sain t-gobain annu al report 2008 annual report

Risk management/Financial instruments
Liquidity risk is managed with the main objective of ensuring
that the Group’s existing facilities are rolled over at maturity,
while at the same time optimizing annual borrowing costs.
For this reason, long-term debt consistently represents
a significant proportion of total net debt, while repayment
profiles are designed to ensure that new debt issues
are spread over several years.
Compagnie de Saint-Gobain manages, mainly on behalf
of its subsidiaries, the hedging of currency, interest rate,
and commodity (fuel oil, gas) price risks resulting from
the Group’s international activities.
Currency risks are hedged mainly by forward purchase and
sale contracts and currency options. The hedged receivables
and payables are recorded in the balance sheet at the hedging
rate.
The portion of the gain or loss on currency options
representing the extrinsic (time) value is taken to income,
and the portion representing the intrinsic value is recorded
in the balance sheet. Unrealized losses on currency options
that do not qualify for hedge accounting are recognized
in the income statement, whereas unrealized gains
are not recognized.
At December 31, 2008, Compagnie de Saint-Gobain had
no outstanding currency options.
The Company uses interest rate swaps and options (caps
and floors) as well as forward rate agreements to hedge
its exposure to fluctuations in interest rates.
Financial income and expenses on interest rate swaps
are recognized in the income statement on a symmetrical
basis with the income and expenses on the hedged items.
The portion of the gain or loss on interest rate options
representing the extrinsic (time) value is taken to income,
and the portion representing the intrinsic value is recorded
in the balance sheet. Interest rate options that do not
qualify for hedge accounting are recognized in the income
statement at market value.
Subsidiaries’ commodity price risks are hedged by the
Company, mainly by using commodity swaps (fuel oil and gas).
Financial income and expenses on commodity swaps are
recognized in the income statement on a symmetrical basis
with the income and expenses on the hedged items.
Tax consolidation agreements
Compagnie de Saint-Gobain was previously assessed
for income tax on its worldwide taxable income as provided
for under Article 209 quinquies of the French Tax Code.
The last period covered by the agreement was 2004-2006.
The Company chose not to renew the agreement
for the accounting period starting January 1, 2007.
Since that date, the Company has applied the group relief
regime provided for in Articles 223 A et seq. of the French Tax
Code.
A provision is recorded in the Company’s accounts for
the taxes that may be payable in future periods following
the return to profit of members of the tax group whose tax
losses have been used by the Company. Movements
in this provision are recorded under exceptional items.
Under the group relief agreements between Compagnie
de Saint-Gobain and the subsidiaries in the tax group,
the Company is not required to transfer tax benefits
(via a cash payment) to subsidiaries when they return
to profit or leave the tax group. No such tax benefits have
been transferred by Compagnie de Saint-Gobain to its
subsidiaries in the past.
NOTE 2
Net financial income
Net financial income rose €430.2 million to €1,100.5 million
in 2008 compared with €670.3 million in 2007, reflecting:
€436.9 million growth in dividend income from
subsidiaries and affiliates.
A €33.2 million rise in income from loans and investments,
net of interest expense.
A €7.4 million increase in net foreign exchange gains (after
the impact of provisions).
Changes in amortization and impairment of financial assets
represented a net expense of €11.3 million in 2008 as opposed
to net income of €36.0 million in 2007, reducing net financial
income by €47.3 million year-on-year. The negative impact
stemmed from:
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Saint-Gobain – Financial Report 2008