APC 2012 Annual Report Download - page 179

2012 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 177
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER31, 2012
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interest rate swaps
Interest rate swaps allow the Group to manage its exposure to
interest rate risk. The derivative instruments used are fi nancially
adjusted to the schedules, rates and currencies of the borrowings
they cover. They involve the exchange of fi xed and fl oating-
rate interest payments. The differential to be paid (or received)
is accrued (or deferred) as an adjustment to interest income
or expense over the life of the agreement. The Group applies
hedge accounting as described in IAS39 for interest rate swaps.
Gains and losses on re-measurement of interest rate swaps at
fair value are recognized in equity (for cash fl ow hedges) or in
profi t or loss (for fair value hedges).
Commodity contracts
The Group also purchases commodity derivatives including forward
purchase contracts, swaps and options to hedge price risks on
all or part of its forecast future purchases. Under IAS 39, these
qualify as cash fl ow hedges. These instruments are recognized in
the balance sheet and are measured at fair value at the period-
end. The effective portion of the hedge is recognized separately
in equity (under “Other reserves”) and then recognized in income
(gross margin) when the hedged item affects consolidated income.
The effect of this hedging is then incorporated in the cost price of
the products sold. The ineffective portion of the gain or loss on the
hedging instrument is recognized in “Net fi nancial income/(loss)”.
Cash fl ows from fi nancial instruments are recognized in the
consolidated statement of cash fl ows in a manner consistent with
the underlying transactions.
Put options granted to minority shareholders
In line with the AMF’s recommendation of November2009 and in
the absence of a specifi c IFRS rule, the Group elected to retain
the accounting treatment for minority put options applied up to
December31, 2009 (involving puts granted to minority shareholders
prior to this date). In this case, the Group elected to recognize the
difference between the purchase price of the minority interests
and the share of the net assets acquired as goodwill, without re-
measuring the assets and liabilities acquired. Subsequent changes
in the fair value of the liability are recognized by adjusting goodwill.
The Group elected in2011 to recognize the subsequent changes in
the fair value of the liability against equity.
1.24 – Revenue recognition
The Group’s revenues primarily include merchandise sales and
revenues from services and contracts.
Merchandise sales
Revenue from sales is recognized when the product is shipped
and risks and benefi ts are transferred (standard shipping terms
are FOB).
Provisions for the discounts offered to distributors are set aside
when the products are sold to the distributor and recognized as a
deduction from revenue.
Certain Group subsidiaries also offer cash discounts to distributors.
These discounts and rebates are deducted from sales.
Consolidated revenue is presented net of these discounts
andrebates.
Service contracts
Revenue from service contracts is recorded over the contractual
period of service. It is recognized when the result of the
transaction can be reliably determined, by the percentage of
completion method.
Long-term contracts
Income from long-term contracts is recognized using the
percentage-of-completion method, based either on the percentage
of costs incurred in relation to total estimated costs of the entire
contract, or on the contract’s technical milestones, notably proof
of installation or delivery of equipment. When a contract includes
performance clauses in the Group’s favor, the related revenue is
recognized at each project milestone and a provision is set aside if
targets are nvot met.
Losses at completion for a given contract are provided for in full
as soon as they become probable. The cost of work-in-process
includes direct and indirect costs relating to the contracts.
1.25 – Earnings per share
Earnings per share are calculated in accordance with IAS 33 –
Earnings Per Share.
Diluted earnings per share are calculated by adjusting profi t
attributable to equity holders of the parent and the weighted
average number of shares outstanding for the dilutive effect of the
exercise of stock options outstanding at the balance sheet date.
The dilutive effect of stock options is determined by applying the
“treasury stock” method, which consists of taking into account the
number of shares that could be purchased, based on the average
share price for the year, using the proceeds from the exercise of the
rights attached to the options.
1.26 – Statement of cash flows
The consolidated statement of cash fl ows has been prepared
using the indirect method, which consists of reconciling net profi t
to net cash provided by operations. The opening and closing
cash positions include cash and cash equivalents, comprised
of marketable securities, (note 1.20 ) net of bank overdrafts
andfacilities.