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5.Financialstatements

Consolidated financial statements

Balance sheet

Income statement

Cash flow statement

Change in shareholders' equity

Notes

Parent company financial statements

Balance sheet

Income statement

Cash flow statement

Notes

150

151

152

153

155

203

204

204

205

149

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150

150

BOUYGUES GROUP - CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2006

Note 12/2006 12/2005 12/2004net net net

Assets (in millions of euros)

Property, plant and equipment 3.2.1 5,039 4,615 4,629

Intangible assets 3.2.2 1,022 1,056 1,020

Goodwill 3.2.3 4,781 4,618 4,540

Investments in associates 3.2.4 2,940 497 486

Other non-current financial assets 3.2.4 1,087 283 237

Deferred tax assets and long-term tax receivable 7.1 271 375 569

NON-CURRENT ASSETS 16 15,140 11,444 11,481

Inventories / Programmes / Broadcasting rights 4.1 2,298 1,804 1,691

Advances and down payments on orders 4.2 333 357 369

Trade receivables 4.3 6,252 5,418 4,575

Tax asset (receivable) 4.3 40 71 45

Other receivables and prepaid expenses 4.3 1,952 1,684 2,464

Cash and equivalents 4.5 3,776 3,215 3,260

Financial instruments(1) 17.3 11 35 48

Other current financial assets 17.3 18 6 15

CURRENT ASSETS 14,680 12,590 12,467

Held-for-sale assets 564(2)

TOTAL ASSETS 16 29,820 24,598 23,948

Note 12/2006 12/2005 12/2004

Liabilities and shareholders equity (in millions of euros)

Shareholders equity- Share capital 335 337 333- Share premiums and reserves 3,827 3,417 2,771- Translation reserve 8 44 (15)- Treasury shares (69)- Current years consolidated net profit 1,246 832 909

Shareholders equity attributable to the Group 5,347 4,630 3,998Minority interests 1,146 931 980

SHAREHOLDERS EQUITY 5 6,493 5,561 4,978

Non-current debt 8.1 6,844 4,721 4,648Non-current provisions 6.1 1,432 1,265 1,176Deferred tax liabilitiesand non-current tax liabilities 7.2 75 89 158

TOTAL NON-CURRENT LIABILITIES 16 8,351 6,075 5,982

Advances and down payments on orders 10 958 677 679Current debt 8.1 867 694 242Current taxes payable 10 144 211 177Trade payables 10 6,744 5,805 5,207Current provisions 6.2 690 676 540Other current liabilities 10 5,316 4,351 5,846

Overdrafts and short-term bank borrowings 10 247 178 252Financial instruments(1) 17.3 5 9 41Other current financial liabilities 17.3 5 11 4

CURRENT LIABILITIES 10 14,976 12,612 12,988

Liabilities on held-for-sale assets 350(2)

TOTAL LIABILITIES & SHAREHOLDERS EQUITY 16 29,820 24,598 23,948

NET DEBT 9.1 (4,176) (2,352) (1,875)

(1) Hedging of financial liabilities at fair value

(2) TPS, which was held for sale in 2005, is shown separately on the lines "Held-for-sale assets" and "Liabilities on held-for-sale assets"

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151C O N S O L I D A T E D F I N A N C I A L S T A T E ME N T S

CONSOLIDATED INCOME STATEMENT

(in millions of euros)

Note 2006(1) 2005(1) 2004(1)

SALES(2) 11/16 26,408 23,983 20,815

Other revenues from operations 11.1 180 147 141Purchases used in production (11,748) (10,188) (8,990)Personnel costs (5,278) (4,802) (4,376)External charges (6,449) (5,657) (4,454)Taxes other than income tax (585) (510) (468)Net depreciation and amortisation expense (1,190) (1,183) (1,089)Net charges to provisions and impairment losses (384) (458) (279)Changes in production and property development inventories 471 58 (13)

Other operating income and expenses(3)

496 459 274CURRENT OPERATING PROFIT 12/16 1,921 1,849 1,561

Non-current operating income and expenses 12/16 (44) (104) 0

OPERATING PROFIT 12/16 1,877 1,745 1,561

COST OF NET DEBT 13/16 (200) (186) (156)

Other financial income and expenses (22) (29) (30)

Income tax expense 14.1/16 (555) (570) (503)Share of profits and losses of associates 3.2.4/16 118 62 37

NET PROFITS BEFORE RESULTS OF DISCONTINUED AND HELD-FOR-SALE OPERATIONS 16 1,218 1,022 909

Net profit of discontinued and held-for-sale operations 16/23 364 16 206

NET PROFIT 16 1,582 1,038 1,115

Attributable to the Group 16 1,246 832 909Minority interests 336 192 206Minority interests in share of profits/losses of associates 14

BASIC EARNINGS PER SHARE (in euros) 15 3.71 2.51 2.72

DILUTED EARNINGS PER SHARE (in euros) 15 3.60 2.42 2.68

(1) Excluding income and expenses of discontinued and held-for-sale operations

- 2006: divestment of BTC/Canal+ France financial asset received in exchange for TPS shares: profits/losses shown separately on the line "Net profit of discontinued and held-for-sale operations"

(2) Of which sales generated abroad 7,825 7,127 5,989

(3) Of which reversals of provisions and impairment no longer required 216 222 124

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A -NET CASH GENERATED BY OPERATING ACTIVITIES

Cash flow

Consolidated net profit (including minority interests) 16 1,582 1,038 1,115Share of profit or loss from associates(1) (66) (30) (13)Elimination of dividends from non-consolidated companies (7) (5) (6)Charges to (write-backs of) depreciation andamortisation, impairment and non-current provisions 1,332 1,336 1,306Gains and losses on asset disposals (460) (54) (353)Miscellaneous charges 14 48 3

sub-total 2,395 2,333 2,052Cost of net debt 200 187 162Income tax expense for the year 560 570 500

Cash flow 16 3,155 3,090 2,714

Changes in working capital related to operating activities (2)(including deferred taxes) (18) (511) 35

NET CASH GENERATED BY OPERATING ACTIVITIES 3,137 2,579 2,749

B - NET CASH USED IN INVESTING ACTIVITIES

Purchase price of property, plant and equipment and intangible assets

16

(1,702 ) (1,371 ) (1,22 1)

Proceeds from disposals of property, plant and equipmentand intangible assets 96 142 174Net liabilities related to property, plant and equipmentand intangible assets 171 38 107

Purchase price of non-consolidated companies and other investments16

(41) (5) (54)Proceeds from disposals of non-consolidated companies

and other investments 47 5 7Net liabilities related to non-consolidated companiesand other investments 2Effects of changes in scope of consolidation

16

Purchase price of investments in consolidated companies (2,646) (328) (284)

Proceeds from disposals of investments in consolidated companies 193 78 1,153

Amount receivable from Saur disposal 1,031 (1,031)Net liabilities related to investments in consolidated companies andeffect of other chan ges in scope on ca sh (139 ) (60 ) 22Other cash used in investing activities (change in loans,dividends received from non-consolidated companies) (115) (71) (10)

NET CASH USED IN INVESTING ACTIVITIES (4,134) (541) (1,137)

C - NET CASH USED IN FINANCING ACTIVITIES

Capital increases during the year paid for by shareholders and minorityinterests (including exercise of stock options) (112) (18) 5Purchase of treasury shares (69) (41) (58)Dividends paid during the year

Dividends paid to shareholders of the parent company (302) (249) (164)D ividends paid t o minori ty s hare ho lders o f c onsol idat ed c ompanies ( 135) (91) ( 94 )Exceptional payout made in 2005 (1,664) 1,664

Other changes in share capital 17 (11) (1,667)

Change in debt(3) 2,325 160 (270)Cost of net debt(4) (200) (187) (162)Other cash used in financing activities (8 ) 4 (93)

NET CASH GENERATED BY/(USED IN) FINANCING ACTIVITIES 9 1,516 (2,097) (839)

D - EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS (27) 25 (8)

CHANGE IN NET CASH (A + B + C + D) 9 492 (34) 765

CASH POSITION AT 1 JANUARY 3,037 3,008 2,250

Net cash flows during the year 492 (34) 765

Other non-monetary flows 6 (7)

TPS, held-for-sale in 2005: elimination of cash flow 57

Cash at end of period 3 ,529 3,037 3,008

CONSOLIDATED CASH FLOW STATEMENT (in millions of euros)

Note 2006 2005 2004 Note 2006 2005 2004

(1) Elimination of share of profit or loss of associates + dividends received from associates

(2)Definition of change in working capital:Current assets - Current liabilities (including current provisions, excluding current

financial liabilities and financial instruments (debt hedging) -> in financing)

(3)Definition of debt:non-current debt + current debt

(4)Of which net interest paid (291) (220) (208)

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CHANGE IN CONSOLIDATED SHAREHOLDERS EQUITY AT 31 DECEMBER 2006 (in millions of euros)

GROUP SHAREShare capital

Share premium

Reserves related tocapital / Retained

earnings

Consolidatedreserves and profit

for the year

Translation

reserves

Treasury

shares

Profitsrecognised

directly in equity

TOTAL

GROUP

POSITION AT 01/01/2004 2,310 755 1,940 9 5,014

MOVEMENTS IN 2004

Capital and reserves transactions, net (58) (58)

