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Strategy • Fundamentals • Businesses • Résultats Earnings Consolidated Statement of Income - Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows (In € thousand) Cash flows from operating activities 2004 2003 French Gaap Net income before minority interests Adjustments to reconcile net income before minority interests to net cash provided by operating activities: 527,163 328,862 Depreciation and amortization 839,851 1,162,520 Allowances, provisions and deferred taxes (38,321) (87,145) Net gains on disposals of assets 39,454 8,371 Other (15,228) (5,240) Cash flow 1,352,919 1,407,368 Change in inventories (175,035) (43,059) Change in receivables (9,484) 14,081 Change in payables 59,679 44,420 Other changes in working capital 108,862 119,342 Net change in working capital (15,978) 134,784 Cash flows from operating activities 1,336,941 1,542,152 Cash flows from investing activities Additions to property, plant and equipment and intangible assets (1,116,781) (1,117,798) Additions to investments (170,807) (305,199) Total (1,287,588) (1,422,997) Proceeds from disposal of property, plant and equipment and intangible assets 91,958 100,586 Proceeds from disposal of investments 64,947 76,333 Total 156,905 176,919 Net investment for the period (1,130,683) (1,246,078) Impact of changes in Group structure (11,839) 14,884 Net change in working capital 31,916 (11,469) Cash flows from investing activities (1,110,606) (1,242,663) Cahs flows from financing activities Employee share ownership plan 0 20,739 Expenses related to the stock-for-stock offer 0 (645) Dividends paid to parent Company Shareholders (133,312) (130,692) Other dividends paid (51,994) (49,669) Total (185,306) (160,267) Change in long and short-term debt (187,629) 513,936 Net change in working capital 33,252 (46,811) Net cash (used) provided by financing activities (339,683) 306,858 Effect of exchange rate changes on cash and cash equivalents (4,910) (41,759) Change in cash and cash equivalents (118,258) 564,588 Cash and cash equivalents at beginning of period 1,773,656 1,209,068 Cash and cash equivalents at the period-end 1,655,398 1,773,656 Including - Cash 1,420,140 1,234,168 - Cash equivalents 235,258 539,488 68•69
Consolidation principles The consolidated financial statements have been prepared in accordance with French generally accepted accounting principles, including standard CRC 99-02 published by Comité de la Réglementation Comptable dealing with Consolidated Financial Statements. Basis of consolidation • Manufacturing, sales and finance companies, special purpose entities and other entities that are 100% controlled by Compagnie Générale des Etablissements <strong>Michelin</strong> under paragraph 1002 of CRC 99-02 mentioned above, are fully consolidated. • Companies over which Compagnie Générale des Etablissements <strong>Michelin</strong> exercises considerable influence are consolidated by the equity method. • Pursuant to Article L.233-19 of the French Code de Commerce, certain companies are not consolidated, either because they are not material in relation to the Group as a whole or because of substantial and lasting restrictions on fund transfers to other Group companies. Accounting policies 1. All consolidated companies have a December 31 year-end. The consolidated financial statements are prepared from the financial statements of the individual Group companies submitted for approval at their respective Annual Shareholders’ Meetings, as adjusted to comply with Group accounting policies and presentation rules. 2. Financial statements of foreign subsidiaries outside the euro zone are translated into euros as follows: • Balance sheet items are translated at year-end exchange rates, • Income statement items are translated at the average rate for the year. The financial statements of subsidiaries operating in countries with hyperinflationary economies are: Notes to the Consolidated Financial Statements as at December 31, 2004 • either translated into the relevant functional currency for their economic environment, • or translated at the year-end rate, after revaluation of nonmonetary assets and liabilities based on published local indices. Differences arising from the translation of opening balance sheet items and year-end rate net income are recorded in Shareholders’ equity under “Retained earnings”, with minority interests shown separately. Summary of significant accounting policies The financial statements for the year to December 31, 2004 have been prepared in accordance with generally accepted accounting principles and with due regard to the principles of prudence, separation of accounting years and continuity of trading. The main accounting policies applied are as follows: a) Goodwill Goodwill represents the difference between the cost of shares in consolidated companies and the Group’s equity in the underlying net assets after fair value adjustments to identifiable assets and liabilities. The goodwill amortization period is determined according to constant Group findings: • Goodwill arising on acquisition of manufacturing companies is amortized on a straight-line basis over 20 years; • Goodwill arising on acquisition of non-manufacturing companies is amortized in full in the year of acquisition. Amortization may be accelerated following review of industrial company goodwill inventory value. Negative goodwill is charged to earnings in line with changes in the risk profile of companies acquired. b) Intangible assets Intangible assets consist mainly of purchased or internallydeveloped software, amortized over three years, and a number of purchased goodwill, amortized in full in the year of acquisition. No research and development costs are recognized under this heading.
