Consolidated financial statements - ?· Consolidated financial statements Year ended December 31, 2016…

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<ul><li><p>Consolidated financial statements </p><p>Year ended December 31, 2016 </p><p>This document is a free translation into English of the yearly financial report prepared in French and is provided solely for the </p><p>convenience of English speaking readers. </p></li><li><p>Consolidated financial statements 2016 2 </p><p>Table of contents </p><p>Financial statements </p><p>Consolidated income statement 3 Consolidated statement of comprehensive income 4 Consolidated statement of financial position 5 Consolidated statements of changes in shareholders' equity 6 Analysis of changes in shareholders' equity related to components of the other comprehensive income 7 Consolidated statement of cash flows 8 </p><p>Notes to the consolidated financial statements </p><p>NOTE 1 Segment information 10 1.1 Segment revenues 10 1.2 Segment revenues to segment reported EBITDA 12 1.3 Segment reported EBITDA to segment operating income </p><p>and segment investments 14 1.4 Segment assets 16 1.5 Segment equity and liabilities 18 1.6 Simplified statement of cash flows on telecommunication </p><p>and banking activities 20 1.7 Contribution of telecom activities and Orange Bank to the </p><p>assets and liabilities of the Group 20 1.8 Transition from adjusted EBITDA to reported EBITDA 22 </p><p>NOTE 2 Description of business and basis of preparation of the consolidated financial statements 24 </p><p>2.1 Description of business 24 2.2 Basis of preparation of the 2016 consolidated financial </p><p>statements 24 2.3 Changes to the presentation of consolidated financial </p><p>statements 25 2.4 Standards and interpretations compulsory after December </p><p>31, 2016 and which the Group did not early apply 25 2.5 Use of estimates and judgment 26 </p><p>NOTE 3 Gains and losses on disposal and main changes in scope of consolidation 27 </p><p>3.1 Gains (losses) on disposal of securities and businesses 27 3.2 Main changes in the scope of consolidation 27 </p><p>NOTE 4 Sales 32 4.1 Revenues 32 4.2 Other operating income 34 4.3 Trade receivables 34 4.4 Deferred income 35 4.5 Other assets 36 4.6 Related party transactions 37 </p><p>NOTE 5 Purchases and other expenses 37 5.1 External purchases 37 5.2 Other operating expenses 37 5.3 Restructuring and integration costs 38 5.4 Broadcasting rights and equipment inventories 39 5.5 Prepaid expenses 39 5.6 Trade payables 40 5.7 Other liabilities 40 5.8 Related party transactions 41 </p><p>NOTE 6 Employee benefits 42 6.1 Labor expenses 42 6.2 Employee benefits 42 6.3 Share-based payment 47 6.4 Executive compensation 48 </p><p>NOTE 7 Goodwill 48 7.1 Impairment loss 48 7.2 Goodwill 49 7.3 Key assumptions used to determine recoverable amounts 50 7.4 Sensitivity of recoverable amounts 51 </p><p>NOTE 8 Other intangible assets and property, plant and equipment 53 </p><p>8.1 Depreciation and amortization 53 8.2 Impairment of fixed assets 54 8.3 Other intangible assets 55 8.4 Property, plant and equipment 57 8.5 Fixed asset payables 58 8.6 Current provisions for dismantling 58 </p><p>NOTE 9 Taxes 59 9.1 Operating taxes and levies 59 9.2 Income tax 60 </p><p>NOTE 10 Interests in associates and joint ventures 65 NOTE 11 Financial assets, liabilities and financial result </p><p>(excluding Orange Bank) 67 11.1 Financial assets and liabilities of telecom activities 67 11.2 Profit and losses related to financial assets and liabilities </p><p>(excluding Orange Bank) 67 11.3 Net financial debt 68 11.4 TDIRA 70 11.5 Bonds 72 11.6 Bank loans and from development organizations and </p><p>multilateral lending institutions 73 11.7 Financial assets (excluding Orange Bank) 74 11.8 Derivatives (excluding Orange Bank) 76 </p><p>NOTE 12 Information on market risk and fair value of financial assets and liabilities (excluding Orange Bank) 78 </p><p>12.1 Interest rate risk management 78 12.2 Foreign exchange risk management 79 12.3 Liquidity risk management 80 12.4 Management of covenants 82 