Share-based payment 7 7

Treasury shares

Dividends (1,828) (1,828)

Net profit for the year (attributable to the Group) 909 909

Financial instruments 6 6

Translation adjustments (15) (15)

Other changes (36) (1) (37)

POSITION AT 31 DECEMBER 2004 2,252 755 992 (15) (1) 15 3,998

MOVEMENTS IN 2005

Capital and reserves transactions, net (19) 331 (331) (19)


Treasury shares

Dividends (249) (249)

Net profit for the year (attributable to the Group) 832 832

Financial instruments (9) (9)

Translation adjustments 59 59

Other changes 1 24 (4) (42) (21)

POSITION AT 31 DECEMBER 2005 2,234 1,086 1,307 44 (5) (36) 4,630

MOVEMENTS IN 2006

Capital and reserves transactions, net (157) (46) 46 (157)


Treasury shares (70) (70)


Net profit for the year (attributable to the Group) 1,246 1,246



Other changes (35) (33) (68)

POSITION AT 31 DECEMBER 2006 2,077 1,040 2,288 8 (75) 9 5,347

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154

MINORITY INTERESTS

Share capital

Share premium

Reserves related to

capital / Retainedearnings

Consolidated

reserves and profitfor the year

Translation

reserves

Treasury

shares

Profits

recogniseddirectly in equity

TOTAL

MINORITYINTERESTS

POSITION AT 1 JANUARY 2004 890 890

MOVEMENTS IN 2004

Capital and reserves transactions, net 5 5

Dividends (94) (94)

Net profit for the year (attributable to minority interests) 206 206


Translation adjustments

Change in scope of consolidation

Other changes (29) (29)

POSITION AT 31 DECEMBER 2006 978 2 980

MOVEMENTS IN 2005

Capital and reserves transactions, net

Dividends (91) (91)


Financial instruments

Translation adjustments 3 3

Change in scope of consolidation (170) (170)

Other changes 3 3

POSITION AT 31 DECEMBER 2005 926 5 931

MOVEMENTS IN 2006

Capital and reserves transactions, net 45 45



Financial instruments (2) (2)


Change in scope of consolidation (31) (31)

Other changes 3 3

POSITION AT 31 DECEMBER 2006 1,145 1 1,146

TOTAL SHAREHOLDERS EQUITY 2,077 1,040 3,433 8 (75) 10 6,493

CHANGE IN CONSOLIDATED SHAREHOLDERS EQUITY AT 31 DECEMBER 2006 (in millions of euros) - CONTINUED

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

1. Significant events of the year

2. Accounting policies

3. Non-current assets

4. Current assets

5. Consolidated shareholders equity

6. Non-current and current provisions

7. Non-current tax assets and liabilities

8. Non-current and current debt

9. Main components of change in net debt

10. Current liabilities

11. Analysis of sales and other revenues from operations

12. Operating profit

13. Cost of net debt

14. Income tax expense

15. Basic and diluted earnings per share

16. Segment information

17. Financial instruments

18. Off balance sheet commitments

19. Headcount, employee benefit obligations and employee shareownership

20. Disclosures on related parties and remuneration of directorsand senior executives

21. Additional cash flow statement information

22. Auditors fees

23. Changes in scope of consolidation and discontinued/held-for-saleoperations

24. Principal exchange rates

25. List of consolidated companies

The consolidated financial statements of the Bouygues group for the year ended 31 December 2006 have been prepared

using the principles and methods defined in International Financial Reporting Standards (IFRS) as adopted by the

European Union (European Council Regulation 1606/2002 of 19 July 2002).

They have been prepared in millions of euros, and comprise:

the balance sheet and income statement;

the statement of changes in shareholders equity;

the cash flow statement;

the notes to the financial statements(1)

.The comparatives consist of the financial statements for the years ended 31 December 2005 and 31 December 2004,

also prepared in accordance with IFRS.

(1) The notes to the financial statements include comparatives with 2005. Comparatives with 2004 are not shown in the notes, but may

be found in the 2005 Annual Report.

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NOTE 1: SIGNIFICANT EVENTS OFTHE YEAR

1.1. Scope of consolidation as at31 December 2006

Main changes in the scope of

consolidation:

1,083 entities were consolidated as at 31December 2006 (compared with 983 as at 31December 2005). The main changes during theyear were:

a) Alstom: acquisition of a 25.07% interest (seenote 1.4).

b) Bouygues Construction: acquisitions of ETDEsubsidiaries (Thermal Transfer UK), Balestra(Switzerland), Szigma (Hungary), Marazzi AG(Switzerland), and various construction projectjoint ventures set up or deconsolidated onproject completion.

c) Acquisitions, net of divestments, by Colas:Cermak (Czech Republic), Vecchietti, Ferrrari,etc.

d) Acquisitions by TF1 (1001 listes, etc), and thetransfer of TPS to Canal+ France.

Sale of Novasaur:

At 31 December 2005, the Bouygues group held a9.88% interest in Novasaur, the holding companyof the Saur group. This entire interest (shares, andbonds redeemable for cash or shares) was soldfor 41 million during the first quarter of 2006,generating a net gain of27 million.

Transfer of TPS to Canal+ France:

On 6 January 2006, agreement was reachedbetween Vivendi, TF1 and M6 on the terms fora merger of the French pay TV activities of the

Canal+ Group and TPS. Under the agreement,TPS Gestion (which owned 100% of TPS) was tobe transferred to Canal+ France, an entity whollycontrolled by Vivendi. TF1 was to have taken a9.9% stake in this entity, together with a putoption exercisable in February 2010 at the greaterof (i) an independent valuation or (ii) a minimumprice of745.8 million (valuing 100% of Canal+France at7.5 billion).

This agreement was subject to approval from theFrench competit ion authori ties. On 30 August2006, the merger received competition clearancefrom the Minister of the Economy and Finance,subject to undertakings made by Vivendi andCanal+ France.

Under the agreements governing the transitionalperiod between clearance from the French com-petition authorities and the transfer to Canal+France of the entire interest in TPS Gestion(100% owner of TPS) on 4 January 2007, TF1and Mtropole Tlvision-M6 ceased to governthe operating and financial policies of TPS witheffect from 1 September 2006, and hence ceasedto exercise joint control over TPS. Consequently,the consolidated financial statements of TF1 onlyinclude income and expenses generated by TPSover the first eight months of the year.

On 30 November 2006, in accordance with theterms of the agreement, TF1 subscribed129.4million to a share issue carried out by TPSGestion.

The consolidated financial statements of TF1 forthe year ended 31 December 2006 include anoverall net gain of 254 million on this trans-action, the Bouygues groups share of this gainbeing 109 million. The parameters used indetermining the net gain on the transaction werebased on the terms of the draft shares-for-assetsexchange agreement transferring TPS Gestion(which owns 100% of TPS) to Canal+ France. This

agreement was signed on 19 December 2006 andapproved by an Extraordinary General Meeting ofCanal+ France shareholders on 4 January 2007.

On 4 January 2007 TF1, M6 and Vivendi signeda shareholders agreement under which TF1 andM6 have a joint exit right in the event thatVivendi/Groupe Canal+ divest exclusive controlover Canal+ France, and a priority right to selltheir shares in the event of a stock market flota-tion of Canal+ France.

TF1 has no representative on the Canal+ FranceSupervisory Board and no rights to exercise anycontrol over the management of the company.

1.2. Bond issues

Supplementary bond issue of 250

million:

On 31 January 2006, Bouygues carried out a bondissue of 250 million, supplementary to theinitial July 2005 issue of750 million. The issuematures in 2020, was priced at 97.203%, andbears interest at 4.25%.

This issue extends the average maturity of theBouygues groups debt.

Other bond issues in 2006:

- In order to secure long-term refinancing for partof the investment in Alstom, Bouygues carriedout a euro-denominated bond issue in May2006, in two tranches:

a) 1,150 million maturing 2013, priced at99.812% and bearing interest at 4.50%.

b) 600 million maturing 2016, priced at99.657% and bearing interest at 4.75%.

- In early October 2006, Bouygues carried out a400 million 20-year bond issue on the sterlingmarket, paying interest in sterling at 5.5%.

Because this issue is being used to refinance theeuro-denominated acquisition of Alstom, Bouyguescontracted a cross currency swap with the bank-ers who acted as lead managers on the issue. Theswap has the same maturity as the bond issue,and hedges fluctuations in the sterling debt. Theeuro equivalent interest rate is 5.01%. Like theGroups other bond issues, the portion of this issuematuring after more than one year is classifiedin Non-current debt. These bond issues do notinclude any equity instruments. Accrued interestpayable is recorded in Current liabilities.

1.3. Sale of Bouygues TelecomCarabe

On 28 April 2006, following fulfilment of all thesale conditions, Bouygues Telecom sold its wholly-owned subsidiary Bouygues Telecom Carabe toDigicel Limited (Jamaica) for 155.4 million.The sale generated a gain of 110.2 million,reported in Net profit of discontinued and held-for-sale operations in the income statement. TheBouygues groups share of this gain was98.7million.

1.4. Acquisition of Alstom shares

On 26 April 2006, Alstom and Bouygues signed acooperation agreement approved by the Boards ofDirectors of the two groups.

