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150 2014 Registration Document
Consolidated Financial Statements Year ended December 31, 2014
5
Notes to the Consolidated statements
2.7.2 NON-DERIVATIVE FINANCIAL
LIABILITIES
◗
2.7.2.1 Accounting policy
Non-derivative financial liabilities are initially recognized at fair value plus
transaction costs and premiums directly attributable to their issue. They
are subsequently measured at amortized cost.
◗
2.7.2.2 Non-derivative financial liabilities held
by the Group
The main financial liabilities held by the Group are as follows:
◗
Borrowings
“Long-term borrowings” and “Short-term borrowings” include bonds and
notes issued by the Group, finance lease liabilities, other bank loans,
financial liabilities for put options written over non-controlling interests
in subsidiaries, and financial liabilities related to securitized receivables
for which the credit risk is retained by the Group.
◗
Suppliers and other creditors
This line corresponds to trade payables.
◗
Other payables
Other payables classified in current liabilities correspond to all other
operating payables (mainly accrued employee benefits expense and
amounts due to suppliers of non-current assets) and miscellaneous
liabilities.
2.7.3 DERIVATIVE FINANCIAL INSTRUMENTS
The Group uses derivative financial instruments to hedge its exposure
to risks arising in the course of business, mainly currency and interest
rate risks. Exceptionally, the risk of changes in the prices of certain
commodities – mainly diesel – may also be hedged.
Derivatives are initially recognized at fair value. They are subsequently
measured at fair value with the resulting unrealized gains and losses
recorded as explained below.
◗
2.7.3.1 Derivatives designated as hedging
instruments
Hedge accounting is applied if, and only if, the following conditions
are met:
■
at the inception of the hedge, there is formal designation and
documentation of the hedging relationship;
■
the effectiveness of the hedge is demonstrated at inception.
The derivatives used by the Group may be qualified as either cash flow
hedges or fair value hedges. The Group does not currently hedge its
net investment in foreign operations.
◗
Cash flow hedges
For instruments qualified as cash flow hedges, the portion of the change
in fair value determined to be an effective hedge is recognized directly in
other comprehensive income and accumulated in shareholders’ equity
until the hedged transaction affects profit. The ineffective portion of
the change in fair value is recognized in the income statement, under
“Financial income and expense”.
The main cash flow hedges consist of interest rate swaps that convert
variable rate debt to fixed rate, and forward purchases of foreign currencies
that hedge future goods purchases in foreign currency.
◗
Fair value hedges
Changes in fair value of instruments qualified as fair value hedges are
recognized in the income statement, with the effective portion offsetting
changes in the fair value of the hedged item.
Examples of fair value hedges include swaps set up at the time of issue
of fixed rate bonds and notes. The hedged portion of the underlying
financial liability is remeasured at fair value. Changes in fair value are
recognized in the income statement and are offset by the effective portion
of symmetrical changes in the fair value of the interest rate swaps.
◗
2.7.3.2 Other derivative instruments
Other derivative instruments are measured at fair value, with changes
in fair value recognized in profit or loss. Hedging instruments used by
the Group include interest rate swaps and vanilla interest rate options.
2.7.4 FAIR VALUE CALCULATION METHOD
The fair values of currency and interest rate instruments are determined
using market-recognized pricing models or prices quoted by external
financial institutions.
Values estimated using pricing models are based on discounted future
cash flows for futures and forward contracts or, for options, the Black &
Scholes option pricing model. The models are calibrated using market
data such as yield curves and exchange rates obtained from recognized
financial data services.
The fair value of long-term borrowings is estimated based on the quoted
market price for bonds and notes or the value of future cash flows
discounted at the interest rate for similar instruments (in terms of currency,
maturity, interest rate and other characteristics).
Fair value measurements of derivative financial instruments incorporate
counterparty risk in the case of instruments with a positive fair value,
and own credit risk for instruments with a negative fair value. Credit risk
is measured using the mathematical models commonly used by market
analysts. At December 31, 2014 and 2013, the effect of incorporating
these two types of risk was not material.