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Building a New Electric World
2005 Annual Report
Schneider Electric SA

Table of contents

  • Page 1
    Schneider Electric SA 2005 Annual Report Building a New Electric World

  • Page 2

  • Page 3
    ... 67 2 / General Presentation of Schneider Electric SA 1 - General information 2 - Capital 3 - Ownership structure 4 - Employee profit-sharing and share ownership and stock option plans 5 - Stock market data 6 - Investor relations 3 / Corporate Governance 1 - Board of Directors (at December 31, 2005...

  • Page 4
    ... Chairman and Chief Executive Officer of Schneider Electric "New energy and a new outlook for Schneider Electric" Was 2005 a good year for Schneider Electric? Yes, 2005 was a very good year, with revenue up 13%, operating profit up 22%, earnings per share up 22% and our dividend up 25%. These...

  • Page 5
    ... that Jean-Pascal Tricoire, currently Chief Operating Officer and future Chairman, and Pierre Bouchut, Executive Vice-President Finance and Control-Legal Affairs, be appointed to the Management Board. Jean-Pascal has built his entire career here at Schneider Electric and earned broad recognition and...

  • Page 6
    ... invest heavily in these high-potential countries to maximize our market coverage and strengthen our leadership positions. Workforce by region To foster professional development, we have launched three-year competency plans and other programs for all employees and created businessspecific training...

  • Page 7
    ...high level of cash flow. Like profit attributable to equity holders of the parent, operating cash flow surged 21%, representing 13.3% of revenue. After capital spending and changes in working capital requirement, free cash flow stood at â,¬849 million, or 7.3% of sales. 2004 2005 2004 2005 Dividend...

  • Page 8
    ...of the current members of the Board of Directors, and a Management Board, made up of JeanPascal Tricoire, currently Chief Operating Officer of Schneider Electric, and Pierre Bouchut, Executive Vice-President Finance and Control - Legal Affairs. Mr. Tricoire would chair the Management Board (see page...

  • Page 9
    ... Chief Executive Officer Jean-Pascal Tricoire Chief Operating Officer Pierre Bouchut Eric Pilaud Executive Executive ViceVice-President, President Strategic Finance and Control - Deployment Legal Affairs & Services Jean-François Pilliard Executive Vice-President Human Resources and Communication...

  • Page 10
    8

  • Page 11
    ... three worldwide brands - Merlin Gerin, Square D and Telemecanique - powerful local brands and a portfolio of specialist brands, we serve four main markets: Energy & Infrastructure, Industry, Buildings and Residential. A world leader in automation and electricity management, we reported revenue of...

  • Page 12
    ...packaging machines, and BEI Technologies (US), a manufacturer of customized sensors for application positioning and monitoring systems, in 2005. In building automation, Schneider Electric acquired TAC, a Swedish manufacturer of building control and automation systems, in 2003; Andover Controls, a US...

  • Page 13
    ... report has been drafted on products and systems for electrical distribution, ultra terminal distribution, automation and control. We have compiled data on our businesses through formal and informal contacts with industry professionals, especially trade associations. We estimate our market positions...

  • Page 14
    ...sensors for application positioning and monitoring systems acquired in 2005, we offer the most complete lineup in the market. Schneider Electric enjoys leadership positions in angular speed sensors (we rank first worldwide in leading-edge quartz gyro technology), and in position and pressure sensors...

  • Page 15
    ..., shopping centers and data centers in the Buildings market; and water treatment, oil and gas in the Energy & Infrastructure market. Distributors: more than 13,000 sales outlets worldwide Electrical equipment distributors account for around 50% of our total sales and 70% of catalog product sales...

  • Page 16
    ...: products and services Panelbuilders make and sell electrical distribution or control/monitoring switchboards, primarily for the Buildings, Energy and Infrastructure markets. Their main customers are contractors. Panelbuilders mostly buy low and medium voltage devices, such as circuit breakers and...

  • Page 17
    ... in high-growth countries (notably emerging markets and the United States), and developing strongly in energy management, industrial and building automation, ultra terminal distribution and services. 6 The new2 company program: from good to great In January 2005, Schneider Electric introduced...

  • Page 18
    ...new2 Company Program Quality Corporate Divisions Customers & Markets Products & Technology Globalization & Industry Services Operating Divisions Europe North America Asia-Pacific International & Iberian Growth Platform Departments Building Automation and Security Secured Power Sensors for Repetitive...

  • Page 19
    ... as licenses and service contracts related to the outsourced departments. The Bridge project is designed to deploy an SAPbased global ERP core system across the Group. The project's vision and detailed design phases were finalized in July 2005. Core system construction is currently under way, with...

  • Page 20
    ...parks in China, the US, France and Japan. Global support centers have also been established in Mexico, India and China to provide the technical parks with additional skills and development capacity at a very competitive cost. Workforce by region* 7% n n n n 49% 24% Europe North America Asia-Pacific...

  • Page 21
    ... 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 is drawn up for each acquisition and is implemented by an...

  • Page 22
    ... is managed at Group level, based on consolidated debt and according to market conditions. The main goal of interest rate management policies is to optimize Group financing costs. All bond debt is fixed rate. Where long-term variable rate debt is swapped for fixed rate, the swap contracts only...

  • Page 23
    ... Empain-Schneider Group's management of its Belgian subsidiaries. The proceedings began when SPEP (the Group holding company at the time) launched public offers for its Belgian subsidiaries Cofibel and Cofimines in 1993. Certain minority shareholders filed suit. Schneider Electric and subsidiaries...

  • Page 24
    22

  • Page 25
    ...Combined Annual and Extraordinary Shareholders' Meeting of May 12, 2005, the Board of Directors was also authorized to issue new shares to members of the Employee Stock Purchase Plan, within a limit of 5% of the Company's capital stock over 5 years. 23 General Presentation of Schneider Electric SA...

  • Page 26
    3 - At the Combined Annual and Extraordinary Shareholders' Meeting of May 12, 2005, the Board of Directors was authorized to grant existing or new shares of the Company without consideration to employees and corporate offices of the Company and its affiliates under the provisions of article L.225-...

  • Page 27
    ... May 6, 2004. The Annual Shareholders' meeting of May 12, 2005 authorized the Board of Directors to buy back shares. Pursuant to this authorization, the Company purchased 203,071 shares at an average unit price of â,¬57.96 on February 16, 2006. Trading fees paid in 2005 totaled â,¬216,693, of which...

  • Page 28
    ... of the Employee Stock Purchase Plan have an opportunity to purchase new or existing Schneider Electric SA shares through corporate mutual funds. 26 The last employee share issue took place in 2004. As of December 31, 2005, employees held a total of 7,586,325 Schneider Electric SA shares through...

  • Page 29
    ...exercised in 2005 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 300,000 293,000 60.78 72.10 2013 2013 222,300 52.00 (1) - Stock option plan details Plan Date of no...

  • Page 30
    ... 5 Stock market data In France, Schneider Electric is listed on the Eurolist of the Euronext Paris market, 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. Five-year summary of share price performance 2005...

  • Page 31
    ... January February March April May June July August September October November December Total 2005 2006 January February The Schneider Electric SA share vs. the CAC 40 index over 5 years (Thomson Financial data) Schneider Electric share CAC 40 Index 90 75 60 45 30 84.60 75.35 77.70 45.09 54...

  • Page 32
    ...Annual Shareholders' Meeting. In this capacity, Committee members relay certain questions asked via the toll-free number. Shareholder documents In addition to the annual report and a summary report entitled "In Brief", the Company also publishes: A Shareholders' Letter (three times a year). General...

  • Page 33
    ...corporate governance guidelines. 1 Board of Directors (at December 31, 2005) Chairman and Chief Executive Officer Henri Lachmann Age: 67 Professional address: Schneider Electric 43-45 bd Franklin Roosevelt - 92500 Rueil Malmaison, France 4,500 Schneider Electric SA shares First elected: 1996 / Term...

  • Page 34
    Noël Forgeard * Age: 59 Professional address: EADS 37 Boulevard Montmorency - 75016 Paris, France 250 Schneider Electric SA shares First elected: 2005 / Term ends: 2008 (pending approval by shareholders at the 2006 Annual Meeting) an advisor to the Secretary General of the interministerial ...

  • Page 35
    ...of the Supervisory Boards of Société Marseillaise du Crédit and CCF Asset Management; Director of several other CCF subsidiaries; Chairman and Chief Executive officer of Continentale d'Entreprises. James Ross * Age: 67 300 Schneider Electric SA shares First elected: 1997 / Term ends: 2007 Other...

  • Page 36
    ... Foundation for Cancer Research). Serge Weinberg * Age: 55 Professional address: Weinberg Capital Partners 40 rue de la Boëtie, 75008 Paris, France 500 Schneider Electric SA shares First elected: 2005 / Term ends: 2009 Other directorships and functions in French or foreign companies Currently...

  • Page 37
    Cathy Kopp Age: 58 Professional address: Accor 33 Avenue du Maine - 75015 Paris, France 250 Schneider Electric SA shares First elected: 2005 / Term ends: 2009 2 Organizational and operating procedures of the Board of Directors ** The Board of Directors defines the Company's business strategy and ...

  • Page 38
    ... the acquisition of Power Measurement Inc., BEI, Juno Lighting Inc., and ABS EMEA, Invensys' building automation business in Europe and the Middle East. Throughout the year, the Board monitored business performance based on the 2005 budget. It reviewed the Company's financial information policy and...

  • Page 39
    ... reviewing budgets and business plans and placing on record capital increases. Directors and corporate officers hold 0.004% of the Company's capital and 0.006% of the voting rights. Alain Burq has an employment contract with Schneider Electric Industries SAS, through which he receives compensation...

  • Page 40
    ... of senior management. There are no conflicts of interests between any duties to Schneider Electric SA of the members of the Board of Directors and their private interests. In line with these terms of reference, it: Prepares the Board's review of the annual and interim financial statements. In this...

  • Page 41
    .... Obtain assurance that statutory and management accounting data presented to the Board of Directors of Schneider Electric SA and Group senior management present fairly the sales, results of operations and financial position of the Group. No system of internal control designed to fulfill the above...

  • Page 42
    ...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 43
    .... Audits of a number of operating processes (purchasing, supply chain, IT, etc.). Post-acquisition audits for newly acquired companies. Analyses of control self-assessments by the units. d) Finance and Control - Legal Affairs The Finance and Control - Legal Affairs department is actively involved in...

  • Page 44
    ... Vice-President, Finance & Control - Legal Affairs and the Executive Vice-President, Human Resources & Communication) performs a comprehensive review of the activities and results of the Operating and Corporate Divisions four times a year. The review covers the status of the main action plans in the...

