MICHELIN - 2008 ANNUAL REPORT

According to this method, several statistical information and
assumptions are used in calculating the expense, the liability and
the asset related to the benefit plans. Assumptions include mainly
the discount rate, the long term salary increase rate, the expected
rate of return on plan assets and the expected rate of future
medical costs. Statistical information is principally related to
demographic assumptions such as mortality, employee turnover,
disability and early retirement.
Assumptions and statistical information used are determined
by the Group management according to internal guidelines in
relation with the actuaries.
The actuarial assumptions used may differ significantly from
the actual results due to the modification of market, economic
and social conditions. The resulting difference is recognized
as gains or losses in the income statement, over the expected
average remaining working lives of the employees participating
in the plans, only to the extent that the net cumulative difference
exceeds 10% of the greater of (1) the present value of the defined
benefit obligation or (2) the fair value of the plan assets.
Quantitative information is provided in note 26.
3 Summary of significant accounting
policies
CONSOLIDATION
Group consolidated financial statements include all subsidiaries,
associates and joint ventures of Compagnie Générale des
Etablissements Michelin.
Subsidiaries
Subsidiaries are all entities (including special purpose entities)
over which the Group has the power to govern the financial and
operating policies, generally accompanying a shareholding of
more than one half of the voting rights.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Inter-company transactions and balances as well as unrealized
gains on transactions between Group companies are eliminated.
Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the
Group.
Associates
Associates are all entities over which the Group has significant
influence but not control, generally accompanying a shareholding
between 20% and 50% of the voting rights.
Investments in associates are accounted for by the equity method
of accounting and are initially recognized at cost. The Group’s
investment in associates includes goodwill (net of any accumulated
impairment loss) identified on acquisition.
The Group’s share of its associates’ post-acquisition profits and
losses is recognized in the income statement until the date that
significant influence ceases.
When the Group’s share of losses in an associate equals or exceeds
its interest in the associate, the Group does not recognize future
losses, unless it has incurred obligations or made payments on
behalf of the associate.
Unrealized gains on transactions between the Group and its
associates are eliminated to the extent of the Group’s interest
in the associates. Unrealized losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred.
Joint ventures
Joint ventures are entities over whose activities the Group has
joint control, established by contractual agreement. Investments
in joint ventures are accounted for by the equity method of
accounting as described in the Associates section above.
Shareholdings in companies which are not subsidiaries, associates
or joint ventures are not consolidated. They are accounted for as
non-derivative financial assets (see the related accounting policy).
SEGMENT REPORTING
A business segment is a distinguishable component of the Group
engaged in providing products or services that are subject to
risks and returns that are different from those of other business
segments.
A geographical segment is engaged in providing products or
services within a particular economic environment that is subject
to risks and returns that are different from those of segments
operating in other economic environments.
The Group’s primary format for segment reporting is business
segments and the secondary format is geographical segments,
in accordance with the risks and returns profile of the Group’s
operations.
This is reflected by the Group’s divisional management and
organizational structure and the Group’s internal financial
reporting systems.
The primary segments are:
Passenger Car and Light Truck tires and related distribution
activities,
Truck tires and related distribution activities,
The other activities including speciality tires, earthmover and
agricultural, aircraft tires, 2 wheels, maps and guides, ViaMichelin,
Michelin LifeStyle and others.
The secondary segments are:
Europe (Western and Eastern),
North America (including Mexico),
Others (Asia, South America, Middle-East and Africa).
Segment assets consist of goodwill and other intangible assets,
PP&E, trade receivables and finished products inventories.
Corporate intangible assets and PP&E are allocated to each
segment in proportion of directly attributed assets.
No operating liabilities are allocated to the segments in the
Group’s internal financial reporting.
Transfer prices between geographic segments are set on an arm’s
length basis.
Other Information
Additional Information Consolidated Financial Statements The Managing Partners’ Report Michelin at a Glance
2008 Consolidated Financial Statements of Michelin Group 89