2006 annual report Registration document Schneider Electric SA

2006 annual report Registration document Schneider Electric SA
Schneider Electric SA
2006 annual
report
Registration document
Building a New Electric World
Contents
4
Profile
Interview with the Chairmen
Key figures
2006 in brief
New governance structure
3
4
8
11
12
1
15
16
17
18
19
22
24
26
28
2
33
38
39
40
42
43
43
44
50
54
55
55
Consolidated financial
statements at December 31, 2006
1 - Consolidated statement of income
96
2 - Consolidated statement of cash flows
97
3 - Consolidated balance sheet
98
4 - Consolidated statement of changes in equity
and minority interests
100
5 - Notes to the consolidated financial
statements
101
6 - Report of the Statutory Auditors on
the consolidated financial statements
152
Company financial statements
at December 31, 2006
1 - Balance sheet
2 - Statement of income
3 - Notes to the financial statements of
Schneider Electric SA
4 - Auditors' report on the financial statements
5 - List of securities at December 31, 2006
6 - Subsidiaries and affiliates
7 - Five-year financial summary
General presentation
of Schneider Electric SA
57
57
59
60
62
64
154
156
157
164
165
166
168
7
Unaudited pro forma information
related to the 2006 consolidated
financial statements
1 - Presentation
2 - Pro forma financial statements
3 - Comparison of Schneider Electric
and APC accounting principles
4 - Auditors' report on the pro forma financial
statements
3
1 - General information
2 - Capital
3 - Ownership structure
4 - Employee profit sharing, stock ownership,
stock option and stock grant plans
5 - Stock market data
6 - Investor relations
65
67
70
73
93
94
6
Corporate governance
1 - Supervisory Board
2 - Organizational and operating procedures
of the Supervisory Board
3 - Board of Directors' meetings in 2006 and
early 2007
4 - Committees of the Supervisory Board
5 - Management Board members
6 - Organizational and operating procedures
of the Management Board
7 - Declarations concerning the situation
of the members of the Supervisory Board
and Management Board
8 - Internal control
9 - Management interests and compensation
10 - Regulated agreements
11 - Auditors
12 - Shareholders' rights and obligations
1 - 2006 highlights
2 - Operating performance
3 - Change in financial situation
4 - Sustainable development
5 - Outlook for 2007
6 - Auditors' report on profit forecasts
5
Description of the company
and its businesses
1 - From steel to electricity: 170 years of history
2 - An ambitious strategy of profitable growth
3 - The new2 company program
4 - Major prospects in four main markets
5 - Forefront positions worldwide
6 - Our customers are our partners
7 - A global organization with local roots
8 - Human resources
9 - Risk factors
Business Review
169
170
172
174
8
Annual and Extraordinary
Shareholders' Meeting of April 26, 2007
1 - Management Board’s report to the Annual
and Extraordinary Shareholders' Meeting
2 - Auditors’ special reports
3 – Resolutions
175
180
185
Attestation
192
This document was registered with Autorité des Marchés Financiers (AMF) under number
D 07-223 on March 26, 2007 in compliance with Article 212-13 of AMF’s general regulations.
It may not be used in connection with any financial transactions unless it is accompanied by an
Offering Circular approved by AMF.
1
2
Profile
The world leader in electricity and automation management,
Schneider Electric harnesses electricity to support customer
performance and enhance quality of life. Thanks to a unique
portfolio of products and services, Schneider Electric offers
integrated, intelligent and networked solutions that allow customers
to use electricity in complete safety, put automation everywhere,
improve energy efficiency, ensure a high quality power supply and
manage building utilities and communication networks.
By leveraging the deep commitment of its 105,000 team members
in 106 countries, Schneider Electric gives the best of the New Electric
World to everyone, everywhere, at any time.
The Company’s shares are traded on Eurolist by Euronext™ Paris.
A signatory of the United Nations’ Global Compact, Schneider Electric has made
sustainable development an integral part of its strategy.
€13.7 billion €1.3 billion 14.6%
revenue
from 190 countries
105,000
employees
in 106 countries
net profit
operating margin
5%
Close to
consolidated revenue
invested in R&D
205
plants worldwide to
serve customers locally
3
Interview with
Jean-Pascal Tricoire
Chairman of the Management Board
and Chief Executive Officer
We are one of the only companies in the world with
such a broad and deep portfolio of integrated
solutions and a tight focus on electricity. What’s more,
we benefit from truly global geographic coverage. We
sell our solutions in 190 countries, including in
emerging markets where we are constantly
strengthening our presence.
Lastly, innovation is a major growth driver at
Schneider Electric. Each year, we devote close to 5%
of total revenue to R&D. In the past year, sales of
products from our 40 major innovation programs
increased by more than 50%.
What are you doing to become more efficient?
We’ve made quality and customer satisfaction our
number one priority, and we’re developing ambitious,
innovative programs to meet this priority. At the
same time, we’re engaged on four paths to greater
efficiency. First, we’re moving closer to our customers
by rebalancing our manufacturing and supply chain
base, so that we can be more competitive and
provide quality service.
Second, we’re simplifying our organization to be
more nimble and proactive. Third, we’re rationalizing
our supply chain. And fourth, we’re stepping up our
industrial productivity programs. In all, we achieved
productivity gains of more than €300 million in both
2005 and 2006. This is considerable–and
indispensable given the heavy impact of higher raw
material costs.
How are you supporting your fast pace
of growth on the human resources front?
The Company turned in a record-breaking
performance in 2006, with net profit exceeding
€1 billion for the first time ever. Was this
a historic year for Schneider Electric?
Yes, Schneider Electric beat all past records with
organic revenue growth of 10.7%. Backed by a
favorable environment, we advanced in all our
markets and all our businesses at a much faster pace
than the world economy, gaining market share along
the way.
Operating margin widened again, by one point to
14.6%. Despite higher raw material prices and the
strong euro’s negative impact on our costs, operating
profit has doubled since 2003 to €2 billion.
These results demonstrate the dynamics of our
business and our efficient business model. Two years
into our new2 company program, we are already
ahead of the target.
What’s fueled this acceleration?
To start, a growing number of customers are turning
to us to meet their needs for comfort, productivity,
safety and energy efficiency. Second, we have
exceptionally energetic teams, who are making
growth happen. Third, we’ve expanded our lineup of
products and services and developed new
businesses that allow us to offer even more
comprehensive solutions.
4
We spend a great deal of time thinking about
the competencies we’ll be needing in the future.
We’ve hired a large number of people and increased
the resources we invest in training to adapt to
changes in technology, our geographic presence
and our businesses.
We’re also investing in the commitment of
our 105,000 team members in 106 countries.
Their involvement is what makes the difference.
To strengthen this competitive advantage, we’re
giving them a better understanding of our
environment and challenges, bringing them into
closer contact with management and developing
our profit sharing programs.
Lastly, we’re cultivating and enhancing diversity
in preparation for our very fast expansion into a
growing number of regions and activities. That said,
we still have a long way to go to bring in more
women throughout the Company, and particularly
at the executive management level. I am personally
involved in these efforts.
Schneider Electric has a long-standing
tradition of corporate responsibility.
What progress have you made in this area?
We’ve made good progress on eight of the ten
objectives set out in our Planet & Society Barometer.
First of all, I’m proud that we significantly improved
occupational health and safety in 2006.
We have set ambitious sustainable development
targets. Virtually all of our manufacturing and logistics
sites are certified ISO 14001, and our products
comply with the RoHS Directive. We’re also satisfied
with the results of our own program to save energy
at our production sites–it gives a good example
of what we can do for customers in this area.
We’re also as involved as ever in programs to train
young people and help them in the workforce.
Lastly, we lend support to people in disaster-stricken
areas, in cooperation with our deeply engaged local
teams. In 2006, less than two years after the tsunami,
more than 800 Indonesian and 600 Thai schoolchildren
went back to school in four of the twelve
establishments that we helped build and equip.
Let’s go back to your businesses. How is
demand changing? Do you think it will stay
this strong in the future?
We’re at the center of the markets of the future.
We serve fundamentally buoyant markets with
long-term promise. The world has huge electrification
needs, whether for renovating grids in mature
countries or developing them in emerging countries.
At the same time, automation is showing up
everywhere–in plants, offices, homes and even cars.
Demand for energy savings is booming as fossil fuel
prices soar and people the world over take welcome
notice of the need to eliminate polluting emissions
caused by excessive consumption.
Lastly, demand for ultra-pure and ultra-secure power
is growing. The quality of electric power has become
an absolutely critical factor in numerous high-growth
industries, including electronics, information
technology, Internet services and healthcare, just as
blackouts are becoming a more frequent occurrence.
Schneider Electric has the solutions to keep these
applications up and running even when the grid
goes down.
How do the Company’s acquisitions fit into
this picture?
They allow us to offer much more comprehensive
solutions by adding new activities to our lineup.
We can now deliver integrated solutions to save
energy, automate buildings and infrastructure and
provide uninterrupted power for critical systems.
Through these acquisitions, we’re also participating
in the consolidation of an industry that is still quite
fragmented at the global level. We’re able to do this
because of the financing power generated by our
carefully managed existing operations.
A growing number
of customers are
turning to us to meet
their needs for
comfort, productivity,
safety and energy
efficiency.
Jean-Pascal Tricoire
5
We have fantastic growth
potential and a unique
business model that offers
both great resilience
and high performance.
Jean-Pascal Tricoire
APC is by far the largest acquisition
of the past few years. What is its status?
APC is now part of Schneider Electric.
It is the global leader in integrated critical power
and cooling systems, with 2006 revenue of close to
$2.4 billion–a 20% increase from 2005.
This transaction gives Schneider Electric world
leadership in one of the fastest growing areas of
electrical distribution. The acquisition was finalized
on February 14, 2007. We’ve created a critical power
and cooling services business unit that combines
APC’s resources with those of Schneider Electric
subsidiary MGE UPS Systems. Their people have
been brought together under a single management
team.
We confirm our synergy target of $220 million.
If we meet this target–and we fully intend to do so–
the value created will total $3.3 billion or €11.4 per
Schneider Electric share.
You’re now half-way through new2,
the company program for 2005-2008.
How do things look for the second half?
Things look very good. Our business backlog
and very solid outlook have led us to revise our
2008 targets upwards.
We’re now aiming for organic growth of more than
6% instead of 5%, which is twice the global economic
growth estimate of 3%. And we’re raising our EBITA*
margin forecast to 13%-15% from 12.5%-14.5%.
This includes APC, which for the moment has a
much lower margin than Schneider Electric.
We also think we can repeat our performance of
the past two years and improve return on capital
employed (ROCE)** by another two points from
a base that includes the APC acquisition.
We have fantastic growth potential and a unique
business model that offers both great resilience and
high performance. Our strengths are clear, and we
are determined to develop them to generate wealth
for all of our stakeholders.
We’re also investing in the commitment of our
105,000 team members in 106 countries.
Their involvement is what makes the difference.
*EBITA: operating profit before amortization of purchase
accounting intangibles.
**ROCE: After-tax operating profit before amortization
of purchase accounting intangibles/Capital employed
= Shareholders’ equity + Net debt + Provisions.
6
Three questions for
Henri Lachmann
What role does the Supervisory Board play
in major acquisitions such as APC?
Over the past two years, Schneider Electric
has acquired some twenty companies for a total
€2.3 billion. The Supervisory Board, and the Board
of Directors before it, has been extremely active
and vigilant during all these transactions.
Chairman of the Supervisory Board
In May 2006, Schneider Electric moved to
a new governance system with a Management
Board and a Supervisory Board of which you
are Chairman. Are you satisfied with this
organization?
We started organizing my succession with the Board
of Directors quite some time ago, and we wanted to
separate the oversight functions from responsibility
for operation and execution. This separation is a
guarantee of transparency and discipline.
The corporate governance system rolled out in
the spring of 2006 after three years of preparation is
working remarkably well and fully deserves our
shareholders’ confidence and support.
The Supervisory Board comprises nine independent
members, of whom five are from industry and services
and four from finance and insurance. In all, five
different nationalities are represented. The members
bring a remarkable set of competencies to the Board.
They are all very involved in its operations and work
very effectively as a team.
The Management Board and its broadly international
Executive Committee are young, yet seasoned,
with high ambitions for the Company and very
complementary strengths. They have generated new
energy, a new dynamic and efficiency that is very
promising for the years ahead.
First of all, the Supervisory Board must approve
all acquisitions, partnerships or joint ventures worth
more than €250 million. What’s more, we have very
strict methodologies and rules for selecting and
analyzing potential targets, as well as for return on
investment and value creation. The Supervisory
Board pays close attention to ensure that each
acquisition is integrated smoothly and carefully
tracks the business plan approved at the time of
acquisition.
We were twice as attentive for a structuring
acquisition as large and important as APC, as the
Management Board can attest. During three specific
meetings, we conducted an in-depth review of all
the aspects of this transaction and unanimously
agreed on its advantages, price and terms.
As part of Schneider Electric, APC will benefit
from synergistic know-how, broader market access,
our customer presence and economies of scale.
This should rapidly translate into improved margins.
UPS systems are an integral part of electrical
distribution and the addition of APC will energize
this business.
So you think Schneider Electric is an
attractive investment?
I certainly do. Schneider Electric has offered its
shareholders a total return of 24% a year on average
over the past three years, based on the December
31, 2006 share price.
In 2006, the Schneider Electric share rose by 12%.
We are confident in our ability to keep delivering
a very attractive return on our shareholders’
investment.
The Supervisory Board is
extremely active and vigilant. Its
members bring a remarkable set of
competencies to the Board and are
all very involved in its operations.
Henri Lachmann
7
Key Figures
Record performance
in 2006
2004-2006: IFRS
2002-2003: French GAAP
Consolidated
revenue
Operating
profit
(€ billion)
(€ million and as
a % of revenue)
13.7
2006 consolidated
revenue by region
2,001
14.6%
11.7
1,565
13.4%
10.3
9.1
1,040 1,007
11.5%
8%
18%
1,286
8.8
Emerging
markets*
31%
12.4%
47%
11.5%
27%
02
03
04
05
06
02
03
04
05
06
Europe
North America
Asia-Pacific
Rest of the World
* Asia-Pacific, Rest of the World, Eastern Europe.
up 17.6%
up 27.8%
After two years of strong expansion,
organic growth reached a record
10.7%. This performance reflects,
in particular, the Group's growing
presence in high-growth emerging
countries and investments in
promising new activities such as
services and energy management.
The year's acquisitions added 6.9%,
while the currency effect had
virtually no impact.
Operating profit rose sharply again
in 2006, growing 21% on a constant
structure and exchange rate basis.
This performance reflects a strong
volume effect, the Group’s ability
to raise prices, productivity gains
and good base cost management.
Operating margin widened by
1.2 points from the previous year
to a record 14.6%. All regions and
operations showed a significant
increase in operating profit.
Workforce by region
105,000 employees
7%
22%
46%
25%
€13.7
€2,001
billion in consolidated
revenue
million in
operating profit
8
Europe
North America
Asia-Pacific
Rest of the World
2006: a historic year for Schneider Electric
In 2006, Schneider Electric actively pursued its strategy to increase
its growth potential. Thanks to action plans deployed as part of the new2
company program, the Group energetically repositioned itself towards
emerging markets and in new activities, with a focus on technological
innovation. This new dynamic resulted in strong revenue growth, which,
combined with stepped-up efficiency plans, led through to significantly
higher profits and an attractive return on investment for shareholders.
Profit attributable
to equity holders
of the parent
(€ million)
Operating
cash flow
Return on
capital employed
(€ million and as
a % of revenue)
1,921
1,309
(in %)
14.0%
1,548
11.7 %
13.3%
994
1,282
422
433
02
03
04
9.7%
12.4%
824
05
06
968
942
10.7%
10.7%
02
03
04
05
06
04
10.5 %
05
06
up 32%
up 24%
up 1.2 pt
Profit attributable to equity holders
of the parent increased by a strong
32%, reflecting good interest expense
management during a sharp increase
in net debt and a 0.6-point decrease
in the effective tax rate to 28.5% from
29.1%. Earnings per share rose 31%,
in tandem with attributable profit,
to €5.95.
Operating cash flow totaled
€1,921 million and represented
14.0% of revenue. After changes in
working capital and net investment,
free cash flow rose 30% to
€1,107 million.
Return on capital employed
increased by 1.2 points to 11.7%
thanks to tight control over capital
employed, which rose by only 15%
during a period of strong business
and earnings growth.
€1,309
€1,921
€1,107
million in net profit
attributable to equity holders
of the parent
million in
operating cash flow
million in free cash flow
9
Key Figures
(continued)
Earnings per share
Dividend per share
Ownership structure
(in euros)
(in euros)
at December 31, 2006
5.95
3.00*
4.42%
4.56
2.25
3.73
1.85
3.09%
3.02%
1.80
1.00
1.94
1.10
89.47%
02
03
04
05
06
02
03
04
06
05
€5.95
€3.00
up 31%
up 33%
*
in earnings per share
Caisse des Dépôts et Consignations
Employees
Treasury stock – Schneider Electric
shares held via Cofibel/Cofimines
Public
dividend
* Recommended for shareholder
approval at the Annual Meeting of
April 26, 2007. The dividend will be paid
as from May 2, 2007.
The Schneider Electric SA share vs. the CAC 40 index
over 5 years
(Thomson Financial data)
Schneider Electric
share
CAC 40
Index
100
97.05
80
75.35
84.10
6,000
60 54.00
51.90
5,000
51.20
45.09
4,000
40
3,000
2,000
20
Dec. 31,
2001
Dec. 31,
2002
n Share price in euros
10
Dec. 31,
2003
Schneider Electric share
Dec. 31,
2004
Dec. 31,
2005
Dec. 31, Feb. 22,
2006
2007
CAC 40 index (base: Schneider Electric
on December 31, 2001)
2006 In Brief
Schneider Electric has set up a Supervisory Board, chaired by
Henri Lachmann, and a Management Board, chaired by Jean-Pascal Tricoire,
to clearly separate the Company’s management and oversight functions.
In 2006, the three strategic priorities of Growth, Efficiency and People were
given tangible meaning through numerous initiatives and projects.
Growth
Efficiency
Electrical distribution: new
developments in China
New customer-focused organization
Medium voltage: announcement of a 70%-30%
joint venture called SSBEA to produce vacuum circuit
breakers and launch of a 40% interest in SBVE,
a vacuum switch manufacturer.
Low voltage: announcement of a 50-50 joint
venture with Delixi Group called Delixi Electric to
market a specific range of low voltage products in
China through a dedicated network.
Installation systems and control:
stepped-up growth with five acquisitions
Clipsal Asia.
OVA Bargellini (Italy).
AEM SA (Spain).
Merten (Germany).
GET Group plc (United Kingdom).
8 Business Units.
4 Central Functions, including a new Strategy,
Customers & Technology function.
4 Operating Divisions.
Strengthened innovation resources
New Innovation Department.
Inauguration of Electropole in France,
the leading global design and development center
for power protection and control.
Launch of the HOMES project, supported by
France’s Industrial Innovation Agency (AII),
with the goal of reducing energy use in building
by 20%.
90.6% of manufacturing and
logistics sites certified ISO 14001
18 new certifications in 2006.
Building automation: enhanced
presence in North America and Asia
Acquisition of Invensys Building Systems (IBS).
People
Automation & Control: two acquisitions
An expanded mission for
Schneider Electric University
Citect, an Australian manufacturer of Supervision
Control and Data Acquisition (SCADA) solutions
and Manufacturing Execution Systems (MES).
Va Tech Elin EBG Elektronik, an Austrian company
that develops and manufactures high-power speed
drive products and solutions.
A major move in critical power
Friendly offer to purchase all outstanding shares
of American Power Conversion (APC), the global
market leader. The offer was finalized on February 14,
2007.
Training on customer focus, innovation and
entrepreneurial spirit offered by new expertise
institutes.
Workplace health and safety
A health policy deployed across the entire Group.
Support for 205 associations
in 69 countries
The 2006 Luli international fund-raising drive
brought in €1.4 million for association-backed
projects in the areas of education and training.
Award
2006 Award for Competitive Strategy Leadership
from Frost & Sullivan, a global growth consulting
company.
11
New
governance
structure
Supervisory Board
as of February 20, 2007
Henri Lachmann
68, French
Chairman of
the Supervisory Board
Serge Weinberg*
56, French
Vice Chairman, Chairman
of the Supervisory Board
of Accor
Alain Burq
53, French
Member of
the Supervisory Board of
the "Schneider Actionnariat"
corporate mutual fund
Noël Forgeard*
60, French
Corporate Director
The new corporate
governance system is wellsuited to the challenges facing
Schneider Electric today.
Comprising a Supervisory
Board and a Management
Board, supported by
an Executive Committee,
this system offers an efficient
and synergistic division of
oversight and management
responsibilities.
2
12
Jérôme Gallot*
47, French
Chairman of CDC Entreprises
Willy. R. Kissling*
62, Swiss
Corporate Director
Cathy Kopp*
59, French
Human Resources
General Manager, Accor
René Barbier de La Serre*
66, French
Corporate Director
Gérard de La Martinière*
63, French
Chairman of Fédération
Française des Sociétés
d'Assurances (F.F.S.A)
Chris Richardson
62, American
Former Executive
Vice President of
Schneider Electric's North
American Division
James Ross*
68, British
Chairman of the Leadership
Foundation for Higher
Education, Corporate Director
Piero Sierra*
72, Italian
Special Advisor for
the administration of Pirelli's
international companies
* Independent director, as defined
in the Bouton report on corporate
governance.
