LISI GROUP - 2016 Financial report

LISI 2016 FINANCIAL REPORT

2.2.5

Conversion methods for items in foreign currency

2.2.5.1 Transaction in foreign currency

Transactions in foreign currencies are recorded in the books in

the operating currency at the rate of exchange on the date of the

transaction. At the year-end, the monetary assets and liabilities in

foreign currencies are converted into the operating currency at the

rate in force at the year end. Exchange rate differences arising from

conversions are recognized in income or expenses, with the exception

of differences from foreign currency loans that are a hedge on a net

investment in a foreign entity, which are recognized in the conversion

reserve as a distinct element of shareholders’ equity. They appear on

the income statement upon the exit of that business.

2.2.5.2 Translating financial statements of consolidated subsidiaries

and joint ventures

The financial statements of subsidiaries and affiliates whose

operating currency is not the euro have been converted at rates in

effect at the close of the period reported for the balance sheet and at

the average exchange rate for the earnings and cash flow statements.

Exchange rate differences arising from conversions appear in the

conversion reserve, as a distinct element of shareholders’ equity.

2.2.6

| Financial instruments

2.2.6.1 Non-derivative financial instruments

Non-derivative financial instruments include investments in equity

instruments and debt securities, trade and other receivables, cash

and cash equivalents, loans and debts, and trade and other payables.

Non-derivative financial instruments are recognized in the accounts

as indicated in the specific notes below: 2.2.8.6, 2.2.10, 2.2.11, 2.2.12,

2.2.15 and 2.2.16.

2.2.6.2 Financial derivatives

The Group uses derivative financial instruments to hedge its exposure

to foreign exchange and interest rate risks arising from operational,

financing and investment activities. In accordance with its cash

management policy, LISI S.A. neither holds nor issues derivatives for

trading purposes.

However, derivatives that do not meet the hedge criteria are valued

and recorded at fair value by earnings. The profit or loss arising from

the re-evaluation at fair value is immediately posted to the income

statement.

When a derivative is designated as a hedge for cash flow variations

of a recognized asset or liability, or of a highly probable, expected

transaction, the effective share of change in fair value of the derivative

is recognized directly in shareholders’ equity. Accumulated, associated

profits or losses are taken out of shareholders’ equity and included

in the income statement of the period(s) during which the covered

transaction affects the profit or loss.

2.2.7

Intangible assets

2.2.7.1 Goodwill

In line with IFRS 3, business combinations are recognized in the

accounts using the acquisition method. This method requires that at

the first consolidation of any entity over which the Group has direct or

indirect control, the assets and liabilities acquired (and any potential

liabilities assumed) should be recognized at their acquisition-date fair

value. At this point, goodwill is valued at cost, which equates to the

difference between the cost of the business combination and LISI’s

stake in the fair value of the assets and identifiable liabilities.

For acquisitions prior to January 1, 2004, goodwill remains at its

presumed cost, i.e. the net amount recognized in the accounts under

the previous accounting framework, minus depreciation.

For acquisitions after this date, goodwill is valued at cost, minus

the cumulative loss in value. It is allocated to cash-generating units

or groups of cash-generating units and is not amortized; instead, it

is subject to an impairment test at least once a year following the

method described in paragraph 2.2.8.5.

If the goodwill is negative, it is recognized directly as a profit in the

income statement.

2.2.7.2 Research and development

Research costs incurred in order to develop scientific knowledge

and understanding, or to learn new techniques, are recognized as an

expense when they are incurred.

Under the IFRS framework, development costs (i.e., costs incurred

by applying the results of research to a plan or model in order to

develop new or substantially improved products and processes) are

recorded as fixed assets if the Group can demonstrate that future

economic benefits are probable. The LISI Group’s development costs

primarily relate mainly to products which are being developed through

very close collaboration with clients, rather than to improvements in

processes.

Due to the nature of the LISI Group’s research and development

costs, most such costs do not meet the criteria for capitalization as

intangible fixed assets; they are therefore recorded as expenses. The

Group carries out regular assessments of major projects in order to

identify any costs which could be capitalized.

2.2.7.3 Other intangible assets

Concessions, trademarks and software programs are recognized at

historic cost and are subject to a depreciation plan. Intangible fixed

assets acquired through a business combination are recognized at

their acquisition-date fair value. Intangible fixed assets with finite useful

lives are subject to depreciation over this period, while intangible fixed

assets with indefinite useful lives are subject to an impairment test for

every new balance sheet.

CONSOLIDATED FINANCIAL STATEMENTS