Financial Statements 2002

Transcription

1 Financial Statements Caisse des Dépôts Group Consolidated Balance Sheet and Income Statement 92 Central Sector Balance Sheet and Income Statement 116 Funds managed by Caisse des Dépôts 117 Balance Sheet and Income Statement of Saving Funds centralized by Caisse des Dépôts 147 Balance Sheet and Income Statement of the Retirement Funds CNRACL and IRCANTEC

2 Consolidated Financial Statements Notion of Group The activities of Caisse des Dépôts et Consignations derive from its original mission as the legal depository for private funds that the French legislature wanted to safeguard by ensuring that they were managed in a way guaranteeing their protection. The management of these funds, which are used to finance public-interest investments and assist local development in France, also led Caisse des Dépôts et Consignations to become a major player in financial markets, which it does today through specialized subsidiaries subject to market conditions. This entity forms a public and decentralized Group, carrying out its business in France and internationally, specialized in financial activities and services governed by public fiduciary obligations or exercised freely in the competitive sector. Public-interest missions Management of passbook savings accounts and financing for public housing; Fiduciary management of major public retirement programs from its decentralized offices in Angers and Bordeaux; Regulated banking and financial activities; Support for local development, urban policy, job creation and small and medium-sized businesses. For purposes of accounting and financial presentation, Caisse des Dépôts Group s activities are divided according to their two principal missions: the fiduciary management of the funds entrusted to Caisse des Dépôts et Consignations according to the rules defining the nature of the services provided and the related financial conditions. These funds are managed individually and include, in particular, the Savings Funds centralized with Caisse des Dépôts et Consignations and the management of public retirement funds; the direct activity performed by the Central Sector Caisse des Dépôts et Consignations financial and administrative entity, managed separately from the operations under mandate and by affiliated Groups, notably EULIA, CDC IXIS, C3D and CNP Assurances, in France and internationally. This activity alone is considered to constitute a group for the purpose of preparing consolidated financial statements drawn up in accordance with accounting standards applicable to credit institutions. The consolidating entity is the Central Sector and, depending on the level of control, subsidiaries are consolidated under the full or proportional method, or accounted for by the equity method. This distinction is evidenced by the exclusion of the Savings Funds and Retirement Funds from the scope of consolidation. Their financial statements are presented separately. Competitive businesses Finance activities under the auspices of EULIA, the holding company providing strategic governance for the competitive businesses of Caisse des Dépôts et Consignations and the Caisses d Epargne Group, in particular: investment banking activities with the CDC IXIS Group: capital markets and financing, asset management (financial, real estate and private equity), banking and securities services; insurance and guaranty activities; real estate activities, mainly with Crédit Foncier de France Group; Life insurance with CNP Assurances; Services and engineering for local development in France with the subsidiaries of C3D. 46

3 Introductory note The activities of Caisse des Dépôts et Consignations comprise two main missions: the direct business of the Central Sector the financial and administrative entity of Caisse des Dépôts et Consignations which is managed separately from the operations under mandate and of the subsidiaries and long-term equity holdings attached to it, notably EULIA, the C3D and CNP Assurances groups, and the Caisse des Dépôts et Consignations departments that have been spun off into subsidiaries. Following the agreement with the Caisses d Epargne savings banks signed in June 2001, Caisse des Dépôts et Consignations competitive financial subsidiaries have been brought together, through EULIA, with the national subsidiaries of the Caisses d Epargne, which are consolidated by the proportional method; the management of the funds entrusted to it. The accounting structure of Caisse des Dépôts reflects the nature of the relationships existing between the Public Institution and these funds. A series of legal, regulatory and contractual documents defines the nature of the services provided by Caisse des Dépôts and their remuneration. The accounting systems used make it possible to identify the resources of each fund, their uses and the earnings generated. Therefore, a balance sheet and an income statement are drawn up for each fund. These funds, which consist mainly of Savings Funds centralized by Caisse des Dépôts, include deposits taken on the Livret A passbooks of the Caisses d Epargne, Livrets d Epargne Populaire passbooks for low-income savers, the Livret Bleu passbooks of Crédit Mutuel and the deposits collected by La Poste (Livret A, Livret B and CNE home-purchase savings plans), as well as deposits on Codevi accounts. This mission also includes the management of retirement funds and other organizations. This section presents financial information relating to the first of these missions: the audited consolidated balance sheet and income statement of Caisse des Dépôts Group; the audited balance sheet and income statement of the Central Sector reporting Caisse des Dépôts own activities. Audit of the financial statements Although not a legal requirement given its status, Caisse des Dépôts has chosen to have its financial statements audited in accordance with ordinary law in order to guarantee that the accounting and financial information provided is of the quality and transparency required by the nature and volume of its activities. The independent auditors have issued unqualified audit opinions on the 2002 financial statements of the Central Sector and the consolidated financial statements of the Caisse des Dépôts Group. This is also the case, in particular, for the accounts of the Savings Funds, and of the CDC IXIS, C3D and CNP Assurances Groups. These accounts have been published separately. Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business Caisse des Dépôts Group - Annual Report