Non-voting Director
Claude Bébéar
Chairman of the
Supervisory Board of AXA
Board Secretary
Philippe Bougon
3
4
5
6
7
Audit Committee
Management Board
as of February 20, 2007
Gérard de la Martinière*, Chairman
Jean-Pascal Tricoire, Chairman of the Management Board and CEO
James Ross*
Pierre Bouchut, Member of the Management Board
Piero Sierra*
Serge Weinberg*
Executive Committee
as of February 20, 2007
Remunerations and
Appointments & Corporate
Governance Committee
Henri Lachmann, Chairman
Claude Bébéar
Willy Kissling*
René Barbier de La Serre*
01 Jean-Pascal Tricoire
08 Michel Crochon
Chairman of the Management
Board and Chief Executive Officer
Executive Vice President
Automation Business Unit
02 Eric Rondolat
09 Arne Frank
Executive Vice President
Power Business Unit
Executive Vice President
Building Automation Business Unit
03 Laurent Vernerey
10 Russell Stocker
Executive Vice President
Critical Power & Cooling Services
Business Unit
Executive Vice President
Asia-Pacific Operating Division
04 Claude Graff
Executive Vice President
Renewable Energies Business Unit
Auditors
05 Dave Petratis
Statutory Auditors
Ernst & Young et Autres
Executive Vice President
North American Operating Division
Mazars & Guérard
06 Jean-François Pilliard
Substitute Auditors
Executive Vice President
Human Resources and Managerial
Communication
Charles Vincensini
07 Hal Grant
Philippe Diu
Executive Vice President
Globalization & Industry
8
11 Pierre Bouchut
Member of the Management Board
Chief Financial Officer
12 Christian Wiest
Executive Vice President
European Operating Division
13 Julio Rodriguez
Executive Vice President
International & Iberian Operating
Division
14 Eric Pilaud
Executive Vice President
Strategy, Customers & Technology,
Executive Vice President Services
and Projects Business Unit
14
1
9
10
11
12
13
13
14
1
1
Description of
the company and
its businesses
1. From steel to electricity:
170 years of history . . . . . . . . . . . . . . . . . p. 15
5. Forefront positions worldwide . . . . . . . . . p. 19
2. An ambitious strategy of
profitable growth . . . . . . . . . . . . . . . . . . . . p. 16
7. A global organization with local roots . . . . p. 24
3. The new2 company program . . . . . . . . . . p. 17
4. Major prospects in four main markets . . . p. 18
1.
From steel to electricity:
170 years of history
Schneider Electric’s history is a rich tapestry woven
from the achievements of Schneider, Merlin Gerin and
Telemecanique in France, Square D in the United
States, and many other companies that have joined
the Group around the world. All are fully devoted to
controlling and optimizing electricity and automation
management to build the new electric world. Each
strengthens the Group with its market positions and
know-how, as well as with its people’s skills and diversity. Openness and diversity are at the center of the
Schneider Electric model as the Group works to develop and promote high-quality multicultural teams
around the world.
1836 – 1980: the gradual
creation of a conglomerate
In 1836, Adolphe and Joseph-Eugène Schneider
acquired steel foundries in Le Creusot, France. They
founded Schneider & Cie in 1838. From that point until
the mid-twentieth century, the Company steadily built a
presence in heavy mechanical engineering and transportation equipment, gradually becoming a huge, highly diversified conglomerate.
6. Our customers are our partners . . . . . . . p. 22
8. Human resources . . . . . . . . . . . . . . . . . . . p. 26
9. Risk factors . . . . . . . . . . . . . . . . . . . . . . . . p. 28
Merlin Gerin, a leading French manufacturer of electrical distribution equipment, joined the Group in 1975,
strengthening a position in electricity that had been
established at the end of the 19th century.
1981 – 2001: refocusing
and building on electricity
In 1988, Schneider Electric acquired France’s Telemecanique, a pioneer in remote control systems for
electric motors.
In 1991, the Group made a major acquisition in the
United States, bringing in Square D, the US electrical
equipment market leader with sales of $1.65 billion.
At the same time, the Group accelerated its international expansion. It set up operations in China in 1987.
The country, with 17 production units, now ranks third
in terms of revenue generation, contributing some
€800 million in 2006.
Schneider Electric completed its refocusing on elec-
tricity in 1997 with the sale of building and public works
company Spie Batignolles.
In 1998, the Group created the Schneider Electric
Youth Opportunities Foundation to promote its values
of involvement and solidarity. The Group’s employees
work in close partnership with the Foundation around
the world.
15
Description of the company and its businesses
In 1999, the Group acquired Lexel, Europe's second
largest supplier of installation systems and control.
This was followed in 2000 with the acquisitions of
Crouzet Automatismes, a French leader in electronic
control, small automation devices and custom sensors, and Positec, a European leader in motion control.
In 2000, Schneider Electric created a 60-40 joint
venture with Toshiba called Schneider Toshiba Inverter
(STI) to develop, manufacture and market both partners’ industrial speed drives. STI now leads the global
industrial speed drive market. That same year, the
Group launched the Schneider Electric Ventures fund
with a capital of €50 million to acquire interests in innovative start-ups with technologies that can enhance
the lineup.
In 2001 Schneider Electric deployed its first three-year
company program, NEW2004. The Group acquired
installation systems and control leader Legrand, but
the European Commission vetoed the merger. As a
result, Schneider Electric had to sell its interest in
Legrand even though the Court of First Instance of the
European Communities overruled the Commission’s
decisions on October 22, 2002.
2002-2006: an assertive
strategy of global growth through
targeted acquisitions
Since 2002, Schneider Electric has pursued an
assertive strategy of organic growth and acquisitions
to enhance its geographic coverage, strengthen its
core business, broaden its lineup through the addition
of synergistic activities and expand its potential accessible markets.
The Group has also confirmed its commitment to corporate social responsibility by creating a Sustainable
Development Department in 2002 and setting up a
quarterly Planet & Society Barometer in 2005 to track
and report on its performance in this area.
This strategy has produced significant advances in the
Group’s core businesses.
Electrical Distribution
Installation systems and control
Schneider Electric now ranks second worldwide in
installation systems and control thanks to the acquisitions of Clipsal, the Asia-Pacific market leader, in
2003; Juno Lighting, America’s leading manufacturer
of trac and recessed lighting, in 2005; and Clipsal Asia,
Merten (Germany), OVA Bargellini (Italy), AEM SA
(Spain) and GET (UK), in 2006.
Energy efficiency
In 2005, Schneider Electric acquired Canada’s Power
Measurement Inc., a leader in metering systems, software and services for managing energy supply and
consumption.
Critical power and cooling services
In 2004, Schneider Electric became the European
leader in critical power with the acquisition of MGE
UPS Systems in France. In October 2006, it made a
friendly offer to purchase all outstanding shares of
American Power Conversion (APC), the global market
16
leader. The transaction, which was approved by competition authorities and by APC’s shareholders, was
finalized on February 14, 2007.
Automation & Control
Automation and industrial control
Schneider Electric gained world leadership positions in
human-machine interface (HMI) with the 2002 acquisition of Digital Electronics Corporation in Japan, and in
automation solutions for packaging machines with the
2005 acquisition of Elau AG in Germany.
In 2006, it expanded its lineup of high power speed
drives with the acquisition of Austria’s VA TECH ELIN
EBG Elektronik. The Group also broadened its industrial automation portfolio with the acquisition of Citect,
an Australian manufacturer of Supervision Control and
Data Acquisition (SCADA) solutions and Manufacturing Execution Systems (MES).
Custom sensors
The Group offers the most comprehensive lineup of
custom sensors in the market after bringing in Hyde
Park Electronics, the North American leader in ultrasonic sensors, in 2003; Kavlico and Dinel, manufacturers of sensing and optoelectronics devices, in 2004;
and US-based BEI Technologies, in 2005.
Building automation
The Group is a major player in this market. In 2003, it
acquired Sweden’s TAC, which was joined in 2004 by
Tour Andover Control and Abacus Engineered Systems in the US. ABS (Advanced Buildings Systems)
EMEA, which operates in Europe and the Middle East,
came on board in 2005, followed by IBS (US and Asia)
in 2006.
2
. An ambitious strategy
of profitable growth
Demand for electricity is expected to double between
now and 2030, according to the International Energy
Agency. At the same time, automation is expanding
everywhere and in all areas, from cars to industrial and
commercial buildings to homes. Meeting this very
strong demand, supporting business performance
while saving energy, helping enhance the quality of life
in developed nations and emerging markets and managing the environmental impact of growth are the
major challenges here–as well as major opportunities
for Schneider Electric.
As the world leader in electrical distribution and
automation and control, Schneider Electric intends to
harness customer satisfaction to drive growth and
profitability. In doing this, it will help customers use
electricity safely, make installations more energy efficient, ensure a secure power supply for critical applications, manage indoor environment and communication networks in buildings, consume less and more
effectively and facilitate the development of renewable
energies.
This ambitious strategy of profitable growth is driven by
three key priorities.
Accelerate growth
Schneider Electric is investing heavily in innovation
and technology, with nearly 5% of revenue devoted to
R&D. At the same time, it is internationalizing its R&D
resources and moving them closer to customers to
innovate faster and more effectively.
The Group has accelerated its expansion in the
fastest-growing regions. Between 2001 and 2006, the
percentage of consolidated revenue generated in
emerging markets rose from 18% to 31%.
Schneider Electric is developing activities that com-
plement its core businesses through both organic
growth and acquisitions. These high-potential activities
target the most promising market segments, including
installation systems and control, critical power and
energy management systems, and automation everywhere. Less exposed to capital spending cycles, they
have significant value-added services content and
offer excellent prospects. New activities accounted for
42% of revenue in 2006 and have given Schneider
Electric the ability to offer an unparalleled range of
solutions and services for energy management.
3.
The new
company program
2
1
Schneider Electric’s strategy is being deployed within
the framework of the new2 company program for 20052008. Through new2, the Group has reaffirmed its
ambition to be a great company to do business with, a
great place to work, a great world partner and a great
investment.
Schneider Electric has set ambitious targets for 20052008.
Customers
Increase the rate of very satisfied customers by 30%.
Reduce the rate of dissatisfied customers by 50%.
At end-2006, the rate of very satisfied customers was
up 10%, while the percentage of dissatisfied customers was down 34%.
Employees
Enhance operating
efficiency and competitiveness
The Group globalizes its purchases, produces near
customers to ensure top-quality service and develops
continuous improvement programs in all areas. It is
also deploying a single IT system with harmonized
processes worldwide.
Between 2004 and 2006, production in emerging markets rose from 18% to 28% of total output thanks to the
transfer of €529 million worth of production costs over
two years.
Reduce the number of days lost due to work accidents by 20% per employee per year.
Develop competencies through three-year plans.
Produce a quarterly report on progress plans imple-
mented in response to employee satisfaction surveys.
At end-2006, the lost-time injury rate was down 38%.
Three-year competency plans have been set up and
quarterly reports have been produced on progress
plans for employees.
Planet and society
Publish a quarterly barometer with 10 indicators
Promote employee
involvement
At Schneider Electric, people and their commitment is
what makes the difference. Human resources evaluation and management resources are being harmonized worldwide so that all team members can fully
express their potential and help execute Group strategy. Schneider Electric is enhancing its forward-looking management, deploying competency plans to
match new needs, increasing investment in training
and stepping up programs with schools and universities to attract talent.
At the same time, it is applying a global program to
improve workplace health and safety.
This aggressive strategy of profitable growth has significantly modified Schneider Electric’s performance
profile, driving faster growth and a higher operating
margin. The Group has become less exposed to capital spending cycles and exchange rate fluctuations,
and enjoys even brighter prospects.
tracking the Group’s social, environmental, societal
and corporate governance performance.
The Planet & Society Barometer is available online at
www.barometer.schneider-electric.com.
Improve the Group’s performance to 8/10 by end2008. At December 31, 2006, the barometer showed a
rating of 7.01.
Shareholders
Achieve organic revenue growth of more than 5%.
Deliver an operating margin of between 12.5% and
14.5% throughout the business cycle. In 2006, the
operating margin stood at 14.6%.
Improve return on capital employed (ROCE) before
tax by 2% to 4% improvement between 2004 and
2008. ROCE improved by 2% in 2006 to 11.7%.
Pay out 50% of net profit before goodwill to share-
holders. The recommended dividend for 2006 corresponds to this rate.
Optimize the balance sheet, with a debt-to-equity
ratio of 30%-40% at end-2006. Taking into account the
APC acquisition on a pro forma basis before the impact
of the €1 billion capital increase, the ratio came to 69%.
See Outlook for 2007, page 93.
17
Description of the company and its businesses
4.
Major prospects
in four main markets
Water & electricity: immense needs
1.6 billion people do not have access to electricity.
Schneider Electric serves customers who build and
operate all types of buildings, from homes, stores,
offices and hotels to hospitals, schools and cultural
and sports facilities. The Group also delivers solutions
for numerous applications to manufacturers, OEMs,
transportation and communication infrastructure managers, and water and energy suppliers.
Power consumption is expected to double
by 2030.
The accessible Energy & Infrastructure, Industry,
Buildings and Residential markets represent more
than €200 billion worldwide.
1.2 billion people do not have access to clean
drinking water.
Annual investment in generation and distribution
capacity amounts to €370 billion.
Renewable energies are expected to account for
13% of electricity generation in 2030.
Annual investment in water production,
distribution and treatment amounts to €80 billion.
Source: IEA, World Water Council
15 %
37 %
16 %
2006 revenue
by market
n
n
32 % n
n
Energy & Infrastructure
Industry
Buildings
Residential
Airports: more than 600 projects
in the pipeline
3 billion passengers a year.
A market growing by 7% a year.
100 megaprojects worth more than €500 million.
500 medium-sized projects,
including 118 regional airports in China by 2015.
Source: IATA, Adpe
Energy & Infrastructure
This market covers electricity generation and distribution; gas, oil and water distribution; transportation infrastructure such as airports, tunnels and subways; and
telecommunication and data exchange and processing
infrastructure. The Group’s solutions help ensure that
installations are available and safe while enhancing
energy efficiency and controlling costs.
Population growth and economic development are
opening up huge prospects for infrastructure, as well
as for energy, where deregulation and the rise of
renewable resources are also impelling new management and distribution solutions.
In the Energy market, Schneider Electric offers products, systems and services to optimize the reliable
generation, distribution and sale of electricity. Its solutions are designed to enhance the quality and reduce
the cost of each distributed kilowatt hour. The Group
serves power companies, systems integrators, OEMs
and panelbuilders with a lineup of high value added
products and services–often leveraging Internet technologies–that can be used to create and manage
smart electrical networks, measure power consumption, supervise processes, and offer prepayment systems that bring electricity to disadvantaged consumers.
In the Infrastructure market, where uninterrupted
service is mission critical, Schneider Electric offers
efficient, web-enabled metering, monitoring, critical
power, management and remote-management solutions. Infrastructure operators, engineering firms, systems integrators, OEMs and contractors can find products, systems and services for electrical distribution,
automation and control that meet their applications’
specific requirements.
18
Industry
Schneider Electric offers products and services for all
types of industry. Packaged goods, electronics, automobiles and pharmaceuticals are key markets. In particular, Schneider Electric targets major end users who
are looking for a partner that can help them make their
worldwide installations more competitive and efficient.
Makers of packaging, conveying and other machines
requiring a completely reliable power supply, such as
elevators and medical equipment, are also an important focus among OEM customers.
Business in the Industry market is being driven by the
massive expansion of automation, tighter requirements for energy savings and environmental protection, outsourcing of electrical installation management
and demand for value added services.
Schneider Electric works closely with customers to get
a thorough understanding of their applications and to
help enhance productivity, flexibility, process safety
and product traceability. The Group offers end-to-end
electrical installations that are both energy efficient
and highly reliable, as well as flexible, open and easy
to install automation solutions and remote management services via the Internet.
Buildings
This market covers all types of service, commercial
and industrial buildings, including offices, hotels, hospitals, shopping centers, manufacturing facilities,
sports and cultural centers and ships.
Automation and centralized building management systems have expanded strongly in response to growing
user demand for comfort, safety, communication and
energy efficiency.
The Group serves this market with solutions for electrical supply and distribution, as well as supervision and
management systems for lighting, HVAC, elevators
and access control. The lineup includes Voice-DataImage (VDI) and Power Line Carrier (PLC) solutions
that use the electrical wiring to transfer data; services
to optimize maintenance, costs and energy consumption; and web-based systems for multi-site remote
monitoring. The lineup is available everywhere, with
networkable products that are easy to install and operate. These products and systems also comply with
local standards and practices.
50% of the world’s people live in cities
In 2015, 36 mega-cities will have populations
of more than 10 million (compared with 23 in
1996).
Cities in developing nations will be home to
4 billion people by 2030.
Source: UN World Urbanization Prospects,
October 2006.
Housing: a €29 billion market
1
A market growing by more than 5% a year.
Schneider Electric estimate
Residential
The market for single-family homes and apartment
buildings is extremely diverse in terms of standards
and regional characteristics. It offers significant growth
prospects that vary from region to region. In Western
Europe and the US, demand for comfort, safety and
energy savings dominates, which is why renovation
and home improvement represent nearly two-thirds of
the market. In emerging markets, the Group is targeting new buildings to serve immense needs, with a particular focus on large housing programs in Eastern
Europe, the Middle East, China and other Asian countries.
Schneider Electric’s lineup delivers comfort and safety
while facilitating communications. The Group offers
easy-to-use, open-ended and attractive solutions for
electrical distribution, home automation and VDI/PLC
communication networks, with products that comply
with local standards, tastes and practices.
5.
Forefront
positions worldwide
To meet customer needs more effectively, the Group
has rapidly staked out solid positions in new activities
strategically related to its core businesses, such as
critical power, building automation and custom sensors. At the same time, it has developed a vast range
of services.
Schneider Electric's lineup comprises market-leading
global brands (Merlin Gerin, Square D, Telemecanique), powerful local or regional brands (notably for
installation systems and control), and benchmark specialist brands.
Schneider Electric’s positions in electrical distribution*
No. 1
No. 2
No. 3
Medium voltage
Low voltage
Installation systems
and control
Critical power
ABB
Schneider Electric
Siemens
Schneider Electric
ABB
Siemens
Legrand
Schneider Electric
Leviton
Matsushita
American Power Conversion
MGE UPS Systems
Emerson
Schneider Electric’s positions in automation & control*
No. 1
No. 2
No. 3
Automation
Industrial control
Siemens
Rockwell
Schneider Electric
Schneider Electric
Rockwell
Siemens
Custom
sensors
Fragmented market
Building
automation
Honeywell
Siemens
Johnson Control
Schneider Electric
* This document provides information on Schneider Electric’s businesses and competitive position in 2006.
To the best of the Group’s knowledge, no exhaustive report has been drafted on products and systems for electrical distribution,
automation and control.The Group has compiled data on its businesses through formal and informal contacts with industry
professionals, especially trade associations. Schneider Electric estimates its market positions based on this data and actual revenue in
each business.
19
Description of the company and its businesses
The Group has many rivals, but who are often limited
in their scope. The competition breaks down into four
broad categories:
Large non-specialist manufacturers with diversified
business bases, such as ABB, General Electric, Mitsubishi Electric and Siemens.
Multinational specialist manufacturers, such as Omron
and Rockwell Automation.
Medium-sized companies–primarily in electrical distribution–with a more regional presence, including
Eaton, Hager and Legrand.
Smaller local companies such as Gewiss in Italy,
Simon in Spain, Vacon in Sweden, Stick in Germany
and STI in the US.
Emerging markets*
31 %
8%
47 %
2006 consolidated
revenue by region
18 %
27 %
n
n
n
n
These architectures are designed in the Group’s 60
application centers around the world. Specialized by
industry and application, these centers leverage their
in-depth understanding of business processes and
needs to guide customers to the best solution.
To facilitate installation management and optimize performance, Schneider Electric was one of the first to
take advantage of the Internet’s efficiency and ease of
use. Thanks to embedded web servers, operators can
check data from PLCs at any time. With an ordinary
web browser, users can manage their installations in
real time from any location, program and monitor
equipment, and optimize energy consumption and preventive maintenance. In buildings, these solutions can
be used to manage all interior environment and safety
systems via a local network. The Group is continuing
to broaden its lineup with open, standard systems that
are easy to install and use.
Electrical distribution
Europe
North America
Number 1 worldwide in low voltage
Asia-Pacific
Number 2 worldwide in medium voltage
Rest of the World
Number 2 worldwide in installation systems
and control
*Asia-Pacific, Rest of the world, Eastern Europe.
Number 2 worldwide in critical power
The only player who complies
with all national and international
standards
Schneider Electric is the only player in its industry that
complies with all prevailing standards around the
world. The majority of its lineup complies with worldrecognized International Electrotechnical Commission
(IEC) standards. In North America, Group products
generally meet standards set by the National Electrical
Manufacturers Association (NEMA), Underwriters Laboratory (UL) or American National Standards Institute
(ANSI). Products in the UK, Australia and Asia comply
with British Standards, while those in China and Japan
meet the China Compulsory Certification (CCC) and
Japan Industrial Standard (JIS).
Since Schneider Electric’s products comply with the
dominant standards in its host markets, the Group is
able to meet most all of its customers’ needs.
