2010Annual Report - Schneider Electric CZ, s.r.o.

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5 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 162 Trademarks Trademarks acquired as part of a business combination are not amortised when they are considered to have an indefi nite life. The criteria used to determine whether or not such trademarks have indefi nite lives and, as the case may be, their lifespan, are as follows: • brand awareness; • outlook for the brand in light of the Group’s strategy for integrating the trademark into its existing portfolio. Non-amortised trademarks are tested for impairment at least annually and whenever there is an indication they may be impaired. When necessary, an impairment loss is recorded. Internally-generated intangible assets Research and development costs Research costs are expensed in the statement of income when incurred. Systems were set up to track and capitalise development costs in 2004. As a result, only development costs for new products launched since 2004 are capitalised in the IFRS accounts. Development costs for new projects are capitalised if, and only if: • the project is clearly identifi ed and the related costs are separately identifi ed and reliably tracked; • the project’s technical feasibility has been demonstrated and the Group has the intention and fi nancial resources to complete the project and to use or sell the resulting products; • the Group has allocated the necessary technical, fi nancial and other resources to complete the development; • it is probable that the future economic benefi ts attributable to the project will fl ow to the Group. Development costs that do not meet these criteria are expensed in the fi nancial year in which they are incurred. Capitalised development projects are amortised over the lifespan of the underlying technology, which generally ranges from 3 to 10 years. The amortisation of such capitalised projects is included in the cost of the related products and classifi ed into “Cost of sales” when the products are sold. Software implementation External and internal costs relating to the implementation of enterprise resource planning (ERP) applications are capitalised when they relate to the programming, coding and testing phase. They are amortised over the applications’ useful lives. In accordance with paragraph 98 of IAS 38, the SAP bridge application currently being rolled out within the Group is amortised using the unit method to refl ect the pattern in which the asset’s future economic benefi ts are expected to be consumed. Said units of production correspond to the number of users of the rolled-out solution divided by the number of target users at the end of the roll-out. 2010 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 1.10 - Property, plant and equipment Property, plant and equipment is primarily comprised of land, buildings and production equipment and is carried at cost, less accumulated depreciation and any accumulated impairment losses, in accordance with the recommended treatment in IAS 16 – Property, plant and equipment. Each component of an item of property, plant and equipment with a useful life that differs from that of the item as a whole is depreciated separately on a straight-line basis. The main useful lives are as follows: Buildings: 20 to 40 years Machinery and equipment: 3 to 10 years Other: 3 to 12 years The useful life of property, plant and equipment used in operating activities, such as production lines, refl ects the related products’ estimated life cycles. Useful lives of items of property, plant and equipment are reviewed periodically and may be adjusted prospectively if appropriate. The depreciable amount of an asset is determined after deducting its residual value, when the residual value is material. Depreciation is expensed in the period or included in the production cost of inventory or the cost of internally-generated intangible assets. It is recognised in the statement of income under “Cost of sales”, “Research and development costs” or “Selling, general and administrative expenses”, as the case may be. Items of property, plant and equipment are tested for impairment whenever there is an indication they may have been impaired. Impairment losses are charged to the statement of income under “Other operating income and expenses”. Leases The assets used under leases are recognised in the balance sheet, offset by a fi nancial debt, where the leases transfer substantially all the risks and rewards of ownership to the Group. Leases that do not transfer substantially all the risks and rewards of ownership are classifi ed as operating leases. The related payments are recognised as an expense on a straight-line basis over the lease term. Borrowing costs In accordance with IAS 23 R – Borrowing costs (applied as of January 1, 2009), borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of the asset when it is probable that they will result in future economic benefi ts to the entity and the costs can be measured reliably. Other borrowing costs are recognised as an expense for the period. Prior to January 1, 2009, borrowing costs were systematically expensed when incurred.
1.11 - Impairment of assets In accordance with IAS 36 – Impairment of Assets – the Group assesses the recoverable amount of its long-lived assets as follows: • for all property, plant and equipment subject to depreciation and intangible assets subject to amortisation, the Group carries out a review at each balance sheet date to assess whether there is any indication that they may be impaired. Indications of impairment are identifi ed on the basis of external or internal information. If such an indication exists, the Group tests the asset for impairment by comparing its carrying amount to the higher of fair value minus costs to sell and value in use; • non-amortisable intangible assets and goodwill are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Value in use is determined by discounting future cash fl ows that will be generated by the tested assets, generally over a period of not more than fi ve years. These future cash fl ows are based on Group management’s economic assumptions and operating forecasts. The discount rate corresponds to the Group’s weighted average cost of capital (WACC) at the measurement date plus a risk premium depending on the region in question. The WACC stood at 8.4% at December 31, 2010, a slight increase on the 8.1% at December 31, 2009. This rate is based on (i) a long-term interest rate of 3.8%, corresponding to the average interest rate for 10 year OAT treasury bonds over the past few years, (ii) the average premium applied to fi nancing obtained by the Group in the fourth quarter of 2010, and (iii) the weighted country risk premium for the Group’s businesses in the countries in question. The perpetuity growth rate was 2%, unchanged on the previous fi nancial year. Impairment tests are performed at the level of the cash-generating unit (CGU) to which the asset belongs. A cash-generating unit is the smallest group of assets that generates cash infl ows that are largely independent of the cash fl ows from other assets or groups of assets. The cash-generating units correspond to the Power, Industry, IT, Buildings, CST businesses, which have operated as divisions since the reorganisation on January 1, 2010. Entities were reallocated to the new CGUs at the lowest possible level on the basis of their business activities; in the case of mixed entities, their assets were allocated to each business (Power and Industry mainly) pro-rata to their revenue in that business. At end-2010, the Distribution business acquired from Areva on June 7, 2010 