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65
5
Notes to
the consolidated accounts
All amounts in millions of euros unless otherwise
indicated.
The accompanying notes are an integral part of
the consolidated financial statements.
Note 1 - Accounting Principles
1.1 - Basis of presentation
The consolidated financial statements of the Group
have been prepared in accordance with French GAAP
up until December 31, 2004.
In compliance with the European Union's adoption of
International Financial Reporting Standards (IFRS) as
of January 1, 2005, tables reconciling the 2004 finan-
cial statements prepared in accordance with French
GAAP to the 2004 financial statements prepared in
accordance with IFRS are included in a separate doc-
ument.
1.2 - Use of estimates
The preparation of financial statements requires Group
and subsidiary management to make estimates and
assumptions that are reflected in the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of rev-
enues and expenses and commitments during the
reporting period. Actual results could differ from those
estimates.
1.3 - Consolidation principles
Companies over which the Group has direct or indi-
rect control of more than 50% of the outstanding vot-
ing shares or in which it exercises exclusive control
are fully consolidated. Exclusive control is control by
means other than ownership of a majority voting inter-
est (i.e., control by significant minority ownership, by
contracts or agreement with other shareholders).
Companies over which the Group has significant influ-
ence (“equity affiliates”) are accounted for by the equi-
ty method. A significant influence is presumed to exist
when more than 20% of outstanding voting rights are
held.
The proportional method of consolidation is used for
investments in jointly controlled operating entities,
such as joint ventures and alliances. For such entities,
the Group records its proportional interest in the enti-
ty's balance sheet, income statement and cash flows.
Companies acquired or sold during the year are
included in or removed from the consolidated financial
statements as of the date when effective control is
acquired or relinquished.
Intercompany balances and transactions between
fully-consolidated companies are eliminated in con-
solidation. Intercompany balances and transactions
with proportionally-consolidated companies are elimi-
nated based on the Group's percent interest in the
companies concerned.
A list of significant consolidated subsidiaries is includ-
ed in Note 27. Certain non-significant subsidiaries are
not consolidated.
All of the companies included in the scope of consoli-
dation end the fiscal year on December 31.
1.4 - Translation of the financial statements
of foreign subsidiaries
The consolidated financial statements are prepared in
euros.
The financial statements of subsidiaries that use
another currency are translated into euros as follows:
Assets and liabilities are translated at official year-
end exchange rates.
Income statement amounts and cash flow items are
translated at weighted-average annual exchange
rates. Differences arising on translation are recorded
as part of the cumulative translation adjustment.
1.5 - Foreign currency transactions
Foreign currency transactions are recorded using the
official exchange rate in effect at the date the transac-
tion is recorded or the hedging rate. At year-end, for-
eign currency payables and receivables are translated
into the reporting currency at year-end exchange
rates or the hedging rate. Gains or losses on foreign
currency conversion are recorded in the income state-
ment.
1.6 - Goodwill
Goodwill represents the excess of the cost of acquisi-
tion over the fair value of assets acquired and liabili-
ties assumed at the date of acquisition. Goodwill is
amortized on a straight-line basis over the estimated
periods to be benefited not to exceed forty years.
When factors such as income, trends, prospects and
competition indicate that there may be a potential loss
in value in the related assets, the Group evaluates if
there is impairment of the value of goodwill. The spe-
cific indicator used to confirm the existence and mea-
sure the amount of the impairment is whether or not
discounted cash flows from operations during the
amortization period will be sufficient to recover the
carrying amount of the related assets.
Consolidated financial statements