Integrated, intelligent,
networked solutions
In both electrical distribution and automation, customers increasingly want a comprehensive solution to
their needs. In response, Schneider Electric has developed end-to-end offerings by market segment, backed
by a wide range of services. This is the idea behind the
Group’s "Recommended Architectures" which combine different products from the lineup to meet specific customer requirements. Examples include critical
power architectures for hospital operating rooms, optimized automation and control architectures for
machines, and electrical distribution/VDI architectures
for office buildings.
20
Schneider Electric’s electrical distribution lineup
ensures a safe, reliable, uninterrupted and effective
supply of electric power. Historically the market leader
in low and medium voltage, the Group had no presence in installation systems and control just ten years
ago. It now ranks second worldwide, thanks to organic
growth and acquisitions.
The Group has also made deep inroads into the highly promising critical power market, where it now ranks
first worldwide following the acquisition of the global
leader, American Power Conversion. The acquisition
was finalized on February 14, 2007.
Medium voltage
The products in this category, rated from 1 kV to 52 kV,
are generally used to transform and manage high voltage electricity from the distribution grid. The medium
voltage power is then sent directly to end users in
industrial buildings and large commercial installations
or transformed into low voltage power for small commercial buildings and homes.
Low voltage and
installation systems and control
This category includes wiring products, low voltage
equipment, and installation systems and control used
in industrial and commercial buildings and homes.
5%
2006 revenue
by market
32 %
63 %
n Electrical Distribution
n Automation & Control
n Critical Power
Schneider Electric offers comprehensive solutions for
the residential market, with protection devices like circuit breakers and contactors; switches, sockets, drives
and thermostats; control systems for doors, gates and
shutters; and security, fire alarm and intruder alert systems. The Group’s VDI networks also bring telephone,
television and Internet capabilities into each room. The
low voltage lineup, rated up to 1 kV, complies with local
standards.
Custom sensors
Energy efficiency and
optimized electricity management
The Group has put together a comprehensive, innovative range of automation solutions backed by design
and supervision software to manage building utilities.
The range is based on open, integrated systems that
address operators’ real needs. These solutions make it
possible to optimize installations, modernize them cost
effectively, reduce maintenance costs and energy consumption and enhance comfort and security.
The 2005 acquisition of Power Measurement Inc.
strengthened the Group’s position in the distribution of
high-quality electricity and in electricity management.
The lineup combines intelligent measurement and
monitoring devices with Internet-interface software to
manage complex energy contracts in real time, improve
energy quality and ensure uninterrupted service.
Critical power and cooling services
The critical power market is in the midst of strong and
lasting growth driven by increased demand for highquality, reliable electricity for a growing number of applications. American Power Conversion offers a strong fit
with Schneider Electric subsidiary MGE UPS Systems
in terms of products, geographic coverage and sales
channels, plus the possibility of capitalizing on its powerful innovation capabilities.
Building automation
An extensive array of services
Automation & Control
Schneider Electric offers an increasingly comprehensive, high value-added range of services to support
customers throughout their installations’ useful lives.
Electrical distribution and automation systems have
become highly computerized and extremely complex,
driving strong demand for services. More and more,
equipment management and maintenance are being
outsourced. Users want expert advice when they make
investment decisions to enhance installation performance, improve energy efficiency and reduce maintenance expenses.
Number 1 worldwide in industrial control
Installed base services
Number 3 worldwide in automation devices
Number 4 worldwide in building automation
Since acquiring Telemecanique in 1988, Schneider
Electric has constantly strengthened its presence in
automation and industrial control.
The Group has pursued an active policy of partnerships and acquisitions to broaden its lineup, which
comprises speed drives, human-machine interface
(HMI) terminals, supervision, control and data acquisition (SCADA) software, packaging machine automation systems and motion control solutions.
Schneider Electric is also active in the fast-growing
market for customized automation devices and sensors, thanks to acquisitions of such technological leaders as BEI.
At the same time, the Group has taken a firm foothold
in the sizeable and promising building automation market (worth some €1 billion). In the past three years,
Schneider Electric has created one of the world’s leading players in this market.
Automation devices and industrial control
Schneider Electric supplies programmable logic controllers and automation platforms, as well as specialized configuration, programming, operating assistance
and supervision software.
Its industrial control lineup ranges from contactors,
overload relays and motor circuit breakers to speed
drives, motion controllers, sensors, control units and
operator terminals.
1
Schneider Electric offers the most complete lineup in
the market, with leadership positions in angular speed
sensors (number one worldwide in leading-edge
quartz gyro technology), and in position and pressure
sensors for the automobile, aeronautic and manufacturing industries.
Schneider Electric handles electrical maintenance for
existing installations, on- and off-site management of
spare parts, warranty extensions, and upgrading to
extend useful life.
Studies and projects
This entails auditing facilities and recommending solutions to modernize, extend or optimize them, as well as
setting up management and monitoring systems to
align power quality and distribution with needs and to
ensure a secure supply for critical applications.
High value added services
In response to the need for reliable, safe and high performance buildings and to help customers meet the
growing challenge of energy efficiency, Schneider
Electric is developing customized services to:
Optimize energy consumption for greater efficiency.
Enhance electrical installation reliability and avail-
ability.
Manage costs and risks related to operation and
maintenance.
Energy efficiency: a major challenge
By accelerating efficiency gains, global energy
demand in 2050 could be reduced to nearly half the
level of today’s consumption.
Source: IEA, June 2006
21
Description of the company and its businesses
Training
Quality and customer
satisfaction: a strategic priority
Schneider Electric has created an exhaustive range of
training courses worldwide in the areas of electricity
and automation to help customers get the most out of
their legacy, new or renovated installations. These
courses cover products, solutions and know-how. Different programs have been devised to meet the needs
of electricians, engineering firm technicians, project
designers, engineers, contractors, operators and
maintenance technicians.
Seasoned specialists lead the courses, which are
organized in Group training centers in each country, at
customer facilities, at inter-company sessions or
online. Standard or customized, they included numerous sessions in real-life conditions.
Schneider Electric also publishes many technical documents. The Technical Files collection of more than
100 publications is designed to help users understand
the design and operation of electrical installations, systems and equipment and automation devices. These
files, like most Group publications, are available for
downloading on the Internet.
6.
Our customers
are our partners
Customer satisfaction is an integral part of Schneider
Electric’s strategy to grow a loyal customer base. Surveys are conducted in all countries to measure
progress in customer satisfaction. To enhance its team
members’ competencies, the Group has set up a sales
and marketing institute within Schneider Electric University. More than 7,000 sales people and marketing
specialists have attended institute programs over the
past two years.
Customers also have access to call centers, online
diagnostics and support services, an e-catalog, downloadable software, and online information and training.
Around the world, Schneider Electric serves 90% of
distributor and user needs within 48 hours.
To forge close contacts with customers and present
the extremely diverse range of solutions offered by
Schneider Electric and its partners, the Group organizes private professional trade shows called [email protected]
The shows feature Schneider Electric’s main products
and solutions, as well as those of its partners, demonstrations, and an "à la carte" schedule of conferences.
Three [email protected] shows were held in 2006. More than
2,500 customers attended [email protected] China in Xiamen;
nearly 2,000 dropped by [email protected] Sydney, for customers from New Zealand, the Pacific islands, Australia and South Africa; and close to 1,400 visited
[email protected] Orlando, for customers from the eastern
United States, Mexico and Canada.
Distributors: a daily partnership
Backed by its unique business model, Schneider
Electric reaches its customers through diversified
channels, unlike its competitors. The Group makes a
large portion of sales through distributors, systems
integrators, contractors and specifiers. These partners
provide strong, strategically related value, and extend
and amplify the Group’s commercial and technical
resources.
Electrical equipment distributors account for around
50% of our total sales and 70% of catalog product
sales. They offer a tight-knit network of 15,000 sales
outlets worldwide.
This partnership includes local distributors, wholesalers, non-specialized professional distributors and
large international groups such as Rexel and Sonepar
in France, Hagemeyer in the Netherlands, Nordisk Solar
End user
Contractor
panelbuilder
electrician
OEM
Wholesale distributor
Engineering
firm
systems
integrator
Prime contractor
Building owner
Schneider Electric
22
Electric
utility
Strategic
accounts
in Denmark, CED-Edmundson in the United Kingdom,
and Graybar and Grainger in the United States.
In the residential renovation market, Schneider Electric
also sells products through large home improvement
chains such as Home Depot and Lowes in the US,
Kingfisher in the UK and Saint Gobain Distribution in
France.
Lastly, the Group uses specialist distribution channels
for highly technical products such as human machine
interface and VDI transmission equipment, PLCs and
industrial software.
Schneider Electric nurtures close relationships with
distributors to provide end users with unparalleled
local service, advice and product availability in 190
countries.
To maintain a high performance network, the Group
works hand in hand with distributors on supply chain
issues, technical training and marketing. Distributors
have numerous resources at their fingertips, including
the dedicated "My Schneider Electric" portal, through
which they can access prices and technical information, place orders and download installation manuals
around the clock.
Panelbuilders:
ease of use 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 contactors, and increasingly, prefabricated systems.
There are more than 20,000 panelbuilders around the
world with very diverse expertise and areas of specialization. Schneider Electric serves each group with a
tailored set of products and services that can help
enhance their end product. Selected panelbuilders,
chosen for their professionalism and ability to promote
Schneider Electric's quality and safety values, receive
advanced technical and marketing support.
Contractors:
active cooperation
To devise customized solutions to end-users’ specific
needs, Schneider Electric works closely with contractors–a broad category that ranges from large companies specialized in implementing equipment and systems to small, specialized or general electricians, and
from systems integrators to OEMs.
These partners add unique value by turning customers’ ideas into working, purpose-designed systems. In addition, they often advise customers about
the different possible solutions before a project begins.
Schneider Electric works actively with contractors by
offering technical training and advice to help them
devise the best response for a given project, from simple to complex applications.
Systems integrators:
a dedicated alliance
1
Systems integrators, the Group’s historical customers,
install automation devices for end users.
The Group has developed the "Schneider Electric
Alliance" with them to provide users with effective
turnkey solutions and proactive local support. Thanks
to this alliance of carefully selected partners, customers with automation projects can easily find qualified professionals located near their installations. The
Schneider Electric Alliance has more than 700 members in some 30 countries.
Along with technical support, Schneider Electric provides these partners with advanced engineering
resources so they can develop their business and
become more competitive.
OEMs: partners in performance
Original Equipment Manufacturers (OEMs) continuously seek to improve machine performance and
maintenance to meet their customers’ needs in areas
ranging from packaging to textiles, elevators to conveying, and materials handling and hoisting to HVAC. As a
result, they are increasingly demanding when it
comes to high-performance solutions, competencies,
reliability, quality, cost, innovation and time to market.
Schneider Electric works with nearly 30,000 OEMs
through its global operations, bringing all its strengths
to their special partnership. These include:
Extensive knowledge of their applications.
Dedicated centers of excellence that offer the most
competitive solutions for new machines.
International customer support to deliver high-performance after-sales service worldwide.
A dedicated program for multi-site and global OEMs
that enhances their ability to offer superior solutions on
an international level.
Energy suppliers:
local expectations
There are some 11,000 electric companies around the
world. They use Schneider Electric products and services in power generation (electricity for power plant
equipment, automation and control), distribution
(medium and low voltage networks) and marketing
(pre-payment meters, related services).
The Group responds effectively to their expectations
for local service with applications support and innovative products that help them meet important challenges like market deregulation and the development
of renewable energies.
Global Strategic Accounts:
a dedicated organization
Schneider Electric has a dedicated organization for
global enterprises interested in developing special
relationships with their key suppliers. The Group’s preferred supplier contracts ensure high-level contacts for
these global strategic accounts.
23
Description of the company and its businesses
Thanks to shorter communication and decision-making circuits, this organization can leverage resources
across the Group and around the world very quickly.
Dedicated teams and direct senior executive-level
involvement offer tangible value added that sets
Schneider Electric apart in its relationship with major
accounts. The goal is to provide the right solutions
and services at each stage of their international
expansion and achieve the highest level of customer
satisfaction.
Some 70 global customers benefit from this organization, including Air Liquide, Carrefour, Ford, Glaxo
Smith Kline, IBM, Lafarge, Nestlé, PSA Peugeot
Citroën, Total, Toyota, Unilever, Veolia and Wal Mart.
They are able to tap into the Group’s deep knowledge
of process automation (automobile manufacturing,
cement production, etc.), energy management in
large industrial and commercial buildings (pharmaceuticals, mass retailing, etc.), IT center protection
and electrical distribution and monitoring for water
treatment.
Specifiers:
well-informed relays
The Group comprises:
8 business units
Building automation
Automation
Custom sensors and technologies
Power
Critical power & cooling services
Renewable energies*
Services and projects
Installation systems and control.
4 corporate divisions
Strategy, Customers & Technology
Finance
Human Resources and Managerial Communication
Globalization & Industry.
4 operating divisions
European Operating Division
North American Operating Division
Asia-Pacific Operating Division
International & Iberian Operating Division.
* Created in February 2007.
Specifiers, including engineers, architects and design
firms, play a key role in meeting growing demands for
comfort, ergonomy and design. The Group keeps
these indispensable partners informed of all innovations and solutions that improve installation performance, safety and comfort.
To do this, it organizes reserved exhibits, prepares
electrical installation guides, develops installation
design software and sets up training centers.
7.
A global organization
with local roots
Schneider Electric has 105,000 employees around the
world. Thanks to its global organization and local operations and distribution networks, the Group can serve
international customers everywhere and meet local
customers’ expectations with solutions that comply
with each country’s specific standards and practices.
An organization focused
on growth and efficiency
Schneider Electric’s organization is designed to put
customers at the center of the product design process,
speed growth and execution, leverage all the benefits
of the Group’s global scope, and make it easier to integrate acquisitions and deploy new activities.
24
Powerful innovation resources
Schneider Electric’s sustained innovation strategy for
products, services, software and solutions helps it
widen its technological lead, enhance competitiveness
and quality, refresh and broaden the lineup more
quickly and generate high value-added growth.
The Group created an Innovation Department in
November 2006, headed by Bernard Larrouturou, former director of the French applied mathematics and
information technology public research institute (INRIA)
and French national scientific research center (CNRS).
The department’s mission is to deploy an ambitious
innovation process to bring innovative solutions in the
areas of energy efficiency, electrical distribution and
industrial automation to the market faster. It is also
responsible for strengthening Schneider Electric's ties
to the global scientific community in order to extend
technical partnerships with the world of research.
Customer-oriented processes
Innovation at Schneider Electric is primarily devoted to
making products, systems and services safe, easy to
install and use and futureproof–all with a clear focus
on customer expectations. Improving design quality,
offering simplicity through innovation, guaranteeing
technical compliance and reducing time to market are
ongoing objectives.
The Group involves its country organizations in devising the lineup and increasingly co-develops with major
customers, notably OEMs.
Schneider Electric is committed to developing and
patenting products that can be marketed worldwide.
This strategy of globalization allows the Group to penetrate a maximum number of markets while optimizing
costs.
Worldclass R&D
The Group’s R&D investments put it among the top
world players in its businesses.
Around a third of the R&D budget is devoted to maintaining the product ranges, increasing quality levels,
reducing raw material, component and process costs,
and adapting products to new environmental regulations such as RoHS and WEEE–a Schneider Electric
priority.
Nearly two-thirds go to innovation and new product
research. The objective is to offer products and solutions that deliver more and more value to users.
Plentiful and
promising areas of research
1
The Group has stepped up research and innovation in
digital electronics, power electronics, mechatronics,
software and Internet-based technologies.
January 2006: Electropole, the world’s leading power
protection and control R&D center opens in Grenoble,
France. More than 1,000 people work at Electropole,
which offers 35,000 square meters of laboratories and
design offices.
February 2006: Launch of the Airlink lineup based on
radio technology for installation and monitoring systems.
Innovation: a priority
Around 5% of revenue devoted to R&D
(€500 million in 2006).
6,500 R&D team members in 25 countries.
Cooperation agreements with more than 50
prestigious laboratories.
A venture capital fund focused on advanced
technologies.
An international base
March 2006: France’s newly created Industrial Innovation Agency (AII) selects Schneider Electric’s
HOMES project among its first five programs. In cooperation with world leaders in lighting, building control,
shutters, HVAC and other systems, Schneider Electric
will develop technologies and solutions to actively control energy. Designed to reduce energy consumption
by up to 20% in new and existing buildings, these solutions will confirm Schneider Electric’s ambitions in the
energy efficiency market.
May 2006: The Schneider Electric-led Minalogic
industrial cluster is certified. Bringing together
research and manufacturing skills in the Grenoble
region, Minalogic develops embedded intelligence
technologies that will form the core of future smart systems for electrical distribution and automation.
September 2006: Square D introduces the Intelligent
Schneider Electric has internationalized its R&D base
to put R&D centers closer to customers, innovate next
to needs and adapt production processes to local conditions.
In addition to France, the Group has highly effective
R&D teams with some 1,500 people in Germany, the
US and Japan.
New centers in Bangalore, India and Shanghai, China
had nearly 700 employees at the end of 2006.
The Group works with some fifty university and private
laboratories and has forged technological partnerships
with manufacturers offering strategically related
expertise. These include Toshiba for speed drives, Fuji
Electric for low voltage circuit breakers, Tata Elxsi for
embedded software and IBM for quality control and
traceability solutions for the microelectronics and food
and beverage industries.
Sixty centers dedicated to applications such as elevators, packaging, textiles and data centers support this
system. Their mission is to develop the best possible
solutions with customers, with input from contractor
and systems integrator partners.
Lastly, Schneider Electric Ventures performs technology intelligence and looks to acquire new competencies. The fund invests in start-ups whose technologies
will form the core of the Group’s future lineup. These
include software, network and communication electronic components, radio-frequency identification
(RFID) solutions, network security, voice-data-image
(VDI) systems, radio communication, sensors and
micro-electrical-mechanical systems (MEMS).
Load Center in the US, which allows users to connect
to an alternate power source and effectively manage
loads connected to that source. This opens the door to
distributed power generation and smart consumption
management.
October 2006: The Information Technology for European Advancement (ITEA) program attributes its
Achievement Award to the SIRENA project led by
Schneider Electric. SIRENA is designed to develop
technologies that facilitate systems integration in real
time. It leverages emerging web services technology
for plug and play connection, easier upgrading and
simplified maintenance. This technology will be used in
industrial applications, buildings, homes and water
treatment.
November 2006: Schneider Electric Ventures invests
in Semisouth, an American start-up specializing in silicon carbide (SiC) materials and electrical components
that will drive very high yield power conversion products in the future.
December 2006: Schneider Electric and France’s
Laboratoire d'Electronique de Technologie de l'Information (LETI) sign a cooperation agreement to develop new MEMS silicon technologies and components
and create a dedicated joint laboratory.
Global, selective purchasing
Purchases correspond to around 40% of consolidated
revenue and play a crucial role in the Group’s technical and business performance. To use this lever to the
fullest, the Group has decided to globalize 75% of purchases and increase local sourcing in emerging markets as part of its program to re-balance costs and
revenue.
25
Description of the company and its businesses
Schneider Electric primarily purchases raw materials
such as silver, copper, aluminum, steel and plastics, as
well as components, electronic products and services.
The supplier list includes international firms, as well as
many medium sized companies.
Suppliers are selected for their know-how, the quality
of their products and services, their competitiveness
and their compliance with environmental and human
rights requirements. Schneider Electric supports the
United Nations’ Global Compact and encourages its
suppliers to join as well. A sustainable development
agreement sets out each party’s specific commitments.
Worldwide redeployment
of production and supply chain
resources
Schneider Electric has more than 200 production sites,
of which 45% manufacture for the global market. The
other units are located as close as possible to their end
markets. Although design or esthetic features may be
adapted to meet local requirements, the Group standardizes key components as much as possible to maximize economies of scale. This global/local approach
helps Schneider Electric optimize profitability.
Drawing on its global scope, the Group intends to build
lasting competitive advantage to support long-term,
profitable growth. A large number of projects have
been initiated around the world to re-balance and optimize manufacturing and supply chain resources. The
Group’s objectives are to:
Produce as close to customers as possible to improve
service quality and responsiveness.
Achieve a lasting balance between production costs
and revenue within each currency zone to limit the
impact of foreign exchange fluctuations.
Produce and source in the most competitive region
for a given product. This means low-wage countries for
products with a high labor content, for example, and
developed countries for complex, highly automated
processes and services that require a strong local
presence.
In Western Europe and the United States, rightsizing
plans have been deployed with a focus on specializing
units, reducing their number and increasing their size.
At the same time, the Group has moved manufacturing
closer to demand by increasing capacity in Eastern
Europe, Mexico, India, China and the rest of Asia.
An industrial excellence program called Schneider
Production System has been deployed in all plants to
substantially and continuously improve quality, service
and productivity. Based on a Lean Manufacturing
approach, SPS is supported by the extension of Six
Sigma and Quality and Value Analysis programs
across the Group. By deploying these optimization
methods globally and sharing best practices, the
Group intends to lift the operational performance of all
its plants to the same high standard.
Schneider Electric’s plants and products comply with
increasingly extensive and stringent environmental
laws and regulations in all host countries, often antici-
26
pating new legislation when appropriate. Plants and
products also comply with international standards governing environmental protection in all host countries.
In order to limit risks related to the environment generally, the Group has implemented an ISO 14001-compliant process to continuously improve the environmental performance of its plants and logistics centers,
along with an eco-design process for products.
In 1992, Schneider Electric defined a formal environmental policy, which was revised in 2004 to take
account of changes both inside and outside the Group.
This policy is designed to improve production processes, promote eco-design, integrate customer expectations into the Group’s environmental protection
approach and raise awareness among all employees
and partners about environmental protection and energy savings.
A major IT
systems project
On November 2, 2004, Schneider Electric signed a
contract with Capgemini with the goal of enhancing
efficiency and reducing the IT function’s overall cost.
The two-pronged contract involves outsourcing all of
the Group’s IT functions and departments in Europe
and designing, developing and deploying a global
SAP-based ERP system called Bridge that will be
installed in all units. The IT departments of some 100
European subsidiaries in 31 countries were effectively
outsourced in 2005.
Bridge’s design phase was completed at the end of
2006 and construction is scheduled for the first quarter
of 2007. The system will be deployed at several pilot
sites from 2007 to 2009. Bridge will then be installed
throughout the Group over a period of four years.
A dedicated governance and cost-control organization
has been set up to monitor the challenges and reduce
the risks involved in this project.
8. Human Resources
Developing a global system
for managing human resources
The human resources function’s missions are to support growth, prepare the future, develop competencies,
anticipate changes in the Group’s businesses and create an attractive and stimulating work environment. At
the corporate level, human resources management
policies focus on training, compensation, international
mobility and workplace health and safety. These policies provide general guidelines that are applied
through local programs.
The Group is in the process of deploying a global
human resources management system. Designed with
input from human resources managers and team
members around the world, the system is based on a
shared set of job classifications and competencies that
provides the basic information needed for human
resources management. The system was tested in
France and India in 2006 and will be gradually
deployed across the Group starting in 2007.
The system’s competency plans allow the country
organizations and various departments to define the
skills sets they will be needing in three years’ time
based on business plans and analyses of changes in
the business. This information can then be used to
establish the necessary hiring, training and mobility
programs. The competency plans are used in all the
Group’s units.
All employees have the opportunity to map out their
career paths with their managers during individual
competency interviews, taking into account changes
within the Group’s businesses. In this way, they can
discuss possible directions for development and
identify useful training programs. Lastly, the Group
gives employees a stake in achieving targets and in
Schneider Electric’s performance through profit-linked
incentive plans, employee share ownership, stock
option programs and bonuses.
7%
22 %
25 %
46 %
Workforce
by region in 2006
n
n
n
n
Europe
North America
Asia-Pacific
Rest of the World
France, IESE in Barcelona and the London Business
School to bolster MBA recruitment.
1
Also during the year, Schneider Electric University
considerably expanded its programs on customer
focus, continuous change, leadership skills and attitudes and professional expertise through several specialized institutes.
Seminars on developing leadership and global expertise attracted 1,126 participants from 72 countries in
2006, an increase of 66% from 2005. More than 400
customers worldwide were interviewed as part of
these programs.
The Commercial Institute offers training for team members in customer relations departments and centers.
The new Industrial Operations Institute held its first
sessions for 91 plant managers from around the world.
The Institute’s mission is to offer comprehensive training to current and future plant, purchasing and supply
chain managers.
The Felix program, which develops high potential junior managers worldwide, celebrated its tenth anniversary in 2006. The year’s first session was held in Beijing, with 31 participants from 23 countries. Some of
the training was administered through the newly
opened Schneider Learning Institute China.
More than 4,000 employees benefited from e-learning
in 2006, notably for English language training. More
than 6,000 received training locally thanks to the
deployment of the Schneider Electric institutes’ programs in the Country Organizations. The Group is also
deeply committed to keeping its employees’ competencies fresh through regular evaluations, appropriate
information and training and skills certification programs. When headcount needs to be scaled back, the
units take vigorous steps to find inplacement solutions
or to help those made redundant to start their own
businesses.
See Schneider Electric’s social performance indicators, pages 73-90.
Attracting
and developing talent
The diversity of the countries, markets and customers
served by Schneider Electric is reflected in its workforce. The Group is committed to developing and promoting multi-cultural teams with managers from different countries who are able to take on major responsibilities in a decentralized organization. This policy
helps Schneider Electric attract, lock-in and develop
the best people in all of its host countries.
The Group encourages geographic mobility and nurtures international leadership. This is one of the goals
of the Marco Polo international hiring program, which
recruits some 100 people a year. Marco Polo gives
high potential graduates interested in international
mobility the opportunity to kick off their Schneider
Electric careers with a job in a foreign country.
Training is a key success factor at all levels of the
organization. Schneider Electric has developed partnerships with prestigious business and engineering
schools and targeted universities around the world. In
2006, it stepped up its programs with INSEAD in
A global program
to promote workplace health
and safety
Defined in 2005, the Group’s health and safety policy
is discussed in all of Schneider Electric University’s
management seminars. The policy was widely distributed among the units in 2006, with the Country Organizations responsible for deploying action plans. A
health community was created to share and spread
best practices within the Group.
Each year, the local health and safety policy is formalized and presented to employees. The number of days
lost due to work injuries is tracked on a monthly basis
in all host countries to get a precise view of the local
action plans’ impact. The goal is to reduce the number
of lost days from work accidents by 20% per employee
per year over the period covered by the new2 company program.
27
Description of the company and its businesses
9. Risk factors
Business risks
The Group operates worldwide,
in competitive and cyclical markets
The worldwide markets for the Group’s products are
highly competitive in terms of pricing, product and
service quality, development and introduction time and
customer service. The Group faces strong competitors,
some of whom are larger or developing in certain lower
cost countries. The Group is exposed to cyclical fluctuations in the rate of economic growth of, and level of
capital expenditures in, the various countries in which it
operates, though the impact of downturns in a particular market may be limited by its broad geographic reach
and the diversified nature of its end user markets.
As the Group also operates in emerging or developing
countries for around 30% of its business, it is exposed
to the risks associated with those markets.
The Group’s wide international presence exposes it to
many economic, legal and political risks in its host
countries. These include risks arising from social
unrest (particularly, strikes and walk-outs), political
instability, unforeseen regulatory changes, restrictions
on capital transfers and other obstacles to free trade,
and local tax laws, all of which may have an adverse
effect on its business, results of operations or financial
position.
The Group has implemented procedures designed to
protect it from the effects of these risks, which are generally beyond its control, and to manage them as effectively as possible. The protection provided by these
measures may nevertheless prove to be inadequate.
The development and success of the
Group’s products depend on its ability to
develop new products and services and to
adapt to the market and to customer needs
The markets in which the Group operates experience
rapid and significant changes due to the introduction of
innovative technologies. Introducing new technology
products and innovative services, which the Group
must do on an ongoing basis to meet its customers’
needs, requires a significant commitment to research
and development, which may not result in success.
The Group’s sales and margins may suffer if it invests
in technologies that do not function as expected or are
not accepted in the marketplace or if its products, systems or service offers are not brought to market in a
timely manner, become obsolete or are not responsive
to customers’ requirements.
In order to meet these challenges, the Group has an
R&D budget, which, at approximately 5% of revenue,
is among the highest in the industry. R&D involves
some 6,500 employees around the world, a number of
them in development centers located in 25 countries.
This ongoing commitment has allowed the Group to
accelerate time to market and leverage the technology
of strategic partners with whom it has also forged
alliances to expand its lineup or geographic coverage.
The Group has brought together all of its electrotech-
28
nical, electronic, electromechanical, software and
other technical competencies by creating technology
parks in China, the US, France and Japan.
Global support centers have also been established in
Mexico, India and China to provide the technology
parks with additional skills and development capacity
at a very competitive cost.
The Group’s business growth depends on its ability to
develop, deepen and enhance customer relationships.
The Group must constantly offer customers innovative
solutions built around high quality products and services incorporating leading edge technologies that are
closely tailored to customer needs and expectations.
However, the Group does not have any exposure with
a particular customer. Its ten largest customers represent less than 25% of its revenue.
Increasingly high customer satisfaction rates represent
an important source of competitive advantage for the
Group. It closely tracks the results of the quarterly surveys conducted in 55 countries among customers representing some 96% of annual sales. Improvement targets are set for each country, backed by specific action
plans and progress monitoring procedures.
The Group’s strategy involves growth
through acquisitions, joint ventures and
mergers, which may be difficult to identify
and/or execute
The Group’s strategy involves strengthening its capabilities through acquisitions, strategic alliances, joint
ventures and mergers.
External growth projects are examined in detail by the
business units, country organizations and corporate
functions (Strategy, Finance, Legal Affairs and Human
Resources) concerned under a rigorous internal
process developed and led at Group level. A launch
committee is responsible for initiating the review
process to identify the risks and opportunities associated with each external growth project, while a validation committee reviews the results. Projects that successfully come through the review process are submitted for approval to the Group acquisitions committee
made up of the main members of senior management.
The largest projects require the prior approval of the
Management Board and, in some cases, the Supervisory Board.
External growth transactions are inherently risky
because of the difficulties that may arise in integrating
people, operations, technologies and products, and
the related acquisition, administrative and other costs.
The Group has therefore developed a process for integrating newly acquired businesses that extends over a
period of 6 to 24 months depending on the type and
size of the newly acquired entity. The integration scenario for each acquisition varies depending on whether
the business was acquired to strengthen the Group’s
existing lineup, extend the lineup or penetrate a new
segment. All told, there are five scenarios ranging from
total integration to separate organization. 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 is drawn up for each acquisition and submitted to the Acquisitions Committee for approval. The
plan is implemented by an integration manager who
reports to a Steering Committee that initially meets at
monthly intervals and then on a quarterly basis.
The unit that presents the external growth project is
accountable to Group senior management for meeting
clearly defined business plan targets covering the performance of the new business and expected synergies
with existing businesses. Actual performance is measured against business plan targets during quarterly
business reviews and, for the largest acquisitions, by
the Management Board and Supervisory Board.
The follow-up of the value of the acquisitions implemented is done through annual impairment tests.
Value in use is determined by discounting estimated
future cash flows that will be generated by the tested
assets. Estimated future cash flows are based on management’s economic assumptions and operating forecasts, as well as long-term growth prospects generally
equivalent to forecast inflation. The discount rate corresponds to Schneider Electric’s weighted average cost
of capital (7.5% at December 31, 2006 and 2005 and
8.5% at December 31, 2004), plus a risk premium
depending on the region in question.
The Group’s goodwill is mainly allocated to cash-generating units (CGU) located in Europe and in the United States. Tests performed on goodwill allocated to
European and American CGUs are implemented with
a discount rate equal to Schneider Electric’s weighted
average cost of capital, free of a risk premium. Moreover, the infinite growth rate of these CGUs is equal to
2% and has not changed for the last financial year.
The Group may be the subject of product
liability claims and other adverse effects
due to defective products, design faults or
harm caused to persons and property
Despite its testing and quality procedures, the Group’s
products might not operate properly or might contain
design faults or defects. These design faults and
defects could result in product liability claims, loss of
revenue, warranty claims, litigation, a fall-off in
demand or harm to the Group’s reputation for safety
and quality. To prevent or limit these risks, the Group
recalls products if there are any doubts about a component, even if the defect is random and does not pose
a safety risk.
Schneider Electric is covered by a global liability insurance program. Insured values under these programs
adequately cover the Group’s exposure to liability
claims in connection with its businesses.
Information systems risks
The Group operates, either directly or through service
providers, a wide range of highly complex information
systems (servers, networks, applications, databases,
etc.) that are essential to the efficiency of its sales and
manufacturing processes. Failure of any of these hardware or software systems, a fulfillment failure by a
service provider, human error or computer viruses
could adversely affect the quality of service offered by
the Group.
The Group regularly examines alternative solutions to
protect against this type of risk and has developed
contingency plans to mitigate the effects of any information system failure. Dedicated governance structures have been set up to manage relations with serv-
ice providers responsible for outsourced IT systems
operations.
1
Problems may also be encountered during the deployment of new applications or software. In particular, a
project was launched in 2005 to design, develop and
build a Group-wide SAP-based ERP system. The initial
vision and detailed design phases were completed in
July 2005 and the core system is now being built, for
deployment on several pilot sites over the period 20072009. Once the trial phase has been completed at the
end of 2009, the system will be rolled out to the entire
Group over a period of around four years.
In view of the project’s complexity, extensive functionalities and its worldwide deployment, a dedicated governance and cost control structure has been set up to
track attainment of project milestones and limit the
related risks.
However, despite the Group’s policy of establishing
governance structures and contingency plans, there
can be no assurance that information systems projects
will not be subject to technical problems or execution
delays. While it is difficult to accurately quantify the
impact of any such problems or delays, they could
have an adverse effect on inventory levels, service
quality and – consequently – the Group’s financial
results.
The Group is dependent upon hiring and
retaining highly qualified management and
technical personnel
Competition for highly qualified management and technical personnel is intense in the Group’s industry. Its
future success depends in part on the Group’s ability
to hire, assimilate and retain engineers and other qualified personnel.
The Group’s human resources strategy is designed to
create a motivating working environment. Specific policies have been developed covering international
mobility, career development, training and compensation. The Group’s expatriates help it to prepare the
future of its business, build local teams and assemble
the necessary skill-sets in targeted regions. The Group
places considerable emphasis on training to deepen
its skills base and retain employees.
The development and success of the
Group’s products depend on its ability to
protect its intellectual property against
competitors
The Group’s future success depends to a significant
extent on the development and maintenance of its
intellectual property rights. Third parties may infringe
the Group’s intellectual property rights, and the Group
may expend significant resources monitoring, protecting and enforcing its rights. If the Group fails to protect
or enforce its intellectual property rights, its competitive position could suffer, which could have an adverse
effect on its business.
In order to mitigate this risk, the patents developed or
purchased by the Group are tracked by the industrial
property team within the Finance & Control - Legal
Affairs department. All industrial property information
for the main Group subsidiaries is transmitted to this
team, which is responsible for managing and protecting these intangible assets throughout the world. The
same procedure is followed for trademarks.
29
Description of the company and its businesses
Since 2005, the Group has decided to combat violations of industrial property rights more vigorously, taking legal action against patent counterfeiters in Germany, Italy, France and other jurisdictions.
The Group’s plants and products are
subject to environmental regulations
The Group’s plants and products are subject to extensive and increasingly stringent environmental laws and
regulations in all of its host countries.
In order to limit risks related to the environment generally, the Group is involved in a process to continuously
improve the environmental performance of its plants
and products. In 1992, the Group published a formal
environmental policy, which was recently redefined to
take account of changes both inside and outside
Schneider Electric.
The policy is designed to improve manufacturing
processes, promote eco-design and integrate customer concerns in the area of environmental protection. It also aims to identify, assess and prevent environmental risks, in order to guarantee full compliance
with all environmental laws and regulations applicable
to the Group’s businesses. Environmental provisions
are booked when the risks can be reliably measured or
it is probable that clean-up work will be performed and
the related cost can reasonably be estimated. No estimate is made of the potential cost of unidentified environmental risks. The Group expects spending on environmental compliance programs to increase as a
result of changes to existing environmental regulations
and the introduction of new regulations.
There can be no guarantee that the Group will not be
required to pay significant fines or compensation as a
result of past, current or future breaches of environmental laws and regulations by companies that are
currently or were previously members of the Group.
This exposure exists even if the Group is not responsible for the breaches, in cases where they were committed in the past by companies or businesses that
were not part of the Group at the time.
The Group may be exposed to the risk of claims for
breaches of environmental laws and regulations. Such
claims could adversely affect the Group’s financial
position and reputation, despite the efforts and investments made to comply at all times with all applicable
environmental laws and regulations.
If the Group fails to conduct its businesses in full compliance with the applicable environmental laws and
regulations, the judicial or regulatory authorities could
require the Group to conduct investigations and/or
implement costly clean-up measures to deal with the
current or past contamination of current or former facilities or off-site waste disposal facilities, and to scaleback or temporarily or permanently close facilities in
accordance with the applicable environmental laws
and regulations.
The Group’s international operations
expose it to the risk of fluctuations in
foreign exchange rates
Because a significant proportion of transactions are
denominated in currencies other than the euro, the
Group is exposed to risk arising from changes in
exchange rates. If the Group is not able to hedge them,
fluctuations in exchange rates between the euro and
30
these currencies can have a significant impact on its
results of operations and distort year-on-year performance comparisons.
The Group actively manages its exposure to currency
risk to reduce the sensitivity of earnings to changes in
exchange rates. Hedging programs mainly concern
foreign currency receivables, payables and operating
cash flows, which are generally hedged by means of
forward sales. Depending on market conditions, risks
in the main currencies may be hedged based on recurring forecast flows using contracts that expire in 12
months or less.
The Group’s currency hedging policy is to protect subsidiaries against risks on all transactions denominated
in a currency other than their functional currency. More
than twenty currencies are involved, with the US dollar,
Hong Kong dollar and British pound representing the
most significant sources of risk.
The financial instruments to hedge the exposure of the
Group to fluctuations in exchange rates are described
in notes 20.4 and 20.6 to the consolidated financial
statements for fiscal year 2006 pages 129 and 130
below.
In 2006, the revenue produced in foreign currencies
came to €8,979 million. Foreign currency assets and
liabilities represented respectively €1,973 million and
€5,156 million. The main exposure of the Group in
terms of currency exchange risks is related to the US
dollar and to currencies influenced by the US dollar.
The Group estimates that in the current structure of its
operations, a 10% increase of the euro compared to
the US dollar would have an impact of 0.3 points on
operating margin.
Interest rate risk
The Group is exposed to risks associated with the
effect of changing interest rates. Interest rate risk on
borrowings 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. Most bond debt is
fixed rate.
Less than one year and/or with a variable rate, the
Group has a net cash available of about €1.7 billion.
Up to
1 year
Financial liabilities
Financial assets
1 to
5 years
More than
5 years
884.6
2,312.7
1,144.4
2,544.1
315.7
Net position before
management
-1,659.5
1,997
1,144.4
A 1% change in interest rates would have an impact of
around 15% on the Group’s financial expense.
The financial instruments to hedge the exposure of the
Group to fluctuations in interest rates are described in
notes 20.4 and 20.7 to the consolidated financial
statements for fiscal year 2006 pages 129 and 130
below.
Counterparty risk
Transactions involving foreign currency and long and
short-term interest rate hedging instruments are
entered into with selected counterparties. Banking
counterparties are chosen according to the customary
criteria, including the credit rating issued by an independent rating agency.
Group policy consists of diversifying counterparty risks
and periodic controls are performed to check compliance with the related rules.
Liquidity risk
Liquidity is provided by the Group’s cash and cash
equivalents and commercial paper programs. These
programs are backed by undrawn confirmed lines of
credit.
The Group’s credit rating enables it to raise significant
long-term financing and attract a diverse investor base.
The Group’s current credit rating is A, watch negative.
The Group’s liabilities and their terms and conditions
are described in note 17, pages 126 and 127 below.
Currency and interest rate risks are generally managed at Group level, with the aim of limiting the impact
on results of changes in exchange and interest rates
without entering into any trading transactions. Hedging
decisions are made by the Finance & Control - Legal
Affairs department and are reviewed at regular intervals based on changes in financial market conditions.
In line with the Group’s overall policy of conservatively
managing liquidity risk and protecting its financial position, when negotiating new liquidity facilities the Group
resists the inclusion of clauses that would have the
effect of restricting the availability of credit lines, such
as covenants requiring compliance with certain financial ratios and material adverse change clauses.
The loan agreements for some of its liquidity facilities
nevertheless include cross-default clauses whereby if
the Group were to default on any of its liquidity facilities, it would immediately be considered as having
defaulted on all such facilities. Moreover, anticipated
reimbursement provisions exist for certain financing
and lines of credit in case of change of control.
An increase in raw materials price could
have negative consequences
The Group is exposed to fluctuations in energy and
raw material prices (in particular steel, copper, aluminum, silver, nickel, zinc and plastic). If the Group is
not able to hedge, compensate or pass on its
increased costs to customers, this could have an
adverse impact on its financial results.
The Group has, however, implemented certain procedures to limit its exposure to rising non-ferrous raw
material prices. The purchasing departments of the
operating units report their purchasing forecasts to the
Corporate Treasury Center. Purchase commitments
are hedged using forward contracts, swaps and, to a
lesser extent, options.
The financial instruments to hedge the exposure of the
Group to increase in raw materials price are described
in note 20.4 to the consolidated financial statements
for fiscal year 2006, page 129 below.
In 2006, purchases of raw materials totaled around
€1 billion, including around €400 million for non-ferrous metals, of which more than 70% were for copper.
The Group enters into swap and options agreements
in order to hedge all or part of its raw material purchases. Decisions to hedge such purchases, mostly of nonferrous metals, depend on Group forecasts of changes
of raw material market prices. As of December 31,
2006, Group hedges for non-ferrous metal purchases
amounted to €115 million, of which €80 million for
copper.
1
Equity risk
Exposure to equity risk primarily relates to treasury
stock and shares in AXA. These positions are not
hedged.
The Group’s products are subject
to varying national and international
standards and regulations
The Group’s products, which are sold in national markets worldwide, are subject to regulations in each of
those markets, as well as to various supranational regulations. Those regulations include trade restrictions,
tariffs, tax regimes and product safety standards.
Changes to any of these regulations or standards or
their applicability to the Group’s business could lead to
lower sales or increased operating costs, which would
result in lower profitability and earnings.
The products of the Group are also subject to multiple
quality and safety controls and regulations, and are
governed by both national and supranational standards, though the majority of the lineup complies with
world-recognized International Electrotechnical Commission (IEC) standards. Costs of compliance with
new or more stringent standards and regulations could
affect its business if the Group is required to make capital expenditures or implement other measures.
Since the Group’s products comply with the dominant
standards in its host markets, the Group is able to
meet most all of its customers’ needs.
Claims, litigation and other risks
In 2001, Schneider Electric made a public offer to purchase Legrand as part of a proposed merger project.
When the offer closed in July 2001, the Company held
98.1% of Legrand. In an initial decision dated October
10, 2001, the European Commission vetoed the merger, and in a second decision dated January 30, 2002,
it ordered the two companies to separate as quickly as
possible. As a result, Schneider Electric sold its interest in Legrand to the KKR-Wendel Investissement consortium even though the Court of First Instance of the
European Communities overruled the Commission’s
decisions on October 22, 2002. Schneider Electric
launched proceedings against the European Commission to obtain damages for the prejudice caused, estimated at €1.6 billion. Hearings are scheduled for 2007.
Following public offers launched in 1993 by SPEP (the
Group holding company at the time) for its Belgian
subsidiaries Cofibel and Cofimines, Belgium initiated
proceedings against former Schneider Electric executives in connection with the former Empain-Schneider
Group’s management of its Belgian subsidiaries. At the
end of March 2006, the Brussels criminal court (tribunal correctionnel) ruled that some of the defendants
were responsible for certain of the alleged offenses.
The court also appointed an expert to assess the loss
suffered by those plaintiffs whose claims were ruled
admissible. The Group and its Belgian subsidiaries
Cofibel and Cofimines were held civilly liable for the
actions of their senior executives who were found
liable. The Group is paying the legal expenses not covered by insurance of the former executives involved.
31
Description of the company and its businesses
In connection with the divestment of Spie Batignolles,
the Group booked provisions to cover the risks associated with certain major contracts and projects. Most of
the risks were extinguished during 1997. Provisions
were booked for the remaining risks, based on management’s best estimate of the expected financial
impact.
In addition, the Group has taken out specific cover in
response to certain local conditions, regulations or the
requirements of certain risks, projects and businesses.
The Group is not aware of any governmental, legal or
arbitration proceedings (including any such proceedings which are pending or threatened of which the
Group is aware) during a period covering at least the
previous 12 months, which may have, or have had in
the recent past significant effects on the Group and/or
the Group’s financial position or profitability.
The Group is covered by a global liability insurance
program. Insured values under this program total €230
million, representing adequate coverage of the
Group’s exposure to liability claims in connection with
its businesses.
Insurance
A global property and casualty/business interruption
insurance program has been set up for the Group in all
countries except for the United States, Canada and
Mexico where a separate program has been established to take account of the specific requirements and
characteristics of the North American market. Aggregate settlements under the global program are capped
at €250 million and specific limits apply to certain
risks, such as earthquake damage and machine damage. In 2007, a combined program will be set up, covering all sites worldwide. In 2006, external auditors
prepared a report on the impact of a major event causing an interruption of one of the Group’s businesses.
The external auditors’ findings were used to develop
an analysis model that the Group is planning to roll out
to other businesses.
The Group’s strategy for managing insurable risks is
designed to defend the interests of employees and
customers and to protect the environment, the Company’s assets and its shareholders’ investment. This strategy entails:
Identifying and quantifying risk using different report-
ing systems.
Preventing risks. The Group has a realistic prevention policy to ensure safety at its sites. The Triple A
approach, conducted with insurance company experts,
aims to enhance processes to control and manage
risks by identifying vulnerable areas and implementing
appropriate solutions to preserve the long-term sustainability of the Group’s manufacturing resources and
business. This approach builds on preventive measures already in place such as regular inspections, danger and vulnerability studies, safety management for
people and equipment and security plans. As concerns
risks of average frequency and intensity, the Group
also has ongoing programs to prevent traffic accidents
and work accidents and reduce transportation risk.
Organizing and deploying crisis management
resources, notably for technical and political risks and
natural disasters.
Maintaining the necessary insurance cover for the
main risks facing Group companies (civil liability, property damage and business interruption, environmental
accidents and transportation risk), under global programs. The Group continues to carefully screen insurance and reinsurance companies and evaluate their
solvability. To maintain essential levels of cover while
also optimizing insurance costs in light of constraints in
the insurance and reinsurance markets, the Group has
adopted a policy of self-insuring a certain number of
recurring risks, whose frequency and financial impact
can be reliably estimated (primarily automobile risks).
Through its reinsurance subsidiary, the Group covers
moderate property damage, business interruption and
civil liability risks. The amounts involved are not material at the consolidated level.
32
This cover has been renewed in 2007.
Liability insurance
Property and casualty/business interruption
insurance
Transport insurance
A global transport insurance program has been set up
for the Group in all countries except for the United
States, Canada and Mexico where a separate program
has been established to take account of the specific
requirements and characteristics of the North American market. The program covers all goods shipments,
including between Group facilities, by all means of
transport, with a maximum insured value of €15.2 million per convoy.
2
2
Corporate
governance
1. Supervisory Board . . . . . . . . . . . . . . . . . . p. 33
2. Organizational and operating procedures
of the Supervisory Board . . . . . . . . . . . . . p. 38
3. Board of Directors' meetings in 2006 and
early 2007 . . . . . . . . . . . . . . . . . . . . . . . . . p. 39
4. Committees of the Supervisory Board . . . p. 40
5. Management Board members . . . . . . . . . p. 42
6. Management Board procedures . . . . . . . . p. 43
This report includes the Chairman’s report
on the operations of the Supervisory Board
and internal control.
A Management Board /
Supervisory Board system
To achieve a seamless transfer of powers to a new
Chairman and support the ongoing implementation of
the Group’s growth strategy, at the Annual Shareholders’ Meeting of May 3, 2006, the Board of Directors recommended changing to a two-tier management structure, with a Management Board and a
Supervisory Board. Shareholders approved this recommendation and voted to amend the Company’s
bylaws accordingly, as well as electing the members
of the new Supervisory Board. After the Annual
Shareholders’ Meeting, the new Supervisory Board
met to appoint the members of the Management
Board.
The Company applies AFEP-MEDEF corporate governance guidelines.
7. Declarations concerning the situation
of the members of the Supervisory Board
and Management Board . . . . . . . . . . . . . p. 43
8. Internal control . . . . . . . . . . . . . . . . . . . . . p. 44
9. Management interests and compensation p. 50
10. Regulated agreements . . . . . . . . . . . . . . p. 54
11. Auditors . . . . . . . . . . . . . . . . . . . . . . . . . p. 55
12. Shareholders' rights and obligations . . . p. 55
1. Supervisory Board
The Supervisory Board may have between three
and eighteen members, all of whom must be natural
persons.
Throughout their term, Supervisory Board members
must hold at least 250 Schneider Electric SA shares.
Supervisory Board members are elected for a fouryear term and are eligible for re-election. However, in
line with the AFEP-MEDEF recommendation that
Supervisory Board members should retire by rotation,
one half of the members of the first Supervisory Board
were elected for an initial term of two years.
The age limit for holding office as a member of the
Supervisory Board is 74 and no more than one third of
the members may be aged over 70.
The Supervisory Board elected on May 3, 2006 has
twelve members and one non-voting member. Nine
qualify as independent directors according to the definition contained in the AFEP-MEDEF report on corporate governance. Four are foreign nationals (from the
United States, the United Kingdom, Italy and Switzerland). Employee shareholders are represented by a
member who sits on the Supervisory Board of the
"Schneider Actionnariat" corporate mutual fund. The
average age of Supervisory Board members is 62.
33
Corporate governance
Supervisory Board
(as of December 31, 2006)
Chairman of
the Supervisory Board
Henri Lachmann
Age: 68
Business address:
Schneider Electric 43-45 bd Franklin Roosevelt –
92500 Rueil Malmaison, France
20,648 (1) Schneider Electric shares
First elected: 1996 / Current term ends: 2010
Other directorships and
functions in French or foreign companies
Currently: Chairman of the Supervisory Board of
Schneider Electric SA; Director of various AXA subsidiaries and Ansa; Member of the Supervisory Boards
of Vivendi, AXA and Norbert Dentressangle; Chairman
of the Board of Directors of Centre Chirurgical Marie
Lannelongue; Chairman of Fondation pour le Droit Continental; Member of Conseil des Prélèvements Obligatoires; Member of the Steering Committee of Institut de
l’Entreprise; Non-voting director of Fimalac and Tajan.
Previous directorships and functions held in the past
five years: Chairman and Chief Executive Officer of
Schneider Electric SA; Chairman of Schneider Electric
Industries SAS; Director of a number of Schneider
Electric Group subsidiaries, Vivendi Universal, Etablissements de Dietrich & Cie, Finaxa, Fimalac
Investissements; Member of the International Committee of Daimler Benz.
Expertise and experience
A graduate of Hautes Etudes Commerciales (HEC),
Henri Lachmann began his career in 1963 with Arthur
Andersen. In 1970, he joined Compagnie Industrielle
et Financière de Pompey. In 1971, he became Chief
Executive Officer of Financière Strafor (later Strafor
Facom), where from 1981 to 1997 he served as Chairman and Chief Executive Officer. He was elected to the
Schneider Electric SA Board of Directors in 1996 and
was appointed Chairman on February 25, 1999. On
May 3, 2006, he became Chairman of the Supervisory Board of Schneider Electric SA.
Vice Chairman
of the Supervisory Board
Serge Weinberg*
Age: 56
Previous directorships and functions held in the past
five years: Chairman of the Management Board of Pinault-Printemps-Redoute; Chairman of the Supervisory
Boards of France Printemps, Conforama Holding, Guilbert SA and Redcats; Member of the Supervisory
Boards of Yves Saint-Laurent Parfum, Boucheron
Holding and PPR Interactive (PPR’s permanent representative); Director of Schneider Electric, Rexel and
PPR Asia; Tennessee’s permanent representative on
the Board of Directors of Bouygues; General Manager
of Serole.
Expertise and experience
After graduating from France’s Ecole Nationale d’Administration, Serge Weinberg held several positions in
the civil service and ministerial offices. He then served
as Chief Operating Officer of French television channel
FR3, Chief Executive Officer and then Chairman of the
Management Board of Havas Tourisme, and Managing
Director of Banque Pallas Finance. In 1990, Serge
Weinberg joined what would become Pinault-Printemps-Redoute (PPR) when he became Chief Executive of CFAO. Within PPR, he served as Chairman of
Rexel (formerly CDME), an electrical equipment distributor. In 1995, he was appointed Chairman of the
PPR Management Board, a position he held until early
2005.
Members
of the Supervisory Board
Alain Burq
Age: 53
Business address:
Schneider Electric Industries SAS
89 bd Franklin Roosevelt – 92500 Rueil Malmaison,
France
2,047 (1) Schneider Electric shares
First elected: 2000 / Current term ends: 2008
Other directorships
and functions in French or foreign companies
Currently: Member of the Supervisory Boards of
Schneider Electric and the "Schneider Actionnariat"
corporate mutual fund; Responsible for special projects at Schneider Electric’s Finance Department.
Business address: Capital Partners
40 rue de la Boétie - 75008 Paris, France
Previous directorships and functions held in the past
five years: Director of Schneider Electric and Chairman
of Ordosoftware.
500 Schneider Electric shares
Expertise and experience
First elected: 2005 / Current term ends: 2010
A graduate of Ecole Supérieure de Commerce de
Paris, Alain Burq also has an MBA from the Wharton
School of the University of Pennsylvania. In 1982, he
joined Schneider Electric subsidiary Spie Batignolles,
where he held various positions until 1998, when he
moved to Schneider Electric. He has been in charge of
special projects for the Finance department since
2005.
Other directorships and
functions in French or foreign companies
Currently: Vice Chairman of the Supervisory Board
of Schneider Electric; Chairman of the Board of Directors of Accor; Chairman and Chief Executive Officer of
34
Weinberg Capital Partners; Member of the Supervisory Board of Gucci Group; Director of FNAC, RASEC
(since February 2006), Team Partners Group (since
November 20, 2006), Alliance Industrie (since October
5, 2006) and Financière Poinsetia (since September
11, 2006); General Manager of Adoval and Maremma.
Gérard de La Martinière*
Age: 63
Business address: Fédération Française des
Sociétés d’Assurances 26 Boulevard Haussmann 75008 Paris, France
1,606 Schneider Electric shares
First elected: 1998 / Current term ends: 2010
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric, Chairman of Fédération Française
des Sociétés d'Assurances (F.F.S.A), Chairman of the
European Insurance Committee (CEA), Director of Air
Liquide.
Previous directorships and functions held in the past
five years: Member of the Management Board of AXA;
Director of Schneider Electric; Director and Chief
Executive Officer of Finaxa; Director of Crédit Lyonnais; Director or Chairman of various AXA subsidiaries; including Compagnie Financière de Paris
and Ateliers de Construction du Nord de la France
(ANF); Chairman of the Board of Directors of LCH
Clearnet Group Ltd., London.
Expertise and experience
A graduate of Ecole Polytechnique and Ecole
Nationale d'Administration, Gérard de La Martinière
held several positions in the French Finance Ministry
before serving as Secretary General of Commission
des Opérations de Bourse and General Manager of
Société des Bourses Françaises. In 1989, he joined
AXA, where he was appointed Executive Vice- President, Holding Companies and Corporate Functions in
1993, member of the Management Board in 1997 and
Executive Vice-President, Finance, Budget Control
and Strategy in 2000. He left AXA in 2003 to become
Chairman of Fédération Française des Sociétés d'Assurances (F.F.S.A).
René Barbier de La Serre*
Age: 66
Business address: Compagnie Financière
Edmond de Rothschild - 47 Rue Faubourg
Saint-Honoré – 75008 Paris, France
man of the Board of Directors of Tawa UK Ltd (London); Chairman and Chief Executive Officer of Continentale d’Entreprises; Member of the Supervisory
Boards of Pinault Printemps Redoute; Director of
Schneider Electric, Calyon, Crédit Lyonnais, Fimalac
Investissements and AOBA Life (Japan); Non-voting
director of Nord-Est; Compagnie Financière SaintHonoré’s permanent representative on the Supervisory Board of Compagnie Financière Edmond de Rothschild Banque; Advisor to the Chairman of Crédit
Commercial de France.
2
Expertise and experience
After graduating from Ecole Polytechnique and Institut
d’Etudes Politiques de Paris, René Barbier de La Serre
joined Banque de l’Union Européenne in 1963, later
becoming Deputy Director. In 1973, he moved to Crédit
Commercial de France (CCF), where he was appointed Managing Director in 1987 and Vice Chairman and
Chief Executive Officer in 1993. He left CCF in 1999.
From 1988 to 1998, René Barbier de La Serre was a
member of Conseil des Marchés Financiers (formerly
Conseil des Bourses de Valeurs), serving as Chairman
from 1994 to 1998. In this capacity, he was a member
of the Collège de la Commission des Opérations de
Bourse.
Noël Forgeard *
Age: 60
Business address:
–
250 Schneider Electric shares
First elected: 2005 / Current term ends: 2010
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric ; Director of Dassault Aviation and
Ecole Polytechnique; Member of the Committee of
France Galop.
Previous directorships and functions held in the past
five years: Chairman and Chief Executive Officer of
Airbus Holding SA; Chairman of the Board of Directors
of Airbus France; Chairman or Director of various Airbus subsidiaries; Director of EADS, Schneider Electric,
Arcelor, IMS SA; Chief Executive Officer of EADS.
Expertise and experience
2,000 Schneider Electric shares
First elected: 2002 / Current term ends: 2008
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric; Director of Nord-Est, Sanofi-Aventis, Pinault-Printemps-Redoute and Harwanne Compagnie de Participations Industrielles et Financières
SA (Geneva); Member of the Supervisory Boards of
Compagnie Financière Saint-Honoré, La Compagnie
Financière Edmond de Rothschild Banque and
Euronext NV (Amsterdam); Non-voting director of
Fimalac.
Previous directorships and functions held in the past
five years: Chairman of the Supervisory Board of
Edmond de Rothschild Private Equity Partners; Chair-
A graduate of Ecole Polytechnique and Ecole des
Mines, Noël Forgeard began his career in the French
civil service before joining Usinor subsidiary Compagnie Française des Aciers Spéciaux. In 1986, he served
as an advisor on industrial issues in Prime Minister
Jacques Chirac’s office. In 1987, he joined Lagardère,
where he headed Matra’s defense and space divisions. Five years later, he became Chairman and Chief
Executive Officer of Matra Haute Technologie and joint
Chief Executive Officer of the Lagardère Group. In
1998, he was appointed Director and General manager of GIE Airbus-Industrie, and in 2000, CEO of Airbus
SAS. From July 1, 2005 to July 1, 2006 he was coExecutive Chairman of EADS.
* Independent Supervisory Board member, as defined in
the Bouton report on corporate governance.
(1) Directly or through the corporate mutual fund.
35
Corporate governance
M. Jérôme Gallot *
Age: 47
Business address: CDC Entreprises 33 avenue
du Maine BP 174 - 75755 Paris Cedex 15, France
250 Schneider Electric shares
First elected: 2005 / Current term ends: 2008
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Boards of
Schneider Electric and Caisse Nationale de Prévoyance (CNP Assurances); Chairman of CDC Entreprises; Director of Compagnie Nationale de Rhône (CNR);
ICADE; Caixa Seguros and Plastic Omnium.
Previous directorships and functions held in the past
five years: Senior Executive Vice President, Caisse
des Dépôts et Consignations; Director of Schneider
Electric; Director of Crédit Foncier de France, Galaxy
Fund and Galaxy Management Services; Chairman of
the Austral Sicav investment fund.
Expertise and experience
Jérôme Gallot is a graduate of Institut d'Etudes Politiques de Paris and Ecole Nationale d'Administration.
After three years with the Cour des Comptes, he
served as an advisor to the Secretary General of the
interministerial committee for European economic
cooperation, from 1989 to 1992, and then moved the
Budget department. He was then Chief of Staff in a
number of French ministries, from 1993 to 1997. In
1997, he was appointed Director of the Competition,
Consumer Affairs and Anti-Fraud Division of the Ministry of the Economy and Finance. He left this position
in 2003 to become Senior Executive Vice President at
Caisse des Dépôts et Consignations. He was appointed Chairman of CDC Entreprises in September 2006.
Willy R. Kissling *
Age: 62
Business address: Poststrasse no. 4 - BP 8808
Pfaeffikon, Switzerland
1,250 Schneider Electric shares
First elected: 2001 / Current term ends: 2008
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric; Director of Holcim Ltd (cement),
Kühne + Nagel International AG (logistics); Chairman
of the Board of Directors of Grand Hotels Bad Ragaz
AG; Member of the Booz Allen Hamilton European
Advisory Board.
Expertise and experience
Willy Kissling, a Swiss citizen, holds diplomas from the
University of Bern and Harvard University. He began
his career at Amiantus Corporation and then joined
Rigips, a plasterboard manufacturer, in 1978. He was
appointed to the Rigips Executive Committee in 1981
and subsequently became Chairman. From 1987 to
1996, he served as Chairman and Chief Executive
Officer of Landis & Gyr Corporation, a provider of services, systems and equipment for building technology,
electrical contracting and pay phones. From 1998 to
2005, he was Chairman of Unaxis Corporation, also
serving as Chairman and Chief Executive Officer from
1998 to 2002.
Cathy Kopp *
Age: 58
Business address: Accor
33 Avenue du Maine – 75015 Paris, France
250 Schneider Electric shares
First elected: 2005 / Current term ends: 2010
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric, Executive Vice President, Human
Resources and Sustainable Development, Accor.
Previous directorships and functions held in the past
five years: Non-voting Director of Schneider Electric
SA, Vice-President, Corporate Human Resources and
member of the Executive Committee of LVMH.
Expertise and experience
After earning a degree in mathematics, Cathy Kopp
joined IBM France in 1973. In 1992, she became
Human Resources Director at IBM France. In 1996,
she was appointed Vice-President Human Resources
at IBM Corp.’s Storage Systems Division. In 2000,
Cathy Kopp became Chairman and CEO of IBM
France. She joined Accor in 2002 as Human
Resources General Manager. She is a member of the
board of Haute Autorité de Lutte contre les Discriminations (Halde), France’s equal opportunities commission, and Chairman of the employee relations commission of the Service Industry Group of the French
employers’ federation (Medef). In 2006, she led the
Medef’s inter-industry negotiations on diversity.
James Ross *
Age: 68
Business address: Flat 4 55, Onslow Square –
London SW7 3LR England
300 Schneider Electric shares
First elected: 1997 / Current term ends: 2010
Previous directorships and functions held in the past
five years: Director of Schneider Electric; Chairman of
the Board of Directors and Chairman and CEO of
Unaxis Corporation (renamed OC Oerlikon Corp.);
Vice Chairman and later Chairman of Forbo Holding
AG and SIG Holding Ltd.
36
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric; Director of McGraw-Hill Inc., Datacard Inc., Prudential plc; Chairman of the Leadership
Foundation for Higher Education.
Previous directorships and functions held in the past
five years: Chairman of Littlewoods plc, Chairman of
the National Grid, Vice-Chairman of National Grid
Transco.
