NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 ACCOUNTING PRINCIPLES
In accordance with EC Regulation 1606/2002 of 19 July 2002, the Group’s consolidated fi nancial statements have been prepared in accordance with IFRS standards (“International Financial Reporting Standards”) as adopted by the European Union. These standards are available on the European Commission website: ec.europa.eu/internal_market/accounting/ias.fr.htm
The accounting principles used to prepare the consolidated fi nancial statements for the year ended 31 December 2010 are identical to those used for the year ended 31 December 2009, it being understood that the new norms and interpretations obligatory as of 1 January 2010 have been applied by the Group:
Standards Title Effective date
IFRIC 12 Services concession agreement 29/03/2009
IFRIC 16 Hedging a net investment in a foreign operation: 01/07/2009
IFRIC 18 Transfers of assets from customers 31/10/2009
IFRIC 17 Distributions of non-cash assets to shareholders 31/10/2009
IFRIC 15 Agreements for the construction of real estate 01/01/2010
IFRIC 19 Extinguishing fi nancial liabilities with equity instruments 01/07/2010
Revised IFRS 3 Consortium (phase 2) 01/07/2009
Amendment to IAS 27 Consolidated and separate fi nancial statements 01/07/2009
Amendment to IAS 39 Financial instruments: accounting and valuation – eligible hedged items 01/07/2009
Amendment to IFRS 5 May 2008 annual improvements 01/07/2009
Amendment to IFRS 2,IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36
April 2009 annual improvements 01/07/2009
Amendments to IFRS 2 Intra-group transactions settled in cash 01/01/2010
None of these standards has had any material impact on the Group.
The Group did not apply in advance any standards, amendments or interpretations published by the IASB but not yet adopted by the European Union, or adopted at European level but whose application was not mandatory on December 31, 2010.
IFRIC 14 (amendment): prepayments of minimum funding requirements;
IAS 32 (amendment): classifi cation of rights issues;
Revised IFRS 24: Disclosures in respect of transactions with related parties;
IFRS 9: Financial instruments (phase 1: classifi cation and valuation of fi nancial assets and liabilities).
FINANCIAL INFORMATION 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 2010
The consolidated fi nancial statements of the issuer are published on its website dedicated to said purpose: www.ALTEN.fr/fi nance/informations-fi nancieres-ALTEN.htm.
Consortia and subsequent changes in percentage holdings
The coming into effect for fi scal years beginning on or after July 1, 2009 of the revised IFRS 3 – Consortia, and the amendments to revised IAS 27 - Consolidated fi nancial statements and accounting for investments in subsidiaries, brought a number of changes to the treatment of consortia and of holdings in controlled companies.
These changes will be applicable to ALTEN from January 1, 2010.
The main impacts identifi ed for the ALTEN group are:
Revised IFRS-3 - Consortia
Accounting for earn-outs at fair value as of the date of acquisition, subsequent adjustments being reported in the income statement.
Posting of acquisition costs as expenses for the period under “other non-current charges”.
Amendments to Revised IAS-27 - Consolidated fi nancial statements and accounting for investments in subsidiaries
Posting as equity (“transactions with shareholders”) of the impact of acquisitions or disposals of minority interests in an incorporated company, where these transactions have no impact on control.
The impacts in the fi nancial statements are presented in the relevant notes.
Accounting treatment of added value (CVAE tax)
The French Finance Act 2010 reformed the business tax (Taxe Professionnelle) and replaced it with the contribution économique territoriale (CET) or local economic contribution, which consists of two elements:
the contribution foncière des entreprises (CFE) or “contribution for enterprise land value”, assessed on the rental value solely of property subject to property taxes, the characteristics of which are similar to those of the business tax and as such are similar for accounting purposes to an operating expense; and
the cotisation sur la valeur ajoutée des entreprises (CVAE) or “contribution for enterprise added value”, assessed on the added value produced by companies, the characteristics of which are similar to a tax on income under IAS 12.
ALTEN’s opinion was that the CVAE fulfi lled the characteristics of an income tax, whereas this charge was previously posted under current operating income as “taxes and charges”. As of December 31, 2010, the CVAE amounted to €7.5 million and represented a positive impact on the operating income of 0.8%.
3.1 Management’s estimates
Despite the general context of a gradual improvement of the economic and fi nancial crisis, the uncertain nature of some estimates may be greater and as such make it more diffi cult to assess the economic prospects of the Group, notably for forecasting income and cash fl ow.