On 26 June 2006, the European Commission autho-rised the acquisition by Bouygues of the Frenchgovernments interest in Alstom (29,051,244shares, representing 21.01% of the capital).

At 31 December 2006, after purchasing a further4.06% interest in the market, Bouygues held25.07% of the capital and voting rights of Alstom.The investment in Alstom is accounted for by theequity method, and is carried at net acquisition

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cost of 2,374 million. This amount includesBouygues share of Alstoms net profit since thedate of acquisition (26 June 2006), estimated onthe basis of the published interim consolidatedfinancial statements for the six months ended30 September 2006; the differential betweenestimated and actual results for the final quarterof 2006 will be recognised by Bouygues in the firstquarter of 2007.

In accordance with IAS 28, the interest in Alstom isincluded in the balance sheet under Investmentsin associates at a carrying amount of 2,413million. This carrying amount includes goodwillas determined by an independent valuation atthe date of acquisition in accordance with IFRS 3,Business Combinations:

a) The identifiable assets, liabilities and contin-gent liabilities acquired as at 30 June 2006were measured at fair value, with changesin the fair value during the period to 31December 2006 taken into account.

b) The valuation identified few assets thatrequired remeasurement, apart from the fol-lowing intangibles:

the brand name;

acquired technology;

the backlog.

(see Note 2 for a description of the valuationmethod)

c) After fair value remeasurements, the goodwillarising on the acquisition in the books of theBouygues group amounted to1,616 million.

d) The amortisation of fair value remeasure-ments had a negative effect of 18 million(25.07% share) on the consolidated incomestatement of the Bouygues group for the yearended 31 December 2006.

1.5. Alstom Hydro Holding

In October 2006, Bouygues acquired 50% ofAlstom Hydro Holding (Alstoms hydro-power divi-sion) from Alstom for150 million.

Under the agreements with Alstom signed on 29September 2006 and 31 October 2006:

Alstom has specific rights, in particular in theevent of disagreement between the sharehold-ers.

Bouygues has an option to sell its shares backto Alstom in November 2009, or earlier in theevent of disagreement with Alstom:

- for175 million;

- in exchange for 2.2 million Alstom shares,or the equivalent value in euros.

Consequently:

The interest in Alstom Hydro Holding, over whichAlstom has exclusive control, is not consoli-dated by the Bouygues group but recognised asa non-current financial asset.

Because of the long-term industrial strategyunderpinning relations between Bouygues andAlstom, the Bouygues group has decided notto account for the call option entitling it toexchange this asset for Alstom shares (as

described above) as a financial instrument. Ifthis item had been accounted for as a finan-cial instrument, the resulting volatility wouldhave had an estimated favourable impact of50 million on the financial statements as at31 December 2006.

1.6. Bouygues Partage employeeshare ownership plan

A new employee share ownership plan, designedto give employees a stake in the future develop-ment of the Bouygues group on attractive terms,was announced to the Groups employees inDecember 2006 ahead of implementation in thefirst half of 2007.

The employers contribution to be paid by Bouyguesin 2007 was accrued in the financial statementsas at 31 December 2006. The amount of thediscount (20%), treated as an employee benefitunder IFRS, was recognised as an expense in theyear ended 31 December 2006, on the assumptionthat 30,000 employees would take up the offer.

Other information:

Subscription price pershare = 36.44

Plan announcementdate = 7 December 2006

Nominal discount pershare offered to employees(against spot price onthe grant date) = 9.11

Discount per share underIFRS = 4.19

Method usedto value lock-up clause = As recommendedby the Frenchnational account-

ing standard-setter (CNC)

Expense recognised inthe consolidated incomestatement = 15.1m

Spot price per share on thegrant date = 45.55

1.7. Significant events and changesin the scope of consolidation since31 December 2006

None.

NOTE 2: ACCOUNTING POLICIES

2.1. Declaration of compliance

The consolidated financial statements ofthe Bouygues group have been prepared inaccordance with the standards issued by theInternational Accounting Standards Boardas applicable in the European Union on

31 December 2006. These standards, collectivelyreferred to as International Financial ReportingStandards (IFRS), also include InternationalAccounting Standards (IAS) and interpreta-tions issued by the Standing InterpretationsCommittee (SIC) and the International FinancialReporting Interpretations Committee (IFRIC).

This is in compliance with European Councilregulation 1606/2002, adopted on 19 July2002.

The Bouygues group consolidated financialstatements include the financial statements of

Bouygues and its subsidiaries, and investmentsin associates. They are presented in millions ofeuros, the currency in which the majority of theGroups transactions are denominated.

The consolidated financial statementswere adopted by the Board of Directors on27 Februar y 2007, and will be submittedfor approval by the shareholders at the nextOrdinary General Meeting in April 2007.

Business activities:

The Bouygues group is a diversified industrial

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158

group. Its operations are split into two sectors:

a) Construction:- Bouygues Construction (Building & Civil

Works, Electrical contracting)- Bouygues Immobilier (Property)- Colas (Roads)

b) Telecoms/Media:- TF1 (Television)- Bouygues Telecom (Mobile Telephony)

The Bouygues group has operations in nearly 80countries. In 2006, it generated26,408 millionof sales, of which7,285 million was generatedoutside France.

In June 2006, Bouygues acquired an interestin Alstom, with which it signed a cooperationagreement. The deal gives Bouygues a presencein two new high-growth businesses: Transportand Power.

2.2. Basis of preparation

The consolidated financial statements have beenprepared using the historical cost convention,with the exception of certain financial assets andliabilities which are measured at fair value.

Principal new standards and interpretationsmandatorily applicable in 2006:

- IFRIC 4: Determining whether anArrangement contains a Lease.

- IFRIC 5: Rights to Interests arising fromDecommissioning, Restoration andEnvironmental Rehabilitation Funds.

- IFRIC 6: Liabilities arising from Participatingin a Specific Market Waste Electrical andElectronic Equipment.

- Amendment to IAS 19 (Employee Benefits):the Bouygues group elected not to recogniseactuarial gains and losses in consolidated

shareholders equity in 2006, but to con-tinue using the corridor method as in2005.

- Amendment to IAS 39: cash flow hedges offorecast intragroup transactions (impactimmaterial).

These new or amended standards and interpre-tations applicable from 1 January 2006 had nomaterial impact on the financial statements forthe year ended 31 December 2006.

Other new or amended standards and inter-pretations not mandatorily applicable at 31December 2006:

- Bouygues has applied IFRIC 12 (not yetapproved by the European Union) to thePortsmouth PFI contract recorded in thebooks of Colas.

Colas: The Portsmouth PFI contract hasbeen accounted for as a receivable (finan-cial asset), since this treatment mostclosely reflects the underlying financial andeconomic reality of the contract. No othercontracts of this type are held by Colas.

Bouygues Construction: PFI contracts areentered into with governmental authori-ties by companies in which the Bouyguesgroup holds an interest of less than 20%.These entities are not consolidated, giventhe effective limitations on the Groupsrole in them. Most concession companiesare accounted for as associates (equitymethod).

The other new or amended pronouncements(amendments to IAS 1, IFRS 7, IFRS 8, andIFRIC 7 to 12), which had either been adopted orwere in the process of approval by the EuropeanUnion at the balance sheet date, have notbeen early adopted by the Bouygues group. Theimpact of these pronouncements on the finan-

cial statements is currently being reviewed, butis unlikely to be material.

Elective accounting treatments and estimates

used in the valuation of certain assets, liabili-ties, income and expenses:

Preparing financial statements to comply withIFRS requires the use of estimates and assump-tions which may have affected the amountsreported for assets, liabilities and contingentliabilities at the balance sheet date, and theamounts of income and expenses reported for thefinancial year.

These estimates and assumptions have beenapplied consistently on the basis of past experi-ence and of various other factors regarded as rea-

sonable forming the basis of assessments of thevaluations of assets and liabilities for accountingpurposes. Actual results may differ materiallyfrom these estimates if different assumptions orconditions apply.

The main items involved are goodwill impairment,share-based payment (stock options), employeebenefits (lump-sum retirement benefits and dis-count offered under the Bouygues Partage employ-ee share ownership plan), fair value of unlistedfinancial instruments, other miscellaneous provi-sions, and deferred tax assets).

Where no standard or interpretation applies toa specific transaction, Group management hasexercised its judgement to define and applyaccounting policies that will provide relevantand reliable financial information, such that thefinancial statements:

- represent faithfully the financial position, finan-cial performance and cash flows of the Group;

- reflect the economic substance of the underly-ing transactions;

- are neutral, prudent, and complete in all mate-rial respects.

2.3. Consolidation methods

Companies over which Bouygues exercises con-trol are consolidated using the full consolida-

tion method.

Exclusive control over TF1:

- Bouygues holds 42.9% of the capital andvoting rights of TF1.

- Exclusive control by Bouygues is demon-strated by the fact that:

Bouygues has consistently and regularlyheld a majority of the voting rights exer-cised at TF1 shareholders meetings.

No other shareholder directly or indi-

rectly controls a higher share of votingrights than Bouygues.

Bouygues has clearly had exclusivepower to determine decisions at TF1shareholders meetings during at leasttwo consecutive financial years.

