Page 233 - 2012 Annual Report

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VIVENDI l 2012 l Annual Report
FINANCIAL REPORT – CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS –
STATUTORY FINANCIAL STATEMENTS 4
4
III - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Accounting policies and valuation methods
operations are reported on a single line of the Statement of Earnings for
the periods reported, comprising the earnings after tax of discontinued
operations until divestiture and the gain or loss after tax on sale or
fair value measurement, less costs to divest the assets and liabilities
of the discontinued operations. In addition, cash flows generated by
discontinued operations are reported on a separate line of the Statement
of Consolidated Cash Flows for the relevant periods.
1.3.7. Financial liabilities
Long-term and short-term borrowings and other financial liabilities include:
✱ bonds and facilities, as well as various other borrowings (including
commercial paper and debt related to finance leases) and related
accrued interest;
✱ obligations arising in respect of commitments to purchase non-
controlling interests;
✱ bank overdrafts; and
✱ the negative value of other derivative financial instruments.
Derivatives with positive values are recorded as financial assets in
the Statement of Financial Position.
Borrowings
All borrowings are initially accounted for at fair value net of transaction
costs directly attributable to the borrowing. Borrowings bearing interest
are subsequently valued at amortized cost, applying the effective interest
method. The effective interest rate is the internal yield rate that exactly
discounts future cash flows over the term of the borrowing. In addition,
where the borrowing comprises an embedded derivative (e.g., an
exchangeable bond) or an equity instrument (e.g., a convertible bond), the
amortized cost is calculated for the debt component only, after separation
of the embedded derivative or equity instrument. In the event of a change
in expected future cash flows (e.g., redemption earlier than initially
expected), the amortized cost is adjusted against earnings to reflect the
value of the new expected cash flows, discounted at the initial effective
interest rate.
Commitments to purchase non-controlling interests
Vivendi has granted commitments to purchase non-controlling interests to
certain shareowners of its fully consolidated subsidiaries. These purchase
commitments may be optional (e.g., put options) or firm (e.g., forward
purchase contracts).
The following accounting treatment has been adopted for commitments
granted on or after January 1, 2009:
✱ upon initial recognition, the commitment to purchase non-controlling
interests is recognized as a financial liability for the present value of
the purchase consideration under the put option or forward purchase
contract, mainly offset through book value of non-controlling interests
and the remaining balance through equity attributable to Vivendi SA
shareowners;
✱ subsequent changes in the value of the commitment are recognized
as a financial liability by an adjustment to equity attributable to
Vivendi SA shareowners; and
✱ on maturity of the commitment, if the non-controlling interests are
not purchased, the entries previously recognized are reversed; if the
non-controlling interests are purchased, the amount recognized in
financial liabilities is reversed, offset by the cash outflow relating to
the purchase of the non-controlling interests.
Derivative financial instruments
Vivendi uses derivative financial instruments to manage and reduce its
exposure to fluctuations in interest rates, and foreign currency exchange
rates. All instruments are either listed on organized markets or traded
over-the-counter with highly-rated counterparties. These instruments
include interest rate and currency swaps, and forward exchange contracts.
All these derivative financial instruments are used for hedging purposes.
When these contracts qualify as hedges for accounting purposes, gains
and losses arising on these contracts are offset in earnings against
the gains and losses relating to the hedged item. When the derivative
financial instrument hedges exposures to fluctuations in the fair value of
an asset or a liability recognized in the Statement of Financial Position
or of a firm commitment which is not recognized in the Statement of
Financial Position, it is a fair value hedge. The instrument is remeasured at
fair value in earnings, with the gains or losses arising on remeasurement
of the hedged portion of the hedged item offset on the same line of the
Statement of Earnings, or, as part of a forecasted transaction relating to
a non-financial asset or liability, at the initial cost of the asset or liability.
When the derivative financial instrument hedges cash flows, it is a cash
flow hedge. The hedging instrument is remeasured at fair value and the
portion of the gain or loss that is determined to be an effective hedge
is recognized through charges and income directly recognized in equity,
whereas its ineffective portion is recognized in earnings, or, as part of
a forecasted transaction on a non-financial asset or liability, they are
recognized at the initial cost of the asset or liability. When the hedged
item is realized, accumulated gains and losses recognized in equity are
released to the Statement of Earnings and recorded on the same line as
the hedged item. When the derivative financial instrument hedges a net
investment in a foreign operation, it is recognized in the same way as a
cash flow hedge. Derivative financial instruments which do not qualify
as a hedge for accounting purposes are remeasured at fair value and
resulting gains and losses are recognized directly in earnings, without
remeasurement of the underlying instrument.
Furthermore, income and expenses relating to foreign currency instruments
used to hedge highly probable budget exposures and firm commitments
contracted pursuant to the acquisition of editorial content rights (including
sports, audiovisual and film rights) are recognized in EBIT. In all other
cases, gains and losses arising on the fair value remeasurement of
instruments are recognized in other financial charges and income.