Basis of preparation
The consolidated financial statements comprise the individual financial statements of Schaffner Holding AG (the “Company”) and its subsidiaries (together, “Schaffner”, the “Group” or the “Schaffner Group”) as at 30 September 2011, drawn up in accordance
with the uniform accounting policies of the Group.
The consolidated financial statements have been prepared under the historical cost convention, except for certain items (such as derivatives) that are stated at fair value, as further detailed in the accounting policies below. The consolidated financial statements comply with Swiss law and have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations (IFRIC) issued by the International Accounting Standards Board (IASB). The presentation currency of the consolidated financial statements is the Swiss franc.
The consolidated financial statements are prepared in German and translated into English. The English version is provided solely for readers’ convenience. Only the German version is definitive and legally binding.
Changes in accounting policies
The Schaffner Group applied the same accounting policies as in the prior year, except as modified by newly issued or changed standards and interpretations. The following changes to and interpretations of IFRS took effect at 1 October 2010:
- IFRS 1 – Amendments – Additional Exemptions for First-time Adopters
- IFRS 2 – Amendments – Group Cash-settled Share-based Payment Transactions
- IAS 32 – Amendments – Classification of Rights Issues
- IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments
- Annual Improvements to IFRSs 2009 (changes which became effective on 1 January 2010)
- Annual Improvements to IFRSs 2010 (changes which became effective on 1 July 2010)
None of the IFRS changes and interpretations which became effective on 1 October 2010 have a material effect on the financial position, results of operations and cash flows of the Schaffner Group.
IFRS standards becoming effective after the reporting period
The following new or amended standards and interpretations have been issued, but are not effective until subsequent periods and have not been applied early in these consolidated financial statements. Their impact on the consolidated financial statements of the Schaffner Group has not yet been systematically analyzed. However, based on a preliminary assessment, the expected impact of each standard and interpretation is presented in the following table.
Preliminary assessment of effects of new or changed standards and interpretations becoming effective in future periods
Planned adoption by
IFRS 1 – Amendments – Severe Hyperinflation and
IFRS 7 – Amendments – Disclosures: Transfers of Financial Assets
IFRS 9 – Financial Instruments
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 13 – Fair Value Measurement
IAS 1 – Amendments – Presentation of Items of Other Comprehensive Income
IAS 12 – Amendments – Deferred Tax: Recovery of Underlying Assets
IAS 19 – Amendments – Employee Benefits
IAS 24 – Amendments – Related Party Disclosures
IAS 27 – Amendments – Separate financial statements
IAS 28 – Investments in Associates and Joint Ventures
IFRIC 14 – Amendments – Prepayments of a Minimum Funding Requirement
IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine
Annual Improvements to IFRSs 2010
* There is expected to be no, or no significant, impact on the consolidated financial statements.
** The impact on the consolidated financial statements is expected to take the form mainly of additional disclosures or of changes in presentation.
*** The impact on the consolidated financial statements cannot yet be determined with sufficient reliability.
The consolidated financial statements of the Schaffner Group contain assumptions and estimates which affect the reported financial position, results of operations and cash flows. These assumptions and estimates were made on the basis of management’s best knowledge at the time of preparation of the accounts. Actual results could differ from the values presented. The following estimates have the largest effects on the consolidated financial statements:
- Intangible assets: For acquisitions, the fair value of the acquired net assets (including acquired intangible assets) is estimated. Any amount paid in excess of this estimate represents goodwill. Intangible assets with a finite life are written off over the expected period of use; those with an indefinite life (primarily goodwill) are not amortized, but tested annually for impairment. The valuation of goodwill and other intangibles and the estimation of useful life have an effect on the consolidated financial statements.
- Provisions: Provisions are recognized only if the specific criteria under IFRS for doing so are met. Provisions represent obligations arising from a past event and are recognized only if their amount can be estimated reliably. Nevertheless, provisions are based on assumptions, which may later prove to be incorrect.
- Pension obligations/assets: The calculation of the pension obligations/assets of the defined benefit plans is based on actuarial assumptions that may not match actual outcomes and that may thus have an impact on the financial position, results of operations and cash flows.
