Vodafone 2004 Annual Report Download - page 45

Annual Report 2004 Vodafone Group Plc
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Contractual obligations
A summary of the Group’s principal contractual financial obligations is shown below.
Further details on the items included can be found in the notes to the Consolidated
Financial Statements.
Payments due by period £m (years)
Contractual obligations Total <1 year 1-3 years 3-5 years >5 years
Short term debt 2,054 2,054 –––
Long term debt 12,224 – 3,256 1,698 7,270
Operating lease commitments 2,737 586 661 474 1,016
Capital commitments 866 866 –––
Purchase commitments 957 890 39 10 18
Preference shares 875 12 ––863
Total contractual cash obligations 19,713 4,408 3,956 2,182 9,167
An analysis of the Group’s commitments under short and long term debt is shown in
note 19 and commitments under operating leases in note 26 to the Consolidated
Financial Statements.
Capital commitments shown in the table above are estimated to represent
approximately 17% of the Group’s total capital expenditure in the 2005 financial year
and are primarily related to network infrastructure. Purchase commitments
predominantly comprise commitments for handsets.
The above table of contractual obligations excludes potential cash outflows of up to
£2.6 billion in relation to additional investments in Japan that were announced on
25 May 2004 (see note 33 to the Consolidated Financial Statements), commitments in
respect of options over interests in Group businesses held by minority shareholders
(see “Option agreements”) and obligations to pay dividends to minority shareholders
(see “Dividends from associated undertakings and dividends to minority interests”).
Disclosures required by FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others”, are provided in note 27 to the Consolidated Financial
Statements.
Option agreements
Potential cash inflows
As part of the agreements entered into upon the formation of Verizon Wireless, the
Company entered into an Investment Agreement with Verizon Communications,
formerly Bell Atlantic Corporation, and Verizon Wireless. Under this agreement, dated
3 April 2000, the Company has the right to require Verizon Communications or Verizon
Wireless to acquire interests in the Verizon Wireless partnership from the Company
with an aggregate market value of up to $20 billion during certain periods up to
August 2007, dependent on the value of the Company’s 45% stake in Verizon
Wireless. This represents a further potential source of liquidity to the Group.
Exercise of the option may occur in either one or both of two phases. The Phase I
option may be exercised during the period commencing 30 days before and ending
30 days after 10 July 2004 and provides for the aggregate amount paid to not exceed
$10 billion. The Phase II Option may be exercised during the periods commencing
30 days before and ending 30 days after any one or more of 10 July 2005, 10 July
2006 and 10 July 2007. The Phase II Option also limits the aggregate amount paid to
$20 billion, less any amounts paid under Phase I, and caps the payments under single
exercises to $10 billion. Determination of the market value of the Company’s interests
will be by mutual agreement of the parties to the transaction or, if no such agreement
is reached within 30 days of the valuation date, by appraisal. If an initial public
offering takes place and the common stock trades in a regular and active market, the
market value of the Company’s interest will be determined by reference to the trading
price of common stock.
Potential cash outflows
In respect of the Group’s interest in the Verizon Wireless partnership, an option
granted to Price Communications, Inc. by Verizon Communications is exercisable at
any time up to and including 15 August 2006. The option gives Price
Communications, Inc. the right to exchange its preferred limited partnership interest in
Verizon Wireless of the East LP for either equity of Verizon Wireless (if an initial public
offering of such equity occurs), or common stock of Verizon Communications. The
option exercise would result in an exchange for shares at a fixed value of $1.113
billion plus a preferred allocation of profits from Verizon Wireless of the East LP on a
quarterly basis, but not to exceed 2.9151% per annum. If the exercise occurs, Verizon
Communications has the right, but not the obligation, to contribute the preferred
interest to the Verizon Wireless partnership, diluting the Group’s interest. However, the
Group also has the right to contribute further capital to the Verizon Wireless
partnership in order to maintain its percentage partnership interest at the level just
prior to the exercise of the option. Such amount would not exceed $1 billion.
Pursuant to an August 1999 shareholder agreement concerning the formation of
Vodafone Hungary, Antenna was granted a put option in respect of its interest in
Vodafone Hungary. On 7 October 2002 this put option was amended. The amended
option gives Antenna the right, but not the obligation, to sell its remaining interest to
the Group should its total interest be diluted below 10% of the capital of Vodafone
Hungary as a result of a capital increase. The option price is the lower of fair market
value or contributed capital plus accretion at the lower of inflation or Budapest
interbank offered rate plus 1%. Antenna currently holds a 12.1% interest in Vodafone
Hungary.
On 26 November 2002, an option was granted to France Telecom that gives it the
right, but not the obligation, to buy 43,561,703 shares (representing a 10.85% stake)
in Vodafone Greece at a price of 114.29 per share, following the purchase by the
Group of 58,948,830 shares in Vodafone Greece from France Telecom. France
Telecom may exercise this option (in whole or in part) at any time until maturity on 29
November 2004. Furthermore, the option will expire when none of France Telecom’s
exchangeable notes (maturing on 29 November 2004) with regard to Vodafone Greece
remain outstanding. On exercise of the option, the Group would pay in cash the
excess of the Vodafone Greece share price over 114.29 per share. At 31 March
2004, Vodafone Greece’s share price was 16.00 per share and the Company is in the
process of de-listing its shares, following its tender offer and market purchases
resulting in an increase of the Group’s consolidated shareholding to 99.4%.
On 27 November 2003, Vodafone Jersey Holdings Ltd was granted a call option over
20% of the issued ordinary share capital of MTC Vodafone (Bahrain) BSCC. The option
is exercisable in two tranches. Tranche one is exercisable at par at any time on or
after 28 December 2004 but before 28 December 2007. Tranche two is exercisable at
par plus 20% at any time on or after 28 December 2007 but before 28 December
2009.
On 31 December 2003, as part of the restructuring described within “History and
Development of the Company”, the Group’s associate investment, SFR, granted a put
option to SNCF over its 35% shareholding in Cegetel. SNCF may exercise the put
option, consisting of 4,982,353 shares, at any time during the period 1 January 2007
to 31 March 2010 and SNCF has been granted a value floor for the option of an
aggregate amount equal to the sum of EUR 183 million plus such amount of interest
as has accrued at the euro overnight index average rate on the sum of 132 million
between 31 December 2003 and the date on which the transfer of the SNCF
shareholding to SFR occurs. Furthermore, the option exercise may be accelerated in
certain circumstances. Reciprocally, SNCF has granted SFR a call option over the 35%
stake, which may be exercised at any time between 1 April 2010 and 30 June 2013.
As part of ongoing discussions and negotiations with Telecom Egypt, in which it would
acquire a minority stake in Vodafone Egypt and enter into a Joint Venture with the
Vodafone Group, it has been agreed in principle to grant a put option to Telecom Egypt