4 Consolidated Financial Statements Consolidated Balance Sheet (EURO MILLIONS) Notes ASSETS Interbank and similar transactions 128, ,865 Cash, central banks and post office banks 3,844 6,103 Public-sector securities and similar 3 21,354 19,834 Advances and loans to financial institutions 1 103,782 93,928 Customer transactions 34,454 30,486 Overdrafts 2 2,867 3,056 Commercial loans Other loans to customers, lease financing and similar agreements 2 31,576 27,107 Bonds, equities, other fixed and variable income securities 83,573 81,495 Bonds and other fixed income securities 3 65,425 65,441 Equities and other variable income securities 3 18,148 16,054 Investments of insurance companies 4 63,332 60,033 Long-term-equity holdings, shares in related undertakings, other long-term investments 4,053 4,039 Long-term equity holdings 5 2,950 2,766 Investments accounted for by the equity method 6 1,103 1,273 Tangible and intangible fixed assets 7 5,557 5,323 Goodwill on acquisition ,152 Accruals, deferrals and other assets 9 28,346 25,860 TOTAL 349, ,253 LIABILITIES Interbank and similar transactions 126, ,918 Central banks and post office banks Advances and loans from financial institutions , ,883 Customer transactions 43,658 47,974 Customer deposits 11 25,033 28,322 Other customer advances and loans 11 18,625 19,652 Debt securities 51,199 43,049 Cash certificates Interbank and money market instruments 12 30,778 24,693 Bonds and similar debt securities 12 20,420 18,355 Technical provisions of insurance companies 13 60,840 57,741 Accruals, deferrals and other liabilities 14 50,458 46,826 Goodwill on acquisition Provisions for risks and charges Subordinated debt 1,315 1,352 Fund for General Banking Risks (FGBR) Minority interests (excluding FGBR) Group share of retained earnings (excluding FGBR) 16 12,503 12,944 Consolidated and other reserves 11,793 11,587 Income for the year 710 1,357 TOTAL 349, ,253 48

5 Consolidated Off-Balance Sheet Commitments (EURO MILLIONS) Financing, guarantee and securities commitments given Financing commitments To financial institutions 11,478 13,260 To customers 15,932 19,424 Guarantees To financial institutions 9,939 6,751 To customers 10,713 14,486 Securities transactions Securities to be delivered 607 1,943 Commitments given by insurance companies Financing, guarantee and securities commitments received Financing commitments From financial institutions 10,308 2,491 Guarantees From financial institutions 3,017 3,083 From customers 2,056 2,442 Securities transactions Securities to be received 1,608 2,734 Commitments received by insurance companies 1,291 1,414 Other commitments Other commitments given 19,356 4,993 Other commitments received 5,088 8,123 Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business Caisse des Dépôts Group - Annual Report

6 Consolidated Financial Statements Consolidated Income Statement (EURO MILLIONS) Notes Proforma Reported (*) Interest and similar revenues 10,399 9,736 8,943 Treasury and interbank transactions 19 4,779 4,521 4,699 Customer transactions 20 1,722 1, Bonds and other fixed income securities 21 2,462 2,307 2,027 Other interest and similar revenues 1,436 1,470 1,683 Interest and similar expenses (11,324) (10,612) (10,384) Treasury and interbank transactions 19 (5,656) (4,870) (5,045) Customer transactions 20 (916) (1,074) (1,075) Bonds and other fixed income securities 21 (2,548) (2,653) (1,916) Other interest and similar expenses (2,204) (2,015) (2,348) Revenues from variable income securities Commissions (revenues) ,228 Commissions (expenses) 23 (218) (272) (188) Gains or losses on trading security transactions 24 1,534 1,348 1,714 Gains or losses on available-for-sale security transactions and similar ,198 1,410 Other net operating and banking revenues and expenses Gross margin on insurance activities Net income from other activities 28 1,607 1,316 1,316 NET BANKING INCOME 4,785 5,131 5,333 Operating expenses (3,408) (3,018) (3,189) Payroll expenses 29 (2,300) (2,075) (2,143) Other administrative expenses (1,532) (1,399) (1,488) Administrative expenses rebilled Net amortization, depreciation and provision charges 30 (232) (212) (211) GROSS INCOME FROM OPERATIONS 1,145 1,901 1,933 Cost of risk 31 (79) (47) (41) NET INCOME FROM OPERATIONS 1,066 1,854 1,892 Net income from investments accounted for by the equity method Gains or losses on fixed assets NET RECURRING INCOME BEFORE INCOME TAX 1,133 2,114 2,136 Net non-recurring income (expenses) Income taxes 33 (377) (557) (585) Net amortization of goodwill on acquisition 8 (231) (69) (77) Net increase in FGBR 266 (62) (45) Minority interests (87) (58) (73) NET INCOME, GROUP SHARE 710 1,390 1,357 * Note 36 of the Notes to the financial statements describes the transition from the 2001 reported income statement to the 2001 proforma income statement. 50

7 Notes to the Consolidated Financial Statements Highlights The Caisse des Dépôts Group recorded consolidated net income of 710 million in 2002, down 49% relative to the 2001 proforma result. This sharp decrease in net income was largely due to the severe financial market downturn as well as the non-recurring income reflected in the 2001 results, including capital gains on the disposal of shares of CNP Assurances, CDC IXIS and Sicovam. In response to the market contraction, and consistent with its usual prudent strategy, Caisse des Dépôts et Consignations and its financial subsidiaries significantly increased the provisions on their long-term equity portfolios. Thus the Central Sector alone allocated a net 928 million to provisions for the securities in the portfolios. In the first half of 2002, Caisse des Dépôts et Consignations wrote back 259 million from the Fund for General Banking Risks (FGBR). This amount corresponded to allocations to the FGBR made in the years 1998 through 2000, reflecting prudent portfolio management by the Public Institution, given the non-recurring nature of a portion of its results during the market bubble. After analyzing the business climate, Caisse des Dépôts et Consignations also wrote down several assets. Exceptional amortization was taken on the goodwill arising from the October 2000 acquisition of CDC IXIS Asset Management North America (formerly Nvest). This exceptional amortization trimmed 155 million from the Group s consolidated net income. An additional 71 million write down of deferred tax assets (group share) was also made. Aside from market-related influences, changes within the Group affected the 2002 results: C3D Group s contribution to net banking income was up sharply, as this subsidiary continued its selective expansion strategy. Some of the highlights during the year included the partnership agreement between Transdev and RATP, the successful cash takeover bid by Compagnie des Alpes on Grévin & Co., and the acquisition of ELLUL, a real estate development company. The insurance division, with gains driven by CNP Assurances and its subsidiary Caixa Seguros, whose results were consolidated for a full year in the 2002 financial statements. Finally, CDC IXIS refocused on its core business last year while EULIA was effectively established. Income Statement Net banking income (NBI) contracted by 6.7% to 4,785 million in 2002, compared with 5,131 million the previous year. This decline was due in large part to the establishment of provisions for the Central Sector s securities portfolio, specifically the non-recurring portion of the allocation. Adjusting for these non-recurring provisions, which involved mainly the TMT and insurance sectors, NBI totaled 5,559 million, up 8% relative to This increase in NBI, excluding non-recurring items, reflects the increased revenues of several units: CNP Assurances, whose consolidated revenues rose by 6.2% on the year, underpinning a 698 million contribution to NBI of Caisse des Dépôts Group; C3D Group, whose consolidated revenues increased by 23% through organic growth and the integration of new entities, contributed 1,779 million to NBI. Several EULIA entities, in particular Crédit Foncier de France, where customer loan volumes enjoyed sustained growth and which benefited from favorable interest rate trends. Gross income from operations totaled 1,145 million, down 40% relative to Given the aforementioned non-recurring items, this decline reflects the increase in operating expenses and net amortization charges of 12,7% in the year, a total of 410 million largely as a result of the expanded consolidation scope (CNCE s financial activities contributed to CDC IXIS, CNP Assurances with Caixa Seguros, C3D with Grévin and ELLUL) and the absence of large-scale write-backs from provisions as in 2001 (euro, Y2K, creation of CDC IXIS). Net recurring income before income tax contracted by 46% to 1,133 million, exacerbating the decline in gross income from operations on account of the absence of income from fixed asset disposals, which were significant in Income tax fell by 180 million, given the decline in pretax income and the tax-exempt status of FGBR write-backs. The exceptional goodwill amortization recorded on CDC IXIS AM North America assets led to the sharp increase in goodwill amortization, which totaled 232 million in 2002, compared with 69 million the previous year. In 2002, 266 million were written back to income from the FGBR whereas in 2001, 62 million were transferred to this fund. This change resulted mainly from the decision to write back 259 million from the FGBR to the Central Sector income statement. Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business Caisse des Dépôts Group - Annual Report

8 Consolidated Financial Statements Lastly, the group share of consolidated net income totaled 710 million. The Central Sector and its direct subsidiaries (the Caisse des Dépôts et Consignations division) contributed 227 million, EULIA - CDC IXIS added 142 million, C3D Group accounted for 107 million and CNP Group contributed 234 million. The Caisse des Dépôts et Consignations division s contribution fell by 64% compared to 2001, or by 7.9% after adjusting for non-recurring items. Although at 571 million, the CNP Assurances Group s published consolidated net income was up by a substantial 8.1% on 2001 recurring net income, its contribution was down 6% given the non-recurring items recorded the previous year. C3D Group, on the other hand, saw its contribution to consolidated net income rise by 43%. EULIA s contribution fell by 68% because of its CDC IXIS subsidiary. The unfavorable market conditions in 2002 had a substantial negative impact on CDC IXIS, which established major provisions on its equity portfolio, wrote down the value of its CDC IXIS AM North America asset management subsidiary and reduced its disposal program for marketable securities. It should be noted, however, that several EULIA subsidiaries recorded clear gains, including Crédit Foncier de France, Ecureuil Vie, Ecureuil IARD and EULIA Caution... Insurance company investments rose by 3.3 billion, or 5.5% compared to the previous year. CNP Assurances accounted for all of this increase through a 6.2% increase in revenues (net premium income). Higher revenues automatically result in increased investments. On the liabilities side, interbank transaction volume rose by 9.3% to reach billion. The Central Sector and CDC IXIS CM contributed 3.9 billion and 5.4 billion, respectively, to this increase. The heightened reliance on interbank resources was due to the refinancing strategy of these entities and the especially favorable market conditions characterized by historically low interest rates. The nearly 9.0% decrease in customer transactions, or 4.3 billion, was due for the most part to the contraction in the Central Sector s volume of ordinary deposits. Customer transactions totaled 43.7 billion. Debt securities increased by 18.9%, or 8.2 billion, to 51.2 billion as of December 31, 2002, compared with 43 billion one year