  • Page 45
    ... reporting systems have been developed to guarantee the completeness of transaction data recorded in the accounts. Each subsidiary is responsible for implementing procedures providing an adequate level of internal control. Operating Division management teams assist the units in this process...

  • Page 46
    ... The Corporate Management Control and Accounting Department of the Finance & Control - Legal Affairs Department has launched a project to standardize management reporting processes among the various subsidiaries by rolling out an integrated SAP system across the entire Group. Subsidiaries in France...

  • Page 47
    Account closing and verification process a) Consolidating data from operating units The reporting units produce monthly income statements, which are used to determine the Group's monthly operating profit. The consolidated financial statements are produced 16 working days after the annual or half-...

  • Page 48
    ...60,000 by Schneider Electric SA. In 2005, he was paid attendance fees for 2004 of â,¬55,400. Benefits 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 (see above). On...

  • Page 49
    Compensation of Board members: attendance fees, stock options and other compensation Attendance fees At the combined Annual and Extraordinary Shareholders' Meeting of May 12, 2005, the maximum attendance fees payable to Directors were set at â,¬800,000. The Board of Directors decided that the fees ...

  • Page 50
    ... to be deposited at the address indicated in the notice of meeting at least five days prior to the date of the Meeting. The Board of Directors may shorten these deadlines up until the date of the Meeting, which may be held at the Company's head office or at any other location indicated in the notice...

  • Page 51
    ... to retained earnings. To the payment of a dividend. The Annual Meeting may decide to offer shareholders the opportunity to receive the dividend in cash or in the form of new shares of common stock. Dividends not claimed within five years from the date of payment become time-barred and are paid over...

  • Page 52
    50

  • Page 53
    ... innovation and service, supported by a network of more than 2,100 distributors in the US and Canada. Sales for the year ended November 30, 2005 totaled $274 million. As part of Square D, Juno Lighting strengthens our positions in the residential and commercial building and renovation markets in the...

  • Page 54
    ... uninterrupted operation of critical applications. More than 5,000 Schneider Electric team members are involved in installed base support services and high performance services, which represented revenue of around â,¬900 million in 2005, up 14% from the year before. A new Services Department was...

  • Page 55
    ... three-year competency plans in each unit and extended Schneider Electric University's programs by creating new institutes. We also expanded the 360-degree feedback approach to the top 600 managers to enhance their leadership qualities. Relations with schools and universities in Eastern Europe, the...

  • Page 56
    ...2005. On July 29, 2005, Schneider Electric acquired ABS EMEA, Invensys' building automation division in Europe and the Middle East. The company has been fully consolidated since that date. The year's acquisitions added â,¬286.4 million to annual revenue and â,¬40.1 million to annual operating profit...

  • Page 57
    ... main changes in scope during the year being the acquisitions of Power Measurement and Juno Lighting). Automation & Control revenue rose a reported 6.4% to â,¬2,892 million, or 4.6% on a constant structure and currency basis. The Growth Platforms are new activities under development that are managed...

  • Page 58
    ... as â,¬87 million in software investments, primarily as part of the Group's program to deploy a global SAP system. Property, plant and equipment Property, plant and equipment increased by â,¬143 million to â,¬1,607 million. Acquisitions added â,¬99 million, net investments totaled â,¬266 million and...

  • Page 59
    ... in working capital Capital expenditure, net Changes in operating working capital Changes in non-operating working capital Free cash flow Acquisitions (purchase of financial investments, net) Dividends and share buybacks Other Increase in net debt Net debt at December 31, 2005 975.8 (1,500.2) 1,548...

  • Page 60
    ... programs announced in 2005. The year's acquisitions added â,¬25 million to provisions in the balance sheet, while translation adjustments added â,¬28 million and the discounting effect added â,¬5 million. Parent company financial statements Schneider Electric SA posted total portfolio revenues...

  • Page 61
    ... Schneider Electric Foundations in the area of youth opportunities Corporate governance > Make 60% of total purchases from suppliers who support the Global Compact or similar charters > Be included in the four major socially responsible investment index families Overall performance at Dec. 31, 2005...

  • Page 62
    ... to diversity, health and safety, and local development were set up in 2005. ment. In medium voltage, we are doing work on sensors and software to give devices advanced diagnostic functions. Our teams are also designing new electrical distribution products to feed energy from solar power, micro...

  • Page 63
    ... offering information on products that represent more than 50% of our sales by end 2008. In 2005, the Vice President of Schneider Electric France and two National Education officials initiated the development of an eco-design training program to present the various aspects of an environmental policy...

  • Page 64
    ... Employment In 2005, we launched 700 projects to produce closer to customers, reduce the impact of currency fluctuations and locate production and purchasing in the most competitive regions. This global geographic rebalancing led to staff increases in Asia, Australia, Brazil, Eastern Europe and the...

  • Page 65
    ... 24 25 - 34 Line employees Engineers and managers Non-executive staff and technicians Seniority 2003 31.4% 38.2% Number of days of training by category 2004 2005 18.4% 42.0% 19.1% 8.9% 9.0% 27.2% 30.2% 29.6% 2003 2004 2005 29.3% 29.0% 17.2% 12.9% 2.7% < 5 years 5 - 14 years 28.3% 16.0% 11...

  • Page 66
    ... for this purpose, covering sales, marketing and manufacturing operations. In 2005, 62 employees from 32 countries participated in the Felix program, designed to develop young, high-potential team members. Seven sessions to integrate new managers were also held during the year. They were attended by...

