Vodafone 2002 Annual Report Download - page 135

Notes to the Consolidated Financial Statements Vodafone Group Plc 133Annual Report & Accounts and Form 20-F
Foreign exchange rate risk
The Group’s geographical spread exposes it to fluctuations in foreign exchange rates. The Group manages its exposure to foreign currency movements by
hedging known future transactions including those resulting from the repatriation of international dividends and loans.
The Group also uses foreign exchange forwards to hedge transactional foreign exchange exposures.
At 31 March 2002 the Group had outstanding foreign exchange contracts and currency swaps with an aggregate amount of £28m (2001: £43m).
These contracts mature within 13 months (2001: 25 months). The fair value of these contracts was £1m higher than their carrying value at 31 March 2002
(2001: £1m lower). Profits and losses arising from these instruments are recognised in the profit and loss account when the associated sale and purchase is
recognised or when a hedged transaction is no longer expected to occur.
The fair value of both the interest rate and foreign exchange rate risk management instruments was estimated by discounting the future cash flows to net
present values using appropriate market interest and foreign exchange rates prevailing at the year end.
Investments in foreign entities
It is the Group’s policy not to hedge its international net assets with respect to foreign currency balance sheet translation exposure, since net tangible assets
represent a small proportion of the total value of the Group.
Transactions not designated as hedges under SFAS No. 133
The Group does not pursue hedge accounting treatment for:
– futures, which are typically used to switch floating interest rates to fixed interest rates;
– derivatives entered into for funding and liquidity purposes, including forwards; and
– individual contracts where the underlying value of the transactions amounts to less than £10m.
Stock based compensation
For the purposes of US GAAP reporting, the Group accounts for stock based compensation in accordance with APB 25, “Accounting for Stock Issued to
Employees”. The Group also adopts the disclosure only provisions of SFAS No. 123, “Accounting for Stock Based Compensation”.
The Company has four share option plans that it currently uses to grant options to its directors and employees. The maximum aggregate number of ordinary
shares in respect of which options may be granted under these four plans will not (without shareholder approval) exceed 5% of the outstanding ordinary
shares at the date of grant of any options when aggregated with options granted or shares issued to employees over a preceding period of five years for
options granted under the Vodafone Group 1998 Sharesave Scheme (the “Sharesave Scheme”) and ten years under the other option plans.
The Sharesave Scheme enables staff to acquire shares in the Company through monthly savings of up to £250 over a three or five year period, at the end
of which they also receive a tax free bonus. The savings and bonus may then be used to purchase shares at the option price, which is set at the beginning
of the savings contract and usually at a discount of 20% to the then prevailing market price of the Company’s shares. Invitations to participate in this scheme
are normally made annually. This scheme replaced the Vodafone Group Plc Savings Related Share Option Scheme in 1998, as that scheme had then
operated for ten years.
The Company has two discretionary share option schemes, the Vodafone Group 1998 Company Share Option Scheme and the Vodafone Group 1998
Executive Share Option Scheme, one of which is Inland Revenue approved and the other unapproved. Both schemes were adopted by the Company in 1998
to replace two similar previous schemes that expired in that year. The directors used these schemes to award share options to all UK based staff on the
Company’s payroll on 1 July 2000. These “3G Options”were granted in July 2000 and are exercisable from July 2003. The directors also used these
schemes and their predecessor schemes to award share options to all UK based staff on the Company’s payroll on 1 July 1998. These special “Millennium
Options”were granted in July 1998 and became exercisable from July 2001. The schemes are also used to grant annual awards of options to senior
managers and directors.
Options under the discretionary schemes are subject to performance conditions, the aim of which is to link the exercise of options to sustained
improvements in the underlying financial performance of the Company. The performance conditions are set by the Remuneration Committee of the Board.
Options are normally exercisable between three and ten years after their grant.