wasn’t allocated to any specifi c CGU and hadn’t yet been tested given the recent date of acquisition. Nevertheless, as 2010 results were slightly ahead of the forecasts in the business plan used for the purposes of the acquisition, the Group does not feel there that there are impairment risks with respect to these assets at the balance sheet date. The WACC used to determine the value in use of each CGU was 9.0% for Power and Industry, 9.2% for IT, 8.6% for Buildings and CST. Goodwill is allocated when initially recognised. The CGU allocation is done on the same basis as used by Group management to monitor operations and assess synergies deriving from acquisitions. As a result of the organisational changes effective January 1, 2010, the allocation of goodwill has been changed to refl ect the new operating segments defi ned in accordance with the newly issued IFRS 8. This modifi cation did not have an impact on asset impairment. CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Where the recoverable amount of an asset or CGU is lower than its book value, an impairment loss is recognised. Where the tested CGU comprises goodwill, any impairment losses are fi rstly deducted therefrom. 1.12 - Non-current financial assets Investments in non-consolidated companies are classified as available-for-sale fi nancial assets. They are initially recorded their cost of acquisition and subsequently measured at fair value, when fair value can be reliably determined. The fair value of equity instruments quoted in an active market may be determined reliably and corresponds to the quoted price on the balance sheet date (Level 1 input as described in the amendment to IFRS 7 – Improving Disclosures about Financial Instruments). In cases where fair value cannot be reliably determined (Level 3 inputs), the equity instruments are measured at net cost of any accumulated impairment losses. The recoverable amount is determined with reference to the Group’s share in the entity’s net assets along with its expected future profi tability and outlook. This rule is applied in particular to unlisted equity instruments. Changes in fair value are accumulated in equity under “Other reserves” up to the date of sale, at which time they are recognised in the income statement. Unrealised losses on assets that are considered to be permanently impaired are recorded under “Finance costs and other fi nancial income and expense, net”. Loans, recorded under “Other non-current fi nancial assets”, are carried at amortised cost and tested for impairment where there is an indication that they may have been impaired. Long-term fi nancial receivables are discounted when the impact of discounting is considered signifi cant. 1.13 - Inventories and work in process Inventories and work in process are stated at the lower of their entry cost (acquisition cost or production cost generally determined by the weighted average price method) or of their estimated net realisable value. Net realisable value corresponds to the estimated selling price net of remaining expenses to complete and/or sell the products. Inventory impairment losses are recognised in “Cost of sales” for the material component and in “Selling, general and administrative expenses” for the fi nished products. The cost of work in process, semi-fi nished and fi nished products, includes the cost of materials and direct labor, subcontracting costs, all production overheads based on normal capacity utilisation rates and the portion of research and development costs related to the production process (corresponding to the amortisation of capitalised projects in production and product and range maintenance costs). 2010 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 163 5
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2010 Annual Report Schneider Electr
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Registration Document Annual Report
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A signifi cant improvement in profi
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Interview with 2010 marks the retur
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Supervisory Board (as of February 1
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Sales by geographical area 18% Rest
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2010 in brief Growth and acquisitio
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On October 1, 2010 IBM and Schneide
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1 Description of the Group, and its
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1. 3 The emergence of new economies
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DESCRIPTION OF THE GROUP, AND ITS S
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Utilities and Infrastructures: ensu
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2. 3 Leadership in our five sectors
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The Buildings business Number 4 wor
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Panel builders and systems integrat
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3. Innovation and R&D: DESCRIPTION
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3. 4 Partnerships to accelerate pro
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DESCRIPTION OF THE GROUP, AND ITS S
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Rationalisation and optimisation of
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4. 4 Global, selective purchasing P
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The Group’s human resources strat
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on our increased costs to customers
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Insurance Schneider Electric’s st
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2 Sustainable development 1. Sustai
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2 SUSTAINABLE DEVELOPMENT SUSTAINAB
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2 SUSTAINABLE DEVELOPMENT 50 > Zoom
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2 SUSTAINABLE DEVELOPMENT SUSTAINAB
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2 SUSTAINABLE DEVELOPMENT RESPECT F
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2 SUSTAINABLE DEVELOPMENT SCHNEIDER
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2 SUSTAINABLE DEVELOPMENT COMMITTED
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2 SUSTAINABLE DEVELOPMENT METHODOLO
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3 CORPORATE GOVERNANCE SUPERVISORY
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6 COMPANY FINANCIAL STATEMENTS BALA
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6 COMPANY FINANCIAL STATEMENTS NOTE
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6 COMPANY FINANCIAL STATEMENTS SUBS
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6 COMPANY FINANCIAL STATEMENTS THE
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7 GENERAL PRESENTATION OF SCHNEIDER
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GENERAL PRESENTATION OF SCHNEIDER E
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GENERAL PRESENTATION OF SCHNEIDER E
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8 ANNUAL AND EXTRAORDINARY SHAREHOL
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ANNUAL AND EXTRAORDINARY SHAREHOLDE
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288 PERSONS RESPONSIBLE FOR THE REG
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Schneider Electric SA Headquarters:
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2010Annual Report - Schneider Electric CZ, s.r.o.

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