- Income tax: The Schaffner Group is subject to income tax in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are transactions and calculations for which the ultimate effective tax assessment is uncertain at the time of preparation of these financial statements. The recognition of deferred tax assets is based on management’s judgment. Deferred tax assets for tax loss carry forwards are only recognized to the extent that it is probable they can be utilized. Their utilization depends on the ability to generate future taxable profits against which existing loss carry-forwards can be applied. Judging the probability of future utilization requires estimates of various factors, such as the future earnings situation. If the actual outcomes differ from the estimates, this can lead to changes in the assessed fair value of the deferred tax assets.
A subsidiary is a company over which Schaffner Holding AG, Luterbach, directly or indirectly exercises control. An associated company, or associate, is a company over which Schaffner Holding AG directly or indirectly exercises significant influence.
The term “non-current liabilities” refers to all liabilities with remaining maturities of more than one year; “current liabilities” refers to all liabilities with remaining maturities of one year or less. Current liabilities thus also include that portion of noncurrent borrowings maturing within one year. All interest-bearing liabilities are included under borrowings.
Methods of consolidation
The consolidated financial statements include, by full consolidation, the financial statements of Schaffner Holding AG and of its subsidiaries. Their assets, liabilities, income and expenses are fully included, and the interests of minority shareholders in subsidiaries (“non-controlling interests”, previously known as minority interests) are reported separately in the balance sheet and income statement. The purchase or sale of non-controlling interests by the Group is recognized directly in equity.
All intra-Group balances, income and expenses are eliminated on consolidation. This also includes intra-Group profits on inventories and on non-current assets.
Companies acquired during the reporting period are included in the consolidated financial statements from the effective date of their acquisition. Companies divested during the reporting period remain included in the consolidated financial statements until the effective completion of the divestment transaction.
Translation of subsidiaries’ functional currencies into the Group’s presentation currency
All assets and liabilities in the balance sheets of foreign subsidiaries drawn up in foreign currencies are translated into Swiss francs (CHF) at period-end exchange rates (i.e., at closing rates for the reporting period). Expenses, income and cash flows are translated into Swiss francs at weighted average exchange rates for the period, which approximate the actual transaction rates. Foreign exchange differences arising from the variation in applicable exchange rates are recognized in the consolidated statement of comprehensive income, where they are accumulated in the item “exchange differences”.
Foreign currency transactions
Foreign currency transactions of subsidiaries are translated into the functional currency of the subsidiary at exchange rates prevailing at the transaction date (i.e., at transaction rates). Their foreign currency balances are translated at period-end exchange rates. Gains and losses arising from the recovery, settlement or translation of foreign currency monetary assets and liabilities are recognized as income or expense in the income statement.
Intangible assets are stated at historical cost less any amortization and impairment. Intangible assets other than goodwill (which is not amortized) are amortized on a straight-line basis over the following estimated useful lives:
Trademarks, technology and rights
Acquisitions and goodwill
Companies are consolidated from the date at which control is acquired. Business combinations are accounted for using the acquisition method. The cost of an acquisition is calculated as the aggregate of the consideration transferred – measured at fair value at the acquisition date – and the amount of any noncontrolling interest in the acquired company. For each business combination, the non-controlling interest in the acquired entity is measured either at fair value or at the proportionate share of the acquired company’s identifiable net assets. Acquisition costs incurred are recognized as an expense.
Any contingent consideration payable is recognized at the acquisition date at fair value. Subsequent changes to the fair value of a contingent consideration which is deemed to be an asset or liability are recognized either in the consolidated income statement or in the consolidated statement of comprehensive income. If the contingent consideration is classified as equity, it is not remeasured and its eventual settlement will be recognized in equity.
If the acquisition cost of the company exceeds the market value of the acquired identifiable assets, liabilities, contingent liabilities and non-controlling interests, the difference is recognized as goodwill. Any negative goodwill is recognized in the income statement in the period of acquisition.
Goodwill is assessed for impairment annually and any impairment is charged to the consolidated income statement. When a subsidiary is sold, the difference between its sale price and its net assets, plus cumulative exchange differences, is reported as operating income or expense in the consolidated income statement.
Research and development costs
Development costs for new products are not capitalized, as a future economic benefit can be demonstrated only after a successful market launch. Development costs for software are capitalized as intangible assets, provided that the software will generate a future economic benefit through sale or through use within the Group and that its cost can be reliably estimated. Other conditions for capitalization are the technical feasibility of the asset and the intention and ability to complete its development and either use or sell it.
