
million recorded in relation to the following assets held by the Group:
* Wind for euro 3,038 million, of which euro 2,772 million were
recorded against the Group's "investments accounted for under the equity method"
and euro 266 million under the heading "accrued expenses and other current
liabilities" (see Note 10),
* Dutchtone for a total euro 1,324 million, of which euro 213 million
were recorded against this company's UMTS licence and euro 1,111 million against
the Group's goodwill (see Note 8),
* Orange Romania for euro 69 million recorded against the Group's
goodwill (see Note 8),
* The Group's non consolidated investments in Connect Austria,
Optimus, BPL and Orange World's ventures for a total euro 191 million (see Note
11),
* Orange Cote d'Ivoire for a total euro 108 million, of which euro 22
million were recorded against the Group's goodwill (see Note 8) and euro 86
million against this company's intangible and tangible assets.
- Exceptional costs arising from discontinued activities and projects
and other charges amounting to a total euro 506 million, before a tax credit of
euro 67 million (see Note 6). They mainly comprise the following:
* Exceptional costs arising from the decision announced by the Group
in December 2002 to withdraw from the Swedish market in direct response to the
pressures placed upon it by the UMTS licence requirements and current market
conditions. In line with this decision, the Group significantly reduced the size
of its operation with a redundancy program affecting its 234 staff. The total
costs arising from the decision to discontinue the Group's activities in Sweden
amount to euro 252 million before tax and comprise redundancy and closure costs,
write-off of fixed assets and provisions relating to the Group's existing
commitments in Sweden.
* Exceptional costs arising from the decision taken by the Group in
December 2002 to improve its financial performance by placing stronger focus on
generating cash, through savings in capital expenditure and significant
reduction in costs and overheads over the next three years. These total costs
amount to euro 254 million before tax as at 31 December 2002 and comprise
redundancy costs, costs incurred in connection with discontinued projects (e.g.
write-off of fixed assets, penalties and other exit costs...).
In 2001, the exceptional items, net of tax included impairment charges totalling
euro 3,635 million of which euro 3,428 million related to MobilCom (see Note 10)
and euro 207 million to Ananova and Wildfire Communications (see Note 8).
8. INTANGIBLE ASSETS
At 31 December At 31 December
2002 2001
(in millions of euro) Cost Amortisation Net book Net book
value value
UMTS licences 7,681 (213) 7,468 8,078
Goodwill 4,492 (1,965) 2,527 3,804
Licences, patents and 1,026 (393) 633 550
access rights
Subscriber 196 - 196 193
relationship
Other intangibles 103 (59) 44 82
Total 13,498 (2,630) 10,868 12,707
Acquisitions of intangible assets (excluding UMTS licences) amounted to euro 71
million in 2002 (compared to euro 78 million in 2001).
Amortisation of intangible assets, excluding goodwill, amounted to euro 91
million in 2002, compared to euro 90 million in 2001 and euro 77 million in 2000
(on a pro forma basis).
UMTS licences
UMTS licences can be detailed as follows at 31 December
2002:
Date of award Local Value in Euro equivalent
currency local
(in millions currency
of euro)
OPCS September 2000 GBP 4,095 6,298
Dutchtone N.V. July 2000 EUR 223 223
Orange December 2000 CHF 55 38
Communications S.A.
Mobistar S.A. March 2001 EUR 150 150
Orange August 2001 EUR 619 619
France S.A.
Orange A/S September DKK 779 105
2001
Orange Slovensko, July 2002 SKK 1,499 35
a.s.
Total 7,468
In June 2002, the Group was awarded one of the four UMTS licences offered by the
government of Luxembourg for a fixed term of 15 years. The Group has paid an
initial application fee of euro 60,000 and will pay a small spectrum management
fee along with an annual licence fee of 0.2% of UMTS turnover or a minimum of
euro 200,000.
In June 2002, Orange Slovensko, a.s. was awarded a UMTS licence offered by the
government of Slovakia for a fixed term of 20 years. The Group has paid an
initial fee of SKK 1,499 million in 2002 and will pay an annual licence fee of
0.08% of the turnover generated through the licence.
As described in Note 2, UMTS licences will be amortised as from the date of
commercialisation of services.
In December 2002, the management of the Group announced its decision to review
the launch plans of the 3rd generation technology ("3G") and adopt a more
prudent timetable. The management of the Group remains fully committed to 3G and
intends to develop and exploit the potential of 3G type services on enhanced 2nd
generation networks in order to improve the customer experience and offer a
transition to the commercial launch of 3G, until all issues surrounding 3G
technology have been resolved.
The management of the Group considers that the 2nd ("2G") and 3rd generation
technologies are closely interrelated both from a technical and commercial
perspective:
* The acquisition of UMTS licences provided the Group with enlarged
frequency spectrum for the development of both voice and non-voice services,
* The planning and roll out of the UMTS network is viewed as an
enhancement and extension of the existing GSM network and the overall coverage
strategy relies on the convergence of 2G and 3G technologies,
* Future 3G services will be offered to the Group's existing 2G
customers in order to improve customer loyalty and increase usage and average
revenue per user, through enhanced voice and non-voice services. Many future 3G
services will be derived from 3G type services already offered to customers on
2nd generation networks.
Consequent to this decision and considering the close interrelation between 2G
and 3G technologies as described above, the management of the Group conducted a
specific impairment review in the United Kingdom by comparing:
* The combined carrying value of its 2nd and 3rd generation
long-lived assets (including the UMTS licence and other tangible and intangible
assets), with,
* The future cash flows determined based on the Group's most recent
business plan and representing the economic benefits which are expected to arise
from the continuing use of the Group's long-lived assets in the United Kingdom
over the remaining useful life of the UMTS licence. A discount rate of 9% was
applied to these future cash flows.
Based on this analysis, no impairment was recorded at 31 December 2002.
At 31 December 2002, an exceptional impairment charge of euro 213 million was
recorded against the carrying value of the UMTS licence held by Dutchtone N.V.
in The Netherlands (see below).
Goodwill
The table below presents the net book value of goodwill of fully and
proportionally consolidated companies:
Net book value
(in millions of euro) At 31 December
2002 2001 2000
Orange Communications S.A. 1,497 1,534 1,453
Dutchtone N.V. - 1,173 1,147
Orange Romania S.A. 435 626 635
Orange Slovensko, a.s. 303 310 318
Ananova Ltd - - 137
Wildfire Communications, Inc - - 127
MobilNil Telecommunications 180 - -
Other 112 161 145
Total (net) 2,527 3,804 3,962
In 2002, the Group acquired a 71.25% shareholding in the Egyptian operation
MobilNil.
In 2001, the Group acquired additional shareholdings in Orange Communications
S.A (14.75%) and Dutchtone (8%).
Goodwill is amortised over a period ranging from 5 to 20 years depending on the
specific nature of the business acquired and on the strategic value of each
acquisition. In the consolidated income statements, amortisation of goodwill -
relating to fully consolidated companies - amounted to euro 205 million in 2002,
compared to euro 255 million in 2001 and euro 245 million in 2000 (on a pro
forma basis).
As described in Note 2, the fair value of goodwill was reassessed on a country
by country basis at the closing date.
The 10-year plan prepared by the management of the Group for Dutchtone N.V.
reflects the highly competitive environment prevailing in The Netherlands, a
five player market where Dutchtone N.V. only has a market share of 8.6% to date.
Given that context, uncertainties regarding the Group's capability to become a
major player in The Netherlands have been factored in the Group's future cash
flow assumptions.
Consequently, an exceptional impairment charge of euro 1,324 million was
recorded in relation to Dutchtone N.V. for the year ended 31 December 2002, of
which euro 1,111 million was allocated to the Group's goodwill and euro 213
million to the UMTS licence held by this company (see Note 7).
Additionally, impairment charges totalling euro 69 million and euro 22 million
respectively were recorded in relation to goodwill on Orange Romania S.A. and
Orange Cote d'Ivoire (see Note 7).
At 31 December 2002, the following perpetuity growth rates and discount rates
were applied to the expected cash flows of the Group's operations in
Switzerland, The Netherlands, Romania and Slovakia, representing management's
best estimate of the set of economic assumptions that will exist over future
years:
Perpetuity growth Discount rate
rate
Orange Communications S.A. 3.0% 8.9%
Dutchtone N.V. 3.0% 9.0%
Orange Romania S.A. 3.0% 15.6%
Orange Slovensko, a.s. 3.0% 13.7%
The sensitivity of the Group's share in the estimated fair value of those
operations at 31 December 2002 to an uncontrolled change of 1 point in the
perpetuity growth rate or in the discount rate compared to the assumptions
highlighted above is as follows:
Impact of a 1 point change
in the assumptions used
decrease/increase
(in billions of euros) Excess of Perpetuity Discount
estimated fair growth rate
value on rate
carrying value
Orange Communications 0.19 (0.30)/0.42 0.68/(0.48)
S.A.
Dutchtone N.V. - (1) (0.10)/0.15 0.24/(0.17)
Orange Romania S.A. - (1) (0.02)/0.02 0.06 /(0.06)
Orange Slovensko, a.s. - (0.02)/0.02 0.06/(0.05)
(1) Based on the carrying value net of impairment charge at 31 December 2002.
In 2001, goodwill arising from the acquisition of Ananova and Wildfire
Communications and totaling euro 207 million as at 31 December 2001 was written
down to zero at that date. This write-down of euro 207 million was reflected in
the line "Exceptional impairment charge" in the 2001 income statement (see Note
7).
Purchase Price Allocation Exercise
In 2001, a purchase price allocation exercise was conducted for Orange
Communications S.A. and Dutchtone N.V. in accordance with paragraph 211 of rule
99-02. It resulted in the purchase price (euro 1,468 million for a 57.25%
shareholding in Orange Communications S.A. and euro 903 million for a 100%
shareholding in Dutchtone N.V.) being allocated to the fair value of subscriber
relationship (net book value of euro 179 million for Orange Communications S.A.
and euro 17 million for Dutchtone N.V. at 31 December 2002, compared to euro 176
million and euro 17 million respectively at 31 December 2001) and of GSM licence
(net book value of euro 18 million for Orange Communications S.A. at 31 December
2002 compared to euro 19 million at 31 December 2001).
9. PROPERTY, PLANT AND EQUIPMENT
At 31 December
2002 2001
Cost Acc Net book Net book
(in millions of euro) Deprec. value Value
Land and buildings 3,830 (1,379) 2,451 2,635
Network equipment 10,953 (4,658) 6,295 5,505
Computer and terminal 2,873 (1,447) 1,426 1,151
equipment (excluding network)
Other 923 (455) 468 477
Total 18,579 (7,939) 10,640 9,768
Changes in the net book value of property, plant and equipment are as follows:
(in millions of euro) 2002 2001
Balance at beginning of period 9,768 8,216
Acquisitions of property, plant and equipment 3,290 3,278
Effect of acquisitions and divestitures 435 (18)
Depreciation expense (2,273) (1,758)
Translation adjustment (357) 131
Other movements (1) (223) (81)
Balance at end of period 10,640 9,768
(1) Including write-off of fixed assets amounting to euro 208 million at
31 December 2002 reflected in "Exceptional items, net of tax".
In 2002, the effect of acquisitions and divestitures mainly arises from the
acquisition of MobiNil by the Group.
Land and buildings included euro 2,203 million of network infrastructure at 31
December 2002, compared to euro 2,155 million at 31 December 2001.
Interest charges capitalised under the value of property, plant and equipment
amounted to euro 98 million at 31 December 2002, compared to euro 51 million at
31 December 2001.
The net book value of assets under capital leases amounted to euro 905 million
at 31 December 2002, compared to euro 1,150 million and euro 886 million at 31
December 2001.