earlier. CDC IXIS and CFF accounted for the bulk of this increase, adding 6.1 billion and 2.1 billion, respectively. In the former case, the increase involved the issuance of negotiable debt securities; in the latter, obligations foncières covered bonds issued by Compagnie de Financement Foncier, a subsidiary of CFF, to back the Group s commercial development. Insurance company technical reserves totaled 60.8 million as of December 31, 2002, compared with 57.7 billion the previous year. CNP Assurances accounted for 60.5 billion of these reserves. Last year s 5.3% increase in technical reserves, a total of 3.1 billion, reflected the growth in CNP Assurances revenues. Balance Sheet Total consolidated assets increased by 21 billion to 349 billion in 2002, a 6.4% increase on the year. Unlike in 2001, the increase in total assets did not result from any changes in consolidation scope. After taking into account the group s share of net income for the year ( 710 million), dividends paid during the year ( 925 million) and other changes (a reduction of 226 million, of which 243 million attributable to the change in foreign currency translation reserves due mainly to the U.S. subsidiaries) Caisse des Dépôts Group s share of shareholders' equity excluding the FGBR totaled 12.5 billion. On the asset side, interbank transaction volume rose by 7.6% to 129 billion, driven higher by the contributions from CDC IXIS and Martignac Finance. Their interbank loan volume increased by 3.9 billion and 6.9 billion, respectively. Martignac Finance disposed of its bond portfolio and followed up by developing its interbank lending business. Customer transaction volume rose by 4.0 billion, or 13%, to 34.5 billion. The Central Sector accounted for 1.9 billion of this increase, driven by substantially higher transaction volume from Acoss and a 0.9 billion increase in the CFF contribution relative to the previous year. With a 1.2 billion increase in customer transaction volume, CDC IXIS has demonstrated the rapid growth of its financing activities. The securities portfolio totaled 83.6 billion, up 2.6% from 81.5 billion. 52

9 Accounting Principles used in preparing the Consolidated Financial Statements of Caisse des Dépôts Group The consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to French banking and financial institutions. Principal Policies for accounting and presentation of the Consolidated Financial Statements 1 Alliance between Caisse des Dépôts Group and Caisse d Epargne Group On July 26, 2001, the Caisse d Epargne Group and Caisse des Dépôts Group signed an agreement in principle to combine their competitive financial businesses (retail banking, investment banking and financing, insurance and real estate), thus taking a decisive step forward toward strengthening their existing partnership. This combination was realized through the contribution of the two Groups competitive businesses to EULIA, a joint venture, as well as CNCE s contribution of its Finance division to CDC IXIS. All these contributions were made effective December 31, The shareholders agreement dated December 20, 2001 stipulates the framework of the renewed partnership. EULIA is to provide strategic direction for the Alliance, notably concerning its business strategy, national and international expansion and the implementation of synergies. Given the structure of the transaction and the existence of an agreement between the shareholders of EULIA extending an existing partnership, Caisse des Dépôts and CNCE chose to avail themselves of the provisions of Regulation issued by Comité de la Réglementation Comptable (CRC). This adapts Article 215 ( Alternative method ) of CRC regulation to transactions resulting in the joint control of an undertaking by pooling activities carried on beforehand under the shareholders common control. Given that the above consists in a pooling of interests, EULIA and its subsidiaries have been proportionally consolidated in the consolidated financial statements prepared by Caisse des Dépôts and CNCE. 2 Comparability of the financial statements For comparative purposes, a 2001 proforma income statement was prepared that factors in the impact of the EULIA transactions as if they had been made effective January 1 of that year. Thus the 2001 proforma income statement integrates the companies contributed by the Caisse d Epargne Group, changes in percentage holdings as well as changes in the consolidation methods resulting from the Alliance transactions. Elements permitting comparisons to be made between the published and proforma consolidated financial statements for the year ended December 31, 2001 are provided in Note 36. In addition, some commissions related to asset management activities were reclassified in In accordance with the Banking Commission s March 28, 2002 Regulation , expenses related to discounts on financial services commissions are now entered under net banking income to the extent that the discount is offered in exchange for a volume of business or a recurring service brought in by new business providers and that the establishment has no direct ties to the client. Concurrent with this change in presentation, several commissions related to securities transactions (custodian fees, account management and valuation fees, etc.) previously entered under operating expenses were reclassified under commission expenses. In order to maintain the comparability of the financial information reported in prior years, the impact of this reclassification is detailed in Note 36. Finally, the Caisse des Dépôts Group s application of the CRC s December 7, 2000 regulation relating to liabilities had no material impact on the retained earnings at the beginning of the period on January 1, 2002 and has no bearing on the comparability of the reported consolidated financial statements. Consolidation Principles and Policies 1 Consolidation methods and scope of consolidation The consolidated financial statements include the accounts of the Central Sector of Caisse des Dépôts, the consolidated accounts of the sub-groups and the accounts of subsidiaries, whenever their consolidation is material to the