MICHELIN - 2008 ANNUAL REPORT

Held-to-maturity investments are non-derivative financial assets
with fixed or determinable payments and fixed maturities that
the Group’s management has the positive intention and ability to
hold to maturity.
Purchases and sales of non-derivative financial assets are
recognized on trade-date – the date on which the Group commits
to purchase or sell the asset. Non-derivative financial assets are
initially recognized at fair value plus transaction costs for all
financial assets not carried at fair value through profit and loss.
Non-derivative financial assets are derecognized when the rights
to receive cash flows from the assets have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership.
Available-for-sale financial assets are subsequently carried at fair
value determined essentially by reference to a published price
quotation in an active market. Loans and receivables and heldto-maturity
investments are subsequently carried at amortized
cost using the effective interest method. Realized and unrealized
gains and losses arising from changes in the fair value of the
financial assets at fair value through profit and loss category are
included in the income statement in the period in which they
arise. Unrealized gains and losses arising from changes in the fair
value of available-for-sale financial assets are recognized in equity
unless the gains and losses are incurred as part of fair value hedges
and therefore included in the income statement in the period in
which they arise. When securities classified as available-for-sale
are sold or impaired, the accumulated fair value adjustments are
included in the income statement.
The Group assesses at each balance sheet date whether there is
objective evidence that a financial asset or a Group of financial
assets is impaired. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is considered in determining
whether the securities are impaired. If any such evidence
exists for available-for-sale financial assets, the cumulative loss
-measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial
asset previously recognized in profit or loss - is removed from
equity and recognized in the income statement. Impairment
losses recognized in the income statement on equity instruments
cannot be reversed.
INVENTORIES
Inventories are carried at the lower of cost and net realizable
value.
The cost of raw material, supplies and purchased finished goods
includes the purchase price and other costs directly attributable
to the acquisition. The cost of work in progress and manufactured
finished goods comprizes direct labour, other direct costs and
production overheads based upon normal capacity of production
facilities.
Borrowing costs are expensed as incurred.
Inventories are measured using the weighted-average cost
method.
Net realizable value is the estimated selling price less the estimated
cost to completion and the estimated selling expenses.
A write-down is recognized when the net realizable value is lower
than the cost and is reversed when it becomes apparent that the
circumstances which previously caused inventories to be written
down below cost no longer exist.
TRADE RECEIVABLES
Trade receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective
interest method, less impairment.
When payment terms are shorter than one year, the initial fair
value and the subsequent amortized cost are equal to the nominal
amount.
An impairment of trade receivables is recognized when there
is objective evidence that the Group will not be able to collect
all amounts due according to the original terms of receivables.
Bankruptcy, process of legal protection against the creditors,
notorious insolvency of the debtor, disappearance of the debtor,
payment overdue more than 6 months (except if a payment
plan has been signed and met, and the debtor is authorized to
buy on credit), economic or political debtor country risk, credit
deterioration of the debtor are considered indicators that the
trade receivable is impaired.
The amount of the impairment charge is the difference between
the asset’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest rate.
Prior to recognizing an impairment, the quality of the guarantees
potentially obtained, as well as the ability to realize them, have
also to be assessed. In the case of an overdue of more than
6 months, the credit department determines if the amount at
risk is the overdue amount at more than 6 months, or if it has to
be extended to the other credits. For economic and/or political
risk, and for credit deterioration of the debtor, the impairment
is also determined by the credit departments. For all other cases
the full credit amount will be impaired. The impairment charge is
recognized as sales and marketing expenses.
When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries
of amounts previously written off are credited against sales and
marketing expenses in the income statement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less, and bank
overdrafts.
SHARE CAPITAL
Ordinary shares are classified as equity.
Where any Group company purchases the Company’s equity share
capital, directly or through a liquidity contract with an investment
services provider, the consideration paid, including any directly
attributable incremental costs, is classified as treasury shares and
is deducted from equity.
Where such shares are subsequently sold, any consideration
received, net of any directly attributable costs, is included in
equity.
NON–DERIVATIVE FINANCIAL LIABILITIES
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.
Equity financings are classified as non-derivative financial liabilities
when there is a repayment obligation.
Non-derivative financial liabilities are recognized initially at fair
value, net of transaction costs incurred, and subsequently at
amortized cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognized in the
income statement over the period of the borrowings using the
effective interest rate method.
Other Information
Additional Information Consolidated Financial Statements The Managing Partners’ Report Michelin at a Glance
2008 Consolidated Financial Statements of Michelin Group 93