Other factors indicating the existence of

exclusive control include:

- the large number of seats on the TF1 Boardof Directors allocated to Bouygues;

- the role of Bouygues in appointing keyexecutives of TF1.

All these factors clearly establish that Bouyguesexercises exclusive control over TF1.

Investments in joint ventures:

A joint venture is a contractual arrangementwhereby two or more parties undertake an eco-nomic activity which is subject to joint control.Bouygues consolidates the assets, liabilities,income and expenses of such entities using theproportionate consolidation method based on thepercentage of control exercised.

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Investments in associates:

An associate is a company over which Bouyguesexercises significant influence without exercising

control. Significant influence is presumed to existwhere Bouygues directly or indirectly holds atleast 20% of the entitys voting rights.

The net profit or loss and assets and liabilitiesof such entities are accounted for by the equitymethod.

- Alstom: Bouygues exercises significant influ-ence over Alstom, as demonstrated by (i) its25.07% interest in the capital and (ii) itscontrol of two seats on the Board of Directors.Consequently, this investment has beenaccounted for by the equity method since 26

June 2006, the acquisition date, and is shown(inclusive of goodwill) under Investments inassociates in the balance sheet.

In accordance with IAS 39, equity investmentsin non-consolidated entities are recognised atfair value and are subject to impairment test-ing.

Changes in scope of consolidation:

2006 2005

Fully consolidated 825 760

Proportionately consolidated 226 197

Equity method 32 26

1,083 983

The main changes during 2006 are described inSignificant Events.

2.4. Business combinations

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 pre-sented in the balance sheet using the full fairvalue method in accordance with IFRS 3. Thismethod involves remeasuring the assets andliabilities acquired at fair value in full (includingminority interests), rather than remeasuring justthe percentage interest acquired.

Goodwill recognised prior to 1 January 2004 con-tinues to be measured using the partial fair valuemethod. This method involves restricting the fair

value remeasurement of identifiable items to thepercentage interest acquired. Subsequent to thisdate, minority interests in these items have beenmeasured under IFRS at the carrying amount ofconsolidated assets and liabilities as shown inthe balance sheet of the acquired entity.

Fair value is the amount for which an asset or cashgenerating unit could be sold between knowledge-able, willing parties in an arms length transac-tion. Goodwill represents the excess of acquisitioncost over the acquirers interest in the fair value ofthe acquirees identifiable assets, liabilities and

contingent liabilities that can be reliably mea-sured at the acquisition date; it is allocated to thecash generating unit (which within the Bouyguesgroup equates to the business segment) benefit-ing from the business combination.

The main initial allocations of acquisition cost toidentifiable assets and liabilities may be adjustedwithin the twelve months following the acquisitiondate, after which they may no longer be adjusted.

Negative goodwill is taken to the income state-ment in the period in which the acquisition ismade.

Subsequently, goodwill is carried at cost net of anyimpairment losses identified using the methodsdescribed under Subsequent remeasurement ofnon-current assets below, in accordance withIAS 36. Impairment l osses are charged to theincome statement as an operating item.

Alstom: Method used to allocate fair valuebetween identifiable assets/liabilities and

goodwill:

- The acquisition cost of the investment as at31 December 2006 was2,374 million.

This comprises (i) the price paid in April2006 to acquire the French governments21.01% interest; (ii) the price paid toacquire an additional 4.06% stake on the

stock market; and (iii) directly attributableacquisition costs.

The fair value estimates were preparedby an independent valuer and were inmost cases determined as of 30 June 2006(for a 23.26% stake), based on publishedinformation about the Alstom group andon valuation reports prepared by externalfinancial advisers in connection with theBouygues groups acquisition of the initialstake in Alstom.

The additional acquisitions made in the

second half of 2006 (a further 1.81% inter-est) do not affect the valuations used inthe purchase price allocation as at 30 June2006.

Remeasurement as at 31 December 2006:

The Bouygues groups 25.07% share of theestimated consolidated net assets of the Alstom

group as at 31 December 2006 was 2,109million, after taking into account profits for theyear then ended (based partly on estimates).On this basis, the excess of purchase cost overthe pre-acquisition carrying amount of the netassets acquired was1,896 million.

Based on the independent valuers review, thisamount was allocated as follows to the identifi -able assets and liabilities of the Alstom group,after remeasurement at fair value:

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160

Fair valueestimate

100% Bouyguesshare

a) Intangible assets (brand name and technology) = +2,441- Under IFRS 3, an intangible asset may be recognised

separately if it meets the definition of an intangible assetin IAS 38 and its fair value can be measured reliably.

- Brand name: The valuation of the Alstom brand nameis based on discounting the future royaltiesthat a third party would pay to use the Alstom brand name(assumed to have an indefinite life). 1,352 339

- Technology: Alstom owns or has been granted licencesto use various patents and other intellectual property rights

(amortised over 15 years). 1,089 273More than 120 patents have been filed in France and Europe,and Alstom has a strong focus on research and development.The valuation is based on discounting the future royalties thata third party would pay to use Alstom technology.

b) Backlog 355 89

The backlog represents all services not yet executed undercontracts already signed, valued sector by sector based onpublicly-available information.

The backlog margin rate used (by sector) was estimated basedon linear interpolation as at 30 June 2006 of actual sector

margins as at 31 March and 30 September 2006.The backlog was valued on the basis of the profit generatedafter paying a return on the support assets required to producethe services included in the backlog (EVA method).

The amount used for support assets in the backlog calculationresults from a number of technical options designed to reflectthe specific characteristics of large-scale contracting.

c) Provisions for pension obligations (actuarial gains and losses) (1,008) (253)

In accordance with IFRS 3 and IAS 19, the Bouygues groupis required to recognise all cumulative actuarial gains andlosses not yet fully recognised by the Alstom group, whether ornot they fall within the corridor.

Cumulative unrecognised net actuarial losses as at 30 June2006 amount to 1,032 million, falling to1,008 million onceunrecognised past service cost is taken into account.

This treatment means that the Bouygues group is eliminatingthrough profit or loss the actuarial losses expensed by Alstom(65 million for the last financial year, ended 31 March2006). As a result, the liability recognised by the Bouyguesgroup will be extinguished over time at the same rate as that

used in the books of Alstom.d) Deferred tax liabilities, financial liabilities and other items (671) (168)

The remeasurements made in connection with the acquisition giverise to the recognition of deferred taxes on the difference between thecarrying amount and tax base of identifiable assets and liabilities.The total deferred tax liability amounts to537 million based on a taxrate of 31%, including426 million for non-depreciable assets.

No deferred tax asset was recognised by the Bouygues group in respectof tax loss carry-forwards held by the Alstom group due to lack of sufficientinformation regarding these losses and the entities and countries involved.

Given the asset divestment program carried out between 2002 and 2005,the fair value of the majority of the property, plant and equipment hasbeen assumed to be close to its carrying amount.

Fair value remeasurements 1,117 280

e) Balance: goodwill recognised by Bouygues: / 1,616

Total allocation / 1,896

Net amortisation expense of18 million was charged during the year ended 31 December 2006 inrespect of these remeasurements.

Separate assets identified and recognised, and assets remeasured at fair value:

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2.5. Foreign currency translation

2.5.1. Transactions denominated in

foreign currenciesTransactions denominated in foreign currenciesare translated into euros at the average exchangerate on the date of the transaction. Monetaryassets and liabilities denominated in foreigncurrencies at the balance sheet date are trans-lated at the closing exchange rate. Translationdifferences are recognised as income or expensesin the income statement. Non-monetary assetsand liabilities denominated in foreign currenciesand accounted for at historical cost are trans-lated using the exchange rate on the date of thetransaction.

2.5.2. Financial statements of foreign

entities

All assets and liabilities of consolidated entitieswith a functional currency other than the euro aretranslated at the closing exchange rate. Incomeand expenses are translated at the averageexchange rate for the period. Translation differ-ences arising from this treatment, and arisingfrom the retranslation of a subsidiarys openingshareholders equity at the closing exchange rate,are taken to the translation reserve, which is a

component of Share premium and reserves inshareholders equity. Translation differences aris-ing on the net investment in foreign subsidiariesand associates are recognised in shareholdersequity.

2.6. Deferred taxation

Deferred taxation is recognised on differencesbetween the carrying amount and tax base of

assets or liabilities, and arises as a result of: Temporary differences between the carrying

amount and tax base of assets or liabilities,which may be:

- items generating a tax liability in the future(deferred tax liabilities), arising mainlyfrom income that is liable to tax in futureperiods; or

- items deductible from taxable profits in thefuture (deferred tax assets), mainly provi-sions that are temporarily non-deductible

for tax purposes. Tax losses available for carry-forward (deferred

tax assets), provided that there is a genuineprobability of recovery in future periods.

Deferred taxes are measured using known appli-cable tax rates at the balance sheet date. In thecase of French entities, deferred tax assets havebeen adjusted to reflect the effect of changes intax legislation and of new tax rates.

Deferred taxes are not discounted.

Deferred tax assets are included in non-current

assets.

2.7. Non-current assets

2.7.1. Property, plant and equipment

Property, plant and equipment is measured atacquisition cost net of accumulated depreciationand impairment. Depreciation is recognised on astraight line basis over the estimated useful lifeof the asset.