consolidated accounts of the entities included in the scope of the consolidation. Those companies whose contribution to the results of the subgroup to which they belong is considered material, and newly formed or acquired companies for which strong growth is expected, are also consolidated. Full consolidation Undertakings over which the Group exercises full control and whose activity is either of a financial nature or an extension of the Group s activities are fully consolidated. Full control is defined as the ability of an undertaking to direct the financial and operational policies of another undertaking with a view to gaining economic benefits from its activities. It results from the ownership of more than one half of the voting rights of an undertaking, or from the appointment for two successive years of more than one half of the members of the governing bodies, or from the power to exert a dominant influence by virtue of company bylaws or agreements. Proportional consolidation Companies over which the Group exercises joint control are proportionally consolidated. Joint control is defined as sharing the control of an undertaking jointly run by a limited number of partners or shareholders, such that the financial and operating policies result from their agreement. Equity method consolidation Undertakings over which significant influence is exerted are accounted for under the equity method. Significant influence results from the ability to take part in determining the financial and operational policies of an undertaking without exercising control. Caisse des Dépôts Group - Annual Report Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business

10 Consolidated Financial Statements Special case of ad hoc entities When the Group or a group company controls an undertaking in substance, notably by virtue of contractual agreements or provisions in company bylaws, the undertaking is consolidated even if there is no ownership of shares. The existence of control in substance is assessed using the following criteria, as defined by CRC regulation 99-07: decision-making and management powers in respect of the daily operations of a special purpose entity ad hoc or in respect of its assets; and the ability to obtain the majority or all of the economic benefits and be exposed to a majority of the risks. Entities that carry out their activities under a fiduciary relationship, where management is carried out on behalf of third parties and in the interest of the various parties involved, are not consolidated. The following types of companies are not consolidated: semipublic companies (SEMs and SAIEMs) and public housing corporations (HLMs), for which access to their assets and profits is restricted. As regards insurance activities, controlled pooled investment vehicles and transparent companies with property rental activities representing policyholder liabilities are not consolidated. The accounts of consolidated entities are generally prepared to December 31. Companies preparing their accounts more than three months before or after this date are consolidated using interim accounts as of December Changes in the scope of consolidation As of December 31, 2002, the scope of consolidation comprised the Central Sector of Caisse des Dépôts, 18 ad hoc entities (of which five mutual funds and similar entities), a debt securitization fund and 837 other direct and indirect subsidiaries, for an overall total of 857 entities, compared with 795 entities one year earlier. The most significant consolidation changes at Caisse des Dépôts last year were as follows: the acquisition of the 7.23% equity interest in BDPME previously held by Banques Populaires Group; the reorganization of the IT Economic Interest Grouping, which resulted in the sale of a 60% interest in Informatique CDC to CDC IXIS and CNP Assurances in equal measure; the consolidation of the CDC PME Croissance investment fund. The main changes in the scope of consolidation at the level of the sub-groups are indicated below: EULIA sub-group Sale of CFF Group s 20.9% interest in SIMCO to Gecina; Consolidation of the Teddy debt securitization fund. CDC IXIS sub-group Sale of Compagnie EMGP to C3D Group; Merger of CDC IXIS with SPID and transformation of CDC GmbH into a branch of CDC IXIS; Consolidation of new controlled ad hoc entities, including the CLEA 2 securitization entity; Exclusion from the scope of consolidation of ad hoc entities controlled by CIFG, whose consolidation would not present a fair picture. This involves mainly ad hoc entities controlled by the CIFG sub-group in the context of their insurance activities; Acquisition of 38.6% of Nexgen Financial Holdings Group on December 11, Given the absence of any material impact on the Group s 2002 financial statements, this entity will be consolidated starting in C3D sub-group Following a cash takeover bid, Compagnie des Alpes Group took control of Grévin et Compagnie, which is now fully consolidated; Acquisition from CDC IXIS Group of Compagnie EMGP, which at year-end is fully consolidated; Acquisition by Capri from the Caisse d Epargne Languedoc Roussillon of an equity interest in ELLUL, which resulted in the full consolidation of 36 companies. CNP Assurances sub-group No material transactions were made in Goodwill When an undertaking is consolidated for the first time, the difference between the cost of acquisition of the shares and the total restated value of the assets, liabilities and off-balance sheet items constitutes goodwill on acquisition. The difference between the value retained for an item in the consolidated balance sheet and its carrying value in the individual balance sheet of the acquired undertaking constitutes a fair value adjustment. These differences are amortized, written down or written back to income using the rules normally applicable to the corresponding items. Goodwill on acquisition, which may be positive or negative, is amortized through the income statement over a period that reflects the assumptions made and the objectives set at the time of the acquisition, but does not exceed 20 years. If material unfavorable changes occur affecting the assumptions on which the amortization schedule is based, the rate of amortization of goodwill on acquisition is increased. 