Annual Review 2012 - Luxottica

Consolidated financial statements - NOTES
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• Fair value hedge - when a derivative financial instrument is designated as a hedge
of the exposure to changes in fair value of a recognized asset or liability (“hedged
item”), both the changes in fair value of the derivative instrument as well as changes in
the hedged item are recorded in the consolidated statement of income. The gain or
loss related to the ineffective portion of the derivative instrument is recognized in the
consolidated statement of income as Other - net.
• Cash flow hedge - when a derivative financial instrument is designated as a hedge
of the exposure to variability in future cash flows of recognized assets or liabilities
or highly probable forecasted transactions (“cash flow hedge”), the effective
portion of any gain or loss on the derivative financial instrument is recognized
directly in Other Comprehensive Income (hereinafter “OCI”) . The cumulative
gain or loss is removed from OCI and recognized in the consolidated statement
of income at the same time as the economic effect arising from the hedged item
affects income. The gain or loss related to the ineffective portion of the derivative
instrument is recognized in the consolidated statement of income as Other - net.
When a forecasted transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately transferred to the consolidated
statement of income to Other - net. When a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in OCI at that time
remains in equity, and is recognized when the economic effect arising from the
hedged item affects income. The Group utilizes derivative financial instruments,
primarily Interest Rate Swap and Currency Swap contracts, as part of its risk
management policy in order to reduce its exposure to interest rate and exchange
rate fluctuations. Despite the fact that certain currency swap contracts are used
as an economic hedge of the exchange rate risk, these instruments may not fully
meet the criteria for hedge accounting pursuant to IAS 39. If so, the instruments
are marked to market at the end of each reporting period and changes in fair value
are recognized in the consolidated statement of income.
Accounts payable and other payables
Accounts payable are obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. Accounts payable are classified as current
liabilities if payment is due within one year or less from the reporting date. If not, they are
presented as non-current liabilities.
Accounts payable are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.
Long-term debt
Long-term debt is initially recorded at fair value, less directly attributable transaction
costs, and subsequently measured at its amortized cost by applying the effective
interest method. If there is a change in expected cash flows, the carrying amount
of the long-term debt is recalculated by computing the present value of estimated
future cash flows at the financial instrument’s original effective interest rate. Longterm
debt is classified under non-current liabilities when the Group retains the
unconditional right to defer the payment for at least 12 months after the balance