Intangible assets recognized for development costs of software are amortized on a straight-line basis over their estimated useful life. The capitalized costs are tested annually for impairment for as long as the software is not yet in use, or when there are objective indications of impairment.
Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less depreciation and impairment. They are depreciated on a straight-line basis over their estimated useful life, which is as follows:
Machinery and equipment
Furniture and fixtures
Information technology hardware
Leases under which the lessee has substantially all the benefits and risks of ownership are classified as finance leases. Where a Group company is a lessee under a finance lease, the leased asset is capitalized at the lower of its fair value or the present value of the lease payments, and a liability of the same amount is recognized in borrowings. The interest portion (the finance charge) of the lease payments is charged to the income statement. Payments made under operating leases are recognized as an expense in the income statement in equal installments over the life of the lease.
Impairment of assets
The recoverable amount of an asset is estimated whenever there is an indication of impairment. If the asset’s carrying amount exceeds the recoverable amount, the difference is recorded as an impairment charge in the income statement. The recoverable amount is the higher of an asset’s net selling price and its value in use. An asset’s value in use is the present value of the estimated future cash flows from the asset.
Products purchased for resale, and raw materials, are measured at cost of purchase. Internally produced goods are measured at the cost of conversion, including related production overhead. Inventories in the balance sheet, and the charge to the income statement for the conversion cost of goods sold (cost of sales), are measured using the standard cost method. The standard costs are regularly reviewed and, when necessary, brought into line with current circumstances. Inventories that are slow-moving or have a lower market value are written down. Unsaleable inventory is fully written off. Inventory is thus not measured at more than its net realizable value.
The carrying amount (also known as carrying value) of trade receivables is their nominal value less a provision for doubtful debts, i.e., for impairment.
Securities held as current assets
Securities held as current assets are divided into two categories: listed securities and other securities. Listed securities are shares quoted on a stock exchange and are measured at market value. Other securities are measured at fair value where possible, or otherwise at cost. Treasury shares are presented as a deduction from shareholders’ equity.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand, bank deposits in postal and other bank accounts, bankers’ acceptances, and shortterm time deposits with original maturities of up to 90 days.
Provisions are recognized when Schaffner has an obligation to a third party as a result of a past event, the amount of the obligation can be estimated reliably and it is probable that an outflow of resources will be required to settle the obligation. Provisions for warranty claims are as a rule determined and recognized based on historical experience.
Where the effect of the time value of money is material, provisions are measured at the present value of the expected future expenditures.
Restructuring provisions are recognized if the costs attributable to a restructuring plan can be determined reliably and represent a contractual obligation or a constructive obligation created by communication.
Revenue recognition and interest income
Net sales represent the revenue from goods sold and services rendered to third parties, net of discounts and other price reductions. Sales are recognized at the time that the benefits and risks of ownership of the products sold are transferred to the customer or that the service is rendered; this timing depends on the agreed shipment terms.
Revenue is recognized if an economic benefit is likely to accrue to the Group and the amount of revenue can be reliably determined.
Interest income is recognized on a time-proportion basis by the effective interest method unless the claim to the interest is in doubt.
The Schaffner Group operates a number of pension plans in various countries worldwide. The pension plans are generally financed by contributions from employees and the respective Group companies. The plans’ assets are as a rule held in legally separate trustee-administered funds, the management of which takes into account the recommendations of independent qualified actuaries. Where plan assets are not held in such segregated funds, those assets which serve to secure future pension obligations are recognized as other non-current assets in the Group’s consolidated balance sheet and the corresponding pension obligation is recorded in liabilities as a provision.
For defined benefit plans, the future pension costs are assessed using the projected unit credit method. Under this method, the cost of providing future pensions is charged to the income statement in such a way as to spread the regular cost over the expected service lives of employees. The amount of these costs and their distribution over employees’ service lives are determined in accordance with the advice of independent qualified actuaries.
The Schaffner Group’s contributions to its pension plans are charged to the income statement in the year to which they relate. Accumulated unrecognized actuarial gains or losses exceeding the 10% “corridor” (10% of the greater of the present value of the defined benefit obligation or the fair value of the plan’s assets) are amortized in the income statement over the average of the remaining working lives of the participating employees. This recognition begins in the year following the year in which the corridor is exceeded.
Borrowing costs are recognized as an expense in the period in which they are incurred.