  • Page 67
    ...000 sales and marketing staff took part in the Institute's programs during the year. Ethibel Investment Register Schneider Electric was included in the Ethibel Investment Register in 2005. This reference for socially responsible investing is used by a growing number of European banks, fund managers...

  • Page 68
    ... data Free translation of the original report in French To the shareholders, In our capacity as Statutory Auditors of Schneider Electric and as requested, we have reviewed the procedures used to collect the environmental and human resources data (employees and lost days) for 2005 published...

  • Page 69
    ...part of this strategy, we're maintaining a sustained commitment to innovation, with nearly 5% of revenue invested in R&D. We are continuing to deploy R&D capacity in emerging markets - with centers in Shanghai, China, Bangalore, India, and Monterrey, Mexico - while ensuring a strong presence in high...

  • Page 70
    ....3 Revenue Cost of sales Gross profit Research and development expenses Selling, general and administrative expenses Other operating income and expenses Operating profit Finance costs, net Other financial income and expenses Finance costs and other financial income and expense, net Share of profit...

  • Page 71
    ... Sub-total III - Cash flows from financing activities: Issuance of long-term debt (note 17) Repayment of long-term debt Sale/(purchase) of treasury shares (1) Increase/(reduction) in other financial debt Issuance of shares Dividends paid: Schneider Electric SA Minority interests IV - Net effect...

  • Page 72
    ...net Assets held for sale Total tangible and intangible assets Investments in associates Available-for-sale financial assets Other non current financial assets Total non current financial assets Deferred tax assets Total non-current assets Current assets Inventories and work in process Trade accounts...

  • Page 73
    ...1, 2005 * Dec. 31, 2004 Equity Share capital Share premium account Retained earnings and other reserves Translation reserve Equity attributable to equity holders of the parent Minority interests Total equity Long-term provisions Provisions for pensions and other post-employment benefits Provisions...

  • Page 74
    ... 2) - Treasury stock - Currency hedges - Revaluation of available-for-sale financial assets - Metal price hedges - Interest rate swaps - Put option granted to MGE minority shareholders - Translation adjustment January 1, 2005 - IFRS after application of IAS 32/39 Profit for the year Valuation gains...

  • Page 75
    ... financial statements. The consolidated financial statements for the year ended December 31, 2005 were reviewed by the Board of Directors of Schneider Electric on February 15, 2006. They will be submitted to shareholders for approval at the Annual General Meeting of May 3, 2006. The Group's main...

  • Page 76
    ... at the date of acquisition, the negative goodwill is immediately recognized in the income statement. Goodwill is not amortized, but tested for impairment annually (see note 1.10 below). Any impairment losses are recognized under "Other operating income/(expense)". Brands Brands acquired as part of...

  • Page 77
    ... that are largely independent of those cash flows from other assets or groups of assets. At Schneider Electric, CGUs generally correspond to the Operating Divisions (Europe, North America, International and Asia-Pacific). Each of the Growth Platform businesses is also a CGU. Goodwill is allocated...

  • Page 78
    ... and laws, the Group's subsidiaries participate in pension, termination benefit and other long-term benefit plans. Benefits paid under these plans depend on such factors as seniority, compensation levels and payments into mandatory retirement programs. Defined contribution plans Payments made under...

  • Page 79
    ...interest rate. 1.18 - Share-based payment Senior executives and certain employees are granted options to purchase or subscribe Schneider Electric shares. In addition, certain US employees are awarded Stock Appreciation Rights (SARs). IFRS 2 - Share-based payment - applies only to plans set up after...

  • Page 80
    ... the Group compensates vendors for the difference between the distributor's price and the negotiated price. Certain subsidiaries also offer cash discounts to distributors. These discounts are deducted from sales. Total sales are presented net of these discounts and rebates. Service contracts Revenue...

  • Page 81
    ... share price for the year, using the proceeds from the exercise of the rights attached to the options. 1.24 - Statement of Cash Flows The consolidated statement of cash flows has been prepared using the "indirect method", which consists of reconciling net profit to net cash provided by operations...

  • Page 82
    ... companies Companies accounted for by the equity method Sub-total by region Total Acquisitions 80 On April 14, 2005, Schneider Electric acquired all outstanding shares in Canada's Power Measurement Inc., a leader in the design, production and marketing of energy management systems. Power...

  • Page 83
    ... 29, 2005, Schneider Electric acquired ABS EMEA, Invensys' building automation division in Europe and the Middle East. The company has been fully consolidated since the date of acquisition. On August 24, 2005, the Group acquired Juno Lighting Inc, leader in lighting equipment for the North American...

  • Page 84
    ...; NAOD: North American Operating Division ; APOD: Asia-Pacific Operating Division; IIOD: International Operating Division; CSC: Customized Sensors & Controls; BA : Building Automation; SP : Secured Power. (2) Of which â,¬75.4 million related to the put option granted to minority shareholders at Dec...

  • Page 85
    .... The Group has until April 14, 2006 to finalize allocation of the acquisition cost. Juno Lighting Inc. Juno Lighting Inc. was consolidated for the first time as of August 24, 2005. The difference between the cost of the shares and the Company's equity in the 83 Consolidated Financial Statements

  • Page 86
    ... at the end of the financial year, this amount was reduced to â,¬75.4 million. In addition, the price of shares acquired in 2004 was adjusted on the basis of MGE's financial results for the period ended September 30, 2005, in accordance with the earn-out clause in the current shareholders' pact. The...

