Vodafone 2003 Annual Report Download - page 128

Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
shown on the face of the consolidated balance sheet. US GAAP does not permit the Group’s share of turnover of joint ventures and associated undertakings
to be disclosed on the face of the consolidated income statement, nor does it permit the Group’s share of gross assets and gross liabilities to be shown on
the face of the consolidated balance sheet.
Equity accounting for Vodafone Italy and Vodafone Spain results in the operating loss, Group net interest payable, Group taxation payable and equity minority
interests being less than/(more than) the equivalent UK GAAP amount by £1,955m, £(45)m, £478m and £264m (2002: £2,060m, £(9)m, £402m and
£249m; 2001: £2,231m, £15m, £265m and £209m), respectively. Equity accounting for Vodafone Italy and Vodafone Spain results in the Group’s share of
the operating loss, interest payable and taxation payable of associated undertakings being greater/(lower) under US GAAP than UK GAAP by £1,501m,
£(34)m and £367m (2002: £1,577m, £(7)m and £307m; 2001: £2,508m, £11m and £201m), respectively. The Group’s investment in subsidiaries
consolidated under UK GAAP but equity accounted under US GAAP at 31 March 2003 would be £21,512m (2002: £21,394m) greater under US GAAP than
UK GAAP.
(b) Connection revenues and income
Under the Group’s UK GAAP accounting policy, connection revenues are recognised upon connection of the customer to the cellular network, and revenues from
the sale of a mobile handset and related costs are recognised upon delivery to the customer. Under US GAAP, connection revenues are recognised over the
period that a customer is expected to remain connected to a network. Connection costs directly attributable to the income deferred are recognised over the same
period. Where connection costs exceed connection revenues, the excess costs are charged in the profit and loss account immediately upon connection.
(c) Goodwill and other intangibles
Under UK GAAP, the policy followed prior to the introduction of FRS 10, “Goodwill and Intangible Assets”, which is effective for accounting periods ended on
or after 23 December 1998 and was adopted on a prospective basis, was to write off goodwill against shareholders’ equity in the year of acquisition. FRS 10
requires goodwill to be capitalised and amortised over its estimated useful economic life. Under US GAAP, following the introduction of SFAS No. 142, which
is effective for accounting periods starting after 15 December 2001 and, transitionally, for acquisitions completed after 30 June 2001, goodwill and
intangible assets with indefinite lives are capitalised and not amortised, but tested for impairment, at least annually, in accordance with SFAS No. 142.
Intangible assets with finite lives continue to be capitalised and amortised over their useful economic lives.
Under UK GAAP and US GAAP the purchase price of a transaction accounted for as an acquisition is based on the fair value of the consideration. In the case
of share consideration, under UK GAAP the fair value of such consideration is based on the share price at completion of the acquisition or the date when the
transaction becomes unconditional. Under US GAAP the fair value of the share consideration is based on the average share price over a reasonable period of
time before and after the proposed acquisition is agreed to and announced. This has resulted in a difference in the fair value of the consideration for certain
acquisitions and consequently in the amount of the purchase price capitalised under UK and US GAAP.
Under UK GAAP, costs incurred in reorganising acquired businesses are charged to the profit and loss account as post-acquisition expenses. Under US GAAP,
certain of such costs are considered in the allocation of purchase consideration and thereby the determination of goodwill arising on acquisition.
(d) Exceptional items
As described in note 4, the Group recorded an impairment charge under UK GAAP of £405m in relation to the fixed assets of Japan Telecom. Under US
GAAP, the Group evaluated the recoverability of these fixed assets in accordance with the requirements of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, and determined that the carrying amount of these assets was recoverable. As a result, the UK GAAP impairment charge of
£405m has not been recognised under US GAAP.
(e) Stock based compensation
Under UK GAAP, options granted over the Company’s ordinary shares are accounted for using the intrinsic value method, with the difference between the fair
value of shares at grant date and the exercise price charged to the profit and loss over the period until the shares first vest. Grants under the Company’s
SAYE schemes are exempt from this accounting methodology.
Under US GAAP, the Group accounts for option plans in accordance with the requirements of APB 25, “Accounting for stock issued to employees” and applies
the disclosure provisions of SFAS No. 148, “Accounting for stock-based compensation – transition and disclosure”. Under APB 25, such plans are accounted
for as variable and the cost is calculated by reference to the market price of the shares at grant date and amortised over the period until the shares first
vest. Where the measurement period has not yet been completed, the cost is calculated by reference to the market price of the relevant shares at the end of
each accounting period.
(f) Capitalised interest
Under UK GAAP, the Group’s policy is not to capitalise interest costs on borrowings in respect of the acquisition of tangible and intangible fixed assets. Under
US GAAP, the interest cost on borrowings used to finance the construction of network assets is capitalised during the period of construction until the date
that the asset is placed in service. Interest costs on borrowings to finance the acquisition of licences are also capitalised until the date that the related
network service is launched. Capitalised interest costs are amortised over the estimated useful lives of the related assets.
37. US GAAP information continued