BT 2002 Annual Report Download - page 83

1. Accounting for the reorganisation and demerger, changes in accounting policy and presentation and
discontinued activities continued
the demerger has been calculated assuming that mmO2's net debt at the date of the demerger of £500 million, had been
in existence for the whole of the period, and had been bearing an interest charge of 8% per annum.
The interest charge allocated to Yell for all periods presented up to the date of disposal represents amounts payable on
intercompany loans charged at an arm's length rate of interest. The taxation charge allocated to discontinued activities, for
all periods presented up to the date of demerger or disposal, represents amounts charged to these entities before
recognising credit for group relief surrendered to entities within continuing activities.
(d) Unaudited pro forma balance sheet at 31 March 2001
Unaudited balance sheet information prepared on a pro forma basis has been presented for BT at 31 March 2001 as if the
demerger of mmO2 and the sale of other discontinued businesses noted above had occurred on that date. The unaudited
pro forma balance sheet does not re¯ect the impact of the BT rights issue which closed in June 2001, nor the capital
reduction which occurred on 21 November 2001.
2. Segmental analysis
The group provides telecommunication services, principally in the UK and essentially operates as a unitary business. Its
main services and products are ®xed voice and data calls, the provision of ®xed exchange lines to homes and businesses,
the provision of communication services to other operators, the provision of private services to businesses and the supply
of telecommunication equipment for customers' premises.
In April 2000, the group announced a restructuring whereby the group and its associates and joint ventures would
be managed in several separate lines of business. The continuing lines of business comprise two international businesses
and two UK operating businesses, together with the group's Concert global venture. The two international businesses,
which were formed in July 2000, are: BT Ignite responsible for broadband and internet networks; and BTopenworld
covering the consumer and SME market for internet products. The two UK operating lines of business, which were formed
in autumn 2000, are: BT Wholesale covering the UK ®xed network; and BT Retail responsible for marketing UK ®xed-
network products. Two discontinued international businesses comprised mmO2 covering the group's interests in mobile
communications and Yell, responsible for the classi®ed directories business.
The turnover of each line of business is derived as follows:
&BT Retail derives its turnover from the supply of exchange lines to the group's UK customers and from the calls
they make over these lines, the leasing of private circuits and other private services, and the sale and rental of customer
premises equipment.
&BT Wholesale derives its turnover from providing network services to BT Retail and other BT lines of business, and
from interconnecting the group's UK network to other operators.
&BT Ignite mainly generates its turnover from outsourcing and systems integration work and from the ®xed network
operations of the group's European subsidiaries. The business also derives revenues from providing web hosting facilities.
&BTopenworld mainly derives its turnover from its narrowband and broadband internet access products.
&mmO2 mainly derived its turnover from the calls made and received by its customers using its mobile phones, from
subscription fees charged to its contract customers and from handset equipment sales.
&Yell derived its turnover from selling advertising in its classi®ed directories in the UK and in the US.
Prior to the restructuring implemented during the year ended 31 March 2001, the group was managed as a unitary
business providing an integrated range of services. For the purposes of exercising day-to-day managerial and budgetary
control, however, the business was divided internally into divisions but these divisions were not self-standing businesses.
Control was exercised by comparing performance against budgets agreed in advance. The group's chief operating
decision maker (the Chief Executive) reviewed the turnover and operating results for each main division. The group's capital
expenditure programmes were largely centrally driven and were not necessarily linked to individual divisions. For this reason
it had been group policy not to allocate certain assets to individual divisions, although depreciation charges were allocated.
Segmented information on the lines of business is given below for the years ended 31 March 2002 and 31 March 2001
as required by the UK accounting standard SSAP 25 and the US accounting standard SFAS No. 131 (SFAS 131).
Financial information in this form was made available to the senior management of the group with respect to
accounting periods from 1 July 2000. During the 2002 ®nancial year, the lines of business de®nitions have been re®ned and
the comparatives for the 2001 ®nancial year have been accordingly adjusted to show the business as if they had traded as
separate units throughout the relevant comparative period. There is extensive trading between many of the business units
and pro®tability is dependent on the transfer price levels. These intra-group trading arrangements have been subject to
review and have changed in certain instances. Comparative ®gures have been restated for these and other changes and in
certain instances have been determined using apportionments and allocations.
Notes to the financial statements
82 BT Group Annual Report and Form 20-F 2002