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Building a New Electric World
2004 Annual Report
Schneider Electric SA

Table of contents

  • Page 1
    Schneider Electric SA 2004 Annual Report Building a New Electric World

  • Page 2

  • Page 3
    ...and IFRS Accounts 116 8 - Auditors' Report on the Consolidated Financial Statements 117 Company financial statements 1 - Balance Sheet at December 31, 2004 2 - Statement of Income year ended December 31, 2004 3 - Notes to the Financial Statements of Schneider Electric SA 4 - Auditors' Report on the...

  • Page 4
    ... repositioning, organic growth was nearly twice as high as that of our markets. Schneider Electric has a new growth profile. We've moved closer to our customers in the fastest-growing regions, including Eastern Europe, South America, Asia and even North America, where the economy is very strong. In...

  • Page 5
    ... our local teams, we are French in France, German in Germany, American in the US, Chinese in China and Japanese in Japan. We cultivate these differences and are internationalizing our teams. Supported by our key values and talented people, Schneider Electric will continue to grow to bring even more...

  • Page 6
    ... Company has opened 23 production sites over the last three years, including eight new units in Asia in 2004. Workforce by region Schneider Electric has an active policy of geographic mobility to create a talent pool of multicultural managers. The international mobility rate for executives exceeded...

  • Page 7
    ... Operating cash flow up 34% Once again, Schneider Electric demonstrated its ability to generate a high level of cash flow. In 2004, cash flow surged to 12.2% of sales and represented 96% of operating income. After capital spending and changes in working capital requirement, free cash flow stood at...

  • Page 8
    ...é Européen des Assurances René Barbier de La Serre* Corporate Director Chris Richardson Former Executive Vice-President of Schneider Electric's North American Division James Ross* Corporate Director Piero Sierra* Special Advisor for the administration of Pirelli's international companies Caisse...

  • Page 9
    ...Globalization & Industry Alain Marbach Executive Vice-President Products & Technology Julio Rodriguez Executive Vice-President International & Iberian Operating Division Dave Petratis Executive Vice-President North American Operating Division Russell Stocker Executive Vice-President Asia-Pacific...

  • Page 10
    8

  • Page 11
    ... man-machine interface. In 2003, Schneider Electric acquired TAC, a Swedish manufacturer of building control and automation systems, and Clipsal, leader in ultra terminal distribution in the Asia-Pacific region. In 2004, the Company gained full control of MGE UPS Systems, which ranks first in Europe...

  • Page 12
    ...in 2004. We offer companies a wide range of products, equipment and services to distribute and manage electricity, control and monitor machines, automate industrial processes, and supervise and manage industrial sites and their consumption. 10 Our principle growth drivers in this market are global...

  • Page 13
    ... brands, including Clipsal in Asia, Feller in Switzerland, Eljo in Sweden and Alombard in France. b) Ranked second worldwide in Automation & Control (no. 1 in industrial control and no. 3 in PLCs) Our Automation & Control products are designed to control, monitor and protect electrical equipment...

  • Page 14
    ... monitoring, online training and technical support, and on-site and remote maintenance and management contracts also help customers get the most out of their facilities. We provide solutions to evaluate and optimize energy consumption and offer services for on-site and network management of spare...

  • Page 15
    ... the technical parks with additional skills and development capacity at a very competitive cost. Located near emerging market supplier areas, these centers will play a major role in reducing product expenses. This global organization is strategically aligned with Schneider Electric's international...

  • Page 16
    ... excellence. With this strategy of globalization, we can penetrate a maximum number of markets while optimizing costs. At 5.2% of sales, Schneider Electric's R&D budget is among the highest in the industry. It covers 4,500 employees around the world and development centers in 25 countries...

  • Page 17
    ... head office (Board of Directors' Secretariat) located at 43/45 boulevard Franklin Roosevelt - 92500 Rueil-Malmaison, France. 2 Capital Capital stock and voting rights The Company's capital stock at December 31, 2004 amounted to â,¬ 1,809,553,416, represented by 226,194,177 shares with a par value...

  • Page 18
    ... of bonds, the issuance of shares to the Employee Stock Purchase Plan, the May 5, 2000, March 5, 2003 and December 9, 2004 cancellation of shares and the tender in August 2001 of 98.1% of outstanding Legrand shares to the public exchange offer initiated by Schneider Electric SA. Five-Year Summary of...

  • Page 19
    ...' Meeting of May 6, 2004, the Board of Directors was authorized to grant options to purchase new or existing shares to employees and corporate offices of the Company and its affiliates under the provisions of article 225-177 of the French Commercial Code. At the Annual Shareholders' Meeting of May...

  • Page 20
    ... Consignations Employees Treasury stock Intragroup cross shareholdings Public 4.45% 3.76% 3.20% 88.59% Disclosure thresholds To the best of the Company's knowledge, no shareholders other than Caisse des Dépôts, listed above, hold, either directly or indirectly, more than 5% of Schneider Electric...

  • Page 21
    ... long been committed to developing employee stock ownership. Employees who are members of the Employee Stock Purchase Plan have an opportunity to purchase new or existing Schneider Electric SA shares through corporate mutual funds. The latest employee share issue took place in 2004 and was open to...

  • Page 22
    ... in 2004 by the ten employees exercising the largest number of options during the year (not including corporate officers) (1) Weighted average price Price (in euros) Expiration date 282,200 56.09 2012 77,000 43.53 (1) - Stock option plan details Plan no. Date of Board Meeting Number of...