Useful lives by main asset category and business segment:

Assets held under finance leases are recognisedin the balance sheet in Property, plant andequipment at the lower of fair value or thepresent value of the minimum lease payments,less accumulated depreciation and impairmentlosses. They are depreciated over their estimateduseful lives. The lease obligation is recognised asa liability under Debt in the balance sheet.

Obligations under operating leases are disclosedin off balance sheet commitments.

Grants received:

Investment grants received from national, region-

al or local governments are netted off the valueof the assets concerned, and depreciated at thesame rate as those assets.

Construction Media Telecoms

Mineral deposits (quarries) (1)

Non-operating buildings 10 to 40 years 25 to 50 years -

Industrial buildings 10 to 20 years - 20 years

Plant, equipment and tooling 3 to 8 years 3 to 7 years 5 to 20 years (2)

Other property, plant and equipment(vehicles and office equipment)

3 to 10 years 2 to 10 years (2)

In accordance with IAS 16, when an item of property, plant and

equipment consists of components with different useful lives,

each component is accounted for and depreciated as a separate

item of property, plant and equipment.

Gains and losses on disposal represent the difference between

the sale proceeds and the carrying amount, and are recognised

in the income statement under Other operating income and

expenses.

(1) Depreciated on the basis of the rate of depletion, up to a

maximum of 40 years (Colas)

(2) Depending on the type of asset

Depreciation periods are reviewed annually, andare adjusted if expectations differ from previousestimates.

Leases:

Items of property, plant and equipment held underleases (or agreements containing leases in thesense of IFRIC 4) whereby the Bouygues groupretains substantially all the risks and rewards ofownership are recognised as assets in the balancesheet. Leases are classified as finance leases oroperating leases in accordance with the criteriaspecified in IAS 17.

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162

2.7.2. Intangible assets

IAS 38 defines an intangible asset as an identifi-able non-monetary asset without physical sub-

stance, which may be:- separable, i.e. capable of being independently

sold, transferred, licensed, rented or exchanged;or

- derived from contractual or other legal rights,whether separable or not.

Intangible assets with finite useful lives aredepreciable. Intangible assets with indefinite use-ful lives are not depreciable, but are subject to animpairment test at each balance sheet date.

They include:

Development expenses:

- In accordance with IFRS, incorporatio nand research expenses are expensed asincurred.

- Development expenses are capitalised ifthe relevant criteria are met, i.e. if theyare expected to generate future economicbenefits and their cost can be reliably mea-sured.

Concessions, patents and similar rights:

These include the following assets held by

Bouygues Telecom:Type

of asset

Amortisation

methodPeriod

GSM frequencycosts

straight line 12 years

UMTS licence straight line 17. 5 years(1)

IT system softwareand developments

straight l ine 4 years

Offi ce software straight l ine 4 years

(1)UMTS licence:The amortisation period for the UMTS licence

will match its useful life; since the high-speed network opened

on 26 May 2005, Bouygues Telecom has been amortising its

UMTS licence over a period of 17.5 years.

The fee for the UMTS licence, awarded for a 20-year period, comprises:

- a fixed component of 619.2 million, recog-nised as an intangible asset on the date thelicence was awarded (12 December 2002).

- a variable component, calculated at 1% ofsales generated by the operation of the thirdgeneration mobile network, which is recognisedin the income statement for the period witheffect from the opening of the UMTS network.

2.7.3. Other intangible assets

Other intangible assets recognised by the Groupinclude leasehold rights and broadcasting rights(TF1).

TF1 broadcasting rights:

This item includes shares in films and programmesproduced or co-produced by TF1 Films Production,TF1-Video, Glem, Glem film and Tlma; distribu-tion and trading rights owned by TF1 InternationalTCM DA, TF1 Entreprises and CIBY DA; and musicrights owned by Une Musique and Baxter.

Broadcasting rights are recognised as assets, at

historical cost. Dates of initial recognition andamortisation methods are as follows:

Initial recognition Amortisation method

Co-production shares

Broadcasting rights

Distribution / Trading Music rights

At end of shootingin line with revenues (mini-mum 3 years straight line)

On receipt of censorscertificate

3 years straight line

On signature of contract

3 years straight lineminimum, or in line with

revenues- 5 years for trading

2 years75% in year 125% in year 2

- For films co-produced by TF1 Films Productionand Tlma, the Group adopts industry practiceand amortises in line with revenues, based on aminimum straight-line charge over three years.

- An impairment loss is recognised on a line byline basis where estimated future revenues donot cover the carrying amount of the asset.

2.7.4. Subsequent remeasurement of

non-current assets

The carrying amount of non-current assets isreviewed in accordance with Group accounting

policies on an annual basis, or more frequently ifinternal or external events or circumstances indi-cate that an asset may be impaired. In particular,the carrying amount of intangible assets (otherthan broadcasting rights, which are measuredusing the policies described above) and goodwillis compared with their recoverable amount.

In determining value in use, intangible assets towhich independent cash flows cannot be directlyallocated are grouped within the cash-generatingunits (CGU) to which they belong, or within theappropriate group of CGUs representing the low-

est level at which management monitors return oninvestment (business segment level in the case ofthe Bouygues group). The value in use of CGUs ismeasured using the discounted cash flow (DCF)method, applying the following principles:

- the pre-tax cash flows used are those derivedfrom the medium-term business plan preparedby the management of the business segment aspart of the Groups management cycle;

- the discount rate is determined by adjusting thesegments weighted average cost of capital toarrive at a pre-tax rate;

- the terminal value is calculated by aggregatingthe discounted cash flows to infinity, based onnormative cash flows and a perpetual growthrate that is consistent with the growth potentialof the markets in which the business segmentoperates and with its competitive position inthose markets.

The recoverable amount of the CGU as determinedabove is then compared with the carrying amountin the consolidated balance sheet of the non-cur-rent assets (including goodwill) attributed to theCGU. If this carrying amount is greater than the

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recoverable amount of the CGU, an impairmentloss is recognised, this loss being allocated in thefirst instance to any goodwill recognised in thebalance sheet.

Information on impairment tests performed:

Subsidiaries for which goodwill is shown as aseparate asset in the balance sheet:

Bouygues Telecom:

The recoverable amount of the Bouygues TelecomCGU was determined by calculating its value inuse using the DCF method, based on three-yearcash flow projections as per the business planapproved by management.

An after-tax discount rate of 5.80% was used.Cash flows beyond the projection period were

extrapolated using a reasonable, sector-specificperpetual growth rate (based on three-year cashflow projections, and on normative cash flowthereafter).

An analysis of the sensitivity of the calculationto the valuation of the key parameters showedno probable scenario in which the recoverableamount of the CGU would become less than itscarrying amount.

Colas:

The recoverable amount of the Colas CGU was

determined by calculating its value in use usingthe DCF method, based on three-year cash flowprojections as per the business plan approved bymanagement.

An after-tax discount rate of 6.17% was used.Cash flows beyond the projection period wereextrapolated using a reasonable, sector-specificperpetual growth rate (based on three-year cashflow projections, and on normative cash flowthereafter).

An analysis of the sensitivity of the calculationto the valuation of the key parameters showed

no probable scenario in which the recoverableamount of the CGU would become less than itscarrying amount.

TF1:The recoverable amount of the TF1 CGU was deter-mined by reference to the closing stock marketprice on 31 December 2006; this value is signifi-cantly greater than the carrying amount.

Impairment testing of goodwill on associates:

Because goodwill included in the carrying amountof investments in associates is not shown sepa-rately, it is not tested separately for impairmentunder IAS 36. The total carrying amount of theinvestment is tested for impairment by comparingits recoverable amount (higher of value in use

or fair value less costs to sell) with its carryingamount, where there is evidence of impairment.

The estimated fair value of Alstom as at31 December 2006, based on the quoted shareprice, is very substantially greater than its car-rying amount.

For other non-current assets (in particularnon-depreciable assets), an impairment loss isrecognised as soon as there is evidence that theasset is impaired.

2.7.5. Non-current financial assets

In addition to deferred tax assets (treated asnon-current), other non-current financial assets

include loans and receivables (including amountsdue from non-consolidated companies), depositsand caution money, and investments in non-consolidated companies over which the Bouyguesgroup exercises neither control nor significantinfluence.

Investments in non-consolidated companies aremeasured at fair value, with changes in fair valuetaken to shareholders equity.

Fair value is the market price for listed invest-ments, and value in use for unlisted investments.Value in use is determined using the most appro-

priate criteria for each individual investment.If there is objective evidence that an investmentis impaired, the accumulated losses taken toshareholders equity are recognised in the incomestatement.

Advances to non-consolidated companies, andother loans and receivables, are accounted forat amortised cost, determined using the effectiveinterest method.

In the case of variable-rate loans and receivables,cash flows are periodically re-estimated to reflectchanges in market interest rates, resulting in

an adjustment to the effective interest rate andhence to the valuation of the loan or receivable.

Loans and receivables are reviewed for objectiveevidence of impairment. An impairment loss isrecognised if the carrying amount of a financialasset is greater than the estimated recoverableamount as determined by impairment testing.Impairment losses are recognised in the incomestatement.

