APC 2011 Annual Report Download - page 189

1872011 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC
CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO THE CONSOLIDATED FINANCIAL
Valuation of stock grants
In accordance with the accounting policies described in note1.20,
the stock grant plans have been valued on the basis of an average
estimated life of between four and fi ve years using the following
assumptions:
•a payout rate of between 3.0% and 4.5%;
•a discount rate of between 1.6% and 4.5%, corresponding to a
risk-free rate over the life of the plans (source: Bloomberg).
Based on these assumptions, the amount recorded under “Selling, general and administrative expenses” for stock grant plans set up after
November7, 2002 breaks down as follows:
2011 2010
Plan 5 22
Plan 6 22
Plan 7 --
Plan 8 55
Plan 9 66
Plan 10 16 1
Plan 11 13 -
Plan 10 bis --
Plan 11 bis --
Plan 12 --
Plan 13 --
Plan 14 --
TOTAL 44 16
21.5.2 Worldwide Employee Stock Purchase Plan
Schneider Electric gives its employees the opportunity to become
group shareholders thanks to employee share issues. Employees
in countries that meet legal and fi scal requirements have the choice
between a classic and a leveraged plan.
Under the classic plan, employees may purchase
SchneiderElectric shares at a 15% to 20% discount to the price
quoted for the shares on the stock market. Employees must then
hold their shares for fi ve years, except in certain cases provided for
by law. The share-based payment expense recorded in accordance
with IFRS 2 is measured by reference to the fair value of the
discount on the locked-up shares. The lock-up cost is determined
on the basis of a two-step strategy that involves fi rst selling the
locked- up shares on the forward market and then purchasing the
same number of shares on the spot market (i.e., shares that may be
sold at any time) using a bullet loan.
This strategy is designed to refl ect the cost the employee would
incur during the lock-up period to avoid the risk of carrying the
shares subscribed under the classic plan. The borrowing cost
corresponds to the cost of borrowing for the employees concerned,
as they are the sole potential buyers in this market. It is based
on the average interest rate charged by banks for an ordinary,
non- revolving personal loan with a maximum maturity of fi ve years
granted to an individual with an average credit rating.
Under the leveraged plan, employees may also purchase
Schneider Electric shares at a 15% to 20% discount from the price
quoted on the stock market. However, the leveraged plan offers a
different yield profi le as a third-party bank tops up the employee’s
initial investment, essentially multiplying the amount paid by the
employee. The total is invested in Schneider Electric shares at a
preferential price. The bank converts the discount transferred by
the employee into funds with a view to securing the yield for the
employee and increasing the indexation on a leveraged number
(factor of 4.4 in 2010) of directly subscribed shares.
As with the classic plan, the share-based payment expense is
determined by reference to the fair value of the discount on the
locked-up shares (see above). In addition, it includes the value of the
benefi t corresponding to the issuer’s involvement in the plan, which
means that employees have access to share prices with a volatility
profi le adapted to institutional investors rather than to the prices and
volatility profi le they would have been offered if they had purchased
the shares through their retail banks. The volatility differential is
treated as a discount equivalent that refl ects the opportunity gain
offered to employees under the leveraged plan.
As regards the fi rst semester 2011, Schneider Electric gave
its employees the opportunity to purchase shares at a price of
EUR95.38 or EUR89.77 per share, depending on the country, as
part of its commitment to employee share ownership, on June6,
2011. This represented a 15% to 20% discount to the reference
price of EUR112.21 calculated as the average opening price
quoted for the share during the 20 days preceding the Management
Board’s decision to launch the employee share issue.
Altogether, 1.9 million shares were subscribed, increasing the
Company’s capital by EUR178million as of July12, 2011. The issue
represented a total cost of EUR9million, taking into account the
fi ve-year lock-up period.