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Contents 1 • Michelin, a better w
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Simplified corporate organization c
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China, India, Russia: The Group ope
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The safer the factory, the more eff
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Cut pollution, promote safety: We a
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Message from Edouard Michelin “ i
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Management Managing Partners 1 •
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Audit Supervisory Board* 1 • Eric
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Financial year 2004 Key Figures Eco
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Financial year 2004 Key Figures 399
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Michelin Share Performance 3 rd bes
Page 24 and 25: Michelin’s Corporate Governance S
Page 26 and 27: Michelin’s strategy Remain the le
Page 28 and 29: World tire industry and markets Rep
Page 30 and 31: World tire industry and markets The
Page 32 and 33: • Porsche France delivered its fi
Page 34 and 35: In North America, Michelin and BFGo
Page 36 and 37: • In the United States, the Miche
Page 38 and 39: • In an original equipment market
Page 40 and 41: 4,637 4,859 02 03 04 Net sales of O
Page 42 and 43: Agriculture gained market share in
Page 44 and 45: • During 2004, all of Viborg’s
Page 46 and 47: • Used with a GPS antenna, ViaMic
Page 48 and 49: Strategy ● Michelin is a world-cl
Page 50 and 51: 2004 Group earnings analysis Michel
Page 52 and 53: Operating Income: year-on-year chan
Page 54 and 55: 4,926 4,881 00 01 02 03 04 Net long
Page 56 and 57: Prospects for 2005 In 2004, in a ch
Page 58 and 59: 2001 2000 1999 1999* 1998* 1997* 19
Page 60 and 61: Strategy • Fundamentals • Busin
Page 62 and 63: The dividends paid for the three pr
Page 66 and 67: • Latest Technology Center innova
Page 68 and 69: segregation of functions and strict
Page 70 and 71: CONSOLIDATED STATEMENTS STATUTORY A
Page 76 and 77: c) Property, plant and equipment Pr
Page 82 and 83: 3.1.2. The second contention arises
Page 84 and 85: 4. Investments Strategy • Fundame
Page 86 and 87: 10. Changes in Shareholders’ equi
Page 88 and 89: The following table presents a reco
Page 90 and 91: 13.3. Summary of the financial situ
Page 92 and 93: 13.4.1. Regional breakdown of the f
Page 94 and 95: 13.5. Changes in financial statemen
Page 98 and 99: 21. Segment information Strategy
Page 102 and 103: Michelin Group used the following o
Page 104 and 105: 3.2.2. Impact on the presentation o
Page 106 and 107: 4.3. Reconciliation of balance shee
Page 112 and 113: Stock options Since the stock optio
Page 114 and 115: Managing Partners’ special Report
Page 116 and 117: Risk Management Michelin adopts a p
Page 118 and 119: Future cash flows from these long-t
Page 120 and 121: Limited industrial hazards The main
Page 122 and 123: Economic performance target Since 1
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Spanish plans, as well as payment o
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Fixed-term Contracts In 2004, fixed
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up of negotiating groups on sub-con
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• provide education and training
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3 - Data recap table 2004 2003 Obse
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Individual Shareholder Relations An
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