  • Page 23
    ... 16, 2003 authorized the Board of Directors to buy back shares on the open market. Pursuant to this authorization, the Company purchased 1,660,253 shares at an average unit price of â,¬ 51.50. The Annual Shareholders' Meeting of May 6, 2004 authorized the Board of Directors to buy back shares on the...

  • Page 24
    ... The Schneider Electric SA share is listed on the Euronext First Market in Paris, where it is traded in lots of one under ISIN code FR0000121972. It is part of the market's benchmark CAC 40 index of France's largest stocks. 18-Month Trading Data Year Month Trading volume (in thousands of shares) 22...

  • Page 25
    ...first. Both were traded on the Euronext Paris and the Luxembourg bond markets under ISIN code FR 0000492316. The issue was redeemed at maturity on April 14, 2004. As part of the Euro Medium Term Notes program initiated on December 21, 1999, Schneider Electric SA issued two tranches of 6.1275% bonds...

  • Page 26
    ... addition to the annual report and a summary report, the Company also publishes: The Annual Report and "In Brief". A Shareholders' Letter (three times a year). General, economic and financial information (presentation, press releases). A corporate website (www.schneider-electric.com). Shareholders...

  • Page 27
    ... been in charge of special projects for the Corporate Services department since 2001. Mr. Lachmann owns 10,500 Schneider Electric SA shares. Directors Daniel Bouton* First elected: 1995 Term ends: 2008 54 years old, Chairman and Chief Executive Officer of Société Générale. Other directorships...

  • Page 28
    ... of services, systems and equipment for building technology, electrical contracting and payphones. Since 1998, Mr. Kissling has been Chairman of Unaxis Corporation, also serving as Chairman and Chief Executive Officer from 1998 to 2002. Mr. Kissling owns 250 Schneider Electric SA shares. Gérard...

  • Page 29
    ...was acquired by Schneider Electric in 1991. He served as Executive Vice-President of Schneider Electric's North American Division from 1998 to January 2004. Mr. Richardson owns 250 Schneider Electric SA shares. James Ross * First elected: 1997 Term ends: 2007 66 years old, Corporate director. Other...

  • Page 30
    ... Letter to Directors, a weekly press review, all of the Company's press releases, financial analysts' reports and other documents. Directors also have the opportunity to meet informally with key members of senior management prior to Board meetings. In addition, new Directors attend training and...

  • Page 31
    ... terms of this code, both Directors and employees are barred from trading shares in companies for which they have information that has not yet been made public. In addition, they may not trade Schneider Electric SA shares during the 30 days preceding publication of the annual and interim financial...

  • Page 32
    ...These include reviewing budgets and business plans, placing on record capital increases and drawing up a report to shareholders on any employee share issues under the Employee Stock Purchase Plan. Directors and corporate officers hold 4.45% of the Company's capital and 5.86% of the voting rights. No...

  • Page 33
    ...). In connection with its risk review, the Committee examined the Company's environmental policy, the status of operations in France, information systems outsourcing and globalization, and procedures for the integration of newly-acquired businesses. It also analyzed the Company's dividend and share...

  • Page 34
    ...North American, European, Asia-Pacific and International & Iberian Operating Divisions, and the Executive Vice-Presidents in charge of the three Corporate Divisions (Customers & Markets, Products & Technology and Globalization & Industry). The Executive Vice-Presidents in charge of Finance & Control...

  • Page 35
    ... into account the work performed by the external Auditors. In light of Schneider Electric's core businesses, internal audit procedures focus mainly on revenue recognition, cash and asset management processes, wages and benefits, financial reporting, information systems, manufacturing operations...

  • Page 36
    ... Development. Depending on the strategic objective, a matrix is drawn up showing the required level of integration for each of the newly-acquired business's core functions, i.e. front office (sales force and brand), back office, R&D, corporate functions and management reporting. An integration plan...

  • Page 37
    ... charge reported by the Group's main international subsidiaries, essentially in the European Union and the United States. The Tax unit is also responsible for overseeing the resolution of tax claims. The Statutory and Management Accounting unit within the Finance & Control - Legal Affairs Department...

  • Page 38
    ... in the accounts. Procedures for the production of accounting and financial information The accounting system Corporate Management Control and Accounting Department of the Finance & Control - Legal Affairs Department has launched a project to standardize management reporting processes among...

  • Page 39
    ... of each term. Corporate Management Control and Accounting Department standards manual, which includes details of debit/credit pairings in the consolidation system. A Group reporting procedures manual. A manual describing the procedures to be followed to integrate newly-acquired businesses in...

  • Page 40
    ...fees for 2004 of â,¬ 55,400 by Schneider Electric SA. Mr. Lachmann's benefits include a chauffeur-driven Company car. He is also covered by the Company's pension plan for senior executives, under the plan's general terms and conditions. On retiring, he would receive a maximum annual pension equal to...

  • Page 41
    ...by the Executive VicePresident, Finance. 9 Shareholders' rights and obligations Annual Shareholders' Meetings (article 18 of the bylaws) All shareholders are entitled to attend Annual Meetings, regardless of the number of shares held. The notice of meeting is sent directly by the Company to holders...

  • Page 42
    ... these terms are defined in article L 233-9 of the Commercial Code) directly or indirectly, shares or voting rights representing at least 0.5% of the total number of shares or voting rights outstanding, or a multiple thereof, is required to disclose said interest to the Company by registered letter...