Depreciation of property, plant and equipment amounted to euro 2,273 million in
2002, compared to euro 1,758 million in 2001 and euro 1,305 million in 2000 (on
a pro forma basis).
10. INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD
Investments accounted for under the equity method (including goodwill)
Interest at Net book value
31 December At 31 December
(in millions of euro) 2002 2002 2001 2000
(%)
Wind 26.6 1,596 4,456 4,537
MobilCom 28.3 - - 3,687
BITCO 49.0 360 439 359
Other - 2 8
Total 1,956 4,897 8,591
At 31 December 2002, the net book value of goodwill relating to investments
accounted for using the equity method amounted to euro 818 million for Wind
(compared to euro 1,972 million at 31 December 2001 and euro 4,479 million at 31
December 2000), and euro 255 million for BITCO (compared to euro 310 million at
31 December 2001 and euro 233 million at 31 December 2000).
Changes in investments accounted for under the equity method
(in millions of euro) 2002 2001
Balance at beginning of period 4,897 8,591
Transfer of Wind's shareholder loan from the 236 -
France Telecom group
Capital increase in Wind 48 190
(cash element)
Capital increase in BITCO 69 -
Effect of acquisitions and divestitures - 337
Equity in net loss of affiliates (385) (604)
Goodwill amortisation, before Wind and (90) (301)
MobilCom write-down
MobilCom write-down - (3,428)
Wind write-down (2,772) -
Translation adjustment (51) (3)
Other changes 4 115
Balance at end of period 1,956 4,897
Equity in net loss of affiliates (excluding goodwill amortisation)
Year ended Year ended 31
31 December December
(in millions of euro) 2002 2001 2000
Pro forma
(unaudited)
Wind (305) (365) (337)
MobilCom - (178) (62)
BITCO (80) (58) (1)
Other - (3) -
Total (385) (604) (400)
The equity in net loss of Wind reflects the Group's shareholding of 43.4% until
30 July 2001 and a reduced stake of just below 26.6% as from that date,
resulting from the contribution of Infostrada to Wind (See Note 26).
In the income statement, goodwill is amortised over a period ranging from 5 to
20 years depending on the nature of the business acquired and the strategic
value of each acquisition. Amortisation of goodwill - relating to investments
accounted for under the equity method -amounted to euro 90 million in 2002
compared to euro 301 million in 2001 and euro 367 million in 2000 (on a pro
forma basis).
Wind
ENEL, the Group's co-shareholder in Wind, acquired a 100% shareholding in
Infostrada on 29 March 2001 and contributed it to Wind on 30 July 2001, reducing
the Group's shareholding in Wind from 43.4% to 26.58%.
In June 2002, a euro 236 million Wind shareholder loan was assigned by the
France Telecom group to the Group. Subsequent to the transfer, the Group and
ENEL, partially waived their shareholder loans for a total amount of euro 200
million, of which euro 53 million represent the Group's 26.58% stake in Wind. In
October 2002, the Group participated in a capital increase in Wind amounting to
a total euro 237 million, of which euro 63 million represents the Group's 26.58%
stake. The euro 63 million include a cash element of euro 48 million and euro 15
million arising from the conversion of the Group's shareholder loan into equity.
The net book value of the Wind shareholder loan amounts to euro 172 million at
31 December 2002, after the euro 53 million waiver, the euro 15 million
conversion of loan into equity and taking into account a prior year balance of
euro 4 million and is reflected in the line "Investments accounted for under the
equity method".
As part of the strategic review of the Group's investment portfolio undertaken
at the end of 2002 and in connection with the decision to improve the Group's
financial performance (see Note 7), the Group reassessed the fair value of its
26.58% investment in Wind based on a multi criteria approach. This reassessment
led to a write down of the investment in Wind for an amount of euro 2,772
million, reflected under the heading "Exceptional items, net of tax" in the 2002
income statement (see Note 7). The total euro 2,772 million impairment charge
was allocated between the Group's goodwill on Wind for an amount of euro 1,080
million and the goodwill relating to Infostrada reflected at Wind's level for an
amount of euro 1,692 million, based on an analysis of the respective fair values
of Wind's mobile and fixed line activities. An additional euro 266 million
provision for risk on Wind, reflected in "accrued expenses and other current
liabilities", was recorded under the heading "Exceptional items, net of tax",
bringing the total charge to an amount of euro 3,038 million (see Note 7).
MobilCom
The prospects of the German wirefree market, with two dominant players and four
new entrants, were re-examined by the Group at the end of 2001 and this review
led to the following:
* MobilCom goodwill of euro 2,513 million as at 31 December 2001 was
written-down to zero,
* The remaining cost of the investment (primarily the Group's share
of MobilCom's net assets) of euro 915 million as at 31 December 2001 was fully
depreciated.
The write-down of the investment in MobilCom amounting to euro 3,428 million was
reflected in the line "Exceptional impairment charge" in the 2001 income
statement. The management of the Group considers that this exceptional
impairment charge recorded in 2001 translates implicitly a loss of value of the
UMTS licence compared to its historic cost.
As of 1 January 2002, the Group discontinued including its share of the net
losses of MobilCom and reported this investment at nil value in compliance with
paragraph 292 of rule 99-02, since the Group has not incurred obligations or
made payments on behalf of MobilCom to satisfy obligations of MobilCom that the
Group would have guaranteed or otherwise committed (see Note 22). On 12
September 2002, the representatives of the France Telecom group in MobilCom's
corporate bodies resigned and the investment in MobilCom has been reported as a
non consolidated investment since that date (see Note 11).
BITCO
- In January 2001, the Group entered into a shareholders'agreement with
its partners in BITCO, whereby:
* The Group acquired an additional 15% interest in this company,
increasing its total shareholding from 34% to 49%;
* The parties to the shareholders'agreement are committed to bring
financial, technical and commercial support to BITCO, in accordance with the law
and regulations applicable in Thailand, in order to roll out a mobile
telecommunication network and provide related services under the "Orange" brand
name in Thailand.
The commitments of the Group arising from the shareholders'agreement dated
January 2001 and subsequent financing arrangements in relation to TA Orange
Company Limited dated February 2002 are described in Note 22 (see "off balance
sheet commitments linked to financial investments" and "guarantees and
endorsements").
- In October 2002, the Group participated in a capital increase in
BITCO amounting to a total euro 141 million, of which euro 69 million represents
the Group's 49% stake.
11. NON CONSOLIDATED INVESTMENTS
At 31
December
2002 2001
(in Country Int.
millions
of euro) %
Connect Austria 220 112
Austria 17.45
Optimus Portugal 20.2 143 122
BPL India 26.0 47 47
HTG Germany 100.0 6 6
MobilCom Germany 28.3 - -
Other 79 64
Total non consolidated 495 351
investments, gross
Provision (196) (7)
Total non consolidated
investments, net 299 344
- As a consequence of the Group being confirmed as a valid shareholder
of Connect Austria by the ICC International Court of Arbitration on 4 July 2001,
without any limitation to its rights as a 17.45% stake shareholder, a
rebalancing of shareholder loans with the other Connect Austria shareholders was
completed by the Group in July 2002. It resulted in an additional shareholder
loan of euro 99 million granted by the Group to Connect Austria, which
represents the funding on a pro-rata basis as if the Group had been an active
shareholder of that company during the litigation. Additional shareholders loans
amounting to euro 9 million were granted by the Group to Connect Austria during
2002.
- In 2002 and 2001, the Group participated in capital increases in
Optimus.
- It is the current expectation that the Group's interest in Hutchison
Telecom GmbH ("HTG") will be disposed of and it has been accounted for as "non
consolidated investment". It is reflected at its equity method carrying value
as at 29 December 2000 (the date it was transferred to the Company) in
compliance with paragraph 215 of Rule 99-02.
- As of 12 September 2002, the investment in MobilCom has been reported
as a non consolidated investment (see Note 10).
- As part of the strategic review of the Group's investment portfolio
undertaken at the end of 2002, in connection with the decision to improve the
Group's financial performance (see Note 7), the Group reassessed the fair value
of its non consolidated investments based on a multi criteria approach (see Note
2) at 31 December 2002. Consequently, exceptional impairment charges totaling
euro 191 million were recorded against the Group's non consolidated investments
in Connect Austria, Optimus, BPL and Orange World's ventures (see Note 7).
12. BORROWINGS NET OF AVAILABLE CASH
Borrowings net of available cash can be detailed as follows:
(in millions of euro) 31 December
2002 2001
Long- term borrowings, 2,733 3,900
less current portion
Current portion of long-term borrowings 853 616
Short- term borrowings and bank overdrafts 3,116 2,440
Other liabilities (1) - 12
Cash and cash equivalents (828) (754)
Marketable securities (4) -
Total 5,870 6,214
(1) Other liabilities of euro 12 million were included in "accrued
expenses and other current liabilities" in the balance sheet as at 31 December
2001.
LONG-TERM BORROWINGS
The table below presents an analysis of the Group's long-term borrowings by
type, after the effects of currency swaps:
31 December
(in millions of euro)
2002 2001
Bonds 1,140 1,164
Bank loans 2,333 3,259
Other non bank loans and capital leases 113 93
Total long-term borrowings 3,586 4,516
Including current portion 853 616
Including long-term portion 2,733 3,900
The maturity of outstanding long-term borrowings at 31 December 2002 is as
follows:
December 2003 853
December 2004 879
December 2005 518
December 2006 327
December 2007 90
2008 and 919
thereafter
Total 3,586
The table below presents details of bonds not matured as at 31 December 2002:
(in Amount in Interest Euro at Euro at
millions) currency of Maturity rate (%) 31 December 31 December
denomination 2002 2001
Currency
USD 197 2006 8.75 188 224
EGP 340 2007 12.25 51 -
GBP 197 2008 8.63 303 324
USD 18 2008 8.00 18 21
EUR 94 2008 7.63 94 94
GBP 150 2009 8.88 231 247
USD 263 2009 9.00 251 298
Impact of interest or currency rate swaps 4 (44)
Total bonds 1,140 1,164
Orange plc's senior notes are redeemable on maturity and the Group has not
granted any specific guarantee to the bondholders. However, some of the notes
are subject to early repayment clauses, which can be exercised only by Orange
plc as the issuer.
The table below presents an analysis of long-term borrowings by interest rate,
after taking into account the impact of interest rate and currency swaps:
(in millions of euro) At 31 December
2002 2001
Less than 5% - 26
Between 5 and 7 % 1,688 65
Between 7 and 10 % 949 2,743
More than 10 % 61 15
Total fixed rate 2,698 2,849
Total variable rate 775 1,606
Other non bank loans and capital leases 113 61
Total long-term borrowings 3,586 4,516
The weighted average fixed interest rate amounted to 7.4% at 31 December 2002
(compared to 7.4% at 31 December 2001). The weighted average variable rate
interest amounted to 6.5% at 31 December 2002 (compared to 5.4% at 31 December
2001).
The analysis of long-term borrowings by currency after taking into account the
impact of currency swaps is as follows:
At 31 December
(in millions of euro) 2002 2001
British pound 2,576 3,709
Euro 359 460
US dollar 250 221
Other currencies 288 65
Other non bank loans and capital leases 113 61
Total long-term borrowings 3,586 4,516
Debt instruments may in some cases be initially contracted in foreign
currencies. Subsequently, they are generally converted into the currencies of
the countries where subsidiaries are operating through the use of cross currency
swap agreements in order to reduce the Group's exposure to foreign exchange
risk. The exposure of the Group to foreign exchange risk on non hedged foreign
currency borrowings is highlighted in Note 14.
At 31 December 2002, the Group held currency swaps converting US$ 478 million
and euro 94 million into GBP 358 million, with maturities between 2006 and 2009.