12.5 Credit risk and counterparty risk management 82 12.6 Equity market risk 84 12.7 Capital management 84 12.8 Fair value of financial assets and liabilities (excluding </p><p>Orange Bank) 85 NOTE 13 Shareholders' equity 87 </p><p>13.1 Changes in share capital 87 13.2 Treasury shares 87 13.3 Dividends 88 13.4 Subordinated notes 88 13.5 Translation adjustment 90 13.6 Non-controlling interests 91 13.7 Earnings per share 92 </p><p>NOTE 14 Unrecognized contractual commitments excluding Orange Bank 93 </p><p>14.1 Commitments related to operating activities 93 14.2 Consolidation scope commitments 95 14.3 Financing commitments 96 </p><p>NOTE 15 Activities of Orange Bank 97 15.1 Financial assets and liabilities of Orange Bank 97 15.2 Information on market risk management with respect to </p><p>Orange Bank operations 99 15.3 Orange Bank's unrecognized contractual commitments 101 </p><p>NOTE 16 Litigation 101 16.1 Litigation in France 102 16.2 Litigation in Europe 104 16.3 Litigation in the Middle East and Africa 104 16.4 Litigation related to banking activities 105 16.5 Other Group litigation 105 </p><p>NOTE 17 Subsequent events 105 NOTE 18 Main consolidated entities 105 NOTE 19 Fees paid to statutory auditors 107 </p><p>The accompanying notes are an integral part of the consolidated financial statements. </p><p>The accounting principles are split within each note in gray areas. </p></li><li><p>Consolidated financial statements 2016 3 </p><p>Consolidated income statement </p><p>(in millions of euros, except for per share data) Note 2016 2015 2014 </p><p>Revenues 4.1 40,918 40,236 39,445 </p><p>External purchases 5.1 (18,281) (17,697) (17,251) </p><p>Other operating income 4.2 739 642 714 </p><p>Other operating expense 5.2 (543) (1,069) (856) </p><p>Labor expenses 6.1 (8,866) (9,058) (9,096) </p><p>Operating taxes and levies 9.1.1 (1,808) (1,783) (1,795) </p><p>Gains (losses) on disposal of investments and activities 3.1 59 178 390 </p><p>Restructuring and integration costs 5.3 (499) (172) (439) </p><p>Depreciation and amortization 8.1 (6,728) (6,465) (6,038) </p><p>Effects resulting from business combinations 3.2 97 6 - </p><p>Reclassification of translation adjustment from liquidated entities 14 - - </p><p>Impairment of goodwill 7.1 (772) - (229) </p><p>Impairment of fixed assets 8.2 (207) (38) (59) </p><p>Share of profits (losses) of associates and joint ventures 10 (46) (38) (215) </p><p>Operating income 4,077 4,742 4,571 </p><p>Cost of gross financial debt 11.2 (1,407) (1,597) (1,653) </p><p>Gains (losses) on assets contributing to net financial debt 11.2 23 39 62 </p><p>Foreign exchange gains (losses) 11.2 (149) 1 22 </p><p>Other net financial expenses 11.2 (31) (26) (69) </p><p>Effects resulting from BT stake 11.7 (533) - - </p><p>Finance costs, net (2,097) (1,583) (1,638) </p><p>Income tax 9.2.1 (970) (649) (1,573) </p><p>Consolidated net income of continuing operations 1,010 2,510 1,360 </p><p>Consolidated net income of discontinued operations (EE) 3.2 2,253 448 (135) </p><p>Consolidated net income 3,263 2,958 1,225 </p><p>Net income attributable to owners of the parent 2,935 2,652 925 </p><p>Non-controlling interests 13.6 328 306 300 </p><p>Earnings per share (in euros) attributable to parent company 13.7 </p><p>Net income of continuing operations </p><p> basic 0.19 0.76 0.36 </p><p> diluted 0.19 0.75 0.36 </p><p>Net income of discontinued operations </p><p> basic 0.85 0.17 (0.05) </p><p> diluted 0.85 0.17 (0.05) </p><p>Net income </p><p> basic 1.04 0.93 0.31 </p><p> diluted 1.04 0.92 0.31 </p></li><li><p>Consolidated financial statements 2016 4 </p><p>Consolidated statement of comprehensive income </p><p>(in millions of euros) Note 2016 2015 2014 </p><p>Consolidated net income 3,263 2,958 1,225 </p><p>Remeasurements of the net defined benefit liability 6.2 (80) 53 (150) </p><p>Income tax relating to items that will not be reclassified 9.2.2 20 (15) 29 </p><p>Share of other comprehensive income in associates and joint ventures that will not be reclassified 10 (0) (2) 2 </p><p>Items that will not be reclassified to profit or