The preparation of fi nancial statements in accordance with IFRS standards requires that certain estimates and assumptions be made which may affect the amounts shown in the fi nancial statements. These estimates and assessments are continuously made on the basis of past experience and other factors considered reasonable.
These estimates may be reviewed if the circumstances on which they are based change or if new information becomes available. Actual results may differ from these estimates. The main estimates made by management when preparing the consolidated fi nancial position concerned measurement of impairment of goodwill (Note 7), earn-outs (Notes 14 and 16), retirement obligations and provisions (Note 17).
3.2 Financial indicators
The Group mainly relies on the following fi nancial indicators:
revenue;
“operating profi t”, i.e. operating income, which excludes the cost of stock options (which never results in an outfl ow of resources), gains or losses on the disposal of assets, impairment of goodwill and other non-recurring items not directly related to the company’s business activity;
FINANCIAL INFORMATION
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 2010the operating profi t ratio which is the ratio between operating profi t and revenue. This ratio measures the performance of operating activities excluding non-recurring items and those not directly related to the company’s business activity;
the fi nancial debt ratio (net fi nancial debt/equity).
3.3 Operating segments
The ALTEN group has only one business activity: Engineering and Technology Consulting.
IFRS 8 “Operating Segments”, which came into force on 1 January 2009, did not lead to a change in the presentation adopted by the Group under the previous standard (IAS 14 “Segment Reporting”).
Accordingly, segment reporting is presented by geographic region, distinguished between France and overseas (see Note 27).
3.4 Translation of foreign currency accounts
The items included in the fi nancial statements of each of the Group’s entities are valued according to the currency of the main economic environment in which the entity operates (functional currency). The consolidated fi nancial statements are presented in euros, the parent company’s functional currency.
The fi nancial statements of foreign entities located outside the euro zone are prepared using the entity’s functional currency and translated according to the following principles:
balance sheet items (with the exception of equity) are translated at closing rates;
equity is translated at the historical rate;
the income statement is translated using the average rate for the period;
translation variances are directly recognised under equity in the “translation reserve”.
3.5 Goodwill
Acquired companies’ assets, liabilities and contingent liabilities that comply with the defi nition of identifi able assets or liabilities are recognized at their fair value on the acquisition date.
The acquisition date, from which the Group consolidates the acquired company’s accounts, corresponds to the actual takeover date.
On the acquisition date, the company’s contingent liabilities are recognized as liabilities and accounted for at fair value when they can be reliably valued.
Goodwill represents the difference between the purchase price and the fair value at the date of acquisition of identifi able assets and liabilities and contingent liabilities. Goodwill is not amortized. The Group has a period of 12 months from the date of acquisition to fi nalize the valuation of these assets and liabilities. Beyond this period, the effects are recognized directly under earnings.
The goodwill is allocated to cash generating units (CGU) or groups of cash generating units that could benefi t from the consortium that generated the goodwill. The ALTEN Group performs impairment tests of goodwill as soon as an indication of impairment is identifi ed and at least once a year.
Goodwill impairment losses are not reversible (see Note 3.8).
When the acquisition cost is less than the fair value of the share belonging to the Group in the net assets of the subsidiary acquired, the difference is recorded directly in the income statement over the vesting period, after verifi cation the process of identifying and evaluating various factors taken into account in its calculation.
3.6 Intangible assets
According to IAS 38 “Intangible Assets”, development costs are considered intangible assets if the company is able to demonstrate:
the technical feasibility necessary to complete the development project in anticipation of its placement into service or sale;
its intention and technical and fi nancial ability to complete the development project;
that the future economic benefi ts to be derived from these development expenses are likely to go to the Company;
and that the cost of the asset can be accurately valued.
FINANCIAL INFORMATION 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 2010
All expenses directly attributable to the creation, production and preparation of the asset in view of its planned use are fi xed. Revised IAS 23,
“Borrowing Costs” eliminated the ability to recognise all borrowing costs as expenses, and required their capitalisation when they are directly attributable to the acquisition, production or construction of an eligible asset. As the Group had no eligible assets fi nanced through debt in 2010, this amendment has no effect on the consolidated fi nancial statements.
These expenses are amortised on a straight-line basis according to the applicable asset’s probable lifespan.