SHORT-TERM BORROWINGS
The table below presents an analysis of the Group's short-term borrowings by
type, after the effects of currency swaps:
At 31 December
(in millions of euro) 2002 2001
France Telecom current account 2,760 2,159
Bank loans 9 26
Other loans 27 71
Bank overdrafts 320 184
Total short-term borrowings 3,116 2,440
Current accounts with France Telecom generally bear interest at rates linked to
market interest rates of the countries where subsidiaries are operating.
The analysis of short-term borrowings by currency after taking into account the
impact of currency swaps is as follows:
At 31 December
(in millions of euro) 2002 2001
British pound 113 108
Euro 2,806 1,526
US dollar 134 100
Other currencies 63 706
Total short-term borrowings 3,116 2,440
CREDIT FACILITIES
At 31 December 2002, the Group had the following credit facilities:
(in millions of Currency of Amounts in Euro equivalent Used portion
euro) denomination local at 31 December at 31
currency 2002 December
2002
Bilateral credit lines
Short-term EUR 350 350 299
MC(1) 4,000 4,000 2,512
SKK 900 22 16
XAF 6,000 10 9
Long-term USD 259 250 250
BWP 140 24 12
XAF 41,000 63 54
EGP 739 156 155
EUR 10 10 10
Syndicated credit lines
Long-term GBP 1,215 1,869 1,438
EUR 389 389 365
Total - 7,143 5,120
(1) Multi currency facility, denominated in euro equivalent.
At 31 December 2001, credit facilities totalling euro 10,828 million, of which
the used portion represented euro 5,500 million, had been granted to the Group.
The reduction of euro 3,685 million in the total credit facilities granted to
the Group mainly relates to the change in the terms of the France Telecom credit
facility (see below).
The above table includes the credit facilities granted to the Group by France
Telecom, which total euro 4,300 million, of which euro 2,760 million represent
the used portion, at 31 December 2002. The euro 6,800 million facility granted
to the Company by France Telecom matured in July 2002 and was replaced by a new
12-month euro 4,000 million facility, which is expected to cover the Group's
targeted financing needs until the end of July 2003. It is foreseen that the
France Telecom facilities will be renewed for a further period of not less than
12 months as of July 2003.
COVENANTS
Those financing arrangements are subject to standard covenants, which in the
event of default or unfavorable change, might lead to the early repayment by the
Group of the amounts oustanding under the facilities. The main financial
covenants the Group is subjected to, in relation with the bonds and the
facilities presented in the table above, are as follows:
- Under the terms of the Orange Holdings (UK) Limited syndicated bank
facility (euro 1,869 million), the following ratios must be met:
* Consolidated debt to consolidated annualised EBITDA (2) must not
exceed 3.5;
* Consolidated annualised EBITDA (2) to annualised interest expense
must not be below 3.0;
* Consolidated annualised EBITDA (2) to consolidated debt service
must not fall below 1.5.
These ratios must be tested at Orange Holdings (UK) Limited's consolidated level
semi-annually until the maturity date of the facility, i.e. in 2005.
- Under the terms of the Orange plc's bonds , the Orange plc group is
restricted from incurring indebtedness beyond a multiple of 7 times its
consolidated cash flow (1).
- Under the terms of the Mobistar S.A.'s syndicated bank facility (euro
284 million), the following ratios must be met at Mobistar S.A.'s consolidated
level:
* The ratio of available cash (1) to total debt service must not be
below 1.1;
* The consolidated cash flow multiple (1) must not be below:
- 4.0 for the four quarters ending between 31 December 2002 and 30
September 2003;
- 3.0 for the four quarters ending between 31 December 2003 and 30
September 2004;
- 2.0 from the quarter ending 31 December 2004 until the maturity
date of the facility, i.e. in 2006.
- Under the terms of the Orange Romania S.A.'s bank facility (euro 135
million), the available cash flow (1) to debt service must be below 1.25 until
the maturity date of the facility, i.e. in 2005.
- Under the terms of the ECMS's international and domestic bank
facilities (euro 115 million and euro 156 million respectively), the following
ratios must be met at ECMS's consolidated level:
* Senior debt to annualised EBITDA (2) must not exceed 2.0;
* Available cash flow (1) to total debt service must not be below 1.2.
These ratios are calculated semi-annually and apply until the maturity date of
the international and domestic bank facilities, i.e. in 2005 and 2006
respectively.
(1) As per the definitions agreed with the lenders.
(2) Operating income/(loss) before depreciation and amortisation under the
definitions agreed with the lenders.
These ratios were met at 31 December 2002.
13. UMTS VENDOR FINANCING
Early in 2002, two vendor financing contracts with a total facility amount of
euro 860 million were signed in relation to the supply of 3G equipment to Orange
France.
At 31 December 2002, euro 531 million had been drawn down under the following
UMTS vendor financing facilities (compared to euro 234 million at 31 December
2001):
Currency Maturity Amounts in local Euro equivalent Used portion at
and at 31 December 31 December 2002
legacy currency 2002
MC (1) December 2003 270 270 244
EUR May 2004 215 215 -
EUR June 2004 690 690 287
GBP May 2004 3 5 -
Total - 1,180 531
(1) Multi currency facility denominated in euro equivalent.
The weighted average interest rate for those facilities amounted to 3.6% at 31
December 2002 (compared to 4.0% at 31 December 2001).
Vendor financing facilities are subject to early repayment in the event that the
related supply contract is terminated for reason other than default of the
vendor.
14. FINANCIAL INSTRUMENTS
Through its operations, the Group is exposed to price risks with relation to
investment of surplus cash and debt financing.
MANAGEMENT OF RISK OF LONG-TERM DEBT RATES
As part of its financing policy, the Group enters into long-term borrowings from
credit institutions. These borrowings are generally contracted at a variable
interest rate. In order to reduce the cost of borrowings, interest rate swaps
and interest rate options are used within limits fixed by management.
NOTIONAL AMOUNTS OF DERIVATIVE FINANCIAL INSTRUMENTS
The contract or notional amounts presented below do not represent amounts
payable or receivable and as such do not represent the risk to the Group of
using derivative financial instruments:
At 31 December
(in millions of euro) 2002 2001
Interest rate swaps 4,534 5,167
Interest rate caps 583 1,166
Currency swap 555 594
Forward exchange contracts(1) 1,201 106
(1) Includes gross value of buy and sell contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
With regard to cash, customer receivables, bank overdrafts and other short-term
borrowings as well as trade payables, the Group considers that the balance sheet
value is the most representative of their fair value in view of the high degree
of liquidity of these items.
The fair value of long-term borrowings has been estimated based on the
discounted value of future cash flows for non quoted instruments using the
interest rates obtained by the Group for instruments with similar conditions and
maturities.
The table below presents the fair value of financial instruments:
At 31 December
2002 2001
Carrying Fair value Carrying Fair value
(in millions of euros) value value
Balance Sheet financial
instruments
Assets
Cash and cash equivalents 828 828 754 754
Trade accounts receivable 2,332 2,332 2,909 2,909
Non consolidated investments 299 299 344 344
Liabilities
Bank overdrafts and other 3,116 3,116 2,440 2,440
short-term borrowings
Trade accounts payable 4,476 4,476 4,391 4,391
Long-term borrowings 3,586 3,630 4,516 4,630
including current portion (1)
Off Balance Sheet financial
instruments
Unrealised gain (loss) on - (119) - (17)
interest rate derivative
instruments
Unrealized gain (loss) on - 40 - 33
forward foreign exchange
contracts
(1) Net of currency swaps
EXPOSURE TO CHANGES IN INTEREST AND FOREIGN EXCHANGE RATES
An immediate rise of 1% in short term interest rates would result in an increase
in interest expenses before tax of euro 4 million for the year, assuming that
the Group's total borrowings net of available cash remain constant at euro 5.9
billion (see Note 12).
The Group currently operates in certain countries, i.e. Slovakia, Romania, Egypt
and the Dominican Republic, where its subsidiaries have contracted debt
instruments denominated in currencies, which are not the functional currency of
the country. The impact for the Group of an immediate decrease of 10% of the SKK
against the euro and of the EGP, ROL and DOP against the USD would be a foreign
exchange loss of euro 47 million before tax.
15. OTHER LONG-TERM LIABILITIES
The analysis of other long-term liabilities is as follows:
At 31 December
(in millions of euro) 2002 2001
Deferred income 142 160
Provisions for liabilities and charges (see 143 24
Note 19)
Deferred tax liability (see Note 6) 109 39
Other 78 61
Total 472 284
Deferred income relates to the net credits arising from the in-substance early
extinguishments of drawdowns under OPCS's defeased leases. As part of its lease
agreements concluded in 1995 and 1997, OPCS has deposited amounts equal to the
net present value of its rental obligations with UK financial institutions to
secure letters of credit issued by these institutions to the lessors in
connection with OPCS's rental obligations. These funds, which totalled euro
1,157 million at 31 December 2002 (compared to euro 1,247 million at 31 December
2001) together with the interest earned thereon, will be used to settle OPCS's
rental obligations under the leases. This in-substance early extinguishment of
each drawdown under the finance leases resulted in the offset of the deposit
amount and the capital lease obligation, and a net credit that has been
reflected in the consolidated balance sheet as deferred income that will be
amortised to the consolidated income statement over the lease term on a
straight-line basis. This includes a provision, based on management's assessment
of likely outcomes, for possible future costs arising from variations in
interest rates or tax rates.
The increase in long term provisions for liabilities and charges mainly arises
from the Group's decision to improve its financial performance (see Notes 7 and
19).
16. MINORITY INTERESTS
Changes in minority interests are as follows:
(in millions of euro) 2002 2001
Balance at beginning of period 142 (58)
Result for the year 171 32
Issuance of share capital to minority interest 4 8
Dividend paid to minority interest (9) -
Effect of acquisitions and divestitures 119 143
Translation adjustment (25) 5
Other movements 9 12
Balance at end of period 411 142
Minority interests mainly relate to Egyptian Company for Mobile Services
("ECMS"), Mobistar S.A., Orange Romania S.A. and Orange Slovensko, a.s. as at 31
December 2002.
In 2002, the effect of acquisitions and divestitures mainly arises from the
acquisition of MobiNil by the Group.
17. SHAREHOLDERS' EQUITY
In December 2002, the Company issued 3,350 shares for euro 1 nominal value each
(euro 6.4 for 3,000 shares and euro 6.9 for 350 shares, including premium) which
were subscribed by share option holders. In 2002, other changes in
shareholders'equity relate to miscellaneous adjustments, which have been
reflected through equity in accordance with paragraph 215 of rule 99-02. The
negative translation adjustment of euro 594 million for the year ended 31
December 2002 mainly arises from the change in the sterling to euro translation
rate over the period.
In 2001, the Company issued 12,615,880 new shares for euro 1 nominal value each
(euro 7.6 including premium), reserved for participants to the Orange France
savings plan ("Plan d'Epargne Groupe Orange France"). The Company also issued
31,192 shares for euro 1 nominal value each (euro 10 including premium) that
were subscribed by share option holders in December 2001.
In 2001, the other changes in shareholders' equity related to:
* capital gains (euro 331 million) arising from the disposal of the
investment in KPNO (see Note 21) and other assets.
* a dilution effect (euro 152 million) arising from the contribution
of Infostrada to Wind as at 30 July 2001, reducing the Group's shareholding in
Wind from 43.4% to just below 26.6% (see Note 26),
which were reflected through equity, in accordance with paragraph 215 of rule
99-02. Other changes in 2001 also included re-evaluation of assets and other
adjustments (euro 97 million) mainly arising from the purchase price allocation
exercise performed for Orange Communications S.A. (see Note 8).
