Loreal 2011 Annual Report Download - page 101

99REGISTRATION DOCUMENT − L’ORÉAL 2011
2011 Consolidated Financial Statements
4
Notes to the consolidated  nancial statements
The fair value of free shares corresponds to the value of the
share at the grant date, less dividends expected to be paid
during the vesting period. The cost of the additional 2-year
holding period applicable to French residents is determined
based on the interest rate granted to the employee,
considered equivalent to the rate which would be granted
by a bank to a private individual customer with an average
financial profile.
Only plans issued after November7th, 2002 and not fully vested
at January1st, 2005 are accounted for in accordance with IFRS2.
The impact of IFRS2 on profit for the period is booked on the
Selling, general and administrative expenses line of the income
statement at Group level, and is not allocated to the Divisions
or geographic zones.
1.23. Provisions for employee
retirement obligations
andrelated benefits
The Group operates pension, early retirement and other
benefit schemes depending on local legislation and
regulations.
For obligatory state schemes and other defined-contribution
schemes, the Group recognises in the income statement
contributions payable when they are due. No provision has
been set aside in this respect as the Group’s obligation does not
exceed the amount of contributions paid. The characteristics
of the defined benefit schemes in force within the Group are
as follows:
♦French regulations provide for specific length-of-service
awards payable to employees on retirement. An early
retirement plan and a defined benefit plan have also been
set up. In some Group companies there are also measures
providing for the payment of certain healthcare costs for
retired employees.
These obligations are partially funded by an external
fund, except those relating to healthcare costs for retired
employees;
♦for foreign subsidiaries with employee pension schemes
or other specific obligations relating to defined benefit
plans, the excess of the projected benefit obligation
over the scheme’s assets is recognised by setting up a
provision for charges on the basis of the actuarial value of
employees’vested rights.
As from January1st, 2009, the Group decided to adopt the IAS19
option allowing the direct recognition in equity of actuarial
gains and losses instead of the corridor method.
The charges recorded in the income statement during the year
include:
♦service cost, i.e . additional rights vested by employees during
the accounting period;
♦interest cost, i.e. change in the value of the discounted rights
over the past year;
♦expected return on plan assets, i.e . income from external
funds calculated on the basis of a standard return on long-
term investments;
♦the impact of any change to existing schemes on previous
years or of any new schemes.
To determine the discounted value of the obligation for each
scheme, the Group applies an actuarial valuation method
based on the final salary (projected unit credit method).
Theobligations and the fair value of plan assets are assessed
each year using length-of-service, life expectancy, staff turnover
by category and economic assumptions (such as inflation rate
and discount rate).
Actuarial gains and losses in relation to other benefits such
as jubilee awards and long-serve bonuses are immediately
charged to the income statement.
The liability corresponding to the Company’s net defined benefit
obligation regarding its employees is recorded in the balance
sheet on the
Provisions for employee retirement obligation and
related benefits
line.
1.24. Provisions for liabilities
andcharges
Provisions for liabilities and charges are set up to cover probable
outflows for the benefit of third parties without any equivalent
consideration being received by the Group in return. They relate
mainly to tax risks and litigation, industrial, environmental and
commercial risks relating to operations (breach of contract,
product returns) and employee-related risks.
These provisions are estimated on the basis of the assumptions
deemed most probable or by using statistical methods,
depending on the type of provisions.
Provisions for liabilities and charges are recorded either as
Non-
current liabilities
or as Current liabilities , depending on their
nature. Provisions for liabilities or litigation which must be settled
within 12months of the closing date, and those linked to the
normal operating cycle (such as product returns), are recorded
as Current liabilities . Other provisions for liabilities and charges
are recorded as Non-current liabilities.