4 Deferred taxes Deferred taxes are recognized when a temporary difference is identified between the restated carrying amount and the tax base of assets and liabilities. They are calculated using the liability method, whereby deferred taxes from prior years are adjusted to account for changes in tax rates. The corresponding impact is recognized under deferred tax in the consolidated income statement. The deferred tax rates applied in 2002 for France were 35.43% for the full rate and 20.20% for the reduced rate. These rates were unchanged from Deferred taxes are calculated separately for each tax entity. In accordance with the rule of prudence, deferred tax assets are recognized only if there is a strong likelihood that they may be set against future tax liabilities. 5 Foreign currency translation Balance sheet items and off-balance sheet commitments of foreign companies are translated at the year-end rates, with the exception of equity capital, which is maintained at the historical rate. Income statements are translated on the basis of the average exchange rates during the year. The resulting differences are entered in consolidated reserves under Translation reserve. 54

11 6 Intra-group transactions Intra-group accounts as well as income and expenses resulting from transactions within the Group are eliminated on consolidation when they are material and whenever they relate to fully or proportionally consolidated subsidiaries. Securities issued by group companies are also eliminated from the balance sheet if they are not part of the trading portfolio. 7 Rental and leasing transactions with purchase option and lease-financed goods Rental and leasing transactions are entered in the company accounts according to their legal nature. Under accounting regulations, transactions that are in fact comparable to credit transactions must be restated in the consolidated financial statements in such a way as to recognize their economic purpose. Rental and leasing transactions with a purchase option are therefore entered on the consolidated balance sheet with the outstanding amount determined using the so-called financial method. The unrealized reserve, which consists of the difference between the reported amortization and the financial amortization of the invested capital, is entered in consolidated reserves net of deferred taxes. Fixed assets acquired through a lease or similar agreement are restated for the purpose of consolidation and entered on the balance sheet as if they had been acquired through borrowing. Presentation and accounting Policies Banking and financial Activities 1 Income statement items Interest and commissions classified as such are recorded on an accruals basis. Commissions not classified as interest are recorded on a cash basis. 2 Foreign currency denominated transactions Foreign currency denominated assets, liabilities and off-balance sheet commitments have been translated at exchange rates on December 31, Currency gains and losses from ordinary currency transactions are recorded in the income statement. Spot foreign exchange transactions are valued at the spot rate. Forward currency transactions, other than hedging, are valued at the rate for the remaining period. Forward currency transactions for hedging purposes are valued by symmetry with the item hedged. Premiums and discounts related to hedged forward currency transactions are taken as income and expenses over the period remaining until the maturity of these transactions. 3 Advances and loans to financial institutions and customers These items include loans, overdrafts and securities purchased under collateralized and uncollateralized fixed resale agreements. Loans Loans are recorded as assets in the balance sheet at redemption value. Accrued interest is recognized as income over the life of the loan. Loans with non-collection risks are transferred to non-performing loans, generally when unpaid due amounts are more than three months old. Provisions are made against the interest and capital on these loans after taking into account the type of collateral received. Securities purchased under collateralized and uncollateralized fixed resale agreements These securities are recorded as assets in the balance sheet on the line representing the receivable arising from the transaction. The corresponding income is recognized on a time basis. Securities received as collateral and subsequently sold are recorded as liabilities and valued at market value. 4 Securities and securities transactions Securities are classified under accounting categories corresponding to the institution s activities. Trading securities Trading securities include in particular treasury bills and negotiable debt securities. They are expected to be held for periods not exceeding six months. They are highly liquid and are marked to market. Valuation differences are recognized in the income statement. When the Group is in a market-making position and the security is actively traded, these securities may be held in the trading portfolio beyond the regulatory period of six months. This is also the case when these securities are under specialized management to hedge instruments valued on a marked-tomarket basis. Available-for-sale securities Available-for-sale securities represent securities that are not to be held until maturity or for trading purposes. They also include, except in the case of market-making activities, trading securities reclassified after being held for a period of more than six months. In this case, the reclassification is made at market value on the date of the transfer. Available-for-sale securities are treated according to the FIFO method and are valued as follows: Bonds and equities: unrealized losses calculated based on their year-end closing price are taken to expenses through a provision for impairment; Treasury bills, negotiable debt securities, and interbank instruments: provisions are made on the basis of the individual situation of the issuer and market indicators. Any premiums and discounts on fixed-income securities are written off over the residual life of the asset on a yield-to-maturity basis for negotiable debt securities and on a straightline basis for other securities. Investment securities This portfolio comprises fixed-income securities that are intended to be held until maturity, and financed with dedicated long-term resources or covered through hedging instruments. Unrealized capital losses resulting from differences between book and market values are not covered by provisions. However, if applicable, counterparty risks are taken into account in determining the Caisse des Dépôts Group - Annual Report Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business

12 Consolidated Financial Statements value of these securities at year-end. The difference between the acquisition price and the redemption value of the securities (premium or discount) is amortized using the yield-to-maturity method for negotiable debt securities and the straight-line method for other securities. Medium-term portfolio securities (TAP) Medium-term portfolio securities are investments made on a regular basis with the aim of realizing a capital gain in the medium term but without the intention of investing on a long-term basis in the development of the business or taking an active part in the operational management of the issuing undertaking. These securities are recorded at cost. A provision is taken in respect of any permanent impairment in the value of the security due to a fundamental deterioration in the undertaking s position. Fair value is determined taking into account the general economic outlook for the issuer and the remaining period for which the securities will be held. It is calculated using a multi-criteria approach, with a predominant role given to the market price over a sufficiently long term. Other long-term securities (ATDLT) No securities are held by the Group that would be classified under this accounting category. Non-consolidated equity securities Non-consolidated equity securities are recorded at acquisition cost. They are valued on the basis of their fair value, with reference to various criteria such as net assets, potential return, and capitalization of earnings. Provisions are constituted to reflect any permanent impairment. Lending and borrowing of securities Securities are valued using the rules applicable to the portfolio of origin. Borrowed securities are recorded as an asset under trading securities at their market value on the day they were borrowed, and as a liability to recognize the debt towards the lender. They are valued on the basis of their year-end market value. Loans and borrowings guaranteed by cash and notes are treated in the same way as collateralized resale agreements. Income from these transactions is recognized on an accruals basis in the income statement. Issues indexed on fund performance These consist in structured issues, the most often with a zero coupon in fine, that are indexed on fund performance. The index is hedged by the purchase of units in the fund whose performance accrues entirely to the subscribers at maturity. The overall financial engineering margin on these transactions is estimated by reference to the market value of the units in the fund and the present value of future cash flows relating to these issues as well as to future management expenses. As required by applicable regulations, extremely prudent assumptions are used regarding early redemption when the valuation is based on models. 5 Forward financial instruments In application of the strategy defined for the development of its trading activities and the management of market risks, Caisse des Dépôts Group operates on all organized and over-the-counter markets for interest rate, currency and securities futures and options. In France as well as abroad, these transactions are entered into as part of specific or general hedging, or in connection with specialized management of trading portfolios. For all of these instruments, whatever the management policy pursued, the face value of the futures and options contracts, the value of the underlying assets, or the exercise price is recorded off-balance sheet. The method of accounting for charges and revenues on these instruments depends on the management policy pursued. Interest rate and currency swaps Hedging transactions: charges and revenues resulting from hedging instruments (taken singly or as a homogeneous group) are recognized symmetrically with the revenues and charges resulting from the transaction hedged. Charges and revenues on forward instruments qualified as general interest rate hedges are recorded on an accruals basis through the income statement. Specialized portfolio management transactions: contracts are valued at year-end at their market value. In accordance with regulations, the market value takes into account an adjustment for counterparty risks and the discounted value of future management costs. The total net valuation difference is recognized in the income statement. Other interest rate and currency transactions These transactions relate primarily to futures and options. Hedging transactions: charges or revenues are recognized in the income statement on a symmetrical basis with the revenues or charges on the transaction hedged. Other transactions: these transactions are marked to market. Unrealized gains or losses at year-end are recognized in the income statement. In order to give a fair view of the value of these instruments, those that are not highly liquid are also valued by reference to their theoretical market value. Complex transactions Complex transactions are synthetic combinations of instruments of various types, characteristics and pricing methods. Each component of the transaction is recorded on- or off-balance sheet according to the nature of the underlying. The result is considered globally and recorded through one entry reflecting the economic nature of the transactions, as if they were a single instrument. In the case of totally new products, when not governed by explicit regulation, the accounting approach for recognition of any gains and losses is based on similar existing products. The method of accounting for gains and losses depends on the management policy pursued: Hedging transactions: for reasons of prudence, notably when market liquidity is low, results are recorded on an accruals basis. A provision is made when market value is negative. 56