  • Page 43
    ... in ultra terminal distribution, building safety and voice-data-image systems. Automation & Control a) Unity, an entirely updated family of automation software. Combined with the new Telemecanique Modicon Quantum, Premium and Atrium PLCs, Unity creates a work environment focused on productivity. It...

  • Page 44
    ...Purchasing was further globalized, with the development of international purchasing centers in Bangalore, India; Shanghai, China; and Budapest, Hungary. Schneider Electric has decided to leverage high performance R&D centers near highly demanding markets in Japan, China and the United States. It has...

  • Page 45
    ... Terminal businesses acquired from Gerard Industries in December 2003 and located in Australia, New Zealand, India and South Africa were fully consolidated as of January 1, 2004. The 50-50 Clipsal Asia joint venture created with Singapore's CIH was accounted for by the equity method on the same date...

  • Page 46
    ... allowances for long and shortterm investments. Cash generated by the sale of the Company's Legrand shares in 2002 was used to finance major acquisitions in 2003 and 2004, including Digital, TAC, Clipsal, MGE UPS Systems, Andover Controls and Kavlico. As of December 31, 2004, the Group no longer had...

  • Page 47
    ... and correspond primarily to the share of income attributable to minority partners in MGE UPS Systems, Feller AG, EPS Ltd., and a number of Chinese companies. Net income attributable to Schneider Electric SA Net income rose 30.4% to â,¬ 565 million in 2004. Excluding amortization of goodwill, net...

  • Page 48
    ... Finance & Control - Legal Affairs Department and are reviewed at monthly intervals based on changes in financial market conditions. Claims, litigation and other risks 46 In 2001, Schneider Electric made a public offer to purchase Legrand in exchange for shares as part of a proposed merger project...

  • Page 49
    ... United States, Canada and Mexico to take account of the specific requirements and characteristics of the North American market. Insured values under these programs adequately cover the Group's exposure to liability claims in connection with its businesses. Insurance Schneider Electric's strategy...

  • Page 50
    ... to â,¬ 508 million. Investments accounted for by the equity method were stable at â,¬ 65 million, as the acquisition of a controlling interest in MGE Finances and disposal of VA Tech Schneider HV offset the addition of Clipsal Asia Holdings and Elau. Non-consolidated investments net of reserves...

  • Page 51
    ... in 2004 included the acquisitions of Andover Controls for â,¬ 332 million, Kavlico for â,¬ 162 million, various minority interests (notably in Infra +) for â,¬ 38 million, and the subscription of new shares worth â,¬ 11 million as part of Finaxa's capital increase. Other new long-term investments...

  • Page 52
    ...15 million in 2003. After taking into account corporate income tax, net income stood at â,¬ 0.81 million versus â,¬ 0.86 million in 2003. Company Financial Statements Schneider Electric SA posted total portfolio revenues of â,¬ 463.3 million in 2004 compared with â,¬ 457.7 million the previous year...

  • Page 53
    ... As part of its efforts to create a better geographic balance in its operations, the Company redeployed resources in 2004. This led to several employment reduction plans in the United States and Europe. We took assertive steps to assist employees in redirecting their careers at all concerned sites...

  • Page 54
    ...-34 years 17.2 % 12.9 % 2.7 % > 35 years Category 2003 2004 Breakdown by Operating Division 2003 2004 44 % 43 % 58 % Line employees Non-executive staff and technicians Engineers and managers 54 % Europe North America 22 % 14.5 % 5.5 % 21 % 18 % 7% Asia-Pacific Rest of the world 29 % 29.4 % 27...

  • Page 55
    ... in Australia, India, China and other countries. Number of days of training 2003 18.4 % Schneider Electric uses training to develop skills and nurture employee loyalty. In 2004, the Company welcomed 117 graduates from 50 countries into its Marco Polo international recruitment program. Established...

  • Page 56
    ... health coverage, several related action plans were carried out in 2004, notably in France, the US and Spain. We are currently defining an occupational health and safety policy for the entire Company that should be ready in the first half of 2005. In France, the Human Resources department developed...

  • Page 57
    ... in which disabled employees account for more than 6% of payroll. In May 2004, the Company won an award from France's business leaders' union for its work in training and employing disabled youth. An agreement on job equality between men and women. Schneider Electric Industries SAS signed a specific...

  • Page 58
    ... the largest natural disasters in history struck Asia in December 2004. The entire Schneider Electric community participated in the international response, in particular by donating emergency aid in Indonesia, Sri Lanka, India and Thailand; supporting reconstruction projects selected by team members...

  • Page 59
    ... flame retardants from our electrical distribution and low voltage industrial control products. A dedicated program has been developed to promote the necessary measures in design, industrialization, purchasing and production. 67 % 74 % 2002 2003 Dec. 31, 2004 2004 target NEW2004 objective...

  • Page 60
    ...specific training sessions in 2004 to help designers, marketing staff, and production and purchasing managers apply the environmental guidelines in our internal product development manual. As part of a competition organized by the French Chambers of Commerce and Industry, Schneider Electric received...

  • Page 61
    ...% Industry Average on a Global Basis Schneider Electric SA Best Company on a Global Basis within Industry Group > For further information, go to: www.schneider-electric.com Group, Sustainable Development > The sustainable development report and French social report may be ordered online from: fr...

  • Page 62
    ... of fully consolidated companies before amortization of goodwill Amortization of goodwill (note 3) Group's share of losses of equity investments (note 6) Net income before minority interests Minority interests Net income (attributable to Schneider Electric SA) Earnings per share (in euros) (note...

  • Page 63
    ...-term investments Long-term pension assets Sub-total III - Net cash (used) / provided by financing activities Increase in long-term debt Reduction of long-term debt (Purchase)/sale of Company shares (Decrease)/increase in other borrowings Common stock issued Dividends paid: Schneider Electric SA...

  • Page 64
    ...Balance Sheet Assets (in millions of euros) Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2002 Current assets Inventories and work in process (note 9) Trade accounts receivable (note 10) Other accounts... notes are an integral part of the consolidated financial statements 13,045.3 13,920.8 13,769.5 62

  • Page 65
    ... Shareholders' Equity (in millions of euros) Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2002 Current liabilities Customer prepayments Trade accounts payable Accrued taxes and payroll costs Deferred tax liabillities (note 12) Other payables and accrued liabilities Short-term liabilities Short-term debt...

  • Page 66
    ... dividends on treasury stock. (5) Of which a negative â,¬ 20.8 million net of tax following a change in accounting method for distributor discounts (see note 1.19 ) and a positive â,¬ 5.5 million on MGE UPS Systems goodwill. The accompanying notes are an integral part of the consolidated financial...

  • Page 67
    ... 31. Note 1 - Accounting Principles 1.1 - Basis of presentation The consolidated financial statements of the Group have been prepared in accordance with French GAAP up until December 31, 2004. In compliance with the European Union's adoption of International Financial Reporting Standards (IFRS) as...

  • Page 68
    ... to identifiable assets of acquired companies are recognized in the balance sheet on the basis of third¬party appraisals. Their value is regularly tested for impairment. Other intangible assets, other than brands, are amortized on a straight-line basis over the periods to be benefited or the period...

  • Page 69
    ... payment terms beyond the general retirement benefit scheme. Accruals are booked to cover the cost of providing healthcare benefits for certain retired employees. The Group also records an obligation for long service awards in its French subsidiaries. 1.15 - Treasury stock Schneider Electric shares...

  • Page 70
    ... the product is shipped and title transferred (standard shipping terms are FOB shipping point). Revenue from service contracts is recorded over the contractual period of service. a) Rebates and discounts The Group offers rebates, calculated as a percentage of sales, to some of its distributors when...

  • Page 71
    ...with Singapore-based CIH Ltd., was accounted for by the equity method as of January 1, 2004 due to CIH's dominating role in managing the company in its first year. Clipsal's Ultra Terminal subsidiaries, acquired from Gerard Industries in December 2003 and located in Australia, New Zealand, India and...

  • Page 72
    ... income attributable to Schneider Electric 10,365.3 1,310.7 12.6% 781.7 (217.1) 564.6 8,780.3 1,007.4 11.5% 623.5 (190.7) 432.8 2 / Pro forma 2004 balance sheet data excluding Clipsal (non-consolidated investment at December 31, 2003), MGE UPS Systems, Kavlico and Andover Controls (in millions of...

  • Page 73
    ....0 3,512.8 Square D Company LK AS AB Wibe Elko AS LE OY Prod Elda SE Thorsman & Co Eljo AB Other Lexel companies Lexel Group Telemecanique MGE UPS TAC Andover Controls Clipsal Crouzet Automatismes Kavlico Positec Merlin Gerin Digital Electronics Federal Pioneer Infra + Mita Holding PDL JV VAS Other...

  • Page 74
    ... were covered by an agreement with the Gerard family. Under this agreement: Clipsal's Ultra Terminal business, retained by Schneider Electric, was valued at â,¬ 445 million (enterprise value). This includes adjustments to the initial acquisition price of â,¬ 11 million. The Non Core Business...

  • Page 75
    ... on the basis of the financial statements at that date. In millions of US dollars Acquisition price Fair value of the assets and liabilities acquired Net assets acquired at July 1, 2004 Fair value adjustments to assets and liabilities acquired Development costs Trademarks Fair value of net assets at...

  • Page 76
    ... Total December 31, 2002 December 31, 2003 December 31, 2004 Main trademarks recognized during the period: 40.4 615.3 158.7 168.4 159.3 259.9 270.7 846.5 2004 Net MGE UPS Clipsal TAC Digital Electronics Andover Controls Security International Other Total 300.0 145.8 93.1 39.1 27.5 5.5 4.3 615...

  • Page 77
    ...Acquisitions Disposals Translation adjustment Changes in scope of consolidation and others December 31, 2004...December 31, 2004 Net value (in millions...150.1 38.8 (80.6) (2,644.1) Land Buildings Plant and equipment 783.5 733.5 725.9 Other Total December 31, 2002 December 31, 2003 December 31, 2004...

  • Page 78
    ... Contingent rentals Less sub-lease rentals Total rental expenses Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year were as follows at December 31, 2004: In 2005 In 2006 In 2007 In 2008 93.6 72.4 52.3 40...

  • Page 79
    ....0% 31.2% 36.1% N/A Clipsal Asia Holdings (1) Elau Administration GmbH (3) Delta Dore Finance VA Tech Schneider HV GmbH (2) Entivity MGE Finances (1) Other Total (1) See Notes 2 and 3. (2) On June 30, 2004, the Group sold its interest in VA Tech Schneider High Voltage GmbH to VA Tech T&D GmbH & Co...