18. SHARE BASED COMPENSATION
The following share option and share ownership plans, which received the
approval of the Board of Directors of the Company, were in existence in 2001 and
2002:
Share Option Plans
- Orange Share Option Plan (France)
The Orange Share Option Plan is designed for employees and executive directors
of subsidiaries of any Group company who are French residents or otherwise
eligible.
- Orange International Sharesave Plan
The Orange International Sharesave Plan is designed for employees and executive
directors of subsidiaries of the Company. The options, which may be options to
subscribe for new shares or to acquire existing shares, can be exercised after
an eligible employee has agreed to save a fixed monthly amount for three or five
years, the maximum monthly saving being #250. The exercise price cannot be less
than 80% of the market value at the date of the grant.
- Orange International Share Option Plan
The International Share Option Plan is designed for employees and executive
directors of subsidiaries of any Group company who are not residents of France,
principally in the United Kingdom. Five tranches exist, depending on the
employees, each having different vesting periods.
- Orange US Share Option Plan
The Orange US Share Option Plan is a qualifying share option plan for employees
of the Company's subsidiaries in the United States. Two tranches exist, each
having different vesting periods.
Share Ownership Plans
- Orange Sharepurchase Plan
The Sharepurchase Plan, which is established under a trust, was put in place for
eligible employees in the United Kingdom. Voting rights attributable to the
shares may not be directly exercisable while shares are held in the trust.
However, the participants may be allowed to direct the trustees as to how to
exercise those voting rights.
Partnership Shares
Eligible employees can acquire the Company's "partnership shares", via the
trust, up to #1,500 or to 10% of annual pre-tax salary each year.
Matching Shares
One free share ("matching share") is offered for every two partnership shares
purchased by the employees, up to an annual limit of #750 worth of matching
shares.
Free Shares
In addition, the Company may grant "free shares" up to #3,000 per employee, per
year.
Matching and free shares must be held in the trust for three years (if an
employee withdraws partnership shares before this time, the matching and free
shares are forfeited).
- Orange Restricted Share Plan
The Orange Restricted Share Plan was established on 1 September 2000 shortly
after the acquisition of Orange plc by France Telecom and was designed for
certain key employees, principally in the United Kingdom. Participants were
allocated a number of shares, which will vest in three equal tranches for most
participants, as long as the participant is an employee of the Group at the
relevant vesting date. During the restricted period, shares are held offshore
by the Orange Employee Benefit Trust. Employees are not required to contribute
to the cost of these shares. The Trust is funded directly by France Telecom and
the Company is not required to contribute to the cost of these shares.
- Orange Senior Discretionary Share Plan
The Orange Senior Discretionary Share Plan is designed for certain key
employees. Participants are allocated a number of shares, which will vest in
three equal tranches, as long as the participant is an employee of the Group at
the relevant vesting date. During the restricted period, shares are held
offshore by the Orange Employee Benefit Trust. Employees are not required to
contribute to the cost of these shares.
Orange France savings plan ("Plan d'Epargne Groupe Orange France")
This plan is designed for employees of Orange France who are French residents or
otherwise eligible. Employees can invest up to 25% of their annual pre-tax
salary and the participants can be granted delayed payment by way of a loan of
up to 3 years. Shares are acquired at a 20% discount to the initial public
offering price and a matching element is also offered to employees.
Information relating to stock option, share ownership plans and Orange France
savings plan in 2002 is as follows:
SHARE OPTION PLANS
Orange Share Orange International Orange Orange US Total
Option Plan Sharesave Plan International Share Option
(France) Share Option Plan
Plan
(number of options) 3 year 5 year
Options outstanding at 26,540,955 2,727,379 3,771,511 53,003,337 2,705,666 88,748,848
beginning of period
Granted 9,705,850 2,851,634 - 16,946,722 812,000 30,316,206
Exercised - - (350) - (3,000) (3,350)
Forfeited/lapsed (662,193) (1,318,465) (1,578,236) (3,567,147) (531,737) (7,657,778)
Options outstanding at end 35,584,612 4,260,548 2,192,925 66,382,912 2,982,929 111,403,926
of period
Detail of the options granted in 2002 is as follows:
Number of options Average period Expiry date Average exercise price
remaining to full
vesting (months)
Orange Share Option Plan
(France)
15 May 2002 8,946,010 29 14 May 2012 euro 6.35
20 December 2002 759,840 36 19 December 2012 euro 7.23
Orange International Sharesave
Plan - 3 year
15 May 2002 1,349,694 26 1 January 2006 # 3.17
20 December 2002 1,269,754 39 1 September 2006 # 3.93
20 December 2002 232,186 39 1 September 2006 euro 6.14
Orange International Share
Option Plan
15 May 2002 14,860,322 19 14 May 2012 euro 6.35
20 December 2002 2,086,400 26 19 December 2012 euro 7.23
Orange US Share Option Plan
15 May 2002 690,000 13 14 May 2012 euro 6.35
20 December 2002 122,000 20 19 December 2012 euro 7.23
Total 30,316,206 - - -
Detail of the options outstanding at 31 December 2002 is as follows:
Number of options Weighted average Weighted average Number of options
period remaining to exercise price exercisable at 31
full vesting December 2002
(months)
Orange Shareoption Plan 35,584,612 18 euro 8.95 41,371
(France)
Orange International 4,028,362 24 # 4.15 67,370
Sharesave Plan - 3 year
(UK)
Orange International 232,186 39 euro 6.14 -
Sharesave Plan - 3 year
(The Netherlands)
Orange International 2,192,925 23 # 4.43 66,582
Sharesave Plan - 5 year
(UK)
Orange International 66,382,912 12 euro 8.99 10,510,314
Shareoption Plan
Orange US Shareoption Plan 2,982,929 5 euro 9.04 1,714,659
Total 111,403,926 - - 12,400,296
Options outstanding at 31 December 2002 represent 2.31% of the Company's share issued capital as at that date.
SHARE OWNERSHIP PLANS
The loss for the Group arising from the grant of free (or matching) shares to
the employees amounted to euro 3 million in 2002 compared to euro 1 million in
2001.
ORANGE FRANCE SAVINGS PLAN
In 2001, the Company issued 12,615,880 new shares for euro 1 nominal value each
(euro 7.6 including premium) reserved for participants in the Orange France
Savings Plan ("Plan d'Epargne Groupe Orange France") - see Note 17. The
matching element paid by the Company to the participants amounted to euro 1
million in 2002, compared to euro 2 million in 2001.
19. PROVISIONS
Provisions for allowances against assets
Provisions for allowances against assets other than plant, property and
equipment and intangible assets are as follows at 31 December 2002:
At beginning of Net charge Other movements At end of
period (1) period
(in millions of euro)
Customer receivables (2) 537 69 23 629
Inventories 99 (24) (4) 71
Investments 7 191 (2) 196
(see Note 11)
Total 643 236 17 896
(1) Includes exchange rate differences and effects of acquisition.
(2) Includes the depreciation provision of euro 75 million relating to the
interests retained in securitised trade accounts receivables (see Note 20).
Allowances are set up against the estimated cost of non-recovery of receivables.
They are based on an individual or statistical evaluation of the risk of
non-recovery of receivables from individuals, professionals, operators and
distributors.
Provisions for risks and liabilities
Provisions for risks and liabilities are as follows at 31 December 2002:
At beginning of Net charge Other movements At end of
period (1) period
(in millions of euro)
Withdrawal from the - 89 (17) 72
Swedish market
(see Note 7)
Decision to improve - 184 12 196
financial performance
(see Note 7)
Litigations 63 (18) 7 52
Orange France stock 45 (27) - 18
provision risk
Restructuring 10 (3) - 7
Other 51 13 (8) 56
Total 169 238 (6) 401
Including:
Current portion 145 117 (4) 258
Long-term portion 24 121 (2) 143
(see Note 15)
(1) Includes exchange rate differences, reclassifications and effects of
acquisition.
The related income statement impacts are as follows for the year ended 31
December 2002:
(in millions of euros) Increase Utilisation Write-back Total
Operating income (54) 59 48 53
Interest income/(expense), net, (295) 1 3 (291)
other non operating expenses,
net and exceptional items
Total income/(expense) (349) 60 51 (238)
20. TRADE AND OTHER RECEIVABLES
The Group does not consider itself exposed to a concentration of credit risk
with respect to trade accounts receivable due to its diverse customer base
(residential, professional and large business customers) operating in numerous
industries and located in many regions and countries. Other debtors mainly
comprise VAT receivables and prepayments.
Trade accounts receivable and other debtors are mostly due within one year.
The Group entered into a securitisation program in December 2002, whereby trade
receivables generated by the mobile telecommunication business of Orange France
and OPCS in the United Kingdom were respectively transferred without recourse to
a French securitisation Fund (Fonds Commun de Creances, "FCC") under French law
and a trust set up in Jersey ("trust") under UK law. This program covers
existing receivables as of the date the securitisation transaction was entered
into and receivables, which will come into existence during the expected
five-year lifetime of the program as and when mobile telecommunication services
are rendered and related revenues are earned. Orange France and OPCS remain in
charge of the servicing of the transferred receivables on behalf of the FCC and
the trust respectively.
The FCC and the trust raised funds from third party investors through rated
securitisation conduits and, with respect to Orange France securitisation, by
issuing FCC units subscribed by Orange France to finance the purchase price of
the securitised receivables less deferred purchase prices. Deferred purchase
prices are subordinated to cover the risk of non-recovery of the securitised
French and UK receivables and allowances are recorded to provide for such
non-recovery, consistent with the risk profile of securitised receivables and
Group's collection and customers'credit policies.
The accounting treatment for securitised trade receivables is described in Note
2. The impact of the securitisation program in 2002 is as follows:
France UK Total
Face value of the receivables sold 445 346 791
Loss on disposal (see Note 5) (8) (4) (12)
Net selling price 437 342 779
Foreign currency translation adjustment - (2) (2)
Cash raised through securitisation conduits (1) (289) (293) (582)
Interests retained in securitised trade 148 47 195
accounts receivables, gross, including:
- Units subscribed by Orange 48 - 48
France in the FCC (2)
- Deferred purchase prices, gross 100 47 147
(1) See "Securitisation of receivables/sale of receivables" in the 2002
cashflow statement.
(2) Orange France provided direct funding to the FCC through the
subscription of FCC units, which rank "pari passu" with the FCC units subscribed
by the third party investors through the securitisation conduits, as at 31
December 2002.
Interests retained in securitised trade accounts receivables, net of a
depreciation provision of euro 75 million, amount to euro 120 million and are
presented under the heading "Other long term assets" in the balance sheet.
The securitisation agreements in France and in the United Kingdom are subject to
financial and operating covenants, which, in the event of a breach, would lead
to the cessation of the purchase of new trade receivables from the Group. Under
the terms of the financial covenants, the following ratios must be met:
- At the Group's level, the consolidated net debt to annualised EBITDA
(1) ratio must not exceed 6.0 and the annualised EBITDA (1) to annualised net
interest expense must not fall below 3.0. These ratios are tested on a quarterly
basis.
- At OrangeFrance S.A.'s level, the net debt to annualised EBITDA (1)
ratio must not exceed 3.0 and the annualised EBITDA (1) to annualised net
interest expense must not be below 4.5. These ratios are tested on a monthly
basis.
(1): Operating income/(loss) before depreciation and amortisation under the
definitions agreed with the lenders.
These ratios were met at 31 December 2002.
21. COMMENTS ON THE CONSOLIDATED CASH FLOW STATEMENT
Cash paid for investment securities and acquired business, net of cash acquired
In 2002, this heading primarily includes payments made in relation to:
- The acquisition of a 71.25% stake in MobiNil for a cash consideration
of euro 324 million on 1 July 2002.