  • Page 87
    ...trademarks recognized as of December 31, 2005 include: 2005 Net MGE UPS Clipsal Tour Andover Controls Juno Lighting Digital Electronics Kavlico Security International Other Total 300.0 158.0 121.2 96.9 39.3 13.1 6.3 5.9 740.7 2004 Net 300.0 145.8 120.6 39.1 5.5 4.3 615.3 Trademarks are not amortized...

  • Page 88
    ..., 2006, the Group announced the acquisition of all outstanding shares in Clipsal Asia (see note 28 - Subsequent Events). 86 Schneider Electric's interest in Clipsal Asia Holdings was accounted for by the equity method at December 31, 2005 on the basis of provisional unaudited financial statements.

  • Page 89
    ... as follows: Dec. 31, 2005 % interest I - Listed available for sale financial assets AXA (1) Gold Peak Industries Holding Ltd Other listed AFS Total listed AFS II - Unlisted available for sale financial assets SE Relays LLC (2) Eb@se France (3) Abacus Engineered Systems (2) Comipar Legrand Easy Plug...

  • Page 90
    .... Other listed available-for-sale financial investments primarily comprise a diversified portfolio of stocks and bonds. Unlisted investments include Legrand shares worth â,¬10.1 million at December 31, 2005. Acquired under the mechanism for exchanging Schneider Electric shares for Legrand shares set...

  • Page 91
    .... Schneider Electric SA files a consolidated tax return with its French subsidiaries held directly or indirectly through Schneider Electric Industries SAS. 12.1 Analysis of income tax expense for the year 2005 Current taxes France International Total Deferred taxes France International Total Income...

  • Page 92
    ... Note 13 - Cash and cash equivalents Dec. 31, 2005 Mutual funds and equivalent Other Short-term investments Money market instruments and short-term deposits Schneider Electric shares Cash Total cash and cash equivalents Bank overdrafts Treasury shares Other 749.3 5.5 754.8 117.3 511.1 1,383.2 (79...

  • Page 93
    ... shows changes in Schneider Electric SA's share capital and share premium account since December 31, 2004 through the exercise of stock options : Number of shares cumulated Capital at Dec. 31, 2003 Cancellation of shares Worldwide employee stock purchase plan Exercise of stock options Capital at...

  • Page 94
    ... profit for the year. 14.5 - Share-based payment 14.5.1 - Current stock option plans The Board of Directors of Schneider Electric SA has set up stock option plans for senior executives and certain employees. The main features of these plans were as follows at December 31, 2005: Plan no. Date...

  • Page 95
    ...options is conditional on the achievement of annual objectives based on operating margin. In 2005, 425,050 new Schneider Electric SA shares were issued on the exercise of currently vested stock options. 14.5.3 - Valuation of share-based payment In accordance with the accounting principles described...

  • Page 96
    ... benefit obligations The Group has set up various plans for employees covering pensions, termination benefits, healthcare, life insurance and other post-employment benefits, as well as long-term benefit plans for active employees, primarily in France and Australia. Actuarial valuations are generally...

  • Page 97
    ... the Group's North American and European subsidiaries. For the most part, these are defined benefit plans. They feature either a lump-sum payment on the employee's retirement or regular pension payments after retirement. The amount is based on years of service, grade and end-of-career salary. They...

  • Page 98
    ... recognized in the consolidated financial statements can be analyzed as follows: 1. Reconciliation of balance sheet items Pension assets Provisions for pensions and other post-employment benefits Net asset/(liability) recognized in the balance sheet Dec. 31, 2005 o/w US plans 7.0 (607.0) (600.0) Dec...

  • Page 99
    ...-employment and long-term benefits were as follows: 1. Components of net cost reccgnized in the statement of income Service cost Interest cost (impact of discounting) Expected return on plan assets Past service cost Net cost recognized in the statement of income Dec. 31, 2005 6.0 24.6 (8.0) 22.6 Dec...

  • Page 100
    ... in France, Spain and northern Europe (see note 25). Plans that were announced and provided for at December 31, 2004 represent a residual provision of â,¬25 million at December 31, 2005. This amount covers the remaining costs of these plans. Note 17 - Long and short-term debt Non current financial...

  • Page 101
    ... 11, 2005, Schneider Electric SA issued â,¬1.5 billion worth of bonds as part of its EMTN program. The issue comprises a â,¬900 million five-year tranche at 3.125% and a â,¬600 million twelve-year tranche at 4%. These bonds are traded on the Luxembourg stock exchange. 99 Consolidated Financial...

  • Page 102
    ... Group redeemed bonds totaling â,¬49 million in 2003 and â,¬951 million in 2004. 17.4 - Other information At December 31, 2005, Schneider Electric SA had unused confirmed credit lines of â,¬1,038 million. These lines of credit are available for the period. Note 18 - Other non-current liabilities...

  • Page 103
    ... deploy shared management applications using SAP. The agreement is currently being implemented in the subsidiaries. Payments to Capgemini replace the cost of the IT function, which was previously managed internally. Schneider Electric has a ten-year reciprocal agreement with Capgemini. In 2005, the...

  • Page 104
    ...Carrying amount and market value of financial instruments excluding derivatives Dec. 31, 2005 Notional amount (1) Available-for-sale financial assets Other non-current financial assets Marketable securities Bonds Other short and long-term debt Financial instruments excluding derivatives (1) Notional...