2.8. Current assets

2.8.1. Inventories

Inventories are stated at the lower of cost (first infirst out or weighted average cost, depending onthe nature of the business) or market price.

Where the realisable value of inventory is lowerthan cost, a provision for impairment is recog-nised.

2.8.2. Programmes and broadcasting

rights (TF1)

In order to secure broadcasting schedules forfuture years, the TF1 group enters into bindingcontracts, sometimes for a period of several years,

under which the Group acquires (and the otherparty agrees to deliver) programmes and sportstransmission rights.

These contracts are valued as follows:

Programmes and broadcasting rights:

Rights acquisition contracts not yet recognised ininventory at the balance sheet date are priced atthe contractual amount or the estimated futurecash outflow, less any advance payments madeunder the contract. Advance payments are recog-nised in the balance sheet as a supplier prepay-ment in Trade and other debtors.

Sports transmission rights:

Acquisitions of sports transmission rights underirrevocable orders placed before the balance sheetdate are priced at the contractual amount less anysums already paid at that date.

A programme is treated as ready for broadcastand recognised in inventory under Programmesand broadcasting rights when the following twoconditions are met: technical acceptance (for in-house and external productions), and opening ofrights (for external productions). Any programme

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164

acquisition advance payments made before theseconditions are met are treated as supplier prepay-ments.

The line Programmes and broadcasting rights inthe balance sheet comprises:

- in-house productions, comprising programmesmade by TF1 group companies for the TF1 chan-

nel,

- external productions, comprising broadcastingrights acquired by TF1 group channels and co-production shares of broadcasts made for TF1group channels.

External productions that have not been broad-cast, and the rights to which have expired, areexpensed as a component of current operatingprofit.

The value of programmes and broadcasting rightsis measured as follows:

- in-house production: at overall production cost(direct costs plus a portion of indirect produc-tion costs);

- broadcasting rights and co-productions: atpurchase cost, less consumption for the yearcalculated at each balance sheet date.

TF1 SA programmes (which account for most ofthe Groups programme inventory) are deemedto have been consumed as transmitted. If theyare acquired for a single transmission, they areregarded as having been consumed in full at the

time of transmission. If they are acquired for twoor more transmissions, consumption is calculatedas above, according to the type of programme.

Other programmes and broadcasting rights inthe table above refers to childrens programmesother than cartoons, entertainment shows, plays,factual and documentary programmes, news,

sport, and dramas with a running time of lessthan 52 minutes.

A provision for impairment is recorded once itbecomes probable that a programme will not betransmitted.

2.8.3. Trade receivables

Trade receivables are carried at face value, net ofimpairment recorded to reflect the probability ofrecovery. These receivables are usually short-termand non interest-bearing. They are measured atthe original invoice amount, unless application

of an implied interest rate would have a materialeffect.

In line with the percentage of completion meth-od of accounting for long-term contracts, tradereceivables include:

- statements issued as works are executed orservices provided, and accepted by the projectowner;

- unbilled receivables, arising where works areentitled to acceptance but billing or acceptanceby the project owner has been delayed.

The consolidated income statement would be onlymarginally affected by fluctuations in euro inter-est rates, or by a divergence in interest rate trendsbetween the euro and other major currencies.

2.9.2. Principles applied to all

hedging instruments

The only instruments used for hedging purposesare forward currency purchases and sales, cur-rency swaps and purchases of currency options forcurrency risk hedging purposes; and interest rateswaps, future rate agreements, and purchasesof caps and collars for interest rate risk hedgingpurposes.

These instruments:

are used solely for hedging purposes; are contracted solely with high-quality French

and foreign banks;

carry no liquidity risk in the event of a down-turn.

Specific reports are prepared for those respon-sible for the management and supervision of therelevant Group companies describing the use ofhedging instruments, the selection of counterpar-ties with whom they are contracted, and moregenerally the management of exposure to currencyrisk and interest rate risk.

2.9.3. Hedging rules

Currency risk

Group policy is to hedge systematically all resid-ual currency exposure relating to commercialtransactions. If the future cash flow is certain,the currency risk is hedged by buying or sellingcurrency forward, or by means of currency swaps.For some large contracts, options may be takenout for hedging purposes before the awarding ofthe contract has been confirmed.

2.8.4. Other current receivables and

prepaid expenses

Other receivables are carried at face value, net

of impairment recorded to reflect the probabilityof recovery.

2.9. Financial instruments

Some Group entities use hedging instruments tolimit the impact on the income statement of fluc-tuations in exchange rates and interest rates. TheGroups policy on the use of financial instrumentsis described below.

2.9.1. Risks to which the Group is

exposed

Currency risk

In general, the Bouygues group has little exposureto currency risk in routine commercial transac-tions. Wherever possible, expenses relating to acontract are incurred in the same currency asthat in which the contract is billed. This appliesto most projects executed outside France, onwhich local-currency expenses (sub-contractingand supplies) represent a much higher proportionthan euro-denominated expenses. In addition, theGroup pays particular attention to risks relating

to assets denominated in non-convertible curren-cies, and to country risk generally.

Interest rate risk

The Groups financial income and expenses havelow sensitivity to interest rate risk. The bulk ofdebt is in the form of fixed-rate bond issues, anda range of hedging instruments is used to convertvariable-rate debt into fixed-rate debt.

On average over the year, the amount of variable-rate debt in the balance sheet is less than theamount of surplus cash invested at variable rates.

Type of programme

Dramas with a running Films, TV movies, Other programmes

time of at least 52 minutes series, cartoons and broadcasting rights

1st transmission 80% 50% 100%

2nd transmission 20% 50% -

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In general, equity investments in foreign compa-nies are hedged by a debt of a similar amount inthe same currency, recorded in the books of thecompany that owns the investment.

In the interests of efficiency, the currency posi-tions of some Group entities may be managedcentrally, which in some cases may result in theoffset of matching positions.

Interest rate risk

Group policy is for each sub-group to hedge someor all of its financial assets and liabilities, wherethese are foreseeable and recurring.

In practice, this applies to capital-intensive busi-nesses (telecoms and media). These entitiescontrol their future interest charges by fixing their

cost of debt using swaps and future rate agree-ments, or by limiting it through the use of caps,over a period equivalent to that of the financialliabilities to be hedged.

As with currency risk, the interest rate positions ofsome Group entities may, in the interests of effi-ciency, be managed centrally and partially offset.

2.9.4. Accounting methods

In general, the financial instruments used by theGroup qualify for hedge accounting, which meansthat the hedging relationship is documented in

accordance with the requirements of IAS 39. Twotypes of accounting treatment are used:

Fair value hedges: changes in the fair value ofthe hedging instrument and changes in the fairvalue of the hedged item are recognised sym-metrically in the income statement.

Cash flow hedges: changes in the fair value ofthe hedging instrument are recognised in theincome statement for the ineffective portion ofthe hedging relationship, and in shareholdersequity (until the hedge is closed out) for theeffective portion.

In a few cases (involving small notional amountsand a short hedging period), financial instrumentsare deliberately excluded from hedge accountingin order to avoid excessive administrative pro-

cessing. In these cases, changes in the fair valueof the financial instrument are taken directly tothe income statement.

2.10. Consolidated shareholdersequity

Treasury shares are deducted from consolidated

shareholders equity. No gains or losses arising onthe cancellation of treasury shares are recognisedin the income statement.

If a Group subsidiary holds its own shares, anadditional percentage interest in that subsidiaryis recognised at Group level.

Translation reserve

The translation reserve represents translation dif-ferences arising since 1 January 2004, when thereserve was deemed to be zero and the balancetransferred to Retained earnings.

2.11. Non-current liabilities

2.11.1. Non-current debt (portion due

after more than one year)With the exception of derivative instrumentsaccounted for as financial liabilities measuredat fair value, all other borrowings and financialliabilities are recognised initially at fair value andsubsequently at amortised cost, measured usingthe effective interest method.

Transaction costs directly attributable to theacquisition or issuance of a financial liability areoffset against that liability, and amortised overthe life of the liability using the effective interestmethod.

The effective interest rate is the rate that exactlydiscounts estimated future cash payments tomaturity (or to the next market rate repricing date)to the net carrying amount of the liability. The cal-culation takes account of all fees and points paidor received by the parties to the contract.

The portion of long-term debt due within less thanone year is included in current liabilities.

Call option over a 6.5% interest in the capital of

Bouygues Telecom (BNP Paribas)

On 21 June 2005, Bouygues granted BNP Paribas

a promise to buy the latters 6.5% interest in thecapital of Bouygues Telecom, exercisable at anytime between 1 September 2005 and 31 July 2007at a price of between 477 million and 495million depending on the date of exercise.

At the same time, BNP Paribas granted Bouyguesa promise to sell this interest to Bouygues,exercisable between 1 September 2007 and 30September 2007 at a price of497 million.

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Residual term

(years)

Future value of

the liability (m)

Present value of

the liability (m)

21 June 2005 2.28 497 449

31 December 2005 1.75 497 460

31 December 2006 0.75 471(1) 456-> Increase in current

debt

Discount rate (contractual): 2.07%.

The 6.5% minority interest in Bouygues Telecomis eliminated, reducing minority interests by

130m at end 2006. Goodwill recognised as an asset in 2005:320m.

Bouygues Telecoms contribution to consolidatednet profit includes the additional 6.5% interest,raising the total contribution to 89.55%.

2.11.2. Non-current provisions

Under IAS 37, Provisions, Contingent Liabilitiesand Contingent Assets, a provision is recordedwhere the Group has an obligation to a thirdparty at the balance sheet date resulting from a

past event, the settlement of which is expected toresult in an outflow from the Group of resourcesembodying economic benefits.

The amount recognised as a provision representsthe Groups estimate of the outflow of resourcesthat will be needed to settle the obligation.

Non-current provisions are not usually associatedwith the normal business cycle of each segment(compare the definition of current provisionsbelow).

Non-current provisions mainly comprise:

Provisions established to cover the uninsuredportion of risks under two-year and 10-year

construction contract guarantees. These provi-sions are recognised in line with recognition ofcontract revenues, based on statistical datareflecting actual experience over the long term.

Provisions related to notified tax reassessmentsand fines levied by the competition authorities.

Provisions for litigation, claims and foreseeablerisks relating to the Groups operations, espe-cially foreign operations, including permanentwithdrawal from projects and sundry risks andliabilities.

Provisions for site remediation costs.

Employee benefits:

- Provisions for obligations to employees inrespect of lump-sum benefits payable onretirement.

- Provisions for long-service awards.

This provision is calculated using the projected unitcredit method based on final salary, and on thebasis of the collective agreement for each businesssegment. The calculation takes account of:

status, age and length of service for eachemployee category;

employee turnover, calculated on the basis

of the average number of leavers by busi-ness segment, age bracket and employeecategory;

average salary and wages includingbonuses and benefits in kind, upliftedby a coefficient to reflect the applicablepercentage of employers social securitycharges;

a final salary inflation rate;

a discount rate applied to the obligationover the projected period to the retirementdate;

estimated life expectancy, based on mor-tality tables.

The Group does not recognise movements in thisobligation arising from changes in actuarialassumptions unless they are more than plus orminus 10% of the retirement benefit obligation(the corridor method). Any actuarial gains andlosses recognised are amortised through theincome statement over the average remainingworking lives of the employees concerned.

Provisions for pension obligations (dependingon the country and terms of the pension plan).

To cover their pension obligations, Group com-panies make regular payments to external bod-ies including public and private pension fundsand insurance companies (defined-contributionplans). There are however some remainingdefined-benefit plans still in existence, mainlyin the Colas group (United Kingdom, Ireland,Canada); only a limited number of employeesare involved, as it was decided some years agoto close the schemes to new entrants.

The actuarial assumptions used to measure thepresent value of the pension obligation and theservice cost for the period in respect of defined-benefit plans represent the best estimate of the

variables that will determine the final cost ofthe benefits. These assumptions are internallyconsistent. The discount rate was determinedby reference to the expected market rate atthe balance sheet date, taking into accountthe estimated timing of benefit payments (seeNote 19).

Change in the value of the financial liability between 21 June 2005 and 31 December 2006

(1) After payment of dividends by Bouygues Telecom (impact: reduction of26m).

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2.12. Current liabilities

2.12.1 Advances and down-payments

on ordersThis item comprises advances and down-pay-ments received from clients on start of construc-tion contracts.

2.12.2. Current provisions

Provisions relating to the normal business cycleof each segment. These mainly comprise

- Provisions for construction contract risks,joint ventures, etc.;

- Provisions for restructuring;

- Provision for customer loyalty programmes(Bouygues Telecom), etc.

Bouygues Telecom has introduced a loyaltyprogramme for customers who subscribe toa price plan.

Under the programme, customers acquirerights as and when billings are issued.

Customers may subsequently use theserights to replace their handsets on favour-able terms, provided they sign up for anoth-er period of at least 12 months.

For business customers, the rights giveentitlement to a free handset.

A provision is recorded as rights are award-ed, taking into account the likelihood theywill be exercised; the provision is releasedas the rights are used.

In the absence of specific internationalaccounting standards or interpretationson this issue, the French GAAP account-ing treatment has been retained for IFRSreporting purposes.

Provisions for losses to completion on contracts.These relate to construction contracts in prog-ress, and take account of claims accepted bythe client. They are measured on a contract by

contract basis, with no netting between them.

2.12.3. Trade payables and other

current liabilities

Because of the short-term nature of these liabili-ties, they are shown in the consolidated financialstatements at a reasonable estimate of marketvalue.

2.13. Income statement

As allowed under IAS 1, Presentation of Financial

Statements, the Bouygues group presents anincome statement that classifies expenses bynature, in the format specified in recommenda-tion 2004-R-02 issued by the French nationalaccounting standard-setter, the Conseil Nationalde la Comptabilit (CNC), on 27 October 2004.An income statement classifying expenses byfunction is shown in Note 17 to the financialstatements.

2.13.1. Definition of operating

revenues

Revenues from the Groups operations are recog-nised when:

it is probable that the future economic benefitsof the transaction will flow to the Group;

the amount of revenue can be reliably mea-sured;

at the transaction date, it is probable that theamount of the sale will be recovered.

Bouygues Telecom:

Bouygues Telecom generates revenue from ser-vices and handset sales.

ServicesPrice plans and commercial services areinvoiced one month in advance, and thecorresponding revenue is recognised on astraight-line basis over the service period.Revenues from call charges other than priceplans, roaming fees and interconnection feesare recognised as the service is used.

Service discounts offered to new customerson subscription to price plans that are contin-gent upon the customer committing to retaintheir subscription for a specified period are

charged to income over the minimum com-mitment period.

Services carried out on behalf of contentproviders in relation to SMS+ services, spe-cial numbers and i-mode services are notincluded in income and expenses for theperiod. Only the margin on such services isrecognised in sales.

Handset sales

Handset sales are recognised on the sale ofthe handset to the distributor or retailer, butthe margin on the sale is eliminated until theline is activated by the customer.

Distributor/retailer commission

All commission payable to distributors andretailers is recognised as an expense.

2.13.2. Accounting for long-term

contracts

Construction activities

In all the Groups construction activities, long-termcontracts are accounted for using the percentageof completion method. The revenue recognisedequals the latest estimate of the total selling priceof the contract multiplied by the actual stage ofcompletion determined by reference to the physi-cal state of progress of the construction work.

If a contract is expected to generate a loss oncompletion, a provision for losses to completion isrecognised as a current provision in the balancesheet. The loss is provided for in full as soon as itcan be reliably measured, irrespective of the stage

of completion.Property development

The accounting treatment applied to propertydevelopment activities is as follows:

property development revenues are recognisedusing the percentage of completion method oncethe following conditions have been met:

building permit with no appeal;

signature of notarised deed of sale or develop-ment contract;

construction contract signed (order given tostart works).

The percentage of completion represents costsincurred to date as a proportion of the total esti-mated costs to completion.

Property development project finishing costs arerecognised on a percentage of completion basis.

All interest charges associated with ongoingor completed property development projects areexpensed as incurred.

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168

NOTE 3: NON-CURRENT ASSETS 15,140

An analysis of non-current assets by business segment is provided in Note 16.

3.1 Summary of net investment for the period (operating and financing)

2006 2005

Acquisitions of property, plant and equipment 1,531 1,198

Acquisitions of intangible assets 171 173

Investment in operating assets 1,702 1,371

Non-current financial assets (investments in consolidatedand non-consolidated companies, other long-term investments) 2,687 333

Total investment 4,389 1,704

Disposals of non-current assets (336) (225)

Net investment 4,053 1,479

2.13.3. Profits/losses from joint

operations

These profits and losses are included in Other

operating income and expenses, and representthe Groups share of profits or losses from non-consolidated companies involved in the operationof production sites for road-building and asphaltproducts; they are included in current operatingprofit.

2.13.4. Share-based payment

In accordance with IFRS 2, stock subscriptionoptions granted to corporate officers or employ-ees of Bouygues or other Group companies (TF1)are accounted for in the financial statementsas follows: the fair value of the options granted

(corresponding to the fair value of the servicesrendered by the employees as consideration forthe options) is recognised as an employee benefitunder Personnel costs in the income statement,with the matching entry credited to shareholdersequity.

The amount of the employee benefit is measuredat the grant date of the option using the Black& Scholes model, and is charged to the incomestatement over the vesting period of the rights.In accordance with IFRS 2, this treatment appliesonly to plans awarded after 7 November 2002.

2.14. Cash flow statement

The cash flow statement is presented in accor-dance with IAS 7 and CNC recommendation

2004-R-02.This statement explains changes in the Groupsnet cash position, which is defined as the net totalof the following balance sheet items:

cash and equivalents;

overdrafts and short-term bank borrowings.

2.15. Off balance sheetcommitments

A summary of contractual obligations and com-

mercial commitments in provided in Note 18.

2.16. Financial indicators

Definitions of key financial indicators:

2.16.1. EBITDA

Current operating profit excluding net depre-ciation and amortisation expense and changes inprovisions, and impairment losses (after reversalsof utilised and non-utilised provisions and ofimpairment losses).