The Schaffner Group consisted of three reportable segments: Electromagnetic Compatibility, Power Quality and Automotive. This delineation of segments is consistent with the internal reporting on the basis of which the chief operating decision maker allocated resources to these segments and assessed their profitability.
The Schaffner Group has identified the Executive Committee as the chief operating decision maker.
Current income tax is recognized on the basis of reported profits, in the period in which the profits arise. Tax is calculated in conformity with the applicable tax laws in the individual countries. Deferred income tax is recognized using the liability method. Under this approach, the income tax effects of temporary differences between carrying amounts in the financial statements and their tax bases used in the calculation of taxable income are recorded in non-current liabilities or noncurrent assets, using the tax rates that are expected to apply to the period when the asset is recovered or the liability settled. The change in deferred tax assets and liabilities is recognized as deferred income tax expense or benefit. Deferred income tax liabilities are calculated on all taxable temporary differences. Deferred tax assets, including assets for unused tax loss carry-forwards, are only recognized to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. The determination of the amount of deferred tax assets to be recognized requires a significant degree of judgment on the part of management. It involves assumptions and estimates as to the likely timing and amounts of future taxable profits and as to future tax planning strategies.
Financial assets and liabilities
Financial assets and liabilities are classified into the following five categories:
- Financial assets and liabilities at fair value through profit or loss (these are assets classified as held for trading, and certain financial assets and liabilities designated as at fair value through profit or loss)
- Financial investments held to maturity
- Loans and receivables
- Financial assets available for sale (this represents all financial instruments not assignable to one of the categories above).
- Financial liabilities mainly consist of borrowings, which are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. Liabilities arising from trading activities and derivatives are measured at fair value.
Financial assets are initially measured at fair value (including transaction costs, except in the case of financial assets at fair value through profit or loss, which are measured net of transaction costs). All purchases and sales of financial assets are recognized at the transaction date. Financial assets at fair value through profit or loss are subsequently measured at their fair value. Any value changes are recorded in finance income or expense in the reporting period in which they occur.
Financial instruments held to maturity, loans and receivables are initially measured at cost and subsequently measured at amortized cost using the effective interest method.
Financial assets available for sale are subsequently measured at fair value, with changes in value (after income tax) recorded in shareholders’ equity. Upon sale, impairment or other disposal of the assets, the accumulated gains and losses recorded in shareholders’ equity are reported in finance income or expense in the current period.
Assets not measured at fair value are tested for impairment at every balance sheet date. Financial assets are derecognized when Schaffner ceases to control them, i.e., when the related rights have been sold or have lapsed. Financial liabilities are derecognized when the contractual obligation is discharged, canceled or expires.
Non-current financial liabilities are measured by the effective interest method. The interest expense therefore includes not only the actual interest payments but also the amounts for the unwinding of discount and for proportional transaction costs.
Derivative financial instruments and hedging
The Group uses derivative financial instruments to hedge its interest rate risks. Such derivatives are recognized at their fair value both at the date of the derivative contract’s inception and at every subsequent measurement. Derivatives with positive fair values are recorded as assets; derivatives with negative fair values are recorded as liabilities.
Any gains or losses arising during the year from changes in fair value of derivatives positions that were not entered into for hedging purposes are taken directly to the income statement.
Cash flow hedges
Cash flow hedges are used to hedge exposure to variability in cash flows resulting from interest rate risks of a financial instrument. The effective portion of the gain or loss on the hedging instrument is recognized directly in the consolidated statement of comprehensive income, while any ineffective portion is recorded immediately in the income statement.
Amounts recognized in the consolidated statement of comprehensive income are transferred to the income statement in the period in which the transaction occurs or is no longer expected to occur.
At the inception of a hedge relationship, the Group formally designates and documents the relationship, including documenting the risk management objective and strategy. The documentation also includes the identification of the hedge instrument, the hedged item or transaction, the nature of the risk being hedged and how the effectiveness of the hedge is to be assessed.
If the hedging instrument expires or is sold or cancelled or its designation as a hedge is revoked, amounts previously recognized in the consolidated statement of comprehensive income remain there until the forecast transaction occurs.
The fair value of granted share options is calculated using the Enhanced American Model (a sophisticated binomial model) at the grant date. Their fair value is expensed over the relevant vesting periods and also recorded as an increase in equity.
All options can only be exercised through the purchase of shares and are not cash-settled.