  • Page 105
    ... (building automation and security, secured power and sensors for repetitive machines). Details are provided in Chapter 4 of the Annual Report (Business Review). Dec. 31, 2005 Revenue (1) Segment profit (Ebit) Balance sheet Property, plant and equipment and intangible assets Goodwill Working capital...

  • Page 106
    Dec. 31, 2004 Revenue (1) Segment profit (Ebit) Balance sheet Property, plant and equipment and intangible assets Goodwill Working capital requirement Capital employed (2) (1) Based on destination of sales. (2) Based on assets' location. Europe 5,266 672 North America 2,501 314 AsiaPacific 1,828 ...

  • Page 107
    ... expense relating to financial assets (including cash and short-term investments) and debt. 2005 Interest income Interest expense Net gains/(losses) on the sale of marketable securities 2004 Payroll costs (1) Profit sharing and incentive bonuses Stock options Total employee benefits expense (3,485...

  • Page 108
    ...court and the company's shareholders. Lastly, the Group announced the signature of an agreement to acquire AEM SA in Spain on February 2, 2006. AME SA designs, manufactures and sells low voltage electrical distribution equipment and installation systems for the Residential and Buildings markets. 28...

  • Page 109
    ... long-term debt Total non-current financial liabilities Deferred taxes Other non-current liabiilities Total non-current liabilities Current liabilities Trade accounts payable Accrued taxes and payroll costs Short-term provisions Other current liabilities Short-term debt Total current liabilities...

  • Page 110
    ..., net Intangible assets Property, plant and equipment Assets held for sale Total Investments in associates Available-for-sale financial assets Other financial assets Total investments Deferred taxes Other non-current assets Total non-current assets Current assets Inventories and work in process...

  • Page 111
    ...Other long-term debt Total non-current financial liabilities Deferred taxes Other non-current liabilities Total non-current liabilities Current liabilities Trade accounts payable Accrued taxes and payroll costs Short-term provisions Other current liabilities Short-term debt Total current liabilities...

  • Page 112
    ... profit Finance expense, net Profit before tax Exceptional items Income tax expense Profit of continuing operations Amortization of goodwill Group share in income/(loss) of equity investments Net income before minority interests Minority interests Net income (attributable to Schneider Electric SA...

  • Page 113
    ... comply with IAS 1 - Presentation of Financial Statements. The main change concerns items classified as exceptional in the French GAAP accounts, which are reported above the line in the IFRS income statement, in operating revenue or expense. In addition, development costs have been reclassified, as...

  • Page 114
    ... binomial option pricing model. Based on market data at the grant dates, the total stock option expense came to â,¬9 million in 2004. 112 In connection with the transition to IFRS, the Group has performed a comprehensive review of its employee benefit plans. Some plans that were previously...

  • Page 115
    ... methods Application of the control criteria set out in IAS 27 - Consolidated Financial Statements And Accounting For Investments In Subsidiaries - has not led to any change in the companies fully consolidated in the Group accounts, except for consolidation of the special purpose entity that holds...

  • Page 116
    ... - Consolidated companies The main companies included in the Schneider Group scope of consolidation are listed below. % interest % interest Dec. 31, 2005 Dec. 31, 2004 Europe Fully consolidated Andover Controls GmbH Berger Lahr GmbH Berger Lahr Positec GmbH & Co KG Berger Lahr Services GmbH Crouzet...

  • Page 117
    ... Lexel Electric AB Oy Lexel Finland AB Schneider Electric Finland Oy TAC Com Oy Alombard Andover Controls SA Ateliers de Constructions Electriques de Grenoble - ACEG Auxibati SCI BCV Technologies BEI Ideacod SAS BEI Technologies SAS Berger Lahr Positec Sarl Boissière Finance Citef SAS Construction...

  • Page 118
    ... Controls Systems Ltd Schneider Electric (UK) Ltd Schneider Electric Ltd TAC Regional Ltd TAC UK Ltd Thorsman Ltd Walker Mainstay Ltd Westinghouse Systems Yorshire Switchgear Group Ltd MGE UPS Systems Hellas Abe Schneider Electric AE (1) Accounted for by the equity method until May. 31 2005. France...

  • Page 119
    ... Systemer AS TAC Control Systems AS Crouzet BV Polam Holding BV Pro Face HMI (sub-group) Sandas Montage BV Sarel BV Schneider Electric BV Schneider Electric Logistic Centre BV Stago BV Andover Controls Sp Zo.o Elda Eltra S.A. (ex Eltra SA) ELDA Szczecinek SA MGE UPS Systems Polska Sp.z.o.o Schneider...

  • Page 120
    ... Inc. Juno Lighting Ltd Power Measurement Ltd Schneider Canada Inc. MGE Systems Mexico SA de CV Crouzet Automatismo Crouzet Mexique Industrias Electronicas Pacifico SA de CV Schneider Electric Mexico SA de CV Square D Company Mexico SA de CV Abacus Andover Controls Corp (1) Accounted for by...

  • Page 121
    .... Schneider Electric Relay LLC Security International Inc. Sitek Inc Square D Company Square D Holdings One. Inc. Square D Investment Company Square D Receivables. LLC SNA Holdings Inc. ST Inverter Americas Inc TAC Americas Inc. Tour Andover Controls Inc Veris Industries LLC USA USA USA USA USA USA...

  • Page 122
    ... PDL Industries Australia Pty Ltd Power Measurement Ltd Pro Face Australia SE Australia Holding PTY Schneider Electric Australia Pty Ltd TAC Pacific Pty Ltd Team Security Solutions Pty Ltd Techrack Pty Ltd Beijing Merlin Great Wall Computer Room Equipment & Engineering MGE North Asia Shanghaï Pro...

  • Page 123
    ... Holdings Ltd New Zealand MGE UPS Philippines Inc. Philippines Schneider Electric Philippines Inc Philippines Andover Controls Singapore Pty Ltd Singapore MGE Asia Pte Ltd Singapore MGE Logistics South East Asia pacific Pte Ltd Singapore TAC Control Asia Singapore Schneider Electric Export Services...

  • Page 124
    ...31, 2005 Dec. 31, 2004 Schneider Electric Chile SA Schneider de Colombia SA SEP Le Guavio Schneider Centroamerica SA Schneider Electric Distribution Company Schneider Electric Egypt SA Schneider Electric FZE Square D Foreign Sales Corporation LK India Private Ltd Schneider Electric India Private Ltd...

  • Page 125
    ... Current liabilities: Customer prepayments Trade accounts payable Accrued taxes and payroll costs Deferred taxes Other payables and accrued liabilities Short-term liabilities: Short-term debt Total current liabilities Total liabilities and shareholders' equity 123 Consolidated Financial Statements

  • Page 126
    ... investments Long-term pension assets Sub-total Total II 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 127
    ... 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 subsidiaries for the year ended December 31, 2005. These financial statements have been approved by the Board of Directors. Our...

  • Page 128
    6 / Company Financial Statements at December 31, 2005 1 Balance Sheet Assets (â,¬ thousands) Depreciation amortization, Cost and provisions 2005 Net 2004 Net 2003 Net Non-current assets Intangible assets Intangible rights (note 1a) 27,474 (note 1b) (27,474) (206) (510) (28,190) (37,674) (16...

  • Page 129
    ... Net income for the year Untaxed provisions Total equity Provisions for contingencies and pension accruals (note 8) Provisions for contingencies Accruals for pensions Total provisions Non-current liabilities Bonds Other borrowings Amounts payable to subsidiaries and affiliates Short-term bank loans...

  • Page 130
    ... revenues Purchases and external charges Taxes other than on income Payroll costs Depreciation, amortization and provision expense Other operating expenses and joint-venture losses Operating expenses Operating loss Dividend income Interest income Reversals of impairment provisions for long-term...

  • Page 131
    ... the year, the Company bought back Schneider Electric SA shares in an amount of â,¬ 161.0 million. It also acquired ELAU and six companies comprising Invensys' Advanced Building Systems business in Europe and the Middle East for a total of â,¬ 141.8 million. Treasury stock Treasury stock is stated...

  • Page 132
    ... 31, 2005. However, all Schneider Electric SA shares bought back in 2005 for allocation on the exercise of stock options were recognized under "Marketable securities". At December 31, 2005, 2,678,706 Schneider Electric SA shares were recorded under "Other investment securities" at a total cost of...

  • Page 133
    ... in three equal installments over the next three years. Note 4 - Marketable securities Dec. 31, 2004 Number Value of shares Plan 14 Plan 16 Plan 24 Plan 26 Total Schneider Electric SA shares Other Total 931,909 939,683 1,871,592 47,085 39,936 87,021 25 87,046 Acquisitions Disposals Value Value...

  • Page 134
    ... During the year, 425,050 shares were issued on the exercise of 425,050 stock options, increasing the share capital by â,¬ 3.4 million. Schneider Electric SA shares In 2005, Schneider Electric SA bought back own 2,747,887 shares for â,¬ 161.0 million, bringing the total number of shares held in...

  • Page 135
    ... rose to â,¬ 30.7 million from â,¬ 10.4 million at end-2004 following the issue of â,¬ 1.5 billion worth of bonds in 2005. At December 31, 2004, this item also included commercial paper issued on the market by Schneider Electric SA on behalf of the Group in the amount of â,¬ 60 million. Note 11...

  • Page 136
    ... Dec. 31, 2005 Dividends Net interest income Other 337,833 86,148 (1,405) 422,576 Dec. 31, 2004 463,279 95,577 (1,667) 557,189 134 Net financial income The main dividend received by Schneider Electric SA is paid by its subsidiary Schneider Electric Industries SAS. This dividend totaled â,¬ 325...

  • Page 137
    ... Pinglin contract (see notes 3 and 8) and â,¬ 3.8 million for contingencies related to stock option plan 24 (see note 8). Note 16 - Net income tax benefit In 2005, this item included only the income tax benefit for the tax group headed by Schneider Electric SA. The income tax benefit totaled â,¬ 68...

  • Page 138
    ... on the Financial Statements Free translation of the original report in French Year ended December 31, 2005 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...

  • Page 139
    ...31, 2005 (â,¬ thousands) Number of shares Company Carrying value A. Investments with a carrying value of more than â,¬ 15,000 27,582,141 8,816,670 67,400 224,990 2,500 44,271 1,300 5,000 5,000 5,000 2,678,706 Schneider Electric Industries SAS AXA Legrand SAS Sovalmo Schneider Electric TAC France...

  • Page 140
    ... least 50% owned) Schneider Electric Industries SAS 89, boulevard Franklin Roosevelt - 92500 Rueil Malmaison - France Cofibel 18/20, avenue Winston Churchill - 1180 Brussels - Belgium Cofimines 18/20, avenue Winston Churchill - 1180 Brusselss - Belgium Satchwell Control Systems Ltd 94, Farnham Road...

  • Page 141
    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 1,531,981 2,948,439 - 2,997,222 Holding Company Holding Company 582,539 325,469 136,896 136,896 - - 3,367 4,782 82,608 82,608 - - 1,566 ...

  • Page 142
    ...compte equalization tax and tax credit Per Share Data (in euros) Net income before depreciation, amortization and provisions Earnings per share Dividend per share, net of tax credit Employees Average number of employees during the year Total payroll for the year (in thousands of euros) 9,357 5,744...

  • Page 143
    ... who file a joint tax return. We remind you that dividends paid by Schneider Electric SA for the last three years were as follows: Dividend per share 2002 2003 2004 â,¬ 1.0, â,¬ 1.1, â,¬ 1.8, Tax credit â,¬ 0.5 (1) â,¬ 0.1 (2) â,¬ 0.55 (1) â,¬ 0.11 (2) - Total revenue â,¬ 1.5 â,¬ 1.1 â,¬ 1.65...

  • Page 144
    ...Bouchut, currently Executive Vice-President, Finance and Control - Legal Affairs. We think that, considering the proposed membership of the Supervisory Board and Management Board, this represents the best governance structure to achieve a seamless transfer of powers to a new Chairman and support the...

  • Page 145
    ... the Board of Directors to grant stock options to certain employees and officers of Schneider Electric SA and its subsidiaries and affiliates, as defined in article L.225-180 of the Commercial Code. Under the terms of the authorization, the total number of options outstanding at any time could...

  • Page 146
    ... shares without consideration to officers and employees of the Company and its subsidiaries and affiliates - twenty-sixth resolution The General Meeting held on May 12, 2005 authorized the Board of Directors to grant shares without consideration to the officers and employees Schneider Electric SA...

  • Page 147
    ...27, 2002, May 16, 2003 and May 6, 2004. The Annual Shareholders' Meeting of May 12, 2005 authorized the Board of Directors to buy back shares on the open market. Pursuant to this authorization, the Company purchased 203,071 shares at an average unit price of â,¬ 57.96 on February 28, 2006. The 2,747...

  • Page 148
    ... Board of Directors given on June 27, 1995, a management agreement was signed 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 2005...

  • Page 149
    ... 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 in Article L.225-197-2. The Board of Directors is seeking authorization for the Management Board - or, if...

  • Page 150
    ... the issue(s). The Management Board - or, if the seventh resolution of this Meeting is not adopted, the Board of Directors - will set the terms and conditions of the employee share issue. The Board of Directors is responsible for reporting to shareholders on the proposed employee share issue in...

  • Page 151
    ...by the competent management body concerning this operation and the method used to determine the share issue price. We have no matters to report concerning the method for determining the issue price as described in the Report of the Board of Directors, contingent upon our final review of the terms of...

  • Page 152
    ...stock option plans, or plans to grant shares without consideration, or to permit the conversion of convertible debt securities, or to finance an acquisition, or for the purpose of market making under a liquidity agreement. Fourth resolution (Appropriation of profit and dividend payment) The General...

  • Page 153
    ... of lots at a Board meeting. The terms of office of Supervisory Board members shall expire at the close of the Annual Shareholders' Meeting called to approve the financial statements of the previous year and held during the year in which said terms are due to expire. The age limit for membership of...

  • Page 154
    ... the Company and employees and officers of related companies, as well as the granting of stock options or bonus shares to members of the Company's Management Board. Amendments to the Company's bylaws to be recommended to the Extraordinary Shareholders' Meeting. Profit appropriation and dividends to...

  • Page 155
    ... Board shall appoint new members in accordance with the law. In addition, provided the overall limit on the number of members is not exceeded, the Supervisory Board may appoint one or two additional members during the term of office of the Management Board. The age limit for Management Board...

  • Page 156
    ... of the Supervisory Board in his capacity as a member of the Supervisory Board of a corporate mutual fund invested in Schneider Electric SA shares, for a period of two years, expiring at the close of the Annual Shareholders' Meeting to be called in 2008 to approve the 2007 financial statements. 154

  • Page 157
    ... member of the Supervisory Board for a period of four years, expiring at the close of the Annual Shareholders' Meeting to be called in 2010 to approve the 2009 financial statements. Seventeenth resolution (Election of James Ross as a member of the Supervisory Board) The General Meeting, acting with...

  • Page 158
    ... to subscribe new Schneider Electric SA shares or to purchase existing Schneider Electric SA shares acquired by the Company in accordance with the law. This authorization is subject to the following conditions: - The option exercise price may not be less than the average of the prices quoted for the...

  • Page 159
    ... Savings Plan at 15% of the average of the opening prices quoted for Schneider Electric shares on Euronext Paris over the twenty trading days preceding the date on which the decision is made to launch the employee share issue. However, the General Meeting specifically authorizes the Management Board...

  • Page 160
    ... of a stock purchase plan set up for employees of the Schneider Electric Group. 3 - That the issue price of shares issued under this resolution will be set by the Management Board - or, if the seventh resolution of this Meeting is not adopted, the Board of Directors - based on the price quoted for...

  • Page 161
    ...Commerce) and concerning internal control procedures related to the establishment and processing of accounting and financial information Free translation of the original report in French To the shareholders, In our capacity as Statutory Auditors of Schneider Electric SA (the Company) and as required...

  • Page 162
    160

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    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,¬1 812 953 816 Registered in Nanterre, RCS 542 048 ...