Information systems are amortised over 6 to 8 years. With regard to the Vision project which covers the implementation of an ERP within the ALTEN Group and whose deployment was started in 2009 by ALTEN SIR with completion scheduled for 2013, it was decided to amortise its cost over a 10 year period, beginning on 1 January 2009.
3.7 Property, plant and equipment
Gross value
According to IAS 16 “Property, Plant and Equipment”, the gross value of property, plant and equipment corresponds to their acquisition cost. They are not subject to any revaluation.
Revised IAS 23 related to borrowing costs is applied under the same conditions as for intangible assets.
Maintenance and repair costs are recognised as charges once incurred, with the exclusion of costs related to an increase in productivity or the prolongation of the useful life of the asset.
Residual value and anticipated lifespan are reviewed at least annually and adjusted accordingly if they differ signifi cantly from previous estimates.
Amortisation
The depreciation period is based on the estimated useful lives of each of the different categories of assets, depreciated on a straight-line basis:
computer equipment: 2 to 5 years;
transport equipment: 3 to 5 years;
offi ce equipment: 3 to 5 years;
fi xtures and fi ttings: 5 to 10 years;
buildings: 25 years.
3.8 Impairment of property, plant and equipment
According to IAS 36, “Impairment of assets”, the useful value of intangible assets and property, plant and equipment with a fi xed lifespan is tested as soon as an indication of loss of value is noted and reviewed at each reporting date. For goodwill, which has an indefi nite lifespan, impairment tests are conducted at least annually.
For the purpose of this test, property, plant and equipment are grouped into Cash Generating Units (CGU).
CGUs are homogeneous groups of assets that generate cash infl ows through continuous use which are largely independent of the cash infl ows from other assets or groups of assets. CGUs mainly correspond to legal entities in France and to groups of legal entities overseas.
The going concern value of these units is the present value of discounted future net cash fl ows.
When this value is less than the net carrying amount of the CGU, the difference is recorded under operating income; any impairment is fi rst allocated to goodwill.
Whether such impairment loss is recognised is determined on the basis of the discounted cash fl ow, for which the Group expects to obtain fl ows from the cash generating unit. This projection is based on the following assumptions (see Note 7):
a four-year fi nancial budget prepared by entity and validated by the Group’s fi nance division, updated when the year-end budged is prepared.
Cash fl ow beyond four years is extrapolated on the basis of a growth rate to infi nity;
low growth rate: this growth rate does not exceed the long-term average growth rate for the business sector;
weighted average cost of capital, resulting from risk-free interest rates, risk premiums, beta coeffi cient and additional premiums;
FINANCIAL INFORMATION
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 20103.9 Leases
Any agreements for the lease of property, plant and equipment under which the ALTEN Group incurs almost all risks and advantages related to the ownership of the property in question are considered lease-fi nancing agreements and are subject to restatement. A lease agreement is appraised on the basis of criteria stipulated under IAS 17.
Assets that are the object of lease-fi nancing agreements are recorded in the statement of fi nancial position under property, plant and equipment.
Such assets are amortised over the duration of their estimated lifespan (on the liabilities side, the restated amount of the agreements is recorded under fi nancial liabilities).
Operating leases are recognised as fi nancial commitments (Note 34).
3.10 Financial assets
Financial assets include loans and receivables, sometimes not related to investments, fi nancial assets available for sale and fi nancial assets held to maturity (deposits and guarantees, etc.).
Financial assets available for sale represent equity in unconsolidated companies. They are included in non-current assets unless the Group has to sell within twelve months following the closing date. In the absence of an active market, they are kept in the balance sheet at their acquisition cost, which the Group believes represents their fair value. If there is a sustained decline in their value in use, an impairment loss is recognized. The value is determined based on fi nancial criteria such as share equity and profi tability outlook.
3.11 Deferred taxes
In accordance with IAS 12 “Income Taxes”, deferred taxes are recognised whenever there is a temporary difference between the carrying amount of assets and liabilities and their taxation values, and on any recoverable tax losses, according to the variable carry-forward method. Differences are considered temporary when they must be reversed in the relatively near future
Tax loss carry-forwards are the object of a deferred tax asset in the statement of fi nancial position when they are likely to be recovered.
Deferred taxes are valued at the known tax rate applicable at the date of issue of the fi nancial statements.
