APC 2005 Annual Report Download - page 103

Download and view the complete annual report

Please find page 103 of the 2005 APC annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 164

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164

101
Consolidated Financial Statements
19.2 - Purchase commitments
Equity investments
Commitments to purchase equity investments corre-
spond to put options given to minority shareholders in
consolidated companies, or relate to earn-out pay-
ments. At December 31, 2005, these commitments
primarily concern the acquisition of Clipsal Asia, which
was announced in January 2006 and will be complet-
ed in the first half of 2006 (see note 28 "Subsequent
events").
Information technology services
In 2004, the Group signed an agreement with
Capgemini to outsource its European IT functions and
deploy shared management applications using SAP.
The agreement is currently being implemented in the
subsidiaries. Payments to Capgemini replace the cost
of the IT function, which was previously managed
internally. Schneider Electric has a ten-year reciprocal
agreement with Capgemini.
In 2005, the expense related to this outsourcing agree-
ment contractually amounted to 148.3 million.
19.3 - Contingent liabilities
Management is confident that balance sheet provi-
sions for known disputes in which the Group is
involved are sufficient to ensure that these disputes do
not have a material impact on assets or income. This
is notably the case for potential consequences of a
current dispute in Belgium involving former senior
executives and managers of the Group.
The loan agreements related to the Group's long-term
debt do not contain any rating triggers.
Note 20 - Financial instruments
The Group uses financial instruments to hedge its
exposure to risks related to fluctuations in interest
rates, exchange rates and metal prices.
20.1 - Currency risk
Because of its international business base, the Group
is exposed to currency risk, notably when subsidiaries
carry out transactions in currencies other than their
functional currency. Currency risks on operating
receivables and payables are hedged by means of
forward sale contracts or options.
Depending on market conditions, risks in the main
currencies may be hedged based on recurring fore-
cast flows using contracts that expire in 12 months or
less.
Hedging primarily concerns intragroup transactions
and most of the underlying receivables and payables
are eliminated from the consolidated balance sheet.
Currency risks on local currency intragroup loans and
borrowings are hedged using currency swaps.
20.2 - Interest rate risk
The Group chooses to issue fixed- or variable-rate
debt instruments depending on its overall exposure
and market conditions. To optimize borrowing costs,
and depending on market conditions, the Group
hedges its interest rate risk using swaps, caps and
floors and other financial instruments.
Interest rate swaps and other financial instruments
are also used to hedge interest rate risks on invest-
ments.
20.3 - Commodity price risk
In its manufacturing operations, the Group uses met-
als such as copper, silver, aluminum, nickel and zinc
that are traded on the commodity markets. The risk of
fluctuations in the market prices of these metals is
hedged using futures, swaps and options.