APC 2013 Annual Report Download - page 197

CONSOLIDATED FINANCIALSTATEMENTS ATDECEMBER 31, 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share-based payments1.20 – Schneider Electric product warranties not covered by
insurance,
The Group grants different types of share-based payments to provisions to cover disputes concerning defective products
–
senior executives and certain employees. These include: and recalls of clearly identified products;
Schneider ElectricSA stock options;
lenvironmental risks:
l
stock grants,
l
these provisions are primarily funded to cover cleanup costs;
stock appreciation rights, based on the Schneider ElectricSA
lrestructuring costs, when the Group has prepared a detailed
l
stock price. plan for the restructuring and has either announced or started
Only plans set up after November7, 2002 that did not vest prior to implement the plan before the end of the year.
to January1, 2005 are affected by the application of IFRS2 –
Financial liabilities1.22 –
Share-based payments.
Pursuant to this standard, these plans are measured on the date
of grant and an employee benefits expense is recognized on a Financial liabilities primarily comprise bonds and short and
straight-line basis over the vesting period, in general three or four long-term bank borrowings. These liabilities are initially recorded
years depending on the country in which it is granted. at fair value, from which any direct transaction costs are
The Group uses the Cox, Ross, Rubinstein binomial model to deducted. Subsequently, they are measured at amortized cost
measure these plans. based on their effective interest rate.
For stock grants and stock options, this expense is offset in the
Financial instruments and derivatives1.23 –
own share reserve. In the case of stock appreciation rights, a
liability is recorded corresponding to the amount of the benefit
granted, re-measured at each balance sheet date. Risk hedging management is centralized. The Group’s policy is
to use derivative financial instruments exclusively to manage and
As part of its commitment to employee share ownership, hedge changes in exchange rates, interest rates or prices of
Schneider Electric gave its employees the opportunity to certain raw materials. The Group accordingly uses instruments
purchase shares at a discount (note21.5). such as swaps, options and futures, depending on the nature of
Provisions for contingencies and pension 1.21 –
the exposure to be hedged.
Foreign currency hedges
accruals
The Group periodically buys foreign currency derivatives to
A provision is recorded when the Group has an obligation to a
hedge the currency risk associated with foreign currency
third party prior to the balance sheet date, and where the loss or
transactions. Some of these instruments hedge operating
liability is likely and can be reliably measured. If the loss or liability
receivables and payables carried in the balance sheets of Group
is not likely and cannot be reliably estimated, but remains
companies. The Group does not apply hedge accounting to
possible, the Group discloses it as a contingent liability.
these instruments because gains and losses on this hedging is
Provisions are calculated on a case-by-case or statistical basis
immediately recognized. At year-end, the hedging derivatives are
and discounted when due in over a year. The discount rate used
marked to market and gains or losses are recognized in “Net
for long-term provisions was 2.3% at December31, 2013 versus
5
financial income/(loss)”, offsetting the gains or losses resulting
2.1% at December31, 2012.
from the translation at end-of-year rates of foreign currency
Provisions are primarily set aside to cover: payables and receivables, in accordance with IAS21 – The
economic risks:
lEffects of Changes in Foreign Exchange Rates.
these provisions cover tax risks arising from tax audits
The Group also hedges future cash flows, including recurring
performed by local tax authorities and financial risks arising
future transactions, intra-group foreign currency loans or planned
primarily on guarantees given to third parties in relation to certain
acquisitions or disposals of investments. In accordance with
assets and liabilities;
IAS39, these are treated as cash flow hedges. These hedging
customer risks:
linstruments are recognized in the balance sheet and are
these provisions are primarily established to covers risks arising
measured at fair value at the end of the year. The portion of the
from products sold to third parties. This risk mainly consists of
gain or loss on the hedging instrument that is determined to be
claims based on alleged product defects and product liability;
an effective hedge is accumulated in equity, under “Other
reserves”, and then recognized in the income statement when
product risks:
l
the hedged item affects profit or loss. The ineffective portion of
these provisions comprise:
the gain or loss on the hedging instrument is recognized in “Net
statistical provisions for warranties: the Group funds
–financial income/(loss)”.
provisions on a statistical basis for the residual cost of
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2013 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC