APC 2006 Annual Report Download - page 175

In addition, the operating profit of APC includes non
recurrent costs for an amount of $51 million (41 mil-
lion) that have not been separated in the combined
financial statements presentation.
3.2 Share-based payments
Stock options have been granted to the management
and certain employees of APC.
Schneider Electric applies IFRS 2 –
Share-Based Pay-
ment.
Accounting policies for the application of this
standard are described in note 1 of consolidated finan-
cial statements.
Effective from January 1, 2006, APC has applied
SFAS 123 R -
Accounting for Stock-Based Compensa-
tion (Revised),
which requires companies to recognize
in their income statement the compensation cost relat-
ing to share-based payment transactions such as
stock options at fair value. This method is consistent
with IFRS 2 and therefore no adjustment is required in
the pro forma financial statements for share-based
payments.
APC uses the Black & Scholes option pricing model to
measure the fair value of stock options, while Schnei-
der Electric uses the binomial model. Although no esti-
mate has been made of the difference between the
values obtained using these two models, it is not
expected to be material.
3.3 Provisions for pensions and other
post-retirement benefit obligations
Depending on local laws and practices, the sub-
sidiaries of Schneider Electric and APC may have obli-
gations under pension and other post-retirement ben-
efit plans and long-tem benefit plans.
Schneider Electric applies IAS 19 -
Employee Benefits
and recognizes actuarial gains and losses immediate-
ly in the amount of the benefit obligation, by adjusting
equity (see note 1 of consolidated financial statements
for further details).
APC accounts for its pension and post-employment
healthcare obligations in accordance with SFAS 87 -
Employers’ Accounting for Pensions, which requires
actuarial gains and losses to be recognized in profit by
the corridor method.
As APC’s reported defined benefit obligations are not
material, no adjustment has been recorded in the pro
forma financial statements for the effects of this differ-
ence in method.
Further analyses will be performed when APC is con-
solidated for the first time
3.4 Restructuring provisions
Under IFRS, restructuring provisions may be recog-
nized when the Group has prepared a detailed formal
plan for the restructuring and has either announced or
started to implement the plan at year-end.
Under US GAAP (SFAS 146 -
Accounting for Costs
Associated with Exit or Disposal Activities and SFAS
88 - Employers’ Accounting for Settlements and Cur-
tailments of Defined Benefit Pension Plans and for Ter-
mination Benefits),
provisions for employee termina-
tion costs may be recorded if, and only if, the affected
employees have accepted a termination offer and the
termination costs can be reliably estimated.
No material restructuring provisions were recorded in
APC’s balance sheet at December 31, 2006 and there-
fore, no adjustment was recorded in the pro forma
financial statements.
3.5 Research and development costs
Schneider Electric applies IAS 38 - Intangible Assets.
In accordance with this standard, development costs
for new projects are capitalized when:
The project is clearly identified and the related costs
are separately identified and reliably tracked.
The project’s technical feasibility has been demon-
strated and the Group has the intention and financial
resources to complete the project and to use or sell the
related products.
It is probable that the project will generate future
economic benefits for the Group.
Research and development costs may not be capital-
ized under US GAAP.
The information available about the APC Group is not
sufficiently detailed to determine whether any of its
development projects fulfill the criteria for capitalizing
development costs under IAS 38.
As a result, the pro forma financial statements have
not been adjusted for the effects of capitalizing devel-
opment costs. Research and development costs rec-
ognized in APC’s 2006 income statement amount to
81.6 million. It is probable that part of these costs will
be capitalized in the future.
3.6 Inventories
SFAS 151 - Inventory Costs, which has been applica-
ble since January 1, 2006, is not materially different
from IAS 2 -
Inventory.
From the disclosures contained in APC’s financial state-
ments, the group’s adoption of SFAS 151 as of January
1, 2006 did not lead to any adjustments to the amounts
reported under the previous standard (ARB 43).
Consequently, no adjustments have been made to
APC inventories in the pro forma financial statements
under IFRS.
3.7 Provisions
Schneider Electric applies IAS 37 - Provisions, Contin-
gent Liabilities and Contingent Assets.
This standard
requires provisions to be discounted to the present
value of the expenditure required to extinguish the obli-
gation if the effects of discounting are material at the
balance sheet date.
APC does not record any long-term provisions and
therefore no adjustment was made in the pro forma
financial statements.
3.8 Items subject to the same
treatment under IFRS and US GAAP
No differences were identified between APC’s
accounting policies and the following IASs and IFRSs:
IAS 16 -
Property, Plant and Equipment; IAS 17 -
Leases; IAS 18 - Revenue; IAS 36 - Impairment of
Assets;
and IAS 32 and 39 - Financial Instruments.
Application of the other IASs and IFRSs not mentioned
above is not expected to have a material impact on the
financial statements of APC.
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