  • Page 80
    ... Balance Sheet (in millions of euros) Dec. 31, 2004 10.0 35.9 45.9 34.2 0.7 4.6 4.8 1.6 45.9 Dec. 31, 2003 9.9 10.5 20.4 8.9 5.8 3.5 2.2 20.4 Non-current assets, net Current assets and cash and equivalents Total assets Shareholders' equity excluding minority interests Minority interests Long-term...

  • Page 81
    ...Cost Reserves Net I - Listed investments Finaxa Gold Peak Industries Holding Ltd Other listed investments Total listed investments II - Unlisted companies Clipsal Australia Holdings Pty Ltd (1) Clipsal Asia Holdings Limited (1) SE Relays LLC Eb@se France (2) Abacus Engineered Systems Comipar SIAP...

  • Page 82
    ... of Legrand shares (1) Receivable on divestment of VA Tech Schneider HV GmbH Loan to Clipsal Australia MGE Finances convertible bonds Restricted cash Advances to non-consolidated companies and other long-term loans Other Other investments (2) 167.9 17.5 35.6 19.6 54.7 295.3 (1) â,¬ 150 million...

  • Page 83
    ... held directly or indirectly through Schneider Electric Industries SAS. 12.1 - Analysis of tax expense for the year (in millions of euros) At Dec. 31, 2004 At Dec. 31, 2003 Current taxes France International Total Deferred taxes France International Total Total tax (expense) benefit (56...

  • Page 84
    12.2 - Effective tax rate (in millions of euros) At Dec. 31, 2004 At Dec. 31, 2003 Net income Tax (expense) benefit Amortization of goodwill Minority interests Net income of companies accounted for by the equity method Income before tax and amortization of goodwill Statutory tax rate Income tax ...

  • Page 85
    ... Equivalents (in millions of euros) At Dec. 31, 2004 355.2 63.9 419.1 At Dec. 31, 2003 2,405.3 65.8 2,471.1 Mutual funds and equivalent Other Short-term investments at cost Schneider Electric shares (intended to stabilize the share price) (1) 87.0 87.0 11.9 544.8 1,062.8 (28.0) (87.0) (1.3) 946...

  • Page 86
    ... Annual Shareholders' Meeting of May 6, 2004, a total of 249,020,002 voting rights were attached to the 231,947,120 shares outstanding (information published in the "BALO" legal gazette dated May 17, 2004). Changes in capital stock The following table shows changes in Schneider Electric SA's capital...

  • Page 87
    ...new Schneider Electric SA shares were created on the exercise of currently vested stock options. On May 6, 2004, the Board of Directors set up stock option plans no. 23 and no. 24: Plan no. 23, granting the prizewinners of the "NEW2004" trophy 107,000 options to subscribe new shares of Company stock...

  • Page 88
    ...shareholders' equity by â,¬ 96.8 million as follows: 2004 United States United Kingdom Denmark China Japan Sweden Other ... The dilutive impact of stock options is determined by calculating the number of shares that could be purchased...companies Earnings per share 5.63 (0.44) (1.50) (0.98) 2.71 2.56 86

  • Page 89
    ... has set up pension, life insurance, lengthof-service award and other post-retirement benefit plans for its employees. These range from plans providing for the payment of a lump sum based on years of service to supplementary pension plans and other multi-employer plans. Payments made under defined...

  • Page 90
    ...) Dec. 31, 2004 Dec. 31, 2003 o / w US plans 4. Change in fair value of plan assets Fair value of plan assets at beginning of year Actual return on plan assets Plan participants' contributions Employer contributions Prior service cost Acquisitions - Disposals Benefits paid Translation adjustment...

  • Page 91
    ...US plans 2004 2003 6.2% 4.1% 9.0% 6.5% 4.1% 9.0% 15.2 - Provisions for other post-retirement benefits The provisions recorded in the consolidated balance sheet in respect of post-retirement health care and life insurance benefits mainly concern employees in the United States and Canada. The North...

  • Page 92
    ... defective products and recalls of clearly identified products. The short-term portion (less than one year) is classified under accrued expenses. In 2004, Square D became aware that one of its AFI Breaker circuit breakers malfunctioned due to a defect in an electronic circuit manufactured by...

  • Page 93
    ... capital leases (Note 6.2) Employee profit-sharing Less current portion (1) Long-term debt Short-term debt consists of the following: (in millions of euros) Dec. 31, 2004 28.0 60.4 80.8 11.3 (1) Dec. 31, 2003 93.3 60.2 53.8 37.0 1,008.7 1,253.0 2,688.3 Bank overdrafts Commercial paper Other short...

  • Page 94
    ...Main borrowings The main Group borrowings, excluding overdrafts and short-term bank loans, are as follows: (in millions of euros) 2004 Interest rate Maturity a) Perpetual bonds Schneider Electric Industries SAS (formerly Merlin Gerin) (1) b) Bonds Schneider Electric SA 2007 Schneider Electric SA...

  • Page 95
    ... its European IT functions (800 employees) and deploy shared management applications. The agreement will be implemented country by country in 2005 and 2006. It did not have any material impact on the financial statements at December 31, 2004. 104.4 40.5 The acquisition price for MGE UPS Systems...

  • Page 96
    .... 20.2 - Interest rate risk 19.4 - Other commitments No provision has been booked in the consolidated balance sheet to cover the possible commitments of Group companies in France in respect of mutual health insurance plans (MESE). The Group chooses to issue fixed- or variable-rate debt instruments...