loss (a) (60) 36 (119) </p><p>Assets available for sale 11.7-15.1 (4) 15 (26) </p><p>Cash flow hedges 11.8.2 (364) 538 (273) </p><p>Net investment hedges 11.8 - - (85) </p><p>Translation adjustment gains and losses 13.5 (227) 77 285 </p><p>Income tax relating to items that are or may be reclassified 9.2.2 123 (187) 122 </p><p>Items that are or may be reclassified subsequently to profit or loss (b) (472) 443 23 </p><p>Other comprehensive income from continuing operations (a) + (b) (532) 479 (96) </p><p>Remeasurements of the net defined benefit liability in associates and joint ventures</p><p> 52 - (34) </p><p>Income tax relating to items that are not reclassified in associates and joint venture</p><p> (4) - 5 </p><p>Items that are not reclassified to profit or loss (c) 10 48 - (29) </p><p>Translation adjustment gains and losses 13.5 (836) - 387 </p><p>Net Investment hedges 11.8 65 - - </p><p>Net Investment hedges in associates and joint ventures 10 - - (1) </p><p>Cash flow hedges in associates and joint ventures 10 (5) - 2 </p><p>Income tax relating to items that are reclassified 9.2.2 (22) - - </p><p>Items that are reclassified subsequently to profit or loss (d) (798) - 388 </p><p>Other comprehensive income of discontinued operations (EE) (c) + (d) (750) - 359 </p><p>Other consolidated comprehensive income (a) + (b) + (c) + (d) (1,282) 479 263 </p><p>Consolidated comprehensive income 1,981 3,437 1,488 </p><p>Comprehensive income attributable of the parent company 1,669 3,104 1,162 </p><p>Comprehensive income attributable to non-controlling interests 312 333 326 </p></li><li><p>Consolidated financial statements 2016 5 </p><p>Consolidated statement of financial position </p><p>(in millions of euros) Note December 31, </p><p>2016 December 31, </p><p>2015 December 31, </p><p>2014 </p><p>Assets </p><p>Goodwill 7.2 27,156 27,071 24,784 </p><p>Other Intangible assets 8.3 14,602 14,327 11,811 </p><p>Property, plant and equipment 8.4 25,912 25,123 23,314 </p><p>Interests in associates and joint ventures 10 130 162 603 </p><p>Non-current loans and advances of Orange Bank 15.1 1,025 - - </p><p>Non-current financial assets 1.7 3,882 835 4,232 </p><p>Non-current derivatives assets 1.7 915 1,297 579 </p><p>Other non-current assets 4.5 106 85 76 </p><p>Deferred tax assets 9.2.3 2,116 2,430 2,817 </p><p>Total non-current assets 75,844 71,330 68,216 </p><p>Inventories 5.4 819 763 709 </p><p>Trade receivables 4.3 4,964 4,876 4,612 </p><p>Current loans and advances of Orange Bank 15.1 2,066 - - </p><p>Current financial assets 1.7 1,862 1,283 245 </p><p>Current derivatives assets 1.7 57 387 48 </p><p>Other current assets 4.5 1,073 983 677 </p><p>Operating taxes and levies receivables 9.1.2 918 893 890 </p><p>Current tax assets 9.2.3 170 163 132 </p><p>Prepaid expenses 5.5 540 495 392 </p><p>Cash and cash equivalent 1.7 6,355 4,469 6,758 </p><p>Total current assets 18,824 14,312 14,463 </p><p>Assets held for sale (1)</p><p> - 5,788 5,725 </p><p>Total assets 94,668 91,430 88,404 </p><p>Equity and liabilities </p><p>Share capital 10,640 10,596 10,596 </p><p>Share premiums and statutory reserve 16,859 16,790 16,790 </p><p>Subordinated notes 5,803 5,803 5,803 </p><p>Retained earnings (2,614) (2,282) (3,630) </p><p>Equity attributable to the owners of the parent 30,688 30,907 29,559 </p><p>Non controlling interest 2,486 2,360 2,142 </p><p>Total equity 13 33,174 33,267 31,701 </p><p>Non-current financial liabilities 1.7 28,909 29,528 29,482 </p><p>Non-current derivatives liabilities 1.7 578 252 721 </p><p>Non-current fixed assets payable 8.5 907 1,004 564 </p><p>Non-current debts related to Orange Bank activities 15.1 518 - - </p><p>Non-current employee benefits 6.2 3,029 3,142 3,239 </p><p>Non-current provisions for dismantling 8.6 716 715 712 </p><p>Non-current restructuring provisions 5.3 185 225 336 </p><p>Other non-current liabilities 5.7 608 792 677 </p><p>Deferred tax liabilities 9.2.3 658 879 957 </p><p>Total non-current liabilities 36,108 36,537 36,688 </p><p>Current financial liabilities 1.7 4,759 4,536 4,891 </p><p>Current derivatives liabilities 