13 Trading portfolio or transaction for which the result can be considered as an arrangement fee: the result is recognized when the transaction is initiated. A discount is applied to take into account future management expenses and possible counterparty risks. Credit derivatives Credit derivatives are instruments whose purpose is to transfer the credit risk in respect of an asset from one counterparty to another, generally in exchange for a premium paid at the outset or by installments. In the case of events predefined in the related contract, known as credit events, the seller of the cover is called upon to bear the cost under the terms defined in the contract. There are three categories of credit derivatives: Credit Default Swaps, Total Rate of Return Swaps and Credit Linked Notes that can be likened to options, interest rate swaps and securities swaps, respectively. In the absence of a specific accounting text, the accounting approach for credit derivatives is based on their analogy to existing products with which they can be likened and taking into account the management policy being pursued: Hedging transactions: charges and revenue are recognized symmetrically with the revenue and charges on the transaction hedged; Isolated open position transactions undertaken as part of a longterm holding: the result is booked on an accruals basis. A provision is made against unrealized losses. Specialized portfolio management transaction: when market liquidity for the derivative is ensured, contracts are valued at market price with a discount applied to take into account possible counterparty risks and the present value of future management expenses. Otherwise, contracts are valued using the applicable regulations for the underlying transactions, which involves valuing them at cost and, where necessary, establishing a provision for impairment. Market values When the market price of the instruments or the valuation parameters are not officially listed, alternative valuation methods are used, making reference to one or more of the following components: price confirmation by brokers or outside counterparties, comparison with actual transactions and research by issuer or instrument category. When the instruments are valued using models, these integrate the parameters that affect the valuation of the instruments, in particular the liquidity level of the related markets. Applying a prudent approach, the calculations are adjusted to take account of the weaknesses of some of these parameters, in particular their relevance over a long period. 6 Tangible and intangible fixed assets Fixed assets are valued at cost. In the case of buildings, initial fixtures, fittings and installation expenditure may be added to the cost of acquisition. Depreciation is calculated using the straight-line method and according to the type and quality of the building, over its estimated useful life. Thus, buildings are depreciated over 20 to 50 years. Partial renovation work on old buildings is depreciated over periods of between 15 and 25 years. Installations, improvements and fittings are generally written off over 10 years. Market shares acquired are not amortized. They are, however, periodically subjected to an impairment test based on the valuation of the benefits arising from the competitive position held. As for insurance activities, the fair value of the contracts portfolio, which corresponds to the estimated present value of future distributable profits attributable to the portfolio at the time of the acquisition, is amortized for like groups of contracts using a schedule that is updated regularly and reflects the flow of future profits over a reasonable period. As a general rule, software is written off over 3 years, with a maximum of 5 years. Forests are subject to provisions for impairment as required. In the event of an irreversible loss, an exceptional depreciation charge is taken for the amount of the loss. 7 Investment property risks Caisse des Dépôts Group owns a large portfolio of rental properties held as long-term investments. Market values are determined regularly by independent appraisers. A provision is made for any permanent impairment in value of these properties, representing the difference between carrying value and market value. 8 Advances and loans from financial institutions and customer deposits These liabilities include deposits, loans and securities sold under collateralized and uncollateralized fixed repurchase agreements. Loans Loans are recorded in the balance sheet at redemption value and accrued interest is charged to the income statement over the life of the loan. Securities sold under collateralized fixed repurchase agreements The debt is recorded under liabilities. The securities are maintained in their original portfolio and valued according to the rules applicable to that portfolio. The corresponding interest is recognized as it is accrued. 9 Debt securities Debt securities are reported according to the type of security: interbank and money market instruments (commercial paper, certificates of deposit and medium-term notes), bonds and similar debt securities. Accrued interest is recorded on the same balance sheet line as the debt security and is charged to the income statement. Commissions on the issue of debt securities and any premiums on their issue or redemption are allocated to the income statement on a straight-line basis over the life of the securities. 10 Provisions for risks and charges This heading includes: provisions for country risk, which are determined based on an appraisal of the risk carried by the Group in the respective countries or borrowers in those countries; the appraisal criteria are Caisse des Dépôts Group - Annual Report Caisse des Dépôts Group Financial Statements Corporate information Public-interest missions Competitive business