APC 2014 Annual Report Download - page 197

CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER31,2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.20– Share-based payments
environmental risks:
l
these provisions are primarily funded to cover cleanup costs;
The Group grants different types of share-based payments to restructuring costs, when the Group has prepared a detailed
l
senior executives and certain employees. These include: plan for the restructuring and has either announced or started to
Schneider Electric SE performance shares;
l
implement the plan before the end of the year.
Schneider Electric SE stock options (until 2009);
l
1.22– Financial liabilities
Stock Appreciation Rights, based on the Schneider Electric SE
l
stock price (until 2013).
Financial liabilities primarily comprise bonds and short and
Pursuant to the application of IFRS2 – Share-based payments,long-term bank borrowings. These liabilities are initially recorded at
these plans are measured on the date of grant and an employee fair value, from which any direct transaction costs are deducted.
benefits expense is recognized on a straight-line basis over the Subsequently, they are measured at amortized cost based on their
vesting period, in general three or four years depending on the effective interest rate.
country in which it is granted.
1.23– Financial instruments and derivatives
The Group uses the Cox, Ross, Rubinstein binomial model to
measure these plans.
For performance shares and stock options, this expense is offset in Risk hedging management is centralized. The Group’s policy is to
the own share reserve. In the case of stock appreciation rights, a use derivative financial instruments exclusively to manage and
liability is recorded corresponding to the amount of the benefit hedge changes in exchange rates, interest rates or prices of
granted, re-measured at each balance sheet date. certain raw materials. The Group accordingly uses instruments
As part of its commitment to employee share ownership, such as swaps, options and futures, depending on the nature of
Schneider Electric gave its employees the opportunity to purchase the exposure to be hedged.
shares at a discount (note21.5).
Foreign currency hedges
1.21– Provisions for contingencies and pension
accruals
The Group periodically buys foreign currency derivatives to hedge
the currency risk associated with foreign currency transactions.
A provision is recorded when the Group has an obligation to a third Some of these instruments hedge operating receivables and
party prior to the balance sheet date, and where the loss or liability payables carried in the balance sheets of Group companies. The
is likely and can be reliably measured. If the loss or liability is not Group does not apply hedge accounting to these instruments
likely and cannot be reliably estimated, but remains possible, the because gains and losses on this hedging is immediately
Group discloses it as a contingent liability. Provisions are recognized. At year-end, the hedging derivatives are marked to
calculated on a case-by-case or statistical basis and discounted market and gains or losses are recognized in«Net financial
when due in over a year. The discount rate used for long-term income/(loss)», offsetting the gains or losses resulting from the
provisions was 1.4% at December31, 2014 versus 2.3% at translation at end-of-year rates of foreign currency payables and
December31, 2013. receivables, in accordance with IAS21 – The Effects of Changes in
5
Foreign Exchange Rates.
Provisions are primarily set aside to cover:
The Group also hedges future cash flows, including recurring future
economic risks:
l
transactions, intra-group foreign currency loans or planned
these provisions cover tax risks arising from tax audits acquisitions or disposals of investments. In accordance with
performed by local tax authorities and financial risks arising IAS39, these are treated as cash flow hedges. These hedging
primarily on guarantees given to third parties in relation to certain instruments are recognized in the balance sheet and are measured
assets and liabilities; at fair value at the end of the year. The portion of the gain or loss
customer risks:
l
on the hedging instrument that is determined to be an effective
these provisions are primarily established to covers risks arising hedge is accumulated in equity, under«Other reserves», and then
from products sold to third parties. This risk mainly consists of recognized in the income statement when the hedged item affects
claims based on alleged product defects and product liability; profit or loss. The ineffective portion of the gain or loss on the
hedging instrument is recognized in«Net financial income/(loss)».
product risks:
l
these provisions comprise: In addition, certain long-term receivables and loans to subsidiaries
are considered to be part of a net investment in a foreign
statistical provisions for warranties: the Group funds
–
operation, as defined by IAS21 – The Effects of Changes in
provisions on a statistical basis for the residual cost of
Foreign Exchange Rates. In accordance with the rules governing
SchneiderElectric product warranties not covered by
hedges of net investments, the impact of exchange rate
insurance,
fluctuations is recorded in equity and recognized in the statement
provisions to cover disputes concerning defective products
–
of income when the investment is sold.
and recalls of clearly identified products;
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2014 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC