A N N U A L R E P O R T - Bouygues

■ Business combinations
Business combinations carried out prior to
1 January 2004 (date of first-time adoption
of IFRS) were not restated retrospectively in
accordance with IFRS 3. Goodwill and fair value
adjustments to assets and liabilities existing at
1 January 2004 were included in the IFRS opening
balance sheet at their original amount, net
of accumulated depreciation, amortisation and
impairment losses to 31 December 2003.
Goodwill, previously amortised on a straight-line
basis, is no longer amortised under IFRS.
Market shares previously recognised as separate
intangible assets as a result of fair value adjustments
in connection with business combinations
were reclassified as goodwill as at 1 January
2004. Under French GAAP, market shares were
subject to impairment tests using methods consistent
with IFRS, involving the use of cash
generating units (CGUs). First-time adoption of
IFRS had no impact on the value of these assets
as at 31 December 2004 relative to the French
GAAP valuation.
■ Translation reserve
The existing French GAAP translation reserve
was deemed to be zero as at 1 January 2004.
The reserve as at that date was transferred to
consolidated reserves as allowed under IFRS 1,
with no impact on total consolidated shareholders’
equity.
■ Actuarial gains and losses
As at 1 January 2004, the actuarial gains and
losses arising on the Group’s obligations in
respect of lump-sum retirement benefits were
recognised as a liability in non-current provisions
and charged to consolidated shareholders’
equity (cumulative gains and losses under the
corridor method deemed to be zero). Actuarial
gains and losses arising subsequent to 1 January
2004 continue to be recognised using the corridor
method.
■ Share-based payment (IFRS 2)
The Group applied IFRS 2 from 1 January 2004
for all plans awarded after 7 November 2002 and
vesting on or after 1 January 2005.
■ Off-plan property sales
Adoption of IFRS has changed the presentation
of off-plan property sales. Under French GAAP,
the entire amount of the sale was recognised in
trade receivables on signature by the customer
of the notarised deed of sale, with a matching
liability recognised in deferred income. The sale
was then recognised in the income statement
based on the percentage of completion of the
property development project.
Under IFRS, no deferred income is recognised.
Instead, trade receivables and sales are recognised
based on the percentage of completion of
the property development project.
■ Financial instruments (IAS 32 and IAS 39)
The Group has elected to recognise the effects of
IAS 39 on financial instruments as at 1 January
2004, ahead of the mandatory application date.
These effects relate mainly to hedging instruments
(interest rate risk and currency risk). The
amount involved as of 1 January 2004 was not
material.
2.2. Consolidation methods
and treatment of subsidiaries,
associates and other
investments
• Companies over which Bouygues exercises control
are consolidated using the full consolidation
method.
Exclusive control over TF1:
• Bouygues holds 42.89% of the capital and
42.94% of the voting rights of TF1, and according
to a ruling by the Conseil de la Bourse
des Valeurs of 11 February 1994 is regarded as
acting in concert with Société Générale, a fellow-shareholder
of TF1, under the terms of a
shareholders’ agreement (1) .
• Exclusive control by Bouygues over TF1 is demonstrated
by the fact that:
• Bouygues has consistently and regularly
held a substantial majority of the voting
rights exercised at TF1 shareholders’ meetings;
• no other shareholder directly or indirectly
controls a higher share of voting rights than
Bouygues.
Bouygues has clearly had exclusive power to
determine decisions at TF1 shareholders’ meetings
during at least two consecutive financial
years (article L233-16 II of the Commercial Code).
Other factors indicating the existence of exclusive
control include:
- the predominance of Bouygues among the
group of shareholders acting in concert;
- the large number of seats on the TF1 Board of
Directors allocated to Bouygues;
- the role of Bouygues in appointing key executives
of TF1.
All these factors clearly establish that Bouygues
exercises exclusive control over TF1.
The relationship between Bouygues and TF1 also
meets the criteria stipulated in articles L233-3 I
& II of the Commercial Code relating to de facto
control by one company over another.
• Companies under the joint control of more
than one shareholder are consolidated by the
proportionate consolidation method, based on
the percentage of control held.
• Companies over which Bouygues exercises
significant influence are consolidated by the
equity method.
Cofiroute: although less than 20% owned
(16.7%), Cofiroute is consolidated using the
equity method, as Bouygues exercises significant
influence through its seats on the Board
of Directors.
• In accordance with IAS 39 on financial instruments,
investments in non-consolidated companies
are recognised at fair value and are
subject to impairment tests.
Changes in scope of consolidation:
2005 2004
Fully consolidated 760 726
Proportionately
consolidated
197 169
Equity method 26 31
983 926
The main changes during 2005 are described in
“Significant Events”.
2.3. Business combinations
With effect from 1 January 2004, the acquisition
cost of a business combination (including
transaction costs) is allocated to the identifiable
assets and liabilities of the acquiree, measured
at fair value at the acquisition date. These identifiable
assets and liabilities are presented in the
balance sheet using the full fair value method
in accordance with IFRS 3. This method involves
remeasuring the assets and liabilities acquired
at fair value in full (including minority interests),
rather than remeasuring just the percentage
interest acquired.
Fair value is the amount for which an asset or
cash generating unit could be sold between
knowledgeable, willing parties in an arm’s length
transaction. Goodwill represents the excess of
acquisition cost over the acquirer’s interest
in the fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities that
can be reliably measured at the acquisition
date; it is allocated to the cash generating unit
(which within the Bouygues Group equates to the
business segment) benefiting from the business
combination.
(1) In January 2006, Société Générale sold its interest in TF1, meaning that Bouygues and Société Générale were no longer acting in concert (AMF sale reference 206C0188, dated 30 January 2006).
This change does not affect the exclusive control exercised by Bouygues over TF1.
CONSOLIDATED FINANCIAL STATEMENTS
159