- The transfer of a euro 236 million Wind shareholder loan from the
France Telecom group to the Group (see Note 10).
- Additional shareholder loans of euro 108 million granted by the Group
to Connect Austria (see Note 11).
- Capital increases of euro 48 million (cash element) and euro 69
million respectively in Wind and BITCO (see Note 10).
- The buy-out of Orange Communications S.A.'s and Orange Sverige AB's
minority interests.
- A capital increase in Optimus.
In 2001, it mainly related to payments made in relation to the acquisition of
additional interests in Dutchtone (8%), Orange Communications S.A. (7.5%) and
BITCO (15%) and also to a capital increase of euro 190 million in Wind.
Proceeds from sale of assets
In February 2001, the Group sold its 50% interest in KPNO to KPN Mobile and the
cash received by the Group (i.e. total consideration of euro 500 million,
including euro 102 million in respect of repayment of a shareholder loan) is
included in this line.
Decrease in other liabilities
In 2001, this heading includes payments made in relation to the acquisition of:
- a 42.5% interest in Orange Communications S.A. (euro 1,082 million),
- a 43.4% interest in Wind (euro 4,878 million).
Those acquisitions took place in 2000 and borrowings were reflected in the
Group's consolidated balance sheet at 31 December 2000. The capital injection
of euro 9,771 million, received from France Telecom on 29 December 2000, was
used to extinguish those borrowings in 2001.
22. COMMITMENTS AND CONTINGENCIES
OFF BALANCE SHEET COMMITMENTS RELATED TO NETWORK EQUIPMENT AND INVENTORIES
In the ordinary course of its activities, the Group enters into purchase
contracts with network equipment manufacturers and into supply contracts with
handset suppliers containing stock protection clauses.
OFF BALANCE SHEET COMMITMENTS RELATED TO NETWORK CONSTRUCTION AND OPERATION
Under its licence agreements, the Group is committed to certain obligations, not
reflected in Note 23, imposed by administrative or regulatory authorities and
primarily relating to network coverage, quality of service and tariffs.
Consequently, the Group will incur significant capital expenditures over future
years in order to build out its networks in countries in which it was awarded
licences. Management believes that the Group has the ability to meet its
obligations to the administrative or regulatory authorities.
On 24 September 2002, OrangeFrance S.A. and the two other mobile operators in
France, jointly committed themselves to cover 1,638 localities, which would
represent deployment on approximately 1,250 sites, in connection with the French
government's expectations of coverage of certain low population zones, as
identified by the Comite Interministeriel d'Amenagement du Territoire (CIADT) on
9 July 2001. The definitive number and list of localities and sites for
deployment and the precise conditions of applications are not currently known.
LEASE COMMITMENTS
The table below shows future minimum lease commitments due under non-cancelable
operating and capital leases at 31 December 2002:
(in millions of euro) Operating leases Capital Leases
2003 445 56
2004 407 14
2005 381 2
2006 355 1
2007 329 1
2008 and thereafter 854 9
Total minimum lease 2,771 83
commitments
Less amounts representing - (4)
interest
Present value of net minimum 2,771 79
lease commitments
Rental expense under operating leases amounted to euro 504 million in 2002,
compared to euro 410 million in 2001 and euro 350 million in 2000 (on a pro
forma basis).
In 2001, as part of a cross-border lease (QTE lease) with third parties, Orange
Communications S.A. disposed of and leased back telecommunication equipment
amounting to USD 179 million as at the transaction date. Orange Communications
S.A. deposited funds, totalling USD 182 million together with the interest
earned thereon at 31 December 2002, which will be used to settle its obligations
under the capital lease. This in-substance early extinguishment of the capital
lease obligations resulted in the offset of the deposit amount and the capital
lease obligation.
The obligations under the 1995 and 1997 OPCS's defeased leases (see Note 15) and
under the 2001 Orange Communications S.A. QTE lease (see above) are not
reflected in the total contractual obligations because of the early
extinguishment of these commitments.
OFF BALANCE SHEET COMMITMENTS LINKED TO FINANCIAL INVESTMENTS
MobilCom
Summary of major events until the 2001 year end closing date
In March 2000, France Telecom S.A., the company MobilCom and its principal
shareholder Gerhard Schmid signed a Cooperation Framework Agreement, the object
of which was to provide MobilCom with the necessary financial support to
purchase a third generation network operator licence ("UMTS") as part of the
bidding process organised by the German authorities in July - August 2000 and to
develop a UMTS mobile telephone network.
In December 2000, France Telecom S.A. set up through various contributions the
Company to which it passed, with the agreement of Mr. Gerhard Schmid and of
MobilCom, most of the rights and obligations resulting from the Cooperation
Framework Agreement, apart from the commitments for conditional financial
support which remained with France Telecom S.A., as described below.
The Cooperation Framework Agreement, dated March 2000, as amended by a December
2000 transfer and assumption agreement (together the "CFA") provided that, after
a UMTS licence was obtained in the bidding process, the following clauses came
to effect:
A. France Telecom S.A. would provide its financial support to MobilCom,
subject to the conditions described in point B below, in the following manner:
- France Telecom S.A. would subscribe to an increase in the share
capital of MobilCom for an amount of approximately euro 3.7 billion providing it
with around 28.5% of the company's share capital,
- If MobilCom was not in a position to be able to proceed with necessary
investments to commence its UMTS operations through its own existing own capital
resources and through additional financing that it procures on its own, France
Telecom S.A. would have a commitment, until the commencement of UMTS operations,
to provide loans directly to MobilCom or to guarantee third party loans, if
required.
B. In order to guarantee that France Telecom S.A. and the Group had at all
times the means to monitor the financial commitments regarding the process of
developing UMTS activities, the CFA stipulated that France Telecom S.A.'s and
the Group's agreement was required for approval of, amongst other matters, the
budgets and the business plan. To facilitate this, a coordination committee was
established between the management of MobilCom and the representatives of the
France Telecom group, as well as the representation of the France Telecom group
in the company's corporate bodies.
C. In accordance with the CFA, the Group had a call option to purchase 21.6
million shares in MobilCom held by Mr. Gerhard Schmid exercisable between 2003
and 2006. Mr. Gerhard Schmid also had a put option to sell his MobilCom shares
to the Group, exercisable if certain specific conditions were realised:
- In the event the France Telecom group acquired additional shares such
that it owned more shares than Gerhard Schmid,
- In the event that a deadlock had occurred and the France Telecom group
has imposed its position on Mr. Schmid through mediation as provided for in the
contract, or,
- In the event that the France Telecom group breaches certain material
obligations under the CFA.
Following the signing of this agreement, as part of the bidding process carried
out in July - August 2000, MobilCom obtained a UMTS licence for approximately
euro 8.4 billion and proceeded to implement the following financing
arrangements:
- A share capital increase reserved to France Telecom S.A. was effected
in accordance with the CFA,
- A Senior Interim Facility was granted by a banking syndicate ,
- Two UMTS equipment manufacturers granted supplier credits.
***
In 2001, a disagreement arose between Mr. Gerhard Schmid, MobilCom, France
Telecom S.A. and the Group regarding the application of the CFA, notably
concerning the MobilCom business plan for the development of the UMTS activity
and the ability of the France Telecom group to approve that plan.
This situation led the Group to write-down its euro 2,153 million MobilCom
goodwill to a nil amount and to fully depreciate the euro 915 million remaining
cost of its investment in MobilCom (see Note 10).
Events between the end of 2001 and the 2002 half-year closing date
On 11 June 2002, France Telecom S.A. and the Group informed MobilCom and Mr.
Gerhard Schmid that they were terminating the CFA, following and on the grounds
of a series of serious breaches of such agreement by Mr. Gerhard Schmid and
MobilCom.
On 21 June 2002, Mr. Schmid was relieved of his functions as Chief Executive
Office by decision of MobilCom's Supervisory Board.
Mr. Schmid and MobilCom contested the grounds for the termination of the CFA by
France Telecom S.A. and the Group. The Group was then not able to predict the
outcome of the dispute, which could result from this termination.
Following the departure of Mr. Schmid from the Board, the new management of
MobilCom accepted the implementation of in-depth operational, strategic and
legal analyses of MobilCom performed with both internal and external experts on
behalf of France Telecom S.A. and the Group.
The conclusions of these in-depth analyses obtained in August and September
2002, showed, inter alia, evidence of structural difficulties of MobilCom, the
significant decline in its results and the weakness of its customer base, which
have led France Telecom S.A. and the Group to conclude that autonomous UMTS
activity of MobilCom is not viable.
In this respect, the absence of changes in the German regulator position
regarding the possibilities of adapting the regulatory environment, essential
for market consolidation, and the decision of the European Commission to
consider as subject to the subsidiarity principle any modifications in national
law in this domain, have equally led to the loss of reasonable likelihood of
consolidation of UMTS operators in Germany such as France Telecom S.A. and the
Group had envisaged at the date of the 2001 financial statements.
Therefore, from a strategic point of view, the evolution of the German market
characterised by an excessive number of UMTS operating licence holders, the
absence of flexibility of the German regulatory authorities regarding the
necessary adaptation of the regulatory environment essential for the
consolidation of the market, combined with the worrying situation of MobilCom
highlighted by the detailed analyses and the profound worsening of relations
between the shareholders, led France Telecom S.A. and the Group to decide not to
seek control of MobilCom and France Telecom S.A. to no longer reply to its
requests for financial support at their respective board meetings on 12
September 2002.
In this context, the management of the Group had considered, to the best of its
current knowledge at the time, that no provision for risk had to be recorded in
its accounts for the period ended 30 June 2002.
Events since 12 September 2002
After the announcement of France Telecom S.A.'s and the Group's withdrawal,
MobilCom received support from the Federal Government of Germany, which enabled
it to continue operations.
The Federal Government of Germany also appointed a mediator in charge of
establishing, together with MobilCom and France Telecom S.A. a plan for saving
MobilCom.
As part of the plan for saving MobilCom organized under the initiative and
control of the Federal Government of Germany, France Telecom S.A. began
discussions with MobilCom and the mediator. These discussions lead on 22
November 2002 to the signature of the MC Settlement Agreement setting up a plan
for saving MobilCom, which ends the original agreements between MobilCom, France
Telecom S.A. and the Group over the development of UMTS in Germany.
The MC Settlement Agreement provides, among other things, that MobilCom and Mr
Gerhard Schmid renounce all recourse against France Telecom S.A. and the Group,
and vice versa.
However, this agreement will become definitiveon the date of the issue of
subordinated perpetual convertible securities convertible into shares of France
Telecom S.A. (TDIRA). This issue has already been authorized by the shareholders
of France Telecom S.A., during a meeting held on 25 February 2003.
On 11 February 2003, Mr Gerhard Schmid lodged a filing for personal bankruptcy.
On 14 February 2003, the Flensburg tribunal named a provisional legal
administrator. This procedure, if continued, could give rise to challenge the
validity of the fiduciary transfer of Gerhard Schmid's shares, and his
renunciation of all recourse against the France Telecom S.A. and the Group.
In this context, the management of the Group still considers, to the best of its
current knowledge, that no provision for risk has to be recorded in its accounts
for the period ended 31 December 2002, based on an assessment of its legal
position to different types of claims that could be brought against it. The
management of the Group underlines however, that it cannot exclude that risks
could arise from legal rulings leading to further claims that the advisors to
the Group judge to be unfounded.
Wind
The agreements governing relationships between the Group, ENEL and Wind provide
for the obligation for the Group and ENEL to finance the development of Wind in
the limit of a business plan approved by them. The Group holds an option to
purchase a portion of the Wind shares held by ENEL, sufficient to increase its
equity interest in Wind to 76.6% of ENEL's interest. This option can be
exercised at any moment between 31 July 2003 and 31 January 2004 at market price
as determined by investment banks or, if Wind is listed, at a price fixed
between a range of 15% over and below the IPO price of Wind plus 10%.
