I - Financial charges on net debt

Content

• R53610 - Interest charges
• R54620 - Other financial charges related to non-operational items
• R53700 - Loans and borrowings written off
• R53730 - Costs on transferred receivables
• R53740 - Charges related to interest rate derivative instruments
• R53100 - Accretion of discount / impact of changes of discount rates on provisions (excluding Employee Benefits)

Interest charges (R53610)

Include

• interest on borrowings and financing operations: loans, bank current accounts.
  Borrowing charges, i.e.
  • Interests on borrowings, i.e. financial charges on borrowings and bank credits reimbursed during the fiscal year.
  • Loan issue expenses (apportioned over the term) and reimbursement premiums
  • Premiums and discounts on interest and currency
  • Interest cost for late payment of income taxes (adjustments due to the passage of time), outside of income tax penalties (reported under "R73100 - Current income taxes" as they generally relate to prior years)
  • income and expenses from interest-rate options and swaps meeting the hedge accounting conditions.

Do NOT include

• Interest on non-financial liabilities (for example trade payables), recorded in other financial expenses.
• Capitalized interests
  The terminology “capitalized interests” is used when financial charges relating to capital borrowed to finance the construction of tangible fixed assets are capitalized. Such interests are reported under "R53200 - Capitalized interests".

Other financial charges related to non-operational items (R54620),

including

• indemnities for early repayment of borrowings
• interest on non-financial payables
• net expenses on investment security disposals
• decreases in the probable sale value of held-for-trading securities
• losses on the repurchase by the company of shares, fixed-income securities and other securities it issues, apart from specific cases
• expenses on banking lines not drawn down (such as unused syndicated credit)
• interest on items in the working capital requirement when these in effect constitute financing operations (for example trade discounts agreed).
• charges on discounted bills, i.e. interest expenses recorded by an entity and resulting from discounting its receivables with banks or CICC.
  Remarks:
  • Internal discounting of receivables is not allowed between two Group companies
  • Exception: For Mercosur, the charges and income on discounted bills are reported under "R53620/R53720 - Other financial expenses/income related to operational" above REBIT; this to be in line with the exception for Mercosur in the way to treat the discounted bills in the statement of financial position (in deduction of trade receivables).

Loans and borrowings written off (R53700)

These in particular include:

• allocations to and reversals from provisions for impairment of loans and accrued interest receivables
• waivers granted on (loan) receivables
• waivers received on (borrowing) claims
• losses on unrecoverable loans.

Losses on trade receivables are classified in sales and administrative expenses.

Costs on transferred receivables (R53730)

including

• finance income recorded pro rata temporis as part of operations not resulting in the elimination of the receivable from the balance sheet, that is, a financing operation
• expenses for the assignment of receivables, paid to the taker
• expenses on securitization transactions such as interests, insurance, bank charges.
  Note: See example of accounting entries applied to securitization operations.

Charges related to interest rate derivative instruments (R53740),

including

losses (changes in fair value/interest income and expense) on the types of financial instrument covered by interest-rate options and interest-rate swaps not meeting hedge accounting conditions.
Example: charges on swaps.

Accretion of discount / impact of changes of discount rates on provisions (excluding Employee Benefits) (R53100)

Takes into account

• the cost of discounting Environmental and Other provisions (not related to Employee Benefits), i.e. the increase of the carrying amount of long-term provisions to reflect the passage of time (ref: IAS 37, par 45-60).

Does not take into account

• the cost of discounting Employee Benefits provisions (reported under "R53650 - Expected return on plan assets" and "R53640 - Interest costs - pension & other employee benefits / actuarial gains(losses) on other long-term benefits").

Concerning the annual increase of environmental provisions:

• The annual increase in the discounted amount arising from the passage of time (unwinding of the discount) is computed using the rate defined by GAR.
• This increase only applies to provisions covering events that are likely to occur within the next 10 years.
• This increase does not apply to provisions covering events in the 10 to 20-year range as we consider that it will be offset by a reduction in expected remedial costs due to future changes in technology.