APC 2006 Annual Report Download - page 142

29.3.3 - Inventories
The carrying amount of inventories in the IFRS bal-
ance sheet includes process engineering costs and
amortization of capitalized development costs.
The part of process engineering costs corresponding
to the industrialization and the adaptation of products
as well as amortization of capitalized projects are now
included in the unit cost of products sold.
This change of valuation method had the effect of
increasing the value of inventories by 36 million at
January 1, 2004 and 40 million at December 31,
2004.
29.3.4 - Deferred taxes
In the French GAAP accounts, deferred taxes were
recognized for all temporary differences between the
book value of assets and liabilities and their tax basis,
except for deferred taxes on non-amortizable intangi-
ble assets that could not be sold separately from the
acquired entity (§ 313 of standard CRC 99-02), corre-
sponding in practice to trademarks.
Under French GAAP, material deferred tax assets and
liabilities were discounted when the period in which
they were expected to reverse could be reliably deter-
mined.
Application of IAS 12 –
Income taxes – had the follow-
ing impact:
A deferred tax liability is reported on trademarks rec-
ognized in connection with business combinations.
The effect of this change of method on opening
retained earnings at January 1, 2004 was 17 million.
For acquisitions carried out in 2004, the impact was
176 million, leading to a corresponding adjustment of
the goodwill recognized on the acquisitions concerned
(note 29.3.2 above).
Deferred taxes are not discounted, resulting in an
increase of 33 million in deferred tax liabilities at Jan-
uary 1, 2004.
Deferred taxes are included in non-current assets and
liabilities in accordance with IAS 1 –
Presentation of
Financial Statements,
which requires a distinction to
be made between current and non-current items.
The other adjustments to deferred taxes arose from
adjustments made in application of other standards.
They included:
Deferred tax liability recognized in respect of the
change in inventory valuation (13 million at January
1, 2004 and 14 million at December 31, 2004).
Deferred tax liability recognized in respect of capital-
ized development costs in an amount of 16 million at
December 31, 2004 (note 29.3.1 above).
Deferred tax asset recognized in respect of the addi-
tional obligation reported for defined benefit plans
(mainly actuarial gains and losses) in the IFRS bal-
ance sheet (note 29.3.5 below), in an amount of 274
million at January 1, 2004 and 248 million at Decem-
ber 31, 2004.
29.3.5 - Employee benefits
In connection with the transition to IFRS, the Group
performed a comprehensive review of its employee
benefit plans. Some plans that were previously quali-
fied as defined contribution – including certain Euro-
pean retirement plans and certain healthcare plans –
constitute defined benefit plans under IAS 19 and were
therefore reclassified.
In addition, as explained above, cumulative actuarial
gains and losses and past service costs were recog-
nized by adjusting retained earnings, as allowed under
IFRS 1 –
First Time Adoption of IFRS. The total effect
of these adjustments on the opening balance sheet at
January 1, 2004 was 735 million.
Plan assets were reclassified as a deduction from cor-
responding plan liabilities (315 million at January 1,
2004 and 262 million at December 31, 2004).
The net impact on the benefit obligation recognized in
liabilities was 420 million at January 1, 2004 and
365 million at December 31, 2004.
The absence of amortization of previously recognized
actuarial gains and losses had a positive effect on the
IFRS income statement of 38 million in 2004, report-
ed under administrative costs (20 million) and "Cost
of sales" (18 million).
Going forward, the Group has decided to recognize all
actuarial gains and losses in equity under "Other
reserves", as allowed under IAS 19 (revised). The
amount for 2004 was 22 million, net of tax.
29.3.6 - Revenue recognition
The revenue recognition policies applied in the French
GAAP accounts were not materially different from the
requirements of IAS 18 –
Revenue and IAS 11 – Long-
Term Contracts.
Sales of goods are recognized when the significant
risks and rewards of ownership are transferred to the
buyer.
Long-term contract revenue is recognized by the per-
centage-of-completion method and a provision is
booked for expected contract losses as soon as they
are considered probable.
Volume rebates granted to distributors are recognized
as an expense when the initial sales are made by
Schneider Electric to these distributors. The effect of
this change in recognition principle was recognized in
the French GAAP and IFRS financial statements at
January 1, 2004 and represented 32 million.
Certain cash discounts (8 million in 2004) included in
interest expense, and certain sales incentives (7 mil-
lion in 2004) reported under selling expenses were
reclassified as a deduction from revenue in the IFRS
accounts.
29.3.7 - IFRS 2 - Share-based payments
IFRS 2 applies to stock options granted after Novem-
ber 7, 2002 that had not vested prior to January 1,
2005.
The plans concerned are plan no. 21 dated February
5, 2003 (2,000,000 options exercisable as from Febru-
ary 5, 2007) and plan no. 24 dated May 6, 2004
(2,060,700 options exercisable as from May 6, 2008).
The Group has chosen to value options using the Cox
Ross Rubinstein binomial option pricing model.
Based on market data at the grant dates, the total
stock option expense came to 9 million in 2004.
Consolidated financial statements at December 31, 2006
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