1.7 50 131 169 </p><p>Current fixed assets payable 8.5 2,800 2,728 1,791 </p><p>Trade payables 5.6 6,211 6,227 5,775 </p><p>Current debts related to Orange Bank activities 15.1 3,846 - - </p><p>Current employee benefits 6.2 2,266 2,214 1,984 </p><p>Current provisions for dismantling 8.6 21 18 21 </p><p>Current restructuring provisions 5.3 190 189 162 </p><p>Other current liabilities 5.7 1,530 1,695 1,294 </p><p>Operating taxes and levies payables 9.1.2 1,241 1,318 1,288 </p><p>Current tax payables 9.2.3 338 434 684 </p><p>Deferred income 4.4 2,134 2,136 1,956 </p><p>Total current liabilities 25,386 21,626 20,015 </p><p>Liabilities related to assets held for sale (1)</p><p> - - - </p><p>Total equity and liabilities 94,668 91,430 88,404 </p><p>(1) Telkom Kenya and EE in 2015 and EE in 2014. </p></li><li><p>Consolidated financial statements 2016 6 </p><p>Consolidated statements of changes in shareholders' equity </p><p>(in millions of euros) Note </p><p>Attributable to owners of the parent company Attributable to non-controlling interests </p><p>Total equity </p><p>Number of issued shares </p><p>Share capital </p><p>Share premiums </p><p>and statutory reserve </p><p>Subor- dinated </p><p>notes </p><p>Reserves Other compre- hensive income </p><p>Total Res- erves </p><p>Other compre- hensive income </p><p>Total </p><p>Balance at January 1, 2014 2,648,885,383 10,596 16,790 - (3,210) 173 24,349 1,763 222 1,985 26,334 </p><p>Consolidated comprehensive income - - - - 925 237 1,162 300 26 326 1,488 </p><p>Share-based compensation 6.3 - - - - 170 - 170 3 - 3 173 </p><p>Purchase of treasury shares 13.2 - - - - 109 - 109 - - - 109 </p><p>Dividends 13.3 - - - - (1,846) - (1,846) (294) - (294) (2,140) </p><p>Subordinated notes issuance 13.4 - - - 5,803 (88) - 5,715 - - - 5,715 </p><p>Changes in ownership interests with no gain/loss of control 3.2 - - - - (59) - (59) 44 - 44 (15) </p><p>Changes in ownership interests with gain/loss of control 3.2 - - - - (64) - (64) 72 - 72 8 </p><p>Other movements - - - - 23 - 23 6 - 6 29 </p><p>Balance at December 31, 2014 2,648,885,383 10,596 16,790 5,803 (4,040) 410 29,559 1,894 248 2,142 31,701 </p><p>Consolidated comprehensive income - - - - 2,652 452 3,104 306 27 333 3,437 </p><p>Share-based compensation 6.3 - - - - 4 - 4 6 - 6 10 </p><p>Purchase of treasury shares 13.2 - - - - 0 - 0 - - - 0 </p><p>Dividends 13.3 - - - - (1,589) - (1,589) (304) - (304) (1,893) </p><p>Subordinated notes remuneration 13.4 - - - - (272) - (272) - - - (272) </p><p>Changes in ownership interests with no gain/loss of control 3.2 - - - - 24 - 24 4 - 4 28 </p><p>Changes in ownership interests with gain/loss of control 3.2 - - - - - - - 185 - 185 185 </p><p>Other movements - - - - 77 - 77 (6) - (6) 71 </p><p>Balance at December 31, 2015 2,648,885,383 10,596 16,790 5,803 (3,144) 862 30,907 2,085 275 2,360 33,267 </p><p>Consolidated comprehensive income - - - - 2,935 (1,266) 1,669 328 (16) 312 1,981 </p><p>Capital increase 13.1 11,171,216 44 69 - - - 113 - - - 113 </p><p>Share-based compensation 6.3 - - - - 52 - 52 6 - 6 58 </p><p>Purchase of treasury shares 13.2 - - - - 3 - 3 2 - 2 5 </p><p>Dividends 13.3 - - - - (1,596) - (1,596) (259) - (259) (1,855) </p><p>Subordinated notes remuneration 13.4 - - - - (291) - (291) - - - (291) </p><p>Changes in ownership interests with no gain/loss of control 3.2 - - - - (94) - (94) 72 - 72 (22) </p><p>Changes in ownership interests with gain/loss of control 3.2 - - - - 70 - 70 (13) - (13) 57 </p><p>Other movements - - - - (145) - (145) 6 - 6 (139) </p><p>Balance at December 31, 2016 2,660,056,599 10,640 16,859 5,803 (2,210) (404) 30,688 2,227 259 2,486 33,174 </p></li><li><p>Consolidated financial statements 2016 7 </p><p>Analysis of changes in shareholders' equity related to components of the other comprehensive income </p><p>Attributable to owners of the parent Attributable to non-controlling interests </p><p>Total other </p><p>comp-rehen-</p><p>sive income </p><p>Assets available </p><p>for sale </p><p>Hedging in...</p></li></ul>

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