France Telecom (FTE) | Analysis of Property, Plant and Equipment

Property, Plant and Equipment Accounting Policy

Property, plant and equipment mainly comprise network equipment.

The gross value of tangible assets corresponds to their acquisition or production cost, including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, representing the obligation incurred by France Telecom.

The cost of networks includes design and construction costs, as well as capacity improvement costs. Maintenance and repair costs are expensed as incurred, except where they serve to increase the asset's productivity or prolong its useful life.

When tangible assets are acquired in a business combination, their cost is determined in connection with the purchase price allocation based on their respective fair market value. When their fair market value is not readily determinable, cost is determined using generally accepted valuation methods.

The total cost of an asset is allocated among its different components and each component is accounted for separately when the components have different useful lives, or when the pattern in which their future economic benefits are expected to be consumed by the entity varies.

Contracts relating to satellite capacity have been reviewed in light of the criteria set out in IFRIC 4. As no specific assets have been identified, these contracts are considered to be service contracts, which costs expensed when the service is rendered. Firm purchase commitments relating satellite capacity are unrecognized contractual commitments.

Finance leases

Assets acquired under leases that transfer the risks and rewards of ownership to France Telecom are recorded as assets, with an obligation of the same amount recorded in liabilities. The risks and rewards of ownership are considered as having been transferred to France Telecom notably when:

• the lease transfers ownership of the asset to the lessee by the end of the lease term;
• France Telecom has the option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable; therefore for France Telecom to be reasonably certain, at the inception of the lease, that the option will be exercised;
• the lease term is for the major part of the estimated economic life of the leased asset;
• at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset.

Most of these agreements relate to network buildings.

Assets leased by France Telecom as the lessor, under leases that transfer the risks and rewards of ownership to the lessee, are treated as having been sold.

Government grants

France Telecom may receive non-repayable government grants in the form of direct or indirect funding for capital projects, mainly provided by local and regional authorities. These grants are deducted from the cost of the related assets and are recognized in the income statement, based on the pattern in which the related asset's expected future economic benefits are consumed.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset which requires a substantial period of time to get ready for its intended use or sale. In France Telecom's assessment, the network deployment mode does not generally require a substantial period of time.

As a consequence, France Telecom usually does not capitalize interest expense incurred during the period of construction and acquisition of property, plant and equipment and intangible assets.

Source: France Telecom, Annual Report

Property, Plant and Equipment Disclosure

France Telecom, Statement of Financial Position, Property, Plant and Equipment

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Land and buildings
	Networks and terminals
	IT equipment
	Other property, plant and equipment
	Property, plant and equipment, gross value
	Impairment
	Property, plant and equipment, net of impairment
	Accumulated depreciation and amortization
	Property, plant and equipment, net book value

Source: Based on data from France Telecom Annual Reports

Property, Plant and Equipment Ratios (Summary)

France Telecom, Property, Plant and Equipment Ratios

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Average age	%	%	%	%	%
	Estimated total useful life (years)
	Estimated age, time elapsed since purchase (years)
	Estimated remaining life (years)

Average Age

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Selected Financial Data (USD $ in millions, translated from EUR €)
	Accumulated depreciation and amortization
	Property, plant and equipment, net of impairment
	Ratio
	Average age1	%	%	%	%	%

2011 Calculations

Estimated Total Useful Life

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Selected Financial Data (USD $ in millions, translated from EUR €)
	Property, plant and equipment, net of impairment
	Depreciation of property, plant and equipment
	Ratio
	Estimated total useful life (years)1

2011 Calculations

Estimated Age, Time Elapsed Since Purchase

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Selected Financial Data (USD $ in millions, translated from EUR €)
	Accumulated depreciation and amortization
	Depreciation of property, plant and equipment
	Ratio
	Time elapsed since purchase (years)1

2011 Calculations

Estimated Remaining Life

		Dec 31, 2011	Dec 31, 2010	Dec 31, 2009	Dec 31, 2008	Dec 31, 2007
	Selected Financial Data (USD $ in millions, translated from EUR €)
	Property, plant and equipment, net book value
	Depreciation of property, plant and equipment
	Ratio
	Estimated remaining life (years)1

2011 Calculations