Expertise and experience
James Ross, a British subject, is a graduate of Oxford
University. In 1959 he joined BP, where he held several positions before becoming a Managing Director in
1991. He was Managing Director of Cable & Wireless
plc from 1992 to 1995, when he was appointed Chairman of the National Grid. After National Grid merged
with Transco in 1999, he served as Vice-Chairman of
National Grid Transco from 2002 to 2004.
Chris Richardson
Cables Saic, Pirelli Cabos SA, Pirelli Canada Inc,
Pirelli Tyre Holding Nv, Pirelli UK Tyres and Turk Pirelli
Lastikleri AS.
Expertise and experience
Piero Sierra, an Italian citizen with a degree in humanities from the University of Lyon, joined the Pirelli
Group in 1962. He held management positions in Italy
and abroad before becoming Director and Chief Executive Officer of Pirelli SpA from 1991 to 1995.
2
Mr. Sierra is Chairman of A.I.R.C. (Italian Association
for Cancer Research) and F.I.R.C. (Italian Foundation
for Cancer Research).
Non-voting member
Age: 62
Business address: 2321 Tanglewood Brok Lane
35243 Birmingham, Alabama (USA)
Claude Bébéar
Age: 71
250 Schneider Electric shares
First elected: 2004 / Current term ends: 2008
Other directorships and
functions in French or foreign companies
Business Address: AXA
25 Avenue Matignon, 75008 Paris, France
250 Schneider Electric shares
First elected: 2004 / Current term ends: 2010
Currently: Member of the Supervisory Board of
Schneider Electric.
Previous directorships and functions held in the
past five years: Former Executive Vice-President of
Schneider Electric's North American Division; Director
of Square D, Financière MGE, MGE Finances SAS,
MGE-UPS Systems, Schneider (Thailand) Ltd.
Expertise and experience
A US citizen, Chris Richardson graduated from Iowa
State University after serving in the US Air Force from
1964 to 1968 and joined Square D in 1971. He spent
his entire career with the company, which was
acquired by Schneider Electric in 1991. From 1998 to
January 2004, he served as Executive Vice-President
of Schneider Electric's North American Division.
Piero Sierra *
Age: 72
Business address: Pirelli SpA
Viale Sarca 222 – 20126 Milan, Italy
1,000 Schneider Electric shares
Other directorships and
functions in French or foreign companies
Currently: Non-voting Director of Schneider Electric
SA; Chairman of the Supervisory Board of AXA; Director of various subsidiaries of AXA and BNP Paribas;
Member of the Supervisory Board of Vivendi.
Previous directorships and functions held in the past
five years: Chairman and Director of various AXA subsidiaries, including AXA Financial; Chairman and Chief
Executive Officer of Finaxa ; Director of Schneider
Electric SA and Vivendi Universal.
Expertise and experience
A graduate of Ecole Polytechnique, Claude Bébéar
joined in 1958 the mutual insurance company that
would become AXA in 1985. He was appointed Chairman and Chief Executive Officer of the company in
1975.
From late 1996, when AXA merged with UAP, until
2000, when he was appointed Chairman of the Supervisory Board, Mr. Bébéar served as Chairman of AXA’s
Management Board and Chairman of its Executive
Committee.
First elected: 1997 / Current term ends: 2008
Other directorships and
functions in French or foreign companies
Currently: Member of the Supervisory Board of
Schneider Electric; Director of Pirelli Group companies: Pirelli SpA (Milan), Alexandria Tire Corp, Pirelli
Deutschland AG, Pirelli Neumaticos Saic, Pirelli UK
Tyres, Turk Pirelli Lastikleri AS, Pirelli North America
Inc and Pirelli SA (Brazil).
Previous directorships and functions held in the past
five years: Director of Schneider Electric SA, Pirelli
Cables Et Systemes SA, Pirelli Armstrong Tire Corp,
Pirelli Cable Corporation, Pirelli Cables Ltd, Pirelli
* Independent Supervisory Board member, as defined in
the Bouton report on corporate governance.
37
Corporate governance
2.
Organizational
and operating procedures of
the Supervisory Board**
The Supervisory Board exercises ongoing control over
the Management Board’s management of the Company, in accordance with French law. To this end, it performs all the checks and controls that it considers
appropriate and obtains copies of any and all documents that it considers necessary to allow it to fulfill its
duties.
Specific powers are vested in the Supervisory Board
under French law and the Company’s bylaws. These
include the power to:
Appoint the Management Board, determine the number of members and their compensation and designate
the Chairman.
If necessary, remove Management Board members
from office.
Authorize debt and equity financing transactions that
will have a substantial effect on the Company’s balance sheet structure.
Authorize material business acquisitions and disposals.
Authorize the creation of stock option plans or stock
grant plans.
Authorize the signature of regulated related party
agreements.
Authorize the issuance of bonds and other guarantees, subject to compliance with French law.
The Supervisory Board may appoint one or two nonvoting members to assist it and/or decide to create
Committees of the Board. It draws up internal rules
and procedures covering its activities, and decides the
allocation of the total attendance fees awarded to the
Supervisory Board by the shareholders in General
Meeting.
Article 4 defines the role and powers of the Supervisory Board’s Chairman. The Chairman leads the work
of the Board and is regularly informed by the Management Board’s Chairman of material events and developments in the life of the Group.
Article 5 concerns the information received by the
Supervisory Board. It stipulates that Supervisory
Board members shall receive any and all information
required to enable them to fulfill their duties and that
they may request any and all necessary or relevant
documents prior to any meeting of the Board. The article also describes the content of the Management
Board’s quarterly reports to the Supervisory Board, to
be drawn up in accordance with article L.225-68 of the
French Commercial Code.
Article 6 defines the status of Supervisory Board
members. Corresponding to the director’s charter contained in the AFEP-MEDEF corporate governance
guidelines, it states that Supervisory Board members
must:
Represent all shareholders and act in the corporate
interest.
Resign from the Board when they have not participated in more than half the Board meetings.
Comply with an overall obligation of confidentiality.
Report any and all conflicts of interest.
Hold at least 250 shares of Company stock.
Comply with strict rules governing transactions in
Company stock (in particular, no transactions may be
carried out during the month before the annual or halfyearly results are announced).
Attend Shareholders' Meetings.
Article 7 states that non-voting members, who attend
Supervisory Board meetings in a consultative capacity, are subject to the same ethical rules as voting members.
The Supervisory Board’s internal rules and procedures adopted on May 3, 2006 – which include the
internal rules and procedures of the Board committees
(the Remunerations and Appointments & Corporate
Governance Committee and the Audit Committee) as
well as the directors' charter recommended under
AFEP- MEDEF corporate governance guidelines –
comprises 13 articles:
Articles 8 to 10 concern the Board Committees and
are described in the corresponding section below.
Article 1 defines the Board's role and powers (see
above). It also specifies the Management Board decisions that require the prior approval or consultation of
the Supervisory Board.
To ensure that Board members are fully prepared, the
Company sends them the meeting agenda ten days
before upcoming Board meetings, along with draft minutes of the previous meeting. Four to five days beforehand, the members also receive a meeting file. The file
for the meeting held to approve the annual or interim
financial statements includes the financial statements
approved by the Management Board (in the case of
the interim financial statements, the file may not be
available until closer to the meeting date). The file
includes notes or the text of presentations scheduled
on the agenda, as well as, when appropriate, any draft
reports and the consolidated or parent company financial statements. A supplementary file may also be provided at the meeting.
Article 2 defines the principles applied by the Board
concerning the renewal of its membership. These
include assuring international representation by maintaining a significant number of non-French members,
maintaining independence through a majority of independent members as defined in the AFEP-MEDEF
corporate governance guidelines, ensuring continuity
through the re-election of a certain proportion of the
members each year and enabling representation of
employee shareholders by a member who sits on the
Supervisory Board of a mutual fund invested in the
Company’s shares.
Article 3 defines the procedures for organizing and
38
conducting Board meetings (notice of meeting, methods of participation, minutes, etc.).
Articles 11 and 13 define the scope of the internal
rules and procedures.
Article 12 allows for the Management Board to allocate management tasks among its members, with the
Supervisory Board’s authorization.
Supervisory Board meetings are attended by the
members of the Management Board and Executive
Committee members may be invited to make presen-
tations on major issues within their area of responsibility. The external Auditors attend the Board meetings
held to approve the annual and interim financial statements.
Between meetings, aside from conversations they may
have with the Chairman of the Management Board,
Supervisory Board members receive a monthly Letter
to Supervisory Board Members, a weekly press
review, all of the Company's press releases, financial
analysts' reports and other documents.
Members also have the opportunity to meet informally
with key members of senior management prior to
Board meetings. New members attend training and
information sessions dealing with the Company's strategy and businesses.
Schneider Electric has adopted a code of ethics for
Supervisory Board members and employees designed
to prevent insider trading. Under the terms of this code,
both Supervisory Board members and employees are
barred from trading Schneider Electric shares SA and
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 statements, nor may they engage in any
type of speculative trading involving Schneider Electric
SA shares. This includes margin trading, trading in
options and warrants and purchasing and re-selling
shares in a period of less than four months.
The Board reviewed the Remunerations and Appointments & Corporate Governance Committee’s report
on the second self-assessment of its performance. The
Board Secretary assisted with this assessment in the
fall of 2005 by sending to Directors a questionnaire
drawn up by the Remunerations and Appointments &
Corporate Governance Committee. The questions
concerned the Board of Directors’ membership, missions and operating procedures; its relations with the
Chairman and CEO; and the Committees’ organization
and operating procedures. The Board of Directors analyzed the conclusions provided in a report prepared by
the Remunerations and Appointments & Corporate
Governance Committee. The report revealed that the
Directors were very satisfied with the way in which the
Board operates ("the Chairman makes excellent use of
the Board", "the quality of the discussions are a real
strength for the Company"). The Board was rated very
favorably in general, as well as in comparison to other
Boards and to the first self-assessment carried out in
2002. The main areas for improvement involved deeper contacts with corporate management and the units.
After discussing the Remunerations and Appointments
& Corporate Governance Committee's report, the
Board approved the Chairman and Chief Executive
Officer's compensation package, including the degree
to which his personal targets were met in 2005 and the
rules governing his fixed and variable compensation
for 2006. During the meeting on May 3, 2006, the
Board determined the degree to which the targets
were met in the first four months of the year.
3.
Board of Directors’
meetings in the period from
At its meeting on February 15, 2006, the Board of
Directors closed the 2005 accounts, based on the
Audit Committee's report and after seeking the opinion
of the external Auditors who attended the meeting, and
set the 2005 dividend to be submitted for shareholder
approval at €2.25 per share.
January 1 to May 3, 2006 and
Supervisory Board meetings
in the period from May 3, 2006
to early 2007**
The Board reviewed the Group’s strategic targets for
2006 and, during its three meetings, authorized the
acquisition of Invensys’ Building Management Systems business in North America and the Germanbased Merten companies (Ultra Terminal).
Board of Directors
Three meetings were held in early 2006. The meetings
lasted an average of 2 hours and 40 minutes and the
average participation rate was 93%. They were primarily devoted to the Company's corporate governance,
reviewing the financial statements and preparing the
Annual Shareholders' Meeting.
At its meeting of January 6, 2006, the Board of Directors discussed the issue of the Chairman’s succession.
On Mr. Lachmann’s suggestion, seconded by the
Remunerations and Appointments & Corporate Governance Committee, the Board decided to ask shareholders to approve a change in the corporate governance system at the Annual and Extraordinary Meeting of May 3, 2006. The system would comprise a
Supervisory Board, chaired by Mr. Lachmann and
made up of the current members of the Board of
Directors, and a Management Board, made up of
Jean-Pascal Tricoire and Pierre Bouchut. Mr. Tricoire
would chair the Management Board.
2
The Board called the 2006 Annual Shareholders'
Meeting and approved the reports and resolutions to
be presented at the Meeting. It also discussed the
Chairman's report on the Board's activities and on
internal control, and examined and approved the
replies to written questions submitted by shareholders
under the procedure provided for in article L.225-108
of the French Commercial Code. Thirteen of the fourteen Directors were present at the Annual Shareholders' Meeting, which adopted all the resolutions tabled.
The Board of Directors also carried out the procedures
required by law. These include reviewing budgets and
business plans and placing on record capital increases. Lastly, in line with the statutory procedure governing related party agreements, the Board authorized the
signature of a shareholder agreement with AXA, concerning the AXA and Schneider Electric groups’
respective interests in each other’s capital.
**Paragraphs 2 through 4 and paragraph 8 make up
the Chairman’s report prepared in accordance with article
L225-68 of the French Commercial Code.
39
Corporate governance
Supervisory Board
The Supervisory Board met six times between May 3,
2006, when it was set up, and the end of the year. The
meetings lasted an average of 2 hours and 50 minutes
and the average participation rate was 88%. They were
primarily devoted to the Company's corporate governance and strategy, and reviewing the interim financial
statements.
At the meeting held immediately after the Annual
Shareholders’ Meeting of May 3, the Supervisory Board
set up the new corporate governance structures.
It appointed Henri Lachmann as Chairman, Serge
Weinberg as Vice Chairman and Claude Bébéar as a
non-voting member and also adopted its internal rules
and procedures. The Board determined the membership of its two committees, appointing Henri Lachmann
as chairman and Claude Bébéar, Willy Kissling and
René de la Serre as members of the Remunerations
and Nominations & Corporate Governance Committee, and Gérard de la Martinière as chairman and
James Ross, Piero Sierra and Serge Weinberg as
members of the Audit Committee. James Ross was
also given specific responsibility for examining sustainable development issues. During the meeting, the
Board set the compensation payable to the Chairman
and determined the rules to be applied for the allocation of attendance fees, including variable fees based
on each individual’s attendance rate at Supervisory
Board meetings.
The Board decided that the Management Board would
have two members and appointed Jean-Pascal Tricoire
as its Chairman and Pierre Bouchut as the second
member. It determined the status of, and the compensation payable, to the Chairman of the Management
Board. The pension and insurance arrangements for
Jean-Pascal Tricoire and the terms and conditions governing the reinstatement and termination of his
employment contract with Schneider Electric Industries SAS were adopted under the procedure applicable to related party agreements.
The Supervisory Board conducted an in-depth review
of the Company’s strategy in a one-day meeting devoted entirely to this topic, held at the Electropole R&D
center in Grenoble. At the close of a specific meeting
held on October 25, 2006 to review the proposed
acquisition of American Power Conversion, the Supervisory Board authorized the Management Board to
move forward with the transaction and to issue €4.5
billion in debt and more than €1 billion in equity to
finance or refinance the acquisition. The project was
first presented to the Supervisory Board at a meeting
on October 4. At each of its meetings, the Supervisory
Board was informed of the status of proposed acquisitions that had been presented to the Board of Directors.
At each meeting, the Board also devoted time to monitoring business performance. It reviewed the Company's financial information policy and ensured consistent compliance with market disclosure requirements,
notably through an analysis of market consensus and
the issuance of press releases.
After reviewing the Company’s financial strategy, the
Supervisory Board authorized a €1 billion bond issue,
carried out in two tranches during July 2006.
At its meeting on July 27, 2006, the Board reviewed
the interim financial statements for the six months
40
ended June 30, 2006 based on the Audit Committee's
report and after seeking the opinion of the external
Auditors who attended the meeting.
The Audit Committee reported to the Board on the
work carried out by the internal auditors and the Board
also kept up to date on major risks such as the Bridge
information systems project and bird flu.
The Supervisory Board authorized the Management
Board to set up stock option or stock grant plans – particularly the 2007 plan – and to carry out an employee
share issue (the 2007 worldwide ESPP).
The Supervisory Board also carried out the procedures required by law, which include reviewing budgets and business plans.
4.
Committees of
the Supervisory Board
(members, operating
procedures and meetings)**
The Supervisory Board has drafted internal rules governing the operating procedures and missions of the
Audit Committee and the Remunerations and Appointments & Corporate Governance Committee. Their
members are appointed by the Supervisory Board,
based on recommendations from the Remunerations
and Appointments & Corporate Governance Committee. After checking with the Chairman of the Supervisory Board, the Committees may commission research
from outside consultants, and they may also invite any
persons of their choice to attend their meetings, as
required.
Audit Committee
Members
The Supervisory Board’s internal rules stipulate that
the Audit Committee must have at least three members. Two thirds of the members must be independent
and at least one must have in-depth knowledge of
accounting standards combined with hands-on experience of applying these standards and producing financial statements.
No changes were made to the membership of the
Audit Committee following the replacement of the
Board of Directors by the Supervisory Board. The four
members – Gérard de La Martinière (chairman),
James Ross, Piero Sierra and Serge Weinberg, are all
independent.
Meetings
The Audit Committee meets at least four times a year.
Meetings are called by the Committee chairman, the
Supervisory Board Chairman or the Management
Board Chairman.
The external Auditors attend the meetings devoted to
examining the annual and interim financial statements
and the Committee may also invite any other persons
of its choice to answer its questions.
The Audit Committee may ask the Management Board
for copies of any and all documents that it considers
relevant or useful.
Responsibilities
A key component of the Company’s internal control
system, the Audit Committee is responsible for preparing the decisions of the Supervisory Board, making
recommendations to the Board and issuing opinions
on financial, accounting and risk management issues.
In line with these terms of reference, it:
Prepares the Supervisory Board’s review of the
annual and interim financial statements presented by
the Management Board, in particular by:
– Ensuring that accounting policies used to prepare
the consolidated and parent company financial statements are appropriate and applied consistently, that all
significant transactions are properly reflected in the
consolidated financial statements and that the rules
governing the scope of consolidation are correctly
applied.
– Analyzing risks, off-balance sheet commitments and
the cash position.
Reviews the annual and interim reports drawn up by
the Management Board.
Makes recommendations, based on a review of service proposals, concerning the appointment or reappointment of the external Auditors.
Examines the scope of audit engagements and the
results of audits, as well as verifying the Auditors' independence, in particular by reviewing fees paid by the
Group to their firm and network.
Reviews the internal audit organization and
resources, as well as the internal audit program and
the executive summary of the internal auditors' reports
and the action taken to implement the internal auditors’
recommendations.
Examines proposed dividend distributions and the
amount of financial authorizations submitted for shareholder approval at the Annual Meeting.
The Audit Committee examines all financial, accounting and risk management issues referred to it by the
Management Board, or by the Supervisory Board or its
Chairman.
meetings. In addition, the Committee interviewed the
heads of the Operating Divisions. Neither the Chairman of the Board of Directors nor the Chairman of the
Management Board attended Audit Committee meetings in 2006.
It also reviewed the work of the internal and external
auditors. During its review of risks, the Committee
examined the measures put in place to prevent the
spread of bird flu, as well as the action taken to implement the RoHS (Restriction of Hazardous Substances) and WEEE (Waste from Electrical and Electronic Equipment) directives. It also reviewed the goodwill recognized on recent business combinations.
The Committee made recommendations to the Board
of Directors concerning the 2005 dividend.
It verified the external Auditors' independence, in particular by reviewing fees paid by the Group to their firm
and network.
The Committee reported on its activities in 2006 at the
Board of Directors’ meeting held on February 15, and
at the Supervisory Board meetings held on July 27 and
December 21, 2006.
Remunerations
and Appointments & Corporate
Governance Committee
Members
The Supervisory Board’s internal rules stipulate that
the Remunerations and Appointments & Corporate
Governance Committee must have at least three
members. It is chaired by the Chairman of the Supervisory Board.
No changes were made to the membership of the
Remunerations and Appointments & Corporate Governance Committee following the replacement of the
Board of Directors by the Supervisory Board, except
for the replacement of René Barbier de la Serre as
Committee chairman by Henri Lachmann.
Meetings
In addition, prior to the Committee's review of the
annual and interim financial statements, the Audit
Committee Chairman meets with the external Auditors
alone, without any Company representatives present.
The Remunerations and Appointments & Corporate
Governance Committee meets at least three times a
year. Meetings are called by the Committee chairman,
after consulting the Management Board Chairman.
The Audit Committee Chairman also meets with the
head of Internal Audit four times a year without any
other Company representative present.
The Committee may make enquiries of any persons of
its choice.
The Audit Committee presents its findings and recommendations to the Supervisory Board and distributes
the minutes of its meetings to the Supervisory Board
members.
Responsibilities
Meetings in 2006
In 2006, the Audit Committee of the Board of Directors
or the Supervisory Board met four times. The average
duration of the meetings was 2 hours and 15 minutes
and the average attendance rate was 94%.
Each meeting was attended by members of the
Finance Department and the head of Internal Audit.
The external Auditors were also present for most of the
2
The Audit Committee reviewed the annual and interim
financial statements and the management reports.
The Committee makes recommendations to the
Supervisory Board concerning candidates for appointment to the Management Board, the Supervisory
Board and the Committees of the Supervisory Board It
also makes recommendations concerning the compensation to be paid to the members of the Management Board and to the Supervisory Board Chairman,
as well as on stock options and stock grants for Management Board members.
**Paragraphs 2 through 4 and paragraph 8 make up
the Chairman’s report prepared in accordance with article
L225-68 of the French Commercial Code.
41
Corporate governance
Based on the proposals made by the Management
Board, the Committee makes recommendations concerning the compensation to be paid to the Executive
Committee members, the principles and methods for
determining senior management compensation, as
well as the creation of stock option, stock grant and
employee stock ownership plans.