  • Page 97
    20.5 - Book value and market value of on-balance sheet financial instruments (in millions of euros) December 31, 2004 Book value Market value 197.7 288.1 1,062.8 31.1 (1,257.2) (73.3) (267.4) (9.9) (28.1) December 31, 2003 Book value 369.6 585.4 3,087.5 45.3 (2,151.0) (113.6) (407.0) (16.7) 1,399...

  • Page 98
    ... with related parties (mainly equity affiliates) primarily affect the following accounts: (in millions of euros) Dec. 31, 2004 Dec. 31, 2003 Income statement Sales Cost of sales Other operating income and expense Financial income (expense) Exceptional items Balance sheet Loans (1) Trade...

  • Page 99
    ...businesses that have not been integrated into Schneider Electric's core businesses, i.e., building automation, secured power and sensors and detectors for repetitive machines. Note 23 - Net Financial Expense (in millions of euros) Dec. 31, 2004 36.1 (126.5) 26.0 (64.4) 5.9 3.8 1.1 (12.3) (1.5) (65...

  • Page 100
    ... number of employees Europe North America Asia Pacific Rest of the world 25.2 - Payroll costs (in millions of euros) Dec. 31, 2004 (3,307.6) (72.7) (3,380.3) Dec. 31, 2003 (2,959.4) (38.6) (2,998.0) Payroll costs Profit-sharing and incentive bonuses Total 25.3 - Management compensation In 2004...

  • Page 101
    ... 27 - Consolidated Companies The main companies included in the Schneider Group scope of consolidation are listed below. % interest interest Dec. 31 2004 Dec. 31 2003 EUROPE Fully consolidated Andover Controls GmbH Berger Lahr GmbH Berger Lahr Positec GmbH & Co KG Berger Lahr Services GmbH Crouzet...

  • Page 102
    ... MGE Finances SAS MGE UPS MGE-UPS SYSTEMS SAS Muller & Cie Newlog SAS Normabarre Num SA Prodipact Rectiphase SA2E SAEI SAE Gardy Sarel Appareillage Electrique Scanelec Schneider Automation SA Schneider Electric Industries SAS Schneider Electric SA (parent company) Schneider Electric International...

  • Page 103
    ... Electric Ireland Ltd Schneider Electric Manufacturing Celbridge Square D Company Ireland Ltd Thorsman Ireland Ltd Thorsman Sales Ireland Ltd Crouzet Componenti MGE Italia Num SPA France France France France France France France France France France France France France France France France United...

  • Page 104
    ... Spa Schneider Electric Industrie Italia Spa Schneider Italia Spa Lexel Fabrika SIA Schneider Electric Latvija SIA UAB Schneider Electric Lietuva (ex UAB Lexel Electric) ELKO A/S ESMI A/S Lexel Holding Norway AS Norwesco AS Schneider Electric Norge A/S Wibe Stiger A/S MGE UPS Systemer AS TAC Control...

  • Page 105
    ...00 50.00 Accounted for by the equity method Va Tech Schneider High Voltage GmbH Elau Administration GmbH Delta Dore Finance SA (sub-group) Môre Electric Group A/S Austria Germany France Norway 49.00 20.00 34.00 40.00 20.00 34.00 NORTH AMERICA Fully consolidated Cofimines Overseas Corporation Inde...

  • Page 106
    ...Schneider Electric Holdings Inc. Security International Inc. Square D Company Square D Holdings One. Inc. Square D Investment Company Square D Receivables. LLC SNA Holdings Inc. ST Inverter Americas TAC Americas Inc. Veris Industries LLC USA USA USA USA USA USA USA USA USA USA USA USA USA USA merger...

  • Page 107
    ... Zealand Holdings Ltd (sub-group 1 subsidiary) MGE UPS Philippines Inc. Schneider Electric Philippines Inc Andover Controls Singapore Pty Ltd MGE Asia Pte Ltd MGE Logistics South East Asia pacific Pte Ltd TAC Control Asia Schneider Electric Export Services Schneider Electric Industrial Development...

  • Page 108
    ... D Company Thaïland Ltd Schneider Electric Vietnam Ltd Thailand Thailand Thailand Vietnam 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Accounted for by the equity method IPower Solutions Pty Ltd Clipsal Asia Holding Schneider Electric Engineering Ltd EFI Asia Pacific PTE Ltd Australia...

  • Page 109
    ... by the European Union in regulations 1725 / 2003, 707 / 2004, 2086 / 2004, 2236 / 2004, 2237 / 2004 and 2238 / 2004 and in the Accounting Regulatory Committee's opinion dated December 20, 2004. The options and exemptions applied here are, in most likelihood, those that Schneider Electric will use...

  • Page 110
    ... Ordinary and convertible bonds Perpetual bonds Long term portion of financial debt Deferred taxes Other long term liabilities Total non-current liabilities Current liabilities Customer prepayments Trade accounts payable Accrued taxes and payroll costs Other payable and accrued liabilities Short...

  • Page 111
    ...Closing balance sheet Assets (in millions of euros) Notes Dec. 31, 2004 French GAAP Restatements Dec. 31, 2004 Jan. 1, 2004 IFRS IFRS Non-current assets Goodwill, net Intangible assets Property, plant and equipment Assets held for sale Investments Investments accounted for by the equity method...