In accordance with IAS 12, deferred tax assets and liabilities are not discounted.
3.12 Trade receivables
Trade receivables are valued at nominal value. They are individually valued and, where applicable, depreciated to account for any diffi culties in collecting certain amounts.
3.13 Other current assets
They are valued at nominal value less any impairment arising from recovery diffi culties.
3.14 Cash and cash equivalents
Cash includes bank balances, investments in money market funds and marketable, short-term debt securities (initial maturity of less than three months) and present no material risk in terms of loss of value should interest rates fl uctuate. In accordance with IAS 7, bank borrowings are treated like fi nancing items in the statement of cash fl ows.
3.15 Treasury shares
All treasury shares held by the Group are deducted at acquisition cost from equity.
Any gains on the disposal of treasury shares directly increase equity and therefore, any gains/losses on disposals do not affect year-end earnings.
3.16 Provisions
In accordance with IAS 37 “Provisions, contingent liabilities and contingent assets”, a provision is recognised whenever the Group has an obligation towards a third party and it is likely or certain to result in an outfl ow of resources for the benefi t of such a third party, with no anticipated consideration of equal value.
Non-current provisions mainly include:
provisions intended to cover any legal disputes involving the Group that are expected to end in more than one year;
retirement obligations.
FINANCIAL INFORMATION 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 2010
Current provisions mainly include provisions intended to cover any legal disputes involving the Group that are expected to end in the short term.
Provisions are discounted when their maturity is estimated to be over one year and when their amount represents a signifi cant factor for the Group.
Employee benefits
The Group offers certain benefi ts in the form of defi ned contribution pension plans. With regard to these plans, the Group’s only other commitment is the payment of premiums carried as a charge on the income statement for the fi scal year.
The Group has not established employee benefi ts as part of defi ned benefi t plans. Its commitment is limited to retirement obligations which, pursuant to IAS 19, are valued by an independent actuary according to the projected unit credit method.
According to this method, each period of service results in an additional right to benefi ts and each of these units is valued separately in order to determine the fi nal obligation.
This fi nal obligation is then discounted. These calculations mainly involve two types of assumptions (see Note 35):
Financial assumptions
A fi nancial discount rate.
An infl ation rate.
A revaluation rate for employees.
An employer contribution rate.
Demographic assumptions
The assumption of a retirement age of sixty-fi ve years, the age at which a French employee will have reached the number of years of contributions entitling the employee to the full pension amount granted under the national pension plan.
INSEE mortality tables.
Average staff turnover rates, by age and employment category.
Age of fi rst employment.
Number of retiring employees.
These estimates take place every year. Actuarial gains and losses resulting from a change of assumption or actual variances (variance between the estimate and the actual situation) in relation to the commitments or fi nancial assets of the pension plan are recognised under earnings by spreading them over the expected remaining life of employees (corridor method).
3.17 Financial liabilities
Financial liabilities concern borrowings, long-term fi nancial debt and bank overdrafts.
The distribution between current and non-current fi nancial liabilities is based on the short-term and long-term maturity of the items in question.
3.18 Other liabilities
Other liabilities include social security, tax, other debt and unearned income and earn-outs.
Non-current liabilities mainly include debts owed to former shareholders of certain subsidiaries acquired during prior years (earn-out clause). At the date on which the debt is recognised, the fair value corresponds to the value of future outfl ows discounted at the market rate if such amount is material.
The distribution between other current and non-current liabilities is based on the short-term and long-term maturity of the items in question.
3.19 Minority interest obligations
In accordance with IAS 27 “Consolidated fi nancial statements and accounting for investments in subsidiaries” and IAS 32 “Financial Instruments”, commitments related to the purchase of non-controlling interests, either fi rm or conditional, are considered a share purchase and recognised under
FINANCIAL INFORMATION
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ON 31 DECEMBER 20103.20 Recognition of Revenue
Group revenue is recognised over the period in which services are rendered and made up of invoiced services (issued or to be issued):
on a cost basis: income is equal to time spent multiplied by an hourly, daily or monthly rate;
fi xed price: income is recognised according to the percentage of completion method in proportion to expenses incurred.
Loss-making contracts give rise to recognition of a contract loss provision corresponding to the total expected loss less any losses already
Loss-making contracts give rise to recognition of a contract loss provision corresponding to the total expected loss less any losses already