It is also responsible for examining succession planning solutions for members of the Management Board
and Executive Committee.
It recommends the amount of attendance fees for
approval at the Annual Meeting and their allocation
among Supervisory Board members.
The Committee makes recommendations to the
Supervisory Board concerning measures to provide
assurance to shareholders and the market that the
Board members exercise their judgment independently and objectively. The recommendations relate to:
The terms of reference of the Committees of the
Supervisory Board.
The determination and review of independence criteria applicable to Supervisory Board members.
Assessments of the Supervisory Board’s organization and procedures.
Application by the Company of national or international corporate governance practices.
The Remunerations and Appointments & Corporate
Governance Committee presents its findings and recommendations to the Supervisory Board and distributes the minutes of its meetings to the Supervisory
Board members.
Meetings in 2006
The Remunerations and Appointments & Corporate
Governance Committee of the Board of Directors or
the Supervisory Board met three times in 2006, with
an attendance rate of 100%. It reported on its work to
the Board of Directors on February 15 and May 3, and
to the Supervisory Board on May 3 and December 21.
The Remunerations and Appointments & Corporate
Governance Committee reviewed the results of the
Board of Directors’ self-assessment of its performance, as well as the proposed new bylaws and internal
rules and procedures of the Supervisory Board and
Management Board. The Committee made recommendations to the Board of Directors concerning the
Chairman’s compensation.
It made recommendations to the Supervisory Board
concerning the Board's officers and Committees, as
well as on the Chairman's compensation and the allocation of attendance fees among Supervisory Board
members. It also made recommendations to the
Supervisory Board concerning the composition of the
Management Board and its members’ status and compensation. Lastly, it recommended that the Supervisory Board authorize the Management Board to set up
stock option or stock grant plans – particularly the
2007 plan – and to carry out an employee share issue
(the 2007 worldwide ESPP).
5.
Management
Board Members
The bylaws stipulate that the Management Board may
have between two and seven members.
Members are appointed by the Supervisory Board –
which also designates the Chairman – for a renewable
three-year term.
The age limit for holding office as a member of the
Management Board is 65. When a member reaches
the age of 65, the Supervisory Board may extend his
or her term several times, provided that the total extension does not exceed three years.
The Management Board currently has two members –
Jean-Pascal Tricoire (Chairman) and Pierre Bouchut
– who were appointed by the Supervisory Board on
May 3, 2006 for a three-year term expiring on May 2,
2009.
Chairman of
the Management Board
Jean-Pascal Tricoire
Age: 43
Business address: Schneider Electric
43-45 bd Franklin Roosevelt –
92500 Rueil Malmaison, France
2,580 (1) Schneider Electric shares
First elected: 2006 / Current term ends: 2009
Other directorships and
functions in French or foreign companies
Currently: Chairman of the Management Board of
Schneider Electric SA, Chairman and Chief Executive
Officer of Schneider Electric Industries SAS, Director
of Square D.
Previous directorships and functions held in the past
five years: Director of Clipsal Asia Holding Limited,
Digital Electronics Corporation, Schneider Electric
(Australia) Pty Limited, Schneider Electric New
Zealand Holding Limited, PT Schneider Indonesia,
Schneider Electric Japan Ltd, Schneider Electric
Japan Holding Ltd, Schneider Electric Venezuela SA,
Schneider Toshiba Inverter SAS and PDL Holding Ltd.
Expertise and experience
After graduating from ESEO Angers and obtaining an
MBA from EM Lyon, Jean-Pascal Tricoire spent his
early career with Alcatel, Schlumberger and Saint
Gobain. He joined the Schneider Electric Group (Merlin Gerin) in 1986. Between 1988 and 1999, he held a
variety of line positions with international subsidiaries
in Italy (five years), China (five years) and South Africa
(one year). On his return to France, he joined the headquarters team, serving from 1999 to 2001 as Vice
President, Strategic Global Accounts with specific
responsibility for the Schneider 2000+ program. From
(1) Directly or through the corporate mutual fund.
42
January 2002 to the end of 2003, he was Executive
Vice-President of Schneider Electric's International
Division. In October 2003, he was named Chief Operating Officer, before becoming Chairman of the
Schneider Electric Management Board on May 3,
2006.
Member of
the Management Board
Pierre Bouchut
Age: 52
Business address: Schneider Electric
43-45 bd Franklin Roosevelt –
92500 Rueil Malmaison, France
42,000 Schneider Electric shares
First elected: 2006 / Current term ends: 2009
Other directorships and
functions in French or foreign companies
Currently: Member of the Management Board of
Schneider Electric SA; Chairman of the Board of
Directors of Schneider Electric Services International; Director of Schneider Electric Industries SAS,
Schneider Electric France, Square D and France
Transfo.
Previous directorships and functions held in the past
five years: Director of Havas, Casino (and various
other functions within the Group), Laurus (Netherlands), Smart & Final (USA), CBD (Brazil) and Big C
(Thailand).
6.
Organizational
and operating procedures of
the Management Board
2
The Management Board has the broadest powers in
relation to third parties to act in all circumstances in the
Company’s name within the limits of the corporate purpose, except for those powers that are specifically
vested in the Supervisory Board and the Shareholders’ Meeting under French law, and except for those
matters that require the prior authorization of the
Supervisory Board.
Under French law, the Management Board:
Approves the annual and interim financial statements and related management reports, for submission to the Supervisory Board and the Shareholders’
Meeting.
Calls Shareholders’ Meetings.
Decides share issues and capital reductions, pursuant to an authorization given by shareholders in
Extraordinary Meeting.
Grants stock options and makes stock grants, pursuant to an authorization given by shareholders in
Extraordinary Meeting.
Decides to carry out bond issues.
The Management Board has adopted internal rules
and procedures that organize its activities and its relations with the Supervisory Board. These internal rules
and procedures are invalid against claims from third
parties.
The Management Board has met eleven times since
May 3, 2006.
Expertise and experience
A graduate of Hautes Etudes Commerciales and holder of a masters degree in applied economics from
Paris Dauphine University, Pierre Bouchut began his
career in 1979 with Citibank Paris, before moving to
Bankers Trust France SA in 1987 as Vice President,
Finance. In 1988, he joined McKinsey & Company as
a consultant. In 1990, he accepted the position of Chief
Financial Officer of the Casino Group, subsequently
becoming the Group’s Chief Executive Officer. In May
2005, he joined Schneider Electric as Executive VicePresident Finance & Control – Legal Affairs. He has
been a member of the Management Board since May
3, 2006.
7.
Declarations concerning
the situation of the members
of the Supervisory Board and
Management Board
The members of the Supervisory Board and Management Board together hold 0.033% of the Company’s
capital and 0.024% of the voting rights.
Pierre Bouchut has service contracts with Schneider
Electric Industries SAS and Schneider Electric Services International.
Alain Burq has a service contract with Schneider
Electric Industries SAS.
None of the members of the Supervisory Board or
Management Board has a service contract with the
Company or any of its subsidiaries providing for benefits upon termination of employment.
No related-party agreements have been entered into
between the Company and the members of the Supervisory Board or Management Board.
In the last five years, none of the members of the
Supervisory Board or Management Board have been:
The subject of any convictions in relation to fraudulent offences or of any official public incrimination
and/or sanctions by statutory regulatory authorities.
43
Corporate governance
Disqualified by a court from acting as a member of
the administrative, management or supervisory bodies
of an issuer or from acting in the management or conduct of the affairs of an issuer.
Involved, as a member of an administrative, management or supervisory body or a partner, in a bankruptcy, receivership or liquidation.
None of the members of the Supervisory Board or
Management Board are related to each other.
There are no arrangements or understandings with
major shareholders, customers, suppliers or others
pursuant to which a member of the Supervisory Board
or Management Board has been selected as a member of an administrative, management or supervisory
body or a member of senior management.
There are no conflicts of interests between any duties
to Schneider Electric SA of the members of the Supervisory Board or Management Board and their private
interests.
8. Internal Control**
To anticipate and control the risks associated with its
operations, as well as the risk of accounting and other
errors and fraud, procedures have been established at
Group level that ensure effective risk management.
The purpose of these procedures is to:
Ensure that management actions, transactions and
employee behavior are consistent with the overall business strategy decided by the Supervisory Board and
Management Board of Schneider Electric SA, the
Group’s parent company, that they comply with the
applicable laws and regulations and that they reflect
the Group's values and internal standards and rules.
Obtain assurance that statutory and management
accounting data presented to the Supervisory Board
and Management Board 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 objectives is capable of providing absolute
assurance that the objectives will be met due to the
inherent limitations of procedures, however well conceived. The internal control process is a work in
progress; procedures are adapted to reflect changes in
the business and regulatory environment, as well as in
the Group’s organization. The different participants in
the process ensure that procedures are regularly
updated and circulated throughout the Group.
This report was prepared on the basis of discussions
among these participants, in particular senior management, Finance & Control - Legal Affairs, and the internal auditors. It is supported by a review of the internal
control resources and procedures deployed by the
Group.
**Paragraphs 2 through 4 and paragraph 8 make up
the Chairman’s report prepared in accordance with article
L225-68 of the French Commercial Code.
44
Internal Control Organization
Control environment:
key participants and responsibilities
a) Supervisory Board, Audit Committee
and Remunerations and Appointments
& Corporate Governance Committee
In accordance with article L.225-68 of the French
Commercial Code, the Supervisory Board exercises
permanent oversight over the Company’s management by the Management Board, which has the broadest powers in relation to third parties to act in all circumstances in the Company’s name.
In addition to performing ex-post controls as part of its
oversight activities, the Supervisory Board also performs ex-ante controls, particularly in the areas of
financing and the implementation of Group strategy.
The Company’s bylaws and the Supervisory Board’s
internal rules state that the Management Board must
obtain the Supervisory Board’s prior authorization
before carrying out any debt or equity financing transactions that would significantly alter the Company’s
balance sheet structure, or before deciding any material business acquisitions or disposals.
The Supervisory Board’s ex-post controls include
reviewing the financial statements approved by the
Management Board. As part of its review, the Supervisory Board obtains assurance as to whether the
accounting policies used are appropriate and have
been applied consistently from one period to the next,
whether transactions that are material at Group level
have been properly accounted for and whether the
rules governing the inclusion of companies in the
scope of consolidation have been properly applied.
The Supervisory Board also obtains assurance concerning the reliability of the system of internal control.
The Audit Committee reports to the Supervisory Board
on its review of the internal audit organization, programs and findings, as well as on any examination of
financial or accounting risk management issues performed at the Committee’s own initiative or at the
request of the Supervisory Board, the Supervisory
Board Chairman or the Management Board Chairman.
The Supervisory Board ensures that the Management
Board functions efficiently and effectively. It sets the
compensation of Management Board members, based
on a report drawn up by the Remunerations and
Appointments & Corporate Governance Committee.
Through the Remunerations and Appointments & Corporate Governance Committee, it obtains information
about the senior management compensation policy
decided by the Management Board and authorizes the
creation of stock option and stock grant plans.
b) Senior Management
Until May 3, 2006, Group senior management was
organized around the Direction and Strategy Committee, chaired by Henri Lachmann, Chairman and Chief
Executive Officer, and the Operations Committee,
chaired by Jean-Pascal Tricoire, Chief Operating Officer.
Following adoption of the new bylaws and the new
management organization, the senior management
team now consists of the Management Board, assisted by the Executive Committee. The thirteen-member
Executive Committee is chaired by the Chairman of
the Management Board. It comprises:
The
members of the Management Board.
The
Executive Vice Presidents of the four Operating
Divisions (Europe, North America, Asia-Pacific and
Rest of the World).
The Executive Vice President, Globalization & Industry and Executive Vice President, Strategy, Customers
& Technology, Services & Projects Business Unit
The Executive Vice Presidents of the Power, Automation, Secured Power and Building Automation Business Units.
The Executive Vice President, Human Resources &
Managerial Communication.
The Executive Committee regularly reviews the development outlook of the Group’s core businesses, opportunities for bolt-on acquisitions and the business case
for divestments. It reviews the Group’s overall strategies, its innovation, geographic expansion and human
resources policies and policies governing relations
with research and training establishments.
The Executive Committee reviews the profit centers'
business and financial performance at each of its
meetings. It tracks progress on major projects to
improve IT management processes and deals with all
issues related to production management, supply
chain optimization and relations with partners and distributors. It performs ex-post reviews of product
launches and monitors technological advances that
are likely to be of interest to the Group.
c) Internal Audit
The Vice-President in charge of the 25-member Internal Audit Department reports to the Management
Board and the Audit Committee.
The internal auditors are responsible for ensuring at
the level of each unit that:
Risks are appropriately identified and managed.
Significant financial, management and operating information is accurate, reliable and timely.
Employees' actions are in compliance with the Group's
policies, standards, procedures and the applicable laws
and regulations.
Resources are acquired economically, used efficiently and adequately protected.
The internal auditors carry out their work according to
an adjustable annual plan.
Internal audit plans are drawn up based on risk and
control concerns identified by management, taking into
account the results of past audits, the work performed
by the external Auditors and control self-assessments
by the units. When necessary, the audit plan is adjusted during the year to include special requests from
senior management. In light of Schneider Electric’s
core businesses, internal audits focus mainly on revenue recognition and contracts, cash and asset management processes, wages and benefits, financial
reporting, information systems, manufacturing operations, purchasing and operating expenses. The internal
auditors also review newly-acquired units to assess
their level of integration and ensure that Group rules
and guidelines are properly applied.
The internal audit process complies with international
audit guidelines established by the Institute of Internal
Auditors.
2
After each internal audit, a report is issued setting out
the auditors’ findings and recommendations. Copies of
the report are given to the head of the audited entity,
the Management Board and the Audit Committee. The
external Auditors also have access to the reports.
In 2006, the internal auditors performed 25 audits,
including:
Full audits of medium-sized units.
Audits
of a number of operating processes (purchasing, supply chain, IT, etc.).
Post-acquisition audits of newly-acquired companies.
Analyses of control self-assessments by the units.
d) Finance & Control –
Legal Affairs Department
The Finance & Control - Legal Affairs Department is
actively involved in organizing the control environment
and ensuring compliance with procedures.
It is responsible for consolidating and analyzing
monthly, quarterly and annual financial data.
As part of this mission, the department drafts and
updates statutory and management accounting procedures (see "Control Procedures" below) designed to
ensure that statutory and management accounting
practices are consistent throughout the Group and in
compliance with applicable regulations.
The department has regular conversations with the
external Auditors. All consolidated entities are audited
by one or other of the Group’s two external audit firms
or by a member of their network.
e) Operating Divisions
and Business Units
The Operating Division and Business Unit management teams play a critical role in effective internal control. All Group units report to one of the four Operating
Divisions or one of the Business Units, which are managed by an Executive Vice-President, supported by a
financial controller. Within each Division and Business
Unit, the management team organizes control of operations, ensures that appropriate strategies are
deployed to achieve objectives and tracks the performance of the Division’s or Business Unit’s entities.
The Division and Business Unit Executive Vice Presidents sit on the Executive Committee and report to the
Management Board Chairman. The financial controllers report to the Finance & Control - Legal Affairs
department. A Management Committee reviews the
transactions of the Divisions and Business Units on a
monthly basis.
Thanks to frequent contacts with the corporate functions, this matrix organization guarantees a high level
of responsiveness as concerns operations-related
risks, through the presence of local managers, understanding of local environments and business models,
and effective application of Group guidelines.
45
Corporate governance
f) Human Resources Department
The Human Resources department is responsible for
deploying and overseeing the application of procedures concerning employee development, occupational health and safety and professional ethics. These
procedures are presented to all employees in a document entitled "Our Principles of Responsibility". Compliance is verified through the annual evaluation
process and tracking of new2 indicators (see below).
Internal benchmarks
a) Principles of Responsibility
The Principles of Responsibility are a set of guidelines
for decisions and actions that have an impact on stakeholders – employees, customers, vendors, shareholders, the community – or the environment. A copy of the
Principles is given to all new employees along with
their employment contract.
b) Insider Code
This code sets out the rules to be followed by management and employees to prevent insider trading. It
imposes an obligation of confidentiality on all employees who have access to price-sensitive information
and sets permanent restrictions on purchases and
sales of Schneider Electric shares by persons who
have access to price-sensitive information in the
course of their work.
c) International Internal Auditing Standards
The Schneider Electric internal auditors are committed
to complying with the international standards published by the Institute of Internal Auditors (I.I.A.) and
other bodies.
d) Statutory and Management Reporting
Principles (see "C" below)
Procedures
a) Operating procedures
Management of operational risks
As explained above, operational risks are managed
first and foremost by the units in liaison with the Operating Divisions and Business Units, based on Group
guidelines. General risks are covered by specific procedures described below.
Commitment limits
Commitment limits have been set for executives from
Group level down to the individual units, whereby contracts for the purchase or sale of products or services
may be signed or authorized only by line management
when they exceed a certain amount which varies
according to the type of contract, up to a maximum of
€10 million. In addition, all transactions that may affect
the Group’s fundamental interests, due to their size or
nature, must be authorized in advance by the Management Board or, in some cases, the Supervisory Board.
This rule applies in particular to all purchases and
sales of shares in subsidiaries and affiliates whatever
46
the amounts involved, as well as to subscriptions to
share issues by these entities, purchases and sales of
strategic assets, product development, trademarks
and patents, and off-balance sheet commitments.
Acquisitions Committee,
New Products Committee
Proposed business acquisitions and development programs must be submitted to the Acquisitions Committee or the New Products Committee for review, prior to
being presented for approval at the appropriate management level as described above. The two committees are made up of representatives of the main
departments involved in the projects.
Quarterly management reviews
Group senior management (comprising the Chairman
of the Management Board, the Executive Vice-President, Finance & Control - Legal Affairs and the Executive Vice-President, Human Resources & Managerial
Communication) performs a comprehensive review of
the activities and results of the Operating Divisions
and Business Units four times a year. The review covers the status of the main action plans in the areas of
business growth, operational efficiency and human
capital management, as well as year-to-date results
and forecasts for the remaining quarters.
Monthly management reporting
Group senior management holds monthly meetings to
review the monthly management accounts of the
Group and the individual units.
In addition, financial controllers from the Operating
Divisions, Business Units and the Finance & Control Legal Affairs department review the units’ performance
and principal transactions monthly.
Tracking of priorities set
by the new2 Company Program
new2 focuses on three priorities for which we have
identified significant potential for improvement: growth,
efficiency and people.
The program’s indicators, measured monthly, concern:
Growth achieved by new activities and new products.
The efficiency of such critical processes as customer
satisfaction, supply chain, IT and purchasing and production localization.
Employee development (training, occupational health
and safety, etc.).
new2’s priorities correspond to major processes for
which the Group has committed to a maximum level of
efficiency and quality.
Senior management tracks these indicators monthly.
Action plans are deployed immediately when areas of
risk or improvement are identified.
Financial review meetings
The financial position of all Group companies is
reviewed once a year by Group Finance & Control Legal Affairs.
The process includes, for each unit:
Analytical review of the balance sheet and of capital
employed.
Analytical review of working capital and customer
credit.
An analysis of financial risks (liquidity, currency,
counterparty and credit risks).
assets around the world. The same procedure is followed for trademarks.
A review of compliance with internal rules governing
intercompany payments and transfer pricing.
Purchases
A key process in Group operations, purchases represent 40% of consolidated revenue.
A review of the membership of the unit's Board of
Directors or equivalent.
Monthly Treasury Committee meetings
This Committee, chaired by the Executive Vice-President, Finance & Control - Legal Affairs, reviews the
Group's monthly cash position, foreign currency position and financing capacity.
Foreign currency transactions for all entities are managed at Group level, except for those involving soft currencies. Schneider Electric has established internal
control rules governing foreign exchange exposure –
only the operating receivables and payables of each
entity and intercompany financial receivables and
payables (dividends, loans and borrowings) are
hedged – and the accounting treatment of foreign currency transactions.
b) Specific procedures applicable
to certain types of risks or transactions
Integration of newly-acquired businesses
The integration of newly-acquired businesses is a
process that extends over a period of 6 to 24 months
depending on the type and size of the new entity.
The integration scenario for each acquisition varies
depending on whether the business was acquired to
strengthen the Group’s existing lineup, extend the lineup or penetrate a new segment.
All told, there are five scenarios ranging from total integration to separate organization reporting to senior
management. 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 is drawn up for each acquisition
and submitted to the Acquisitions Committee for
approval. The plan is implemented by an integration
manager who reports to a Steering Committee that initially meets at monthly intervals and then on a quarterly basis.
New product development
The New Products Committee allocates resources
among new product development, range management
and technological research.
Management processes for technological projects
have been harmonized throughout the Group to allow
more effective tracking of resource allocation and
return on investment.
Industrial property
The patents developed or purchased by the Group are
tracked by the Industrial Property team within the
Finance & Control - Legal Affairs Department. All
industrial property information for the main Group subsidiaries is transmitted to this team, which is responsible for managing and protecting these intangible
2
Rules governing purchases mainly concern purchasing department organization and procedures, relationships between buyers and vendors, levels of signature
authority, and compliance with environmental standards. Internal audit plans for individual subsidiaries
or units systematically cover the purchasing function
and include productivity and cost of non-quality analyses, compliance reviews and analyses of the vendor
portfolio.
Internal control procedures
governing the production
and processing of accounting
and financial information
The consolidated financial statements for all fiscal
years commencing on and after January 1, 2005 have
been prepared in accordance with International Financial Reporting Standards (IFRS), to comply with European Union regulation 1606/2002.
