Page 235 - 2012 Annual Report

235
VIVENDI l 2012 l Annual Report
FINANCIAL REPORT – CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS – STATUTORY AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS –
STATUTORY FINANCIAL STATEMENTS 4
4
III - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Accounting policies and valuation methods
loss carry-forwards and unused tax credits, except where the deferred tax
asset associated with the deductible temporary difference is generated
by initial recognition of an asset or liability in a transaction which is not a
business combination, and that, at the transaction date, does not impact
earnings, nor tax income or loss.
For deductible temporary differences resulting from investments in
subsidiaries, joint ventures and other associated entities, deferred tax
assets are recorded to the extent that it is probable that the temporary
difference will reverse in the foreseeable future and that a taxable profit
will be available against which the temporary difference can be utilized.
The carrying value of deferred tax assets is reviewed at each closing date,
and revalued or reduced to the extent that it is more or less probable that
a taxable profit will be available to allow the deferred tax asset to be
utilized. When assessing the probability of a taxable profit being available,
account is taken, primarily, of prior years’ results, forecasted future results,
non-recurring items unlikely to occur in the future and the tax strategy. As
such, the assessment of the group’s ability to utilize tax losses carried
forward is to a large extent judgment-based. If the future taxable results
of the group proved to differ significantly from those expected, the group
would be required to increase or decrease the carrying value of deferred
tax assets with a potentially material impact on the Statement of Financial
Position and Statement of Earnings of the group.
Deferred tax liabilities are recognized for all taxable temporary
differences, except where the deferred tax liability results from goodwill
or initial recognition of an asset or liability in a transaction which is not a
business combination, and that, at the transaction date, does not impact
earnings, nor tax income or loss.
For taxable temporary differences resulting from investments in
subsidiaries, joint ventures and other associated entities, deferred tax
liabilities are recorded except to the extent that both of the following
conditions are satisfied: the parent, investor or venturer is able to control
the timing of the reversal of the temporary difference and it is probable
that the temporary difference will not be reversed in the foreseeable
future.
Current tax and deferred tax shall be charged or credited directly to equity,
and not earnings, if the tax relates to items that are credited or charged
directly to equity.
1.3.10. Share-based compensation
With the aim of aligning the interest of its executive management and
employees with its shareholders’ interest by providing them with an
additional incentive to improve the company’s performance and increase
its share price on a long-term basis, Vivendi maintains several share-
based compensation plans (share purchase plans, performance share
plans, and bonus share plans) or other equity instruments based on the
value of the Vivendi share price (stock options), which are settled either
in equity instruments or in cash. Grants under these plans are approved
by the Management Board and the Supervisory Board. In addition, the
definitive grant of stock options and performance shares are contingent
upon the achievement of specific performance objectives fixed by the
Management Board and the Supervisory Board. Moreover, all granted
plans are conditional upon active employment at the vesting date.
In addition, Activision Blizzard maintains several share-based
compensation plans (restricted shares) or other equity instruments based
on the value of the share price (stock options), which are settled in equity
instruments. Grants under these plans are approved by the Board of
Directors of Activision Blizzard. The final grant of these rights is contingent
upon the achievement of specific performance objectives set by the Board
of Directors.
Lastly, Universal Music Group maintains Equity Long-Term Incentive Plans.
Under these plans, certain key executives are awarded equity units, which
are settled in cash. These equity units are phantom stock units whose
value is intended to reflect the value of Universal Music Group.
Please refer to Note 21 for details of the features of these plans.
Share-based compensation is recognized as a personnel cost at the
fair value of the equity instruments granted. This expense is spread
over the vesting period, i.e. 3 years for stock option plans and 2 years
for performance shares and bonus share plans at Vivendi, other than in
specific cases.
Vivendi and Activision Blizzard use a binomial model to assess the fair
value of such instruments. This method relies on assumptions updated at
the valuation date such as the computed volatility of the relevant shares,
the discount rate corresponding to the risk-free interest rate, the expected
dividend yield, and the probability of relevant managers and employees
remaining employed within the group until the exercise of their rights.
However, depending on whether the equity instruments granted are
equity-settled or cash-settled, the valuation and recognition of the
expense will differ:
Equity-settled instruments
✱ the expected term of the option granted is deemed to be the mid-point
between the vesting date and the end of the contractual term;
✱ the value of the instruments granted is estimated and fixed at grant
date; and
✱ the expense is recognized with a corresponding increase in equity.