Connect - Schneider Electric

5 CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.16 – Cash and cash equivalents
Cash and cash equivalents presented in the balance sheet consist
of cash, bank accounts, term deposits of three months or less and
marketable securities traded on organized markets. Marketable
securities are short-term, highly-liquid investments that are readily
convertible to known amounts of cash at maturity. They notably
consist of commercial paper, mutual funds and equivalents. In light of
their nature and maturities, these instruments represent insignifi cant
risk of changes in value and are treated as cash equivalents.
1.17 – Schneider Electric SA shares
Schneider Electric SA shares held by the parent company or by
fully consolidated companies are measured at acquisition cost
and deducted from equity. They are held at their acquisition cost
until sold.
Gains (losses) on the sale of own shares are added (deducted) from
consolidated reserves, net of tax.
1.18 – Pensions and other employee benefit
obligations
Depending on local practices and laws, the Group’s subsidiaries
participate in pension, termination benefi t and other long-term
benefi t plans. Benefi ts paid under these plans depend on such
factors as seniority, compensation levels and payments into
mandatory retirement programs.
Defined contribution plans
Payments made under defi ned contribution plans are recorded
in the income statement, in the year of payment, and are in full
settlement of the Group’s liability.
In most countries, the Group participates in mandatory general
plans, which are accounted for as defi ned contribution plans.
Defined benefit plans
Defi ned benefi t plans are measured using the projected unit
credit method.
Expenses recognised in the statement of income are split between
operating income (for current service costs) and net fi nancial income/
(loss) (for fi nancial costs and expected return on plan assets).
The amount recognised in the balance sheet corresponds to the
present value of the obligation, adjusted for unrecognised past
service cost and net of plan assets.
Where this is an asset, the recognised asset is limited to the present
value of any economic benefi t due in the form of plan refunds or
reductions in future plan contributions.
Changes resulting from periodic adjustments to actuarial
assumptions regarding general fi nancial and business conditions
or demographics (i.e., changes in the discount rate, annual salary
increases, return on plan assets, years of service, etc.) as well as
164 2011 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC
experience adjustments are immediately recognised in the balance
sheet and as a separate component of equity in “Other reserves”.
Other commitments
Provisions are funded and expenses recognised to cover the
cost of providing health-care benefi ts for certain Group retirees in
Europe and the United States. The accounting policies applied to
these plans are similar to those used to account for defi ned benefi t
pension plans.
The Group also funds provisions for all its subsidiaries to cover
seniority-related benefi ts (primarily long service awards in its French
subsidiaries). Actuarial gains and losses on these benefi t obligations
are fully recognised in profi t or loss.
1.19 – Share-based payments
The Group grants different types of share-based payments to senior
executives and certain employees. These include:
• Schneider Electric SA stock options;
• stock grants;
• stock appreciation rights, based on the Schneider Electric SA
stock price.
Only plans set up after November 7, 2002 that did not vest prior to
January 1, 2005 are affected by the application of IFRS 2 – Sharebased
payments.
Pursuant to this standard, these plans are measured on the date
of grant and an employee benefi ts expense is recognised on a
straight-line basis over the vesting period, in general three or four
years depending on the country in which it is granted.
The Group uses the Cox, Ross, Rubinstein binomial model to
measure these plans.
For stock grants and stock options, this expense is offset in the
own share reserve. In the case of stock appreciation rights, a liability
is recorded corresponding to the amount of the benefi t granted,
re- measured at each balance sheet date.
As part of its commitment to employee share ownership, Schneider
Electric gave its employees the opportunity to purchase shares at a
discount (note 21.5).
1.20 – Provisions for contingencies and pension
accruals
A provision is recorded when the Group has an obligation to a third
party prior to the balance sheet date, and where the loss or liability is
likely and can be reliably measured. If the loss or liability is not likely
and cannot be reliably estimated, but remains possible, the Group
discloses it as a contingent liability. Provisions are calculated on a
case-by-case or statistical basis and discounted when due in over a
year. The discount rate used for long-term provisions was 3.42% at
December 31, 2011 versus 2.75% at December 31, 2010.