2.16.2. Free cash flowOperating cash flow before changes in work-ing capital less net capital expenditure for theperiod.

2.16.3. Net debt

This represents the aggregate of:

cash and equivalents;

overdrafts and short-term bank borrowings;

non-current and current debt;

financial instruments (used to hedge financialliabilities measured at fair value).

2.17. Other information

Comparability of the IFRS financial statements:

The accounting policies applied under IFRS asat 31 December 2006 are the same as thoseapplied as at 31 December 2005, and conse-quently there is no impairment of the compara-bility of balance sheet, income statement andcash flow statement items between accountingperiods.

The comparative income statements shown

have been restated to exclude the contributionsfrom TPS and BTC.

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3.2 Movements during the period 5,039

3.2.1 Property, plant and equipment

Land and buildings Industrial plantand equipment

Other property, plantand equipment

PP&E under constructionand advance payments

TotalGross value

1 January 2005 1,350 6,938 1,773 176 10,237Translation adjustments 30 95 29 154Transfers between items & other 12 83 (202) (116) (223)Changes in scope of consolidation (30) (49) 21 (6) (64)Acquisitions and other increases 64 807 225 102 1,198Disposals and other reductions (13) (424) (145) (4) (586)31 December 2005 1,413 7,450 1,701 152 10,716of which finance leases 30 67 158 255Movements during 2006Translation adjustments (18) (61) (23) (3) (105)Transfers between items & other 26 88 5 (123) (4)Changes in scope of consolidation (22) 35 9 7 29Acquisitions and other increases(1) 226 796 272 237 1,531

Disposals and other reductions (16) (312) (121) (1) (450)31 December 2006 1,609 7,996 1,843 269 11,717of which finance leases 22 84 123 229Depreciation and impairment

1 January 2005 (426) (3,965) (1,217) (5,608)Translation adjustments (7) (60) (18) (85)Transfers between items & other (2) 1 181 180Changes in scope of consolidation 10 5 1 16Disposals and other reductions 7 340 122 469Net depreciation expense (46) (796) (231) (1,073)Impairment losses recognisedImpairment losses reversed

31 December 2005 (464) (4,475) (1,162) (6,101)of which finance leases (10) (38) (110) (158)Movements during 2006Translation adjustmentsTransfers between items & other 4 39 15 58Changes in scope of consolidation (1) (5) 5 (1)Disposals and other reductions 10 (13) (8) (11)Net depreciation expense 6 286 113 405Impairment losses recognised (51) (761) (216) (1,028)Impairment losses reversed

31 December 2006 (496) (4,929) (1,253) (6,678)of which finance leases (6) (45) (98) (149)Net

31 December 2005 949 2,975 539 152 4,615

of which finance leases 20 29 48 9731 December 2006 1,113 3,067 590 269 5,039(2)

of which finance leases 16 39 25 80(1) Including Bouygues Telecom: network investments of497 million

(2) Including investment grants netted off property, plant and equipment: impact -

84 million

Analyses of the carrying amount of intangible assets and property, plant and equipm ent, and of investment in operating

assets, by business segment and geographical area are provided in Note 16, "Segment Information".

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170

3.2.2 Intangible assets

Gross valueDevelopment

expensesConcessions, patentsand similar rights(1)

Other intangible assets Total

1 January 2005 6 1,098 899 2,003

Translation adjustments 0 0 3 3Transfers between items & other 0 (17) (10) (27)Changes in scope of consolidation (7) (7) 35 21Acquisitions and other increases 1 46 124 171Disposals and other reductions 0 (10) (4) (14)31 December 2005 0 1,110 1,047 2,157

Movements in 2006

Translation adjustments 0 0 (1) (1)Transfers between items & other 149 (145) (4) 0Changes in scope of consolidation 0 (22) 6 (16)Acquisitions and other increases 24 53 82 159Disposals and other reductions 0 (6) (9) (15)

31 December 2006 173 990 1,121 2,284

Amortisation and impairment

1 January 2005 (4) (250) (729) (983)

Translation adjustments 0 0 (1) (1)Transfers between items & other 0 14 3 17Changes in scope of consolidation 4 8 (13) (1)Disposals and other reductions 0 8 3 11Net amortisation expense 0 (83) (61) (144)Impairment losses recognised 0 0 0 0Impairment losses reversed 0 0 0 031 December 2005 0 (303) (798) (1,101)

Movements in 2006

Translation adjustments 0 0 1 1

Transfers between items & other (75) 73 0 (2)Changes in scope of consolidation 0 13 (4) 9Disposals and other reductions 0 6 5 11Net amortisation expense (28) (69) (83) (180)Impairment losses recognised 0 0 0 0Impairment losses reversed 0 0 0 031 December 2006 (103) (280) (879) (1,262)

Net

31 December 2005 0 807 249 1,056

31 December 2006 70 710 242 1,022(2)

(1) Includes Bouygues Telecom UTMS licence:619 million -> see Note 2 for description of amortisation method

(2) Including investment grants netted off intangible assets: impact -10 million

1,022

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3.2.3 Goodwill 4,781

Movement in carrying amount of goodwill during 2006: +163 million

Gross value Impairment Carrying amount

1 January 2005 4,556 (16) 4,540Changes in scope of consolidation 500(1) 500Impairment losses (7) (7)Other movements (415)(2) (415)31 December 2005 4,641 (23) 4,618

Movements in 2006

Changes in scope of consolidation 171(3) 171Impairment losses (16) (16)Other movements 8 831 December 2006 4,820 (39) 4,781

(1) Includes +320 million on 6.5% interest in Bouygues Telecom (call option)

(2) Includes -420 million for TPS, in process of divestment at end 2005, reclassified to "Held-for-sale assets"

(3) Principal acquisitions included: TF1: 1001 listes 24

Bouygues Construction: Marazzi 35

Thermal T. 29

VCES 20

Split of goodwill by cash generating unit (CGU)See Note 2 for details about the concept of a CGU.

CGU31 December 2006 31 December 2005

Total % of parent Total % of parent

Bouygues Construction(1) 224 99.97% 106 99.97%

Colas(2) 827 96.49% 805 96.42%

TF1(2) 1,085 42.92% 1,047 42.93%

Bouygues Telecom(2) 2,645 89.55% 2,655 89.55%

Other activities 5

Total Bouygues 4,781 4,618

Consolidated purchase price of listed shares (TF1 and Colas)

Consolidated purchaseprice per share(1)

Quoted closing share priceat 31 December 2006

TF1 11.95 28.11

Colas 71.42 228.50(1) Carrying amount per share in the consolidated financial statements.

Impairment tests were carried out as described in Note 2, and showed no evidence of impairment of intangible assetsor goodwill attached to the Groups CGUs (business segments).

3.2.4 Non-current financial assets and non-current tax assets 4,298

These assets include: Investments in associates (companies accounted for by the equity method) Other non-current financial assets

(1) Includes goodwill relating to associates:1,751 million

Gross value

Impairment

Non-

currentdeferred

taxassets

Associates(1)

Other non-current assets Totalgrossvalue

Carryingamount Investments in

non-consolidatedcompanies

Othernon-current

assets

1 January 2005 488 223 148 859 (136) 723 569

Translationadjustment 4 3 7 7 2Transfers betweenitems & other (17) 21 (7) (3) 1 (2) (53)Changes in scopeof consolidation (12) (10) 1 (21) (11) (32) 1Acquisitionsand other increases 36 6 94 136 136 1Disposals andother reductions (29) (33) (62) (62)Net impairmentreversals/(losses) 10 10 (145)

31 December 2005 499 211 206 916 (136) 780 375

Movements in 2006

Translationadjustment (1) (1) (1) (1)Transfers between

items & other 7 13 (11) 9 (8) 1Changes in scopeof consolidation 2,356 15 608 2,979 (34) 2,945 2

Acquisitionsand other increases 150 39 268 457 457 7

Disposals andother reductions (51) (43) (43) (137) (137) (4)Net impairmentreversals/(losses) (18) (18) (108)

31 December 2006 2,960 235 1,028 4,223 (196) 4,027 271

(1) Only includes goodwill on subsidiaries acquired by the CGU

(2) Includes goodwill on subsidiaries acquired by the CGU and on acquisitions made by the parent company (Bouygues SA)

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172

3.2.4.1 Investments in associates 2,940

Share of netassets held

Share of 2006net profit/

(loss)

Goodwillon associates

Carryingamount

1 January 2005 350 136 486

Translation adjustment 4 0 4Transfers between items & other (17) 0 (17)Changes in scope of consolidation (12) 0 (12)Acquisitions and other increases 64 0 64Disposals and other reductions (28) 0 (28)Net impairment reversals/(losses) 031 December 2005 361 136 497

Movements in 2006 Translation adjustment (1) 0 0 (1)Transfers between items & other 3 0 0 3Changes in scope of consolidation 741 0 1,616(2) 2,357Acquisitions and other increases 18 136 0 154

Disposals and other reductions (51) 0 (1) (52)Net impairment reversals/(losses) (18) 0 (18)31 December 2006 1,071 118 1,751 2,940(1)

(1) Includes: - Alstom =2,413 million. Based on the quoted stock market price at 31 December 2006 of102.70, the Bouygues

groups interest is worth3,560 million

- Cofiroute (Colas) =393 million (see below

bouygues df 2006

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