  • Page 112
    ... 2004 French GAAP Restatements Dec. 31, 2004 Jan. 1, 2004 IFRS IFRS Shareholder's equity Capital stock ...term portion of financial debt Deferred taxes Other long term liabilities Total non-current liabilities Current liabilities Customer prepayments Trade accounts payable Accrued taxes and payroll...

  • Page 113
    ... of fully consolidated companies before amortization of goodwill Amortization of goodwill Group's share of income/(loss) of equity investments Net income/(loss) before minority interests Minority interests Net income/(loss) (attributable to Schneider Electric SA) Earnings/(loss) per share (in euros...

  • Page 114
    ... activities The Schneider Electric Group currently invests the equivalent of around 5 % of sales in research and development. Of this amount, development costs for new products and comprehensive product upgrades may be capitalized under IAS 38 - Intangible Assets. In 2004, systems were set...

  • Page 115
    ...- Employee Benefits. These methods are described in the 2004 Annual Report (note 15 to the consolidated financial statements). In connection with the changeover to IFRS, the Group has performed a comprehensive review of its obligations towards employees. Some plans, in particular European retirement...

  • Page 116
    ... in 2004) reported under selling expenses have been reclassified as a reduction of sales in the IFRS accounts. 2.3.7 - IFRS 2- Share-Based Payments IFRS 2 applies to stock options granted after November 7, 2002 that do not vest prior to January 1, 2005. The plans concerned are plan 21 dated February...

  • Page 117
    ..., as described in note 20 to the 2004 French GAAP consolidated financial statements. Treasury shares Schneider Electric shares carried in the French GAAP balance sheet under assets will all be reported as a deduction from shareholders' equity in the IFRS balance sheet, in accordance with IAS 32. The...

  • Page 118
    ... of Schneider Electric SA As requested from us in our capacity as Statutory Auditors of Schneider Electric SA, we have audited the accompanying reconciliation tables presenting the impact of the transition to the International Financial Reporting Standards (IFRS) endorsed by the European Union on...

  • Page 119
    ... of the original report in French Year ended December 31, 2004 To the Shareholders of Schneider Electric SA In accordance with the terms of our appointment at the Annual Shareholders' Meeting, we have audited the accompanying consolidated financial statements of Schneider Electric SA and its...

  • Page 120
    Company financial statements 1 Balance Sheet at December 31, 2004 Assets (â,¬ thousands, at December 31) Cost Non-current assets Depreciation amortization, and provisions 2004 Net 2003 Net 2002 Net Intangible assets (note 1a) Intangible rights 27,473.8 3,670.6 288.1 1,710.9 1,918,376.0 175,703...

  • Page 121
    ... 9) Reserves for contingencies Accruals for pensions Total II Liabilities Bonds (note 10) Other borrowings (note 11) Amounts payable to subsidiaries and affiliates Short-term bank loans and overdrafts and other debt (note 11) Accounts payable - trade Accrued taxes and payroll costs (note 12) Other...

  • Page 122
    ... 31, 2004 Expenses (â,¬ thousands) 2004 2003 2002 Operating expenses Purchases and external charges Taxes other than on income Payroll costs Depreciation, amortization and provision expense Other operating expenses and joint-venture losses 6,449.2 1,466.6 2,976.2 4,117.0 148.8 15,157.8 Financial...

  • Page 123
    Revenues (â,¬ thousands) 2004 2003 2002 Operating revenues Sales of services and other 1,254.1 1,254.1 Financial income Dividend income Interest income Other 463,278.8 164,001.7 1,553.7 628,834.2 Non-recurring income Net gains on disposals of fixed assets Provision reversals and expense ...

  • Page 124
    3 Notes to the Financial Statements of Schneider Electric SA (All amounts in thousands of euros unless otherwise specified) Note 1: Non-current assets Non-current assets are stated at cost. Accounting principles The financial statements for the year ended December 31, 2004 have been prepared in ...

  • Page 125
    ...Digital Holdings Co Ltd - Legrand SA - Elau Administration GmbH - Siap 2) Advances to subsidiaries and affiliates: - Schneider Electric Industries SAS - "SCI" non-trading real estate companies 3) Other investment securities: - Schneider Electric SA 4) Other: - Legrand ex-Fimaf/Legrand vendor line of...

  • Page 126
    ... shares in the accounts of Schneider Electric SA and the book value of the two companies' net assets. Equivalent to a fair value adjustment, the difference has been reported on a separate line of the Portfolio Analysis since 1998. b) Carrying value of the Schneider Electric Industries SAS shares...

  • Page 127
    ... Call premiums are being amortized over the life of the bonds. 50,159.1 (291,060.0) 4,049,932.1 Additional paid-in capital at December 31, 2004 breaks down as follows: Premiums on shares issued in connection with stock-for-stock offers Premiums on shares issued for cash Merger premiums (Schneider...

  • Page 128
    ... investments Current assets Accounts receivable - trade Other accounts receivable Marketable securities Prepaid expenses Debt Bonds Other borrowings Amounts payable to subsidiaries and affiliates Short-term bank loans and overdrafts and other debt Accounts payable - trade Accrued taxes and payroll...

  • Page 129
    ... pension benefits to certain active and retired senior executives and managers. The related obligations have been accrued for in the amount of â,¬ 18.8 million. Exchange of Legrand shares As part of its public exchange offer for Legrand SA, Schneider Electric SA made a commitment to exchange shares...

