SCH2017_DRF_EN_Livre.indb

5

Consolidated financial statements at December 31, 2017 Notes to the consolidated financial statements

1.19 – Pensions and other employee benefit obligations Depending on local practices and laws, the Group’s subsidiaries participate in pension, termination benefit and other long-term benefit plans. Benefits paid under these plans depend on factors such as seniority, compensation levels and payments into mandatory retirement programs. Defined contribution plans Payments made under defined contribution plans are recorded in the income statement, in the year of payment, and are in full settlement of the Group’s liability. As the Group is not committed beyond these contributions, no provision related to these plans has been booked. In most countries, the Group participates in mandatory general plans, which are accounted for as defined contribution plans. Defined benefit plans Defined benefit plans are measured using the projected unit credit method. Expenses recognized in the statement of income are split between operating income (for service costs rendered during the period) and net financial income/(loss) (for financial costs and expected return on plan assets). The amount recognized in the balance sheet corresponds to the present value of the obligation, and net of plan assets. When this is an asset, the recognized asset is limited to the present value of any economic benefit due in the form of plan refunds or reductions in future plan contributions. Changes resulting from periodic adjustments to actuarial assumptions regarding general financial 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 experience adjustments are immediately recognized in the balance sheet as a separate component of equity in “Other reserves” and in comprehensive income as “Other Comprehensive Income”/loss. Other commitments Provisions are funded and expenses recognized to cover the cost of providing health-care benefits 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 defined benefit pension plans. The Group also funds provisions for all its subsidiaries to cover seniority-related benefits (primarily long service awards for its French subsidiaries). Actuarial gains and losses on these benefit obligations are fully recognized in profit or loss. 1.20 – Share-based payments The Group grants different types of share-based payments to senior executives and certain employees. These include: E performance shares;

E Schneider Electric SE stock options (until 2009); E Stock Appreciation Rights, based on the Schneider Electric SE stock price (until 2013). Pursuant to the application of IFRS 2 – Share-based payments , these plans are measured on the date of grant and an employee benefits expense is recognized 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 performance shares 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 benefit 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 21.4). 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 1.4% at December 31, 2017, unchanged from December 31, 2016. Provisions are primarily set aside to cover: E economic risks: these provisions cover tax risks arising from tax audits performed by local tax authorities and financial risks arising primarily on guarantees given to third parties in relation to certain assets and liabilities; E customer risks: these provisions are primarily established to cover risks arising from products sold to third parties. This risk mainly consists of claims based on alleged product defects and product liability; E product risks: these provisions comprise: E statistical provisions for warranties: TheGroup funds provisions on a statistical basis for the residual cost of Schneider Electric product warranties not covered by insurance, E provisions to cover disputes concerning defective products and recalls of clearly identified products; E environmental risks: these provisions are primarily funded to cover clean-up costs; E restructuring costs, when the Group has prepared a detailed plan for the restructuring and has either announced or started to implement the plan before the end of the year. 1.21 – Provisions for contingencies and charges

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

238