The market price for the purpose of these agreements is the price per share
which a third party would pay to acquire all the shares on the basis of
evaluations made by investment banks.
The agreements governing relationships between the Group, ENEL and Wind give the
Group certain control rights over important decisions concerning Wind, and
notably a qualified majority of 83% for the adoption of any decision in an
Extraordinary General Meeting. The adoption by the Board of Directors of certain
important decisions, such as the approval of the business plan, the budget and
agreements with a shareholder or an entity of its group need the favorable vote
of at least one of the directors appointed by the Group. In the event of a
deadlock on the Board of Directors over decisions needing a favorable vote of at
least one of the directors named by the Group, after a mediation procedure, the
decision is taken on the basis of an expert opinion. In the event of a deadlock
in an Extraordinary General Meeting, over a decision needing a qualified
majority, the party whose position is not met following a mediation and
arbitration procedure has a put option over all its shares at market price plus
25%.
Moreover, the Group also holds a put option of its Wind shares to ENEL at market
value (as defined by the agreements) exercisable at any moment in the event of a
disagreement between the Group and ENEL as to an action performed or a
resolution adopted by the Board of Wind if the Group makes its disagreement
known and the action is not revoked within a certain timeframe.
Call options are also defined in the event of a change in control of the
shareholders at market price. Finally, in the event of violation confirmed in an
arbitration ruling, the non defaulting party has the right to purchase the
shares of the defaulting party at market price.
Other off balance sheet commitments
- The Group has entered into agreements with some of its
co-shareholders whereby the Group has an option to purchase and/or sell shares
of its subsidiaries, affiliates and investments. Some of these agreements also
contain clauses relating to transfers of shares. The main agreements are as
follows:
* Orange Dominicana S.A. (formerly France Telecom Dominicana S.A.): the
Group's co-shareholder has a put option, exercisable at any time during the
month of January of each year between 2003 and 2007 at market value as appraised
by an independent investment bank, whereby it can sell its 14% shareholding in
this company. The management of the Group considers, to the best of its current
knowledge, that the Group's financial exposure under this commitment is not
deemed to be material.
* BITCO: if one shareholder of that company claims that one of its
co-shareholders has committed a material breach under the terms of the current
shareholders'agreement (see Note 10), and that claim is confirmed after dispute
resolution procedures have been followed, the non-defaulting shareholder has a
right to buy the defaulting party's shares at 80% of market value or sell its
own shares to the defaulting party at 120% of market value. An act of
insolvency of either party also entitles the other to exercise put or call
options on the same basis. However, neither party can be compelled to complete a
share transfer in contravention of Thai law or without all applicable regulatory
approvals. Thai law currently restricts foreign ownership of a telecommunication
company to less than 50%, so the Group cannot effectively either exercise a call
or be compelled to accept a put which would increase its present 49% stake to
50% or above.
- Moreover, shareholders agreements governing relationships with the
Group's partners in Denmark, Egypt, India, Sweden and Slovakia provide for a put
and/or call procedure in the event of a serious breach or deadlock on
fundamental issues which have not been resolved through escalation procedures,
or change of ownership of the shareholders. Those options are generally
exercisable at market value as appraised by independent experts, except for the
following:
* In the event of a change of ownership of the shareholders in Egypt
(as for the Group, this clause would be triggered only in the event of a change
of ownership on 51% - or above - of France Telecom's capital), the exercise
price equals 115% of market value;
* If the Group is the defaulting party in Slovakia, the exercise price
would include the estimated damages to be paid to the non defaulting parties;
* In the event of a material default of the Group on its obligations as
provided under the shareholders'agreement of Orange Holding A/S, its 67.23%
owned subsidiary in Denmark, the agreement sets out that the other shareholders
can force the Group to purchase their shares in Orange Holding A/S at market
value. In the event of a default by the other shareholders on their obligations,
the Group and the non defaulting parties can purchase the shares of the
defaulting shareholders at market value less a discount of 25%;
* The Group's co-shareholders in 3G Infrastructure Services AB ("3Gis
"), a joint venture jointly operated by Orange Sverige AB and two other
operators in Sweden, have a call option on the interests held by the Group in
3Gis in the event of a breach by the Group of its financing obligations to 3Gis
or if the UMTS licence held by Orange Sverige AB is transferred to a third party
or lost or surrendered. The exercise price is the nominal amount of the shares
held by Orange Sverige AB in 3Gis. As a consequence of the Group's decision to
withdraw from the Swedish market (see Note 7), the Group's interests in 3Gis
were fully depreciated at 31 December 2002.
The management of the Group believes that reliable and/or relevant estimated
valuations for the put and call options described above cannot be provided, due
to the start up phase of most operations, leading to a wide range of possible
values as a result of the high sensitivity to the set of assumptions used.
Furthermore, disclosing such information could potentially weaken the Group's
negotiating position with its partners in the event an option is triggered by
the Group or one of its partners in the future.
- GUARANTEES AND ENDORSEMENTS
In the ordinary course of its business, the Group gives and receives certain
guarantees of which the more significant at 31 December 2002 are as follows:
1. Shares and other assets owned by the Group have been pledged to
financial institutions in order to guarantee the repayment of bank loans and
credit facilities contracted by the Group, amounting to euro 2,545 million (used
portion) and totalling euro 3,043 million (total amount of the loans and
facilities) at 31 December 2002. The main pledged assets relate to the
following:
- Substantially all of Orange Holdings UK's and its subsidiaries's
fixed assets: those assets, which represent a net book value of euro 10,006
million at 31 December 2002, have been pledged to the benefit of financial
lending institutions in order to guarantee the repayment of lines of credit,
amounting to euro 1,869 million, of which euro 1,438 million had been drawn down
at 31 December 2002;
- The business and substantially all the buildings owned by Mobistar
S.A.: those assets have been pledged to the benefit of the France Telecom group
and financial institutions in order to guarantee the repayment of lines of
credit totalling euro 584 million, of which euro 515 million had been drawn down
at 31 December 2002;
- The Group's consolidated investments in Romania, Slovakia, Denmark,
Egypt, Cameroon, Botswana, Madagascar and Sweden (i.e. the interest held by
Orange Sverige AB in 3Gis exclusively) and its non consolidated investment in
Portugal.
2. The Group's outstanding commitment under the guarantee granted to ENEL,
Wind's majority shareholder, to cover the guarantee that ENEL granted to
financial institutions as collateral to the ten year deferral of payment of the
UMTS licence awarded to Wind, cannot exceed euro 76 million at 31 December 2002.
This amount represents the Group's share, i.e. 26.58%, of Wind's obligations
under the UMTS licence agreement as at 31 December 2002. Wind's obligations
under the UMTS licence agreement expire in 2010.
3. On 30 July 2002, the Group granted a counter guarantee to France
Telecom SA with regard to the guarantee issued by France Telecom SA relating to
Wind's annual payments to the Italian railways for the right to use the rail
infrastructure for fixed line operations. The Group's outstanding commitment
under the guarantee amounts to euro 76 million at 31 December 2002 (excluding
VAT). This amount represents the Group's share, i.e. 26.58%, of Wind's
contractual obligations to the Italian railways as at 31 December 2002. Wind's
obligations under these agreements will be extinguished on 31 December 2010.
4. Guarantees amounting to a maximum euro 49 million and euro 58 million
respectively, which had been granted to equipment suppliers in connection with
the rollout of BITCO's network in Thailand, were released in 2002.
In February 2002, the Group and its co-shareholders in BITCO entered, on a joint
and several basis, into a sponsor support deed in favour of equipment suppliers
and a pool of Thai banks in connection with a 24-month bridge loan facility of
THB 27 billion granted to TA Orange Company Limited (and increased to THB 33
billion, i.e. euro 735 million, in November 2002). Under this agreement, the
Group and its co-shareholders in BITCO have agreed to the following:
- Under limited circumstances (the main one being in the event of a
cash shortfall in TA Orange Company Limited), they are committed to inject cash
in that company up to a maximum amount of USD $175 million;
- In the event of changes in the regulatory environment prevailing in
Thailand, e.g. primarily through the conversion of the current concession into a
licence, and if this were combined with a cash shortfall in TA Orange Company
Limited, the Group might incur additional funding commitments towards TA Orange
Company Limited. Those additional funding commitments would represent the
incremental costs that could eventually be incurred by TA Orange Company Limited
as a result of such regulatory changes, over and above the regulatory costs
estimated as agreed with the lenders. The Thai authorities have expressed their
intention to establish a fair competitive regime for the telecommunications
industry and are taking steps in that direction. The management of the Group
considers, on the basis of information currently available, that this move
towards liberalisation is unlikely to have an adverse economic impact on TA
Orange Company Limited.
5. Pursuant to a Shareholder Support Agreement, the Group is required to
make a Shareholder Contribution available to Connect Austria Gesellschaft Fur
Telekommunikation GmbH, a 17.45% owned investment, up to a total maximum amount
of euro 68 million. The Group's obligation under this agreement will be
extinguished at the end of 2009.
6. The Group has received guarantees from Orange Plc's former
shareholders, Hutchinson Whampoa and British Aerospace, as well as third party
insurance to cover the payments of a termination sum, which would replace the
future rental payments under the 1995 finance leases, should the deposit banks
become insolvent. In respect of the 1997 finance leases, the lessors bear the
risk in the event of insolvency of the deposit banks and the Group would not be
liable for the payment of any termination sum.
LITIGATION AND CLAIMS
The Group is involved in a number of legal proceedings and has various claims
pending as part of the course of its business. Associated costs are accrued
when it is probable that a liability has been occurred, and the amount of that
liability can be estimated with in a reasonable range.
Although no assurance can be given as to the outcome of open claims, the
Management of the Group estimates that it is not likely that such open claims
could have a significant adverse effect on the Group's financial statements as
at 31 December 2002.
***
The Management of the Group considers, to the best of its current knowledge,
that, except for the commitments and contingencies disclosed above, there are no
other commitments or contingencies, which could potentially impact the Group's
financial statements at 31 December 2002 or in future years.
23. CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Group's contractual obligations and other commitments at 31 December 2002
are as follows:
Payments Due
In millions of Total By end of Between Between 2008 and
euros 2003 2004 and 2006 and thereafter
end of 2005 end of 2007
On balance sheet
Long-term
borrowings 3,586 853 1,397 417 919
(see Note 12)
Short-term
borrowings 3,116 3,116 - - -
(see Note 12)
Vendor 531 244 287 - -
Financing
(see Note 13)
Off-balance sheet
Operating
leases 2,771 445 788 684 854
(see Note 22)
Capital leases 83 56 16 2 9
(see Note 22)
Purchase of 1,774 1 066 657 46 5
fixed assets
and other
services
Total 11,861 5,780 3,145 1,149 1,787
contractual
obligations
Commitments maturing during each period
In millions of Total By end of Between Between 2008 and
euros 2003 2004 and 2006 and thereafter
end of 2005 end of 2007
Guarantees 387 16 202 39 130
(see Note
22)
Credit 7,143 5,119 1,808 201 15
facilities
(see Note
12)
Total other 7,530 5,135 2,010 240 145
commitments
24. RELATED PARTY TRANSACTIONS
The transactions and balances summarised below arose in the ordinary course of
business with related parties:
Balances with related parties
At 31 December
(in millions of euro) 2002 2001
Payables to related parties
France Telecom 4,004 3,743
Receivables and cash on deposits with
related parties
France Telecom 723 677
Non consolidated investments and 175 50
affiliates
Transactions with related parties
Year ended 31 Year ended 31
December December
(in millions of euro) 2002 2001 2000
Pro forma
(unaudited)
Transactions with
related parties
France Telecom:
- Revenues (1) 1,675 1,585 1,905
- Expenses(1) (2,460) (2,387) (2,737)
(1) Includes interests.
The main transactions with related parties relate to interconnection between
networks.
25. POST BALANCE SHEET EVENTS
- On 13 February 2003, the Board resolved to appoint Mr Solomon
Trujillo as Chief Executive Officer of the Company, replacing Mr Jean-Francois
Pontal. This appointment will become effective on completion of relevant
formalities.
26. CONSOLIDATION SCOPE
In 2001, the main changes in the consolidation scope relate to the following:
- The Group took part in the formation of the following companies:
* Orange Sverige AB: the Group took part in the formation of that
Company, with an initial 51% shareholding and subsequently acquired additional
stakes (see below),
* Orange Promotions S.A., Inventmobile S.A., Mobile for Business SNC,
Orange International SAS.
- The Group acquired additional interests in the following companies:
* On 16 January 2001, the Group acquired an additional 8% interest in
Dutchtone N.V., bringing its total shareholding to 100%,
* The Group increased its shareholding in Orange Communications S.A.
from 85% to 99.75%, through the following steps:
- On 15 March and 3 September 2001, the Group acquired an
additional 2.5% and 5% stake respectively, after two of its co-shareholders
elected to exercise their put options, bringing the Group's shareholding in
Orange Communications S.A. to 92.5%,
- On 7 November 2001, the Group increased the share capital of
Orange Communications S.A. and thereby diluted the minority shareholders and
increased the total Group's shareholding in Orange Communications S.A. from
92.5% to 99.75%.
* Subsequent to the formation of Orange Sverige AB (see above), the
Group acquired additional stakes (34% on 29 August 2001, 10% on 3 December 2001
and 3% on 27 December 2001), increasing its total shareholding from 51% to
around 98% at 31 December 2001.
* In January 2001, the Group entered into an agreement with its
co-shareholders in BITCO whereby it acquired an additional 15% interest in this
company, increasing the Group's total shareholding from 34% to 49%.
- The Group's shareholdings in Wind and MobilCom were reduced:
* The Group's co-shareholder in Wind, ENEL, acquired a 100%
shareholding in Infostrada on 29 March 2001 and contributed it to Wind on 30
July 2001, reducing the Group's shareholding in Wind from 43.4% to 26.58%,
* The Group's shareholding in MobilCom was reduced from 28.5% to
28.3%, following the conversion to shares of convertible bonds held by employees
of MobilCom.
- Hutchison Telecommunications (France) S.A., Orange France Holding
S.A. and Dutchtone Multimedia N.V. were merged into existing consolidated
entities.
- GlobtelNet A.S. was consolidated for the first time.
In 2002, the main changes in the consolidation scope relate to the following:
- The Group acquired a 71.25% stake in the Egyptian operation MobiNil
from the France Telecom Group on 1 July 2002, in line with the intention
expressed at the time of the Initial Public Offering of the Company in February
2001, ensuring joint control of MobiNil with Orascom Telecom Holding S.A.E. as
its partner and co-shareholder. MobiNil owns 51% of ECMS. ECMS was formed in
1998 and awarded its GSM 900 licence the same year. ECMS is Egypt's number one
provider of wirefree services.
- The Group bought out the minority interests of Mobile Internet for
Business S.N.C. (50%), Orange Sverige AB (2%) and Orange Communications S.A.
(0.25%) bringing its total shareholding to 100% of the share capital of those
three companies.
- On 8 July 2002, the Group approved the capital increase of Orange
Holding A/S for an amount of euro 177 million, of which the Group contributed
euro 156 million through the partial conversion of its existing shareholder loan
into capital in July 2002, and euro 21 million in cash in September 2002. This
resulted in an increase of the Group's shareholding in Orange Holding A/S from
53.58% to 67.23%, since the Group's co-shareholders did not participate in the
capital increase.
- GlobtelNet, a.s., in which the Group owned an initial 85% stake, was
merged into Orange Slovensko, a.s. in January 2002 and additionally the Group's
co-shareholders in Orange Slovensko, a.s. participated in a capital increase
which was not subscribed by the Group, resulting in a slight decrease in the
Group's shareholding in Orange Slovensko, a.s. from 64.27% to 63.88%.
- The Group took part in the formation of Castle Worldwide Finance CV,
Rann BV, Orange World Services A/S and GIE Orange Reunion Invest.
- OrangeServices S.A. and OrangeClients S.A. were merged into
OrangeFrance S.A..
- Mobile et Permission S.A. and 3G Infrastructure Services AB were
consolidated for the first time.
- Rapid Link was liquidated.
FRANCE
FULLY CONSOLIDATED COMPANIES
% interest % control % interest
31 December 31 December 31 December 31 December
Company Country 2001 2000
2002 2002
OrangeFrance S.A. ("Orange France") (1) France 99.86% 99.86% 99.86% 99.86%
Orange Caraibe S.A. (1) France 100.00% 100.00% 100.00% 100.00%
OrangeDistribution S.A. (1) France 99.86% 100.00% 99.86% 99.86%
OrangeServices S.A. France - - 99.86% 99.86%
Rapp 6 (1) France 99.86% 100.00% 99.86% 99.86%
Orange Support et Consulting (1) France 99.86% 100.00% 99.86% 99.86%
OrangeClients S.A. France - - 99.86% 99.86%
Orange Reunion (1) France 99.86% 100.00% 99.86% 99.86%
Orange Promotions S.A. (1) France 99.86% 100.00% 99.86% 99.86%
Mobile et Permission S.A. (1) France 99.86% 100.00% - -
GIE Orange Reunion Invest France 99.86% 100.00% - -
Mobile Internet for Business S.N.C. France 99.86% 100.00% - -
PROPORTIONALLY CONSOLIDATED COMPANIES
% interest % control % interest
Company Country 31 December 31 December 31 December 31 December
2002 2002 2001 2000
Darty France Telecom France 49.93% 50.00% 49.93% 49.93%
Fidecall France 49.93% 50.00% 49.93% 49.93%
Inventmobile S.A. France 49.93% 50.00% 49.93% -
Mobile Internet for Business S.N.C. France - - 49.93% -
(1) The French companies highlighted above are part of the French tax group,
which was formed as of 1 January 2002 (see Note 6).
UNITED KINGDOM
FULLY CONSOLIDATED COMPANIES
% interest % control % interest
31 December 31 December 31 December 31 December
Company Country 2002 2002 2001 2000
Orange Cellular Services Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Holdings (UK) Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Mobile Data UK Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Paging (UK) Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Personal Communications Services Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Retail Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange 3G Ltd. England 100.00% 100.00% 100.00% 100.00%
The Point Telecommunications Ltd. England 100.00% 100.00% 100.00% 100.00%
REST OF WORLD
FULLY CONSOLIDATED COMPANIES
% interest % control % interest
31 December 31 December 31 December 31 December
Company Country 2002 2002 2001 2000
Mobistar Corporate Solutions Belgium 50.79% 100.00% 50.79% 50.71%
Mobistar S.A. Belgium 50.79% 50.79% 50.79% 50.71%
Mobistar Affiliates Belgium 50.79% 100% - -
Vista Cellular Ltd. Botswana 51.00% 51.00% 51.00% 51.00%
Rapid Link (liquidated) China - - 67.00% 67.00%
Hutchison Telecommunications (France) SA France - - - 100.00%
Orange Cote d'Ivoire Ivory Coast 85.00% 85.00% 85.00% 85.00%
Orange Cameroun S.A. (formerly Societe Cameroon 70.00% 70.00% 70.00% 70.00%
Camerounaise de Mobiles S.A.)
Orange A/S Denmark 67.23% 100.00% 53.58% 53.58%
Orange Holding A/S Denmark 67.23% 67.23% 53.58% 53.58%
Orange Dominicana S.A. (formerly France Dominican 86.00% 86.00% 86.00% 86.00%
Telecom Dominicana S.A.) Republic
Telsea Mauritius 51.00% 51.00% 51.00% 51.00%
Societe Malgache de Mobiles Madagascar 33.61% 65.90% 33.61% 33.61%
Dutchtone N.V. The Netherlands 100.00% 100.00% 100.00% 92.00%
Dutchtone Multimedia N.V The Netherlands - - - 100.00%
Dutchtone Retail The Netherlands 100.00% 100.00% 100.00% -
Orange Romania S.A. Romania 67.81% 67.81% 67.81% 67.81%
Orange Slovensko, a.s. Slovakia 63.88% 63.88% 64.27% 64.00%
GlobtelNet, a.s. Slovakia - - 85.00% -
Orange Sverige AB Sweden 100.00% 100.00% 97.96% -
Orange Communications S.A. Switzerland 100.00% 100.00% 99.75% 85.00%
Castle Worldwide Finance CV The Netherlands 100.00% 100.00% - -
PROPORTIONALLY CONSOLIDATED COMPANIES
% interest % control % interest
Company Country 31 December 31 December 31 December 31 December
2002 2002 2001 2000
3G Infrastructure Services AB Sweden 33.33% 33.33% - -
MobiNil for Telecommunications
("MobiNil") Egypt 71.25% 71.25% - -
Egyptian Company for Mobile Services Egypt 36.36% 51.03% - -
("ECMS")
MobiNil Invest Egypt 36.36% 51.03% - -
MMEA Egypt 35.63% 50.03% - -
Rann BV The Netherlands 50.00% 50.00% - -
EQUITY ACCOUNTED INVESTMENTS
% interest % control % interest
31 December 31 December 31 December 31 December
Company Country 2002 2002 2001 2000
Wind Telecomunicazioni S.p.A. (Group) Italy 26.58% 26.58% 26.58% 43.40%
MobilCom A.G. (Group) Germany - - 28.31% 28.50%
Bangkok Inter Teletech Company Ltd. - Thailand 49.00% 49.00% 49.00% 34.00%
("BITCO")
TA Orange Company Ltd. Thailand 48.91% 48.91% 48.91% 33.94%
GROUP SHARED FUNCTIONS (including ORANGE WORLD)
FULLY CONSOLIDATED COMPANIES
% interest % control % interest
31 December 31 December 31 December 31
Company Country 2001 December
2002 2002 2000
Ananova Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Services US, Inc. United 100.00% 100.00% 100.00% 100.00%
States
Orangeworld, Inc United 100.00% 100.00% 100.00% 100.00%
States
Wildfire Communications, Inc. United 100.00% 100.00% 100.00% 100.00%
States
Orange World Services A/S Denmark 100.00% 100.00% - -
Orange plc England 100.00% 100.00% 100.00% 100.00%
Orange Austria Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange International Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Overseas Holdings Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange Overseas Holdings No.2 Ltd. England 100.00% 100.00% 100.00% 100.00%
Orange International Developments Ltd. Bahamas 100.00% 100.00% 100.00% 100.00%
Wirefree Services Belgium Belgium 100.00% 100.00% 100.00% 100.00%
Orange International S.A.S. France 100.00% 100.00% 100.00% -
Orange France Holding S.A. France - - - 100.00%
Wirefree Services Denmark A/S Denmark 100.00% 100.00% 100.00% 100.00%
Orange International B.V. The 100.00% 100.00% 100.00% 100.00%
Netherlands
Orange Ocean Ltd. United 100.00% 100.00% - -
Kingdom
Orange Holdings Ltd. England 100.00% 100.00% 100.00% 100.00%
EQUITY ACCOUNTED INVESTMENTS
% interest % control % interest
Company Country 31 December 31 December 31 December 31 December
2002 2002 2001 2000
Book2eat.com Holdings Ltd. (in liquidation) England 41.74% 41.74% 41.74% 41.74%
NewsTakes, Inc. (in liquidation) United 25.00% 25.00% 25.00% 25.00%
States
27. COMPENSATION OF THE EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The aggregate gross amount of compensation paid to the executive officers and
directors of the Company amounted to euro 4 million in 2002.
STATUTORY BALANCE SHEET
AS OF THE YEAR ENDED 31 DECEMBER 2002
ORANGE S.A. STATUTORY BALANCE SHEET
ASSETS
At 31 December
2002 2001
___________________________________________ ________
(millions of euro) Notes Gross value Depreciation Net Book Net Book
Value Value
Fixed Assets
Tangible and intangible fixed assets 1.1 73 3 70 19
Investment securities and other
financial fixed assets 1.1 72,054 22,496 49,558 64,522
Total long-term assets 72,127 22,499 49,628 64,541
Current Assets
Trade receivables 1.4 119 - 119 11
Other current assets 1.5 551 79 472 302
Cash and cash equivalents 44 - 44 20
Total current assets 714 79 635 333
Unrealised foreign exchange losses 20 - 20 4
Total Assets 72,861 22,578 50,283 64,878
LIABILITIES AND SHAREHOLDERS' EQUITY
At 31 December
(millions of euro) Notes 2002 2001
Shareholders' equity
Share capital 4,815 4,815
Share premium 59,836 59,836
Legal reserve - -
Other reserves - -
Accumulated losses (3,997) (28)
Tax depreciation provision 38 -
Net loss for the year (19,145) (3,969)
Total shareholders' equity 2.1 41,547 60,654
Provision for risks and liabilities 2.2 58 -
Provision for exchange loss 2.2 13 2
Total provisions 71 2
Liabilities
Long term debt 2.4 2,718 234
Short term debt 2.4 5,470 3,837
Trade payables and accrued expenses 406 122
Other current liabilities 71 29
Total liabilities 8,665 4,222
Total liabilities and shareholders' equity 50,283 64,878
1 ASSETS
1.1 Nature of long-term assets and changes during the period
(millions of euro) At 31 Increase Decrease At 31 December
December 2001 2002
Gross value
Intangible and tangible fixed assets 19 56 2 73
Investments
Investment securities 67,785 7,964 3,829 71,920
Other long-term receivables 737 - 603 134
Total gross value 68,541 8,020 4,434 72,127
Amortisation and provision
Intangible and tangible fixed assets - (4) 1 (3)
Investments
Investment securities (4,000) (22,489) 4,000 (22,489)
Other long-term receivables - (7) - (7)
Total amortisation and provision (4,000) (22,500) 4,001 (22,499)
Intangible and tangible fixed assets mainly comprise licences and software.
Amortisation expenses amounted to euro 4 million in 2002.
When Orange S.A. (the "Company") was formed, the shareholdings held by France
Telecom in Orange plc and OrangeFrance S.A. were contributed to the Company on
the basis of a global value, which reflected the cumulative historical carrying
values of these shareholdings in the books of France Telecom at the time of the
contribution. In this context, the value in use of the Company's investment in
Orange plc has been assessed based on the intrinsic value of Orange plc and
taking into consideration the strategy, which presided over the formation of the
Orange SA Group, mainly in respect of the following:
* The acquisition of a strategic market share in the United Kingdom,
* The potential of the "Orange" brand name,
* The formation of an integrated European group, one of the leading
providers of wirefree communications services.
As a result of downward trends observed in the mobile market and of the review
by management of Orange plc's and the Orange Group's (the "Group") medium and
long term prospects, the value in use of Orange plc, which incorporates all the
elements highlighted above, has been depreciated for a total amount of euro
11,000 million at 31 December 2002.
The investment in Wirefree Services Belgium ("WSB") has been depreciated for a
total amount of euro 11,090 million, of which euro 7,090 million relate to
increase in the depreciation provision during the year ended 31 December 2002,
in order to reflect the decrease in value in this company's investments in
MobilCom (28.3%), Wind (26.6%), Dutchtone (100%), Orange Communications SA (50%)
and Orange Sverige AB (38.69%). In addition, a euro 266 million provision for
risk on Wind was recorded under the heading "Trade payables and accrued expenses
", bringing the total WSB related charge to euro 7,356 million for the Company
in 2002.
The investment in Wirefree Services Denmark ("WSD") has been depreciated for a
total amount of euro 277 million, in order to reflect the decrease in value in
this company's investment in Orange Holding A/S (67.23%).
The Company's investment in Orange Sverige AB has been fully depreciated for an
amount of euro 112 million in order to reflect the consequences of the Group's
decision taken on 19 December 2002 to withdraw from the Swedish market.
The Company's investment in Orange Cote d'Ivoire (as well as the loan granted to
this company - see section 1.3.) has been depreciated for a total amount of euro
10 million as a result of risks relating to the political and economic situation
prevailing in this country at the balance sheet closing date.
1.2 Investment securities
(millions of euro) Share Other % of share Book value Loans Sales for Net income
Capital Shareholders' capital the year /(loss)
equity held as at for the
31/12/2002 year
Gross Net
Subsidiaries (> 50%)
Orange France SA 2,096 1,692 99.86 2,094 2,094 127 7,295 1,114
Orange plc 449 9,014 100.00 47,973 36,973 - 154 100
Sub total 50,067 39,067
Wirefree Services 19,991 (4,271) 100.00 21,188 10,098 - 2 (6,862)
Belgium ("WSB") (1)
Wirefree Services 41 374 100.00 380 103 64 3 (314)
Denmark ("WSD") (2)
Orange Cote d'Ivoire (3) 6 58 85.00 10 - 7 119 31
Orange Romania SA 152 55 51.00 129 129 - 393 46
Orange Caraibes SA 5 128 100.00 34 34 - 315 60
Orange International SAS - - 100.00 - - - 12 -
Orange Sverige AB (4) 5 142 61.31 112 - 18 5 (201)
Total 71,920 49,431 216
Figures are converted into euro as follows:
* Share capital and other shareholders' equity are converted using
year-end exchange rates;
* Turnover and net income are converted using the average exchange
rate for the year.
(1) WSB mainly holds investments in the following companies: Wind (26.6%),
MobilCom (28.3%), Mobistar (50.8%), Dutchtone (100%), Orange Communications SA
(50%), Orange Romania SA (16.81%), Orange Sverige AB (38.69%), Orange Cameroun
SA (70%), Vista (51%), Telsea (51%), Orange Slovensko (63.88%), BPL (26%), BITCO
(49%) and MobiNil for Telecommunications (69.66%).
(2) WSD holds investments mainly in Orange Holding A/S (67.23%), Orange
Dominicana (86%) and Orange World Services A/S (100%).
(3) The euro 7 million loan granted to Orange Cote d'Ivoire has been written
off at 31 December 2002 (see section 1.3.).
(4) The euro 18 million loan granted to Orange Sverige AB has been written
off at 31 December 2002 (see section 1.5.).
1.3 Other long-term assets
At 31 December 2002, other long-term assets mainly comprise loans granted to
Orange Cote d'Ivoire and OrangeFrance. These loans are due after one year and
bear interest at rates linked to market interest rates.
The euro 7 million loan granted to Orange Cote d'Ivoire has been fully written
down at 31 December 2002 as a result of risks relating to the political and
economic situation prevailing in this country at the balance sheet closing date.
1.4 Trade receivables
Trade receivables mainly comprise invoices due by some of its subsidiaries for
expenses incurred by the Company on their behalf (expatriates and management
fees).
1.5 Other current assets
The Company entered into credit facility arrangements with Orange Dominicana,
WSD, Vista, Connect Austria GmbH and Orange Sverige AB, as part of the
implementation of a centralised treasury department.
The loan to Orange Sverige AB has been depreciated for a total amount of euro 18
million as at 31 December 2002 following the decision made by the Group to
withdraw from the Swedish market.
The euro 149 million loan to Connect Austria has been depreciated for a total
amount of euro 61 million as at 31 December 2002 in order to reflect the
decrease in value of the Group's investment in this company (17.45%).
2 LIABILITIES AND SHAREHOLDERS' EQUITY
2.1 Shareholders' equity
* Statement of changes in shareholders' equity
(millions of euro) At 31 December Capital Net loss Net loss Other At 31 December
2001 Increase 2001 2002 Movements 2002
Share capital 4,815 - - - - 4,815
Share premium 50,395 - - - - 50,395
Additional paid-in capital 9,441 - - - - 9,441
Statutory reserves - - - - - -
Other reserves - - - - - -
Retained earnings (28) - (3,969) - - (3,997)
Tax depreciation provision - - - - 38 38
Net loss (3,969) - 3,969 (19,145) - (19,145)
Total 60,654 - 0 (19,145) 38 41,547
- At 31 December 2002, the Company's share capital comprised
4,814,566,240 ordinary shares each having a par value of euro 1. The Company's
main shareholders are France Telecom (79.72%), subsidiaries of France Telecom
(6.57%), individuals (13.32%) and employees PEG only (0.39%).
SPECIFIC AUTHORISATIONS GRANTED BY THE COMPANY'S SHAREHOLDERS TO THE BOARD OF
DIRECTORS
- On 29 December 2000, the shareholders authorised the Company's Board
of Directors to acquire, by all means, its own shares. This authorisation, which
was valid for a period of 18 months as of the date of that shareholders'
meeting, was cancelled on 28 May 2002 and replaced by a new authorisation valid
for a new period of 18 months as of 28 May 2002. The total amount that the
Company may use for the purpose of repurchasing its own shares is euro
7,221,844,355. The acquisitions made by the Company under this authorisation
shall not lead the Company to hold more than 10% of its share capital. At 31
December 2002, the Company did not hold any treasury shares.
- On 29 December 2000 the shareholders authorised the Company's Board
of Directors to issue bonds or other equivalent securities. The authorisation is
valid for a period of 5 years. The maximum nominal amount shall not exceed euro
5 billion.
Share option plans
On 19 January 2001, by virtue of the authorisation granted by the shareholders
on 29 December 2000, the Company's Board of Directors approved the general
principles and rules set out in the share option plans (Orange Share Option
Plan, Orange International Sharesave Plan, Orange International Share Option
Plan, Orange US Share Option Plan).
In 2002, 30,316,206 new options were granted to eligible employees. As at 31
December 2002, 111,403,926 options were outstanding, of which 12,400,926 were
exercisable, representing 2.31% and 0.26% of the Company's share capital at that
date, respectively.
2.2 Provisions for risks and liabilities
( millions of euro) At 31 December Charge Utilisation At 31 December
2001 2002
Provisions for risk - 58 - 58
Provision for exchange loss 2 13 2 13
Total provisions for risks and 2 71 2 71
liabilities
Operating provisions - - - -
Financial provisions - 13 2 -
Extraordinary provisions - 58 - -
2.3 Maturity of current assets and current liabilities
Current assets and current liabilities are due within one year.
2.4 Debt
- Long-term debt includes:
* a euro 700 million credit facility granted to the Company in
connection with supply agreements for UMTS equipment entered into by the
Company's subsidiaries in France and the United Kingdom. At 31 December 2002,
the Company had drawn down euro 371 million under this facility, of which euro
127 million are more than one year. The maturity of the facility is euro 270
million on 31 December 2003, euro 220 million on 31 May 2004 and euro 210
million on 30 June 2004 vendor financing facilities are subject to early
repayment in the event that the related supply contract is terminated for reason
other than the default of the vendor.
* a loan granted by CWF to the Company amounting to euro 2,304 million
at 31 December 2002.
- Short-term debt includes current accounts granted by the Company's
subsidiaries (mainly OrangeFrance, Orange plc) as well as draw-downs totalling
euro 2.5 billion on the 4 billion multicurrency facility granted by France
Telecom.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR USSAROVRORUR