  • Page 130
    ... To the shareholders of Schneider Electric SA In accordance with the terms of our appointment at the Annual Shareholders' Meeting, we hereby submit our report for the year ended December 31, 2004, on: Our examination of the accompanying financial statements of Schneider Electric SA. The basis of our...

  • Page 131
    ... at December 31, 2004 (â,¬ thousands) Number of shares Company Carrying value A. Investments with a carrying value of more than â,¬ 15,000 27,582,141 2,261,217 388,116 225,000 44,271 1,300 5,000 5,000 5,000 5,000 2,494 2,500 3,211,924 Schneider Electric Industries SAS Finaxa Infra + Sovalmo...

  • Page 132
    ... Affiliates (â,¬ thousands) Company Capital Reserves and retained earnings before appropriation of income for the year* % interest I. Subsidiaries and affiliates whose book value exceeds 1% of Schneider Electric SA's capital A. Subsidiaries (at least 50% owned) Schneider Electric Industries SAS...

  • Page 133
    Book value of shares Cost Net Loans and advances Guarantees Net sales for the year Income or loss for the year Dividends received 1,531,981.3 1,531,981.3 - - 3,127,867.6 Holding company Holding company 221,796.1 455,105.3 136,896.2 136,896.2 - - 1,692.4 5,016.1 82,607.9 82,607.9...

  • Page 134
    ... 6 3,975.9 5 4,468.9 3 3,822.5 3 2,213.1 3 2,442.6 Total employee benefits paid over the year (payroll taxes, other benefits) (in thousands of euros) 901.7 914.1 668.3 415.5 533.6 (1) Dividends on shares held in treasury on the dividend payment date and the associated précompte tax are...

  • Page 135
    ....7 million. If these appropriations are approved, the net dividend paid on each of the shares carrying rights to the 2004 dividend will amount to â,¬ 1.80. The dividend will be paid on May 17, 2005. Shareholders should note that France's 2004 Finance Act eliminated the avoir fiscal tax credit and pr...

  • Page 136
    ...to renew the authorization granted to the Company by shareholders at the Annual Meeting of May 6, 2004 to buy back its shares by any appropriate method, including through the use of derivatives, in accordance with the provisions of article L.225-209 of the Commercial Code. The shares could be bought...

  • Page 137
    ...an authorization to issue shares and share equivalents, within the limits set in the above resolutions, in payment for shares in another company tendered in connection with a Public Exchange Offer initiated by Schneider Electric. In accordance with the new measures in the Commercial Code, the shares...

  • Page 138
    ... of Directors to grant shares without consideration to officers and employees of Schneider Electric SA and its subsidiaries and affiliates, as defined in article L.225-197-2 of the Commercial Code. The Board of Directors is seeking this authorization so that it can take advantage of a new method...

  • Page 139
    ... between your Company and Spie Batignolles (renamed Amec Spie SA) covering the administrative and legal management of contract disputes that remained at the level of Schneider Electric SA at the time of the merger. In 2004, Schneider Electric paid Amec Spie SA â,¬ 100,000 (excluding VAT) pursuant to...

  • Page 140
    ... issue share equivalents with or without pre-emptive subscription rights Free translation of the original report in French To the shareholders, In our capacity as Statutory Auditors of Schneider Electric SA and pursuant to Articles L.225-135, L.225129, L.225-129-2 and L.228-92 of the Commercial Code...

  • Page 141
    ...Statutory Auditors of Schneider Electric SA and pursuant to Article L.225-197-1 of the Commercial Code, we present below our report on the proposal to grant existing or new shares without consideration to officers and employees of Schneider Electric SA and its subsidiaries and affiliates, as defined...

  • Page 142
    ... de La Serre as Director for a period of four years expiring at the Annual Shareholders' Meeting to be called in 2009 to approve the 2008 accounts. 140 Total The dividend will amount to â,¬ 1.80 for the 226,194,177 â,¬ 8 par value shares cum dividend January 1, 2004 that were outstanding on...

  • Page 143
    ... the Commercial Code and in accordance with the twentieth resolution submitted to shareholders at Annual Meeting of May 6, 2004. In the case of financial transactions, the Board of Directors may adjust the maximum and minimum number and/or selling price of shares sold pursuant to this authorization...

  • Page 144
    ... is used. To set the maximum discount at which shares may be offered under the Employee Stock Purchase Plan at 15 % of the average of the opening prices quoted for Schneider Electric shares on Euronext Paris over the 20 trading days preceding the date on which the decision is made to launch the...

  • Page 145
    ... Commercial Code: To authorize the Board of Directors to grant to officers and employees of the Company, as defined in article L.225-197-1 of the Commercial Code, and its subsidiaries and affiliates, as defined in article L.225197-2, on one or several occasions, existing or new shares of the Company...

  • Page 146
    ... concerning internal control procedures related to the establishment and processing of accounting and financial information Free translation of the original report in French Year ended December 31, 2004 To the shareholders, In our capacity as Statutory Auditors of Schneider Electric SA (the Company...

  • Page 147

  • Page 148
    Schneider Electric SA Headquarters 43-45, boulevard Franklin-Roosevelt F-92500 Rueil-Malmaison (France) Tel. : +33 (0) 1 41 29 70 00 Fax : +33 (0) 1 41 29 71 00 Internet : www.schneider-electric.com Incorporated in France with issued capital of â,¬ 1,809,553,416 Registered in Nanterre, RCS 542 048...