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| Statutory Auditors’ Report on the Financial Statements | Statutory Financial Statements
Note 1. Accounting policies and valuation methods
Content sales
Sales of services provided to customers managed on behalf of content
providers (mainly premium rate numbers) are either accounted for gross,
or net of the content providers’ fees when the provider is responsible for
the content and for setting the price payable by subscribers.
Custom contracts
Service access and installation costs invoiced primarily to the operator’s
clients on the installation of services such as a broadband connection,
bandwidth service or IP connection are recognized over the expected
duration of the contractual relationship and the supply of the primary
service.
Access to telecommunication infrastructure is provided to clients
pursuant to various types of contracts: lease arrangements, hosting
contracts or Indefeasible Right of Use (IRU) agreements. IRU agreements,
which are specific to the telecommunication sector, confer an exclusive
and irrevocable right to use an asset (cables, fiber optic or bandwidth)
during a (generally lengthy) defined period without a transfer of
ownership of the asset. Revenue generated by leases, hosting contracts
in the Netcenters and IRU agreements is recognized over the duration of
the corresponding contract, except in the case of a finance lease whereby
the equipment is considered as a sale on credit.
Costs of revenues
Costs of revenues comprise purchasing costs (including purchases
of mobile phones), interconnection and access costs, network, and
equipment costs. Selling, general and administrative expenses notably
include commercial costs relating to marketing and customer care
expenses.
Other intangible assets
Licenses to operate telecom networks are recorded at historical cost
based upon the discounted value of deferred payments and amortized
on a straight-line basis from their effective service start date over their
estimated useful life until maturity. Licenses to operate in France are
recognized in the amount of the fixed, upfront fee paid upon the granting
of the license. The variable fee, which cannot be reliably determined
(equal to 1% of the revenues generated by the activity in the case of the
telecommunication licenses in France), is recorded as an expense when
incurred.
Property, plant and equipment
These mainly consist of the network equipment for telecommunications
activities, each part of which is amortized generally over 1 to 50 years for
fiber optic equipment.
In respect of commercial supply agreements for telecommunications
capacities:
p
p
Indefeasible Right of Use (IRU) agreements confer an exclusive
and irrevocable right to use an asset during a defined period. IRU
agreements are leases which convey a specific right of use for a
defined portion of the underlying asset in the form of dedicated fibers or
wavelengths. IRU agreements are capitalized if the agreement period
covers the major part of the useful life of the underlying asset. IRU
contract costs are capitalized and amortized over the contract term; and
p
p
some IRU contracts are commercial service agreements that do not convey
a right to use a specific asset; contract costs under these agreements are
consequently expensed as operational costs for the period.
Accounting principles and valuation
methods applicable specifically to Activision Blizzard
(video games), a business divested in 2013
Revenue and related costs
The major portion of Activision Blizzard revenue is generated by the
sale of boxes for video games, net of a provision for estimated returns
and price guarantees as well as rebates, if any. Regarding video games
with significant online functionality or Massively Multiplayer Online
Role Playing Games, revenues are recorded ratably over the estimated
relationship period with the customer, usually and respectively beginning
in the month following the shipment or upon activation of the subscription.
The estimated relationship period with the customer over which revenues
are recognized currently ranges from a minimum of five months to a
maximum of less than a year. Costs of sales associated with revenues from
the sale of boxes for video games with significant online functionality are
recorded ratably according to the same method as for revenues.
Content assets
Licensing activities and internally developed franchises are recognized
as contents assets at their acquisition cost or development cost and
are amortized over their estimated useful life on the basis of the rate at
which the related economic benefits are consumed. This generally leads
to an amortization period of 3 to 10 years for licenses, and 11 to 12 years
for franchises.
Cost of software for rental, sale or commercialization
Software development costs (video games) are capitalized when,
notably, the technical feasibility of the software is established and they
are deemed recoverable. These costs are mainly generated by Activision
Blizzard as part of the games development process and are amortized
using the estimated revenue method (i.e., based on the ratio of the
current period’s gross revenues to estimated total gross revenues) for a
given product, which generally leads to the amortization of costs over a
maximum period of 6 months commencing on a product’s release date.
Non-capitalized software development costs are immediately recorded as
Research and Development costs.
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