A special note to the financial statements presenting a
reconciliation of the 2004 French GAAP accounts to
the 2004 IFRS accounts appears in the notes to the
annual financial statements.
Internal control procedures
to confirm the existence and value
of assets and liabilities
Internal control procedures generally consist of defining levels of responsibility for authorizing and checking
transactions, and segregating tasks to help ensure that
all transactions are justified. In addition, integrated
statutory and management 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 and represent a first level of control in
the application of procedures.
Intangible assets
The process for valuing software and product development costs is designed to monitor and analyze
expenses, identify the portion of those expenses that
meet the definition of an asset and may be capitalized,
and track the asset’s use over time. IT systems have
been deployed to track project development costs and
measure the profitability of new products more accurately.
The carrying value of trademarks is determined based
on an assessment of the economic value of the underlying business at the time of acquisition and on an
independent valuation of the trademark.
47
Corporate governance
Contractual customer relationships are recognized in
certain business combinations, based on independent
valuations.
In accordance with IFRS, goodwill and non-amortizable intangible assets recognized in business combinations are tested half-yearly and yearly to ensure that
the recoverable amount is higher than the carrying
amount.
Property, plant and equipment
Land and buildings are tracked by the Property department and stated at historical cost net of accumulated
depreciation and any accumulated impairment losses.
Manufacturing assets are tracked by the Globalization
& Industry department.
Property, plant and equipment are recognized in the
accounts on the basis of title deeds, an invoice or a
finance lease accompanied by documentary evidence
that the asset has been put into service.
Equity investments
Investments in consolidated companies and availablefor-sale financial assets are tracked and verified by the
Finance & Control – Legal Affairs Department.
Inventories
Inventories are verified at least once a year in each
subsidiary through physical inventories or cycle
counts. Inventories are written down to net realizable
value where appropriate.
Customers
When sales are recorded in the accounts by the subsidiaries, this automatically generates an entry in a
trade receivables account. Receivables are valued and
– where appropriate – written down by the subsidiaries
in accordance with Group policies.
A credit management charter prepared by the Customer Credit Department provides guidelines for new
customer acceptance, credit limits, credit insurance,
dunning and recovery procedures.
Tax assets and liabilities
The subsidiaries are responsible for calculating, accruing and managing their taxes, except in those cases
where the subsidiary concerned is a member of a tax
group.
The Tax unit within the Finance & Control - Legal
Affairs Department reviews the current tax charge in
countries that represent a significant portion of the
Group’s total tax charge. The Tax unit is also responsible for overseeing the resolution of tax claims.
The Operating Divisions generally have their own tax
departments, which ensure compliance with local regulations.
The Statutory and Management Accounting unit within the Finance & Control – Legal Affairs Department
reviews the Group’s current and deferred tax position
during each quarterly consolidation process. The procedure includes performing analytical reviews of the
main subsidiaries’ tax position, preparing the tax proof
validating the Group's effective tax rate, and analyzing
changes in deferred tax assets and liabilities by category of tax basis.
48
Provisions for contingencies
Group policy consists of recording provisions for contingencies and charges in the accounts of the individual subsidiaries. Claims and litigation are generally
managed jointly by the subsidiary and the Finance &
Control - Legal Affairs Department. Provisions for contingencies are adjusted to reflect any changes in the
estimated risk. Movements recorded by subsidiaries
are required to be evidenced and are checked for compliance with the applicable accounting standards.
When necessary, the Group uses independent experts
to assess risks.
Employee benefits
The subsidiaries are responsible for managing their
employee benefit obligations under compulsory and
company-sponsored plans. Group policy consists of
systematically recording provisions for statutory
length-of-service awards due to employees on retirement, pensions and healthcare costs paid on behalf of
retired employees in all countries where the Group has
an obligation under the related plans.
Long- and short-term debt
Net debt is managed at Group level by the Finance &
Control - Legal Affairs Department. Where appropriate,
cash pooling agreements and currency position management agreements are set up to profit from
economies of scale and minimize financing costs.
Decisions concerning the financing of subsidiaries are
made by the Finance & Control - Legal Affairs Department. The bulk of their financing needs are met by
short-term intercompany loans in their functional currency, but in some cases the Corporate Treasury Center may decide to obtain external financing. Long- term
debt is managed at Group level.
Bond issues are submitted to the Supervisory Board
for approval.
Off-balance sheet commitments
The off-balance sheet commitments of newly-acquired
subsidiaries are reviewed and analyzed when the
company joins the Group. Financial guarantees are
issued by the Finance & Control – Legal Affairs
Department. A consolidated statement of off-balance
sheet commitments is produced at six-month intervals
by the Corporate Management Control and Accounting unit, which performs analytical reviews to check the
data. Other legal commitments are tracked by the
Legal Affairs unit.
Procedures for
the production of accounting
and financial information
Framework and accounting standards
The Group has prepared its financial statements in
accordance with International Financial Reporting
Standards (IFRS) since January 1, 2005.
The Group applies the IFRSs adopted by the European Union as of December 31, 2006.
The Group’s accounting principles reflect the underlying assumptions and qualitative characteristics identi-
fied in the IFRS accounting framework. This involves
preparing the financial statements on the accrual basis
of accounting and assuming that the business is a
going concern. Qualitative characteristics include
understandability, relevance, reliability and comparability. These characteristics rely on information that is
neutral, prudent and complete and that represents
transactions and events in accordance with their substance and economic reality and not merely their legal
form.
The management reporting and consolidation packages of all Group entities are prepared strictly in accordance with Group accounting principles and policies.
The accounting and reporting system
The Corporate Management Control and Accounting
unit 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, Spain,
certain other European countries and China have
already migrated their statutory and management
accounting systems to SAP. An SAP core model for
use by all Group entities is currently being developed
and will be implemented in phases between 2006 and
2009.
The accounts of the subsidiaries are prepared in
accordance with Group accounting policies. The data
are then adjusted, where necessary, to produce the
local statutory and tax accounts.
Consolidation and reporting software is used to report
monthly actual and forecast data and also to produce
the Group financial statements.
A new reporting and consolidation system was
deployed on January 1, 2006. In connection with the
migration to the new system, reporting systems were
reorganized (reporting entities, indicators and deadlines), completing the process of aligning statutory and
management reporting processes.
Account closing
and verification process
producing and distributing reporting packages
throughout the Group and a performance analysis
team that tracks the operating units’ performance in
relation to their targets.
The list of entities to be consolidated or accounted for
by the equity method is drawn up by the Corporate
Management Control and Accounting unit, which then
uses this list to determine with the Legal Affairs unit the
consolidation method to be applied to each entity, as
well as the percentage of the entity’s capital and voting
rights held by the Group.
2
The unit issues instructions for the closing process,
including reporting deadlines, required data and any
necessary adjustments.
It checks the quality of the reporting packages submitted by the subsidiaries, focusing primarily on intercompany eliminations, the accounting treatment of nonrecurring transactions for the period, and movements
between the opening and closing balance sheets used
to prepare the statement of cash flows.
The unit also checks the results of programmed procedures, including conversions, intercompany eliminations, transfers to minority interests and recognition of
the effects of changes in scope of consolidation.
At the same time, the Group's consolidated financial
statements are analyzed in detail, to understand and
check the main contributions by subsidiaries, as well
as the substance of transactions reflected in the
accounts. Account classifications are checked. The key
control points concern the preparation and validation
of the statement of changes in equity and the statement of cash flows.
Lastly, the Corporate Management Control and
Accounting unit analyzes consolidated data and the
contribution of each Group unit.
The Corporate Management Control and Accounting
unit is responsible for providing assurance concerning:
The proper application of Group accounting principles and policies.
The integrity of the consolidation system database,
which the unit is responsible for administering and
maintaining.
The
quality of accounting processes and data.
a) Consolidating data from operating units
The reporting entities produce monthly income statements, which are used to determine the Group's
monthly operating profit.
Training for finance staff in the form of specific seminars.
The unit drafts and updates the financial reporting procedures and guidelines required to produce high quality information. These procedures and guidelines are
available for consultation by all employees concerned
on the Group intranet. They include:
The consolidated financial statements are produced
16 working days after the annual or half-yearly periodend. To meet this deadline, all of the subsidiaries perform a hard close at May 31 and November 30 of each
year and the majority of consolidation adjustments for
the period are also calculated at these dates.
A glossary of accounting terms used in the reporting
package, including a definition of each term.
The majority of subsidiaries are consolidated at Group
level; however, the Square D subgroup submits a consolidated reporting package.
b) Role of the Corporate Management
Control and Accounting unit
The Corporate Management Control and Accounting
unit includes a reporting team that is responsible for
A Group statutory and management accounting
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 the Group
reporting process.
An intercompany reconciliation procedure manual.
Account closing instructions.
49
Corporate governance
Report of the statutory auditors
on the internal control procedure
9.
Management interests
and compensation
This a free translation into English of the statutory
auditors’ report issued in the French language and is
provided solely for the convenience of English speaking readers.
Management Board and Executive
Committee compensation policy
This statutory auditors’ report addressing financial and
accounting information in the Chairman’s report on
internal control should be read in conjunction with, and
is construed in accordance with French law and professional auditing standards applicable in France.
The general principles underlying the senior management compensation policy and the situation of each
executive are reviewed by the Remunerations and
Appointments & Corporate Governance Committee
and presented to the Supervisory Board.
To the Shareholders,
The policy’s aims are to:
In our capacity as statutory auditors of Schneider Electric SA Company, and in accordance with article L.225
235 of the French Commercial Code (Code de Commerce), we report to you on the report prepared by the
Chairman of your company in accordance with article
or L.225-68 of the French Commercial Code (Code de
Commerce) for the year ended December 31, 2006.
Retain and motivate the best talents.
Reward individual and collective performance.
Align overall compensation with the Group’s results.
The Chairman is responsible for giving an account, in
his report, of the conditions in which the duties of the
supervisory board are prepared and organized and of
the internal control procedures in place within the company.
The basic principle consists of competitively positioning Schneider Electric in relation to market compensation rates for senior executives of comparable industrial groups in each country concerned, as follows:
Cash compensation, comprising a fixed salary and a
variable bonus, is set at level close to the market median with the salary portion below the market median.
Total compensation (cash compensation, stock options
It is our responsibility to report to you our observations
on the information set out in the Chairman’s report on
the internal control procedures relating to the preparation and processing of financial and accounting information.
or stock grants) is set above the market median.
We performed our procedures in accordance with professional guidelines applicable in France. These
require us to perform procedures to assess the fairness of the information set out in the Chairman’s report
on the internal control procedures relating to the
preparation and processing of financial and accounting
information. In particular, this entailed:
Depending on their responsibilities, Executive Committee members’ variable bonuses are determined as follows:
Obtaining an understanding of the objectives and
general organization of internal control, as well as the
internal control procedures relating to the preparation
and processing of financial and accounting information, as set out in the Chairman’s report.
Obtaining an understanding of the work performed to
support the information given in the report.
On the basis of these procedures, we have no matters
to report in connection with the information given on
the internal control procedures relating to the preparation and processing of financial and accounting information, contained in the Chairman of the supervisory
board’s report, prepared in accordance with article
L.225-68 of the French Commercial Code (Code de
Commerce).
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Mazars & Guérard
Ernst & Young et Autres
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
The variable bonus depends on the degree to which
objectives set at the beginning of the year are met and
can range from 0 to 200% of salary, establishing a
close link between performance and compensation.
30 to 40% of the bonus is determined by reference
to the Group’s overall performance, as measured in
terms of operating margin, organic growth and return
on capital employed.
20 to 40% is based on the performance of the executive’s unit, as measured on the basis of business targets and customer satisfaction rates.
30
to 40% depends on the attainment of measurable
personal performance targets.
The compensation of the Chairman and Chief Executive Officer was set by the Board of Directors and that
of the Management Board members by the Supervisory Board based on the recommendations of the Remunerations and Appointments & Corporate Governance
Committee.
The variable bonuses of the Management Board members (and the Chairman and Chief Executive Officer
before the change in the Company’s management system) are determined as follows:
60% of the bonus is determined by reference to the
Group’s overall performance, as measured in terms of
operating margin, organic growth and return on capital
employed.
40% depends on the attainment of measurable personal performance targets set by the Supervisory
Board (previously the Board of Directors).
Senior management may also be granted stock
options. The main characteristics of the plans are as
follows:
50
The
options have a ten-year life (since 2006).
The options are granted at an exercise price that
does not include any discount to the Schneider Electric
SA share price at the time of grant.
Half of the options (performance options) vest only if
certain targets are met (value creation, sales or operating margin).
The Supervisory Board determines the degree to
which the targets are met, based on advice from the
Remunerations and Appointments & Corporate Governance Committee. For the annual plan set up in
December 2006, 20% of the stock options were
replaced by stock grants for members of the Management Board and Executive Board who are resident in
France for tax purposes, on the basis of one stock
grant for four stock options.
Pension benefits
French members of the management board and
supervisory board are covered by the Group’s top hat
pension plan for senior executives, which provides for
the payment of pension benefits corresponding to up
to 60% (50% plus 1% per year from the sixth to the fifteenth year of service) of their average compensation
for the three calendar years preceding their retirement
(corresponding to the sum of (i) their gross basic
salary and (ii) their variable bonus for the reference
years) less the total benefits received under external
plans, with a cap of 25% of the reference average
compensation. On the death of the executive, the plan
provides for the payment of a 60% reversionary pension to his or her spouse. The capitalized amount of
pension plans in connection with all the management
is approximately €15.4 million.
Non-French members are covered by funded pension
plans in line with local practice in their respective
countries.
2
Compensation, benefits
and stock options of the
Chief Executive Officer – period
from January 1 to May 3, 2006
Compensation
Based on the recommendation of the Remunerations
and Appointments & Corporate Governance Committee, at its meeting on February 15, 2006, the Board of
Directors decided to set the 2006 compensation of
Henri Lachmann, Chairman and Chief Executive Officer, on the same basis as for 2004 and 2005. His
annual salary was set at €800,000 and his target
bonus at 125% of this amount, with a maximum of
250% based solely on personal targets concerning, in
particular, the adoption of new bylaws, the organization of the Group, ongoing implementation of the
acquisitions strategy and optimization of the Group’s
financial resources. At its meeting on May 3, 2006, the
Board of Directors assessed the degree to which the
Chairman and Chief Executive Officer had met his targets, based on advice from the Remunerations and
Appointments & Corporate Governance Committee.
On this basis, Henri Lachmann was paid a salary of
€273,333 for the period from January 1 to May 3, 2006
and a bonus of €675,500.
His compensation as Chairman and Chief Executive
Officer for the last two years was as follows:
2006
(January 1 to May 3
2005
Salary
2005 bonus (paid in 2006)
2006 bonus (paid in 2006)
Attendance fees
Benefit in kind
273,333
675,500
20,220
1,787
800,000
1,507,668
60,000
5,231
Total
970,840
2,372,899
Benefits
Mr. Lachmann’s benefits include a chauffeur-driven
Company car. This benefit in kind can be estimated for
the 2006 fiscal year at €5,837.
He is also covered by the Company's top hat pension
plan for senior executives, under the plan's general
terms and conditions. During the year, he claimed his
pension representing annual benefits equal to 25% of
his average compensation for the three calendar years
prior to his retirement. On his death, his spouse will
receive a reversionary pension equal to 60% of this
amount. Mr. Lachmann was not paid any compensation for loss of office.
Stock options
Henri Lachmann, who was granted options under
plans 16 through 21, 24, 26 and 27, exercised 46,700
plan 16 options at a price of €50.73 and 71,600 plan
17 options at a price of €50.73 during the year. As of
January 1, 2007, he held 941,000 options, including
500,000 performance options.
Compensation of the Supervisory
Board members and the former
members of the Board of Directors
Compensation of the Chairman of the
Supervisory Board – period from May 4 to
December 31, 2006
Based on the recommendation of the Remunerations
and Appointments & Corporate Governance Committee, at its meeting on May 3, 2006, the Supervisory
Board decided to set the annual compensation of its
Chairman at €500,000, not including the attendance
fees paid to Supervisory Board members.
51
Corporate governance
The Chairman of the Supervisory Board does not
receive any stock options or stock grants and will not
be entitled to any payment on leaving the Board.
Compensation of the Supervisory Board
members and the former members of the
Board of Directors
In his capacity as Chairman of the Supervisory Board,
Henri Lachmann was paid gross compensation of
€330,558 for the period from May 4 to December 31,
2006. He was also awarded attendance fees of
€39,780, paid in 2007. He has a Company car and
may also use the chauffeur-driven Company cars
made available to Group senior management. This
benefit in kind can be estimated for the 2006 fiscal year
at €5,837.
The Annual Shareholders’ Meeting set total attendance fees at €800,000. The Board of Directors then
the Supervisory Board decided to allocate these fees
as follows:
In 2006, Mr. Lachmann received total benefits of
€308,030 under the pension plan described above.
Board members and non-voting members resident in
France receive a basic fee of €15,000 and members
resident outside France receive double this amount.
All Board members also receive a variable fee of up
to €30,000 based on their attendance rate at Supervisory Board meetings.
Members who sit on the Committees of the Board
receive a fixed fee of €15,000 with the Committee
chairman receiving double this amount.
On this basis, attendance fees paid in respect of 2005
and 2006 were as follows:
Board of
Directors
January 1 –
May 3, 2006
Henri Lachmann
Claude Bébéar
Alain Burq (3)
Noël Forgeard
Jérôme Gallot
Willy Kissling
Cathy Kopp
Gérard de La Martinière
René Barbier de La Serre
James Ross
Chris Richardson
Piero Sierra
Serge Weinberg
(1)Paid in early 2007.
(2)Paid in early 2006.
Supervisory
Board
May 3 – December
31, 2006
20,220
5,055
7,582.50
15,165
15,165
25,275
5,055
25,275
20,220
25,275
13,480
25,275
20,220
Board of
Directors
2005 (2)
60,000
15,000
22,500
41,685
45,000
75,000
31,575
75,000
60,000
75,000
40,000
75,000
60,000
60,000
15,000
22,500
19,616
29,600
75,000
6,411
75,000
60,000
70,000
50,000
70,000
38,225
(3)Alain Burq, who has a service contract with Schneider Electric Industries SAS,
waived payment of half of his attendance fees.
Compensation, benefits and
stock options of Management Board
members – period from May 4 to
December 31, 2006
Chairman of the Management Board –
Jean-Pascal Tricoire
Compensation
Based on the recommendation of the Remunerations
and Appointments & Corporate Governance Committee, at its meeting on May 3, 2006, the Supervisory
Board decided to set the annual salary of the Chairman of the Management Board at €600,000 and his
target variable bonus at 100% of this amount, with a
maximum of 200%.
Sixty percent of his bonus is based on Group performance targets in terms of operating profit, organic
growth and return on capital employed, and 40% on
personal targets. The degree to which these targets
had been met was determined by the Supervisory
Board on February 20, 2007.
On this basis, Jean-Pascal Tricoire was paid a salary
52
39,780
9,945
14,917.50
26,520
29,835
49,725
26,520
49,725
39,780
49,725
26,520
49,725
39,780
Total Board of
Directors and
Supervisory
Board 2006 (1)
of €396,667 for the period from May 4 to December
31, 2006. His variable bonus for 2006, paid in 2007,
amounted to €760,000.
Mr. Tricoire’s service contract with Schneider Electric
Industries SAS was suspended on his appointment as
Chairman of the Schneider Electric Management
Board. Under this contract, he was entitled to a basic
annual salary of €500,000 and a target variable bonus
equal to 100% of this amount with a maximum of
200%. During the period from January 1 to May 3,
2006, he received €170,833 in salary under this contract and a €644,221 bonus in respect of 2005 and
€313,403 in respect of 2006.
Benefits
At its meeting on May 3, 2006, the Supervisory Board
decided that Mr. Tricoire should continue to be entitled
to all the employee benefits provided for in his service
contract with Schneider Electric Industries SAS. He is
therefore covered by the Schneider Electric Industries
employee benefit plan. In addition, under the procedure applicable to related party agreements, the
Supervisory Board authorized the signature of an
addendum to his service contract stipulating that:
His period as an officer (mandataire social) of
Schneider Electric SA will be taken into account for the
calculation of his rights – pursuant to his service contract – under the Schneider Electric top hat pension
plan for senior executives (see above) as well as for
the calculation of the termination benefit payable under
his service contract. This termination benefit, which will
include the benefit provided for in the industry collective bargaining agreement (Convention Nationale des
Ingénieurs et Cadres de la Métallurgie), will not be less
than double his target annual compensation (salary
plus target variable bonus).
This termination benefit, which will include the benefit
provided for in the industry collective bargaining agreement (Convention Nationale des Ingénieurs et Cadres
de la Métallurgie), will not be less than double his target annual compensation (salary plus target variable
bonus).
Stock options and stock grants
His service contract will resume when he ceases to
be an officer (mandataire social) of Schneider Electric
and Schneider Electric Industries SAS.
Mr. Tricoire’s travel and entertainment expenses are
reimbursed by the Company. He has a Company car
and may also use the chauffeur-driven Company cars
made available to Group senior management. This
benefit in kind can be estimated €4,233.36.
2
Mr. Bouchut’s travel and entertainment expenses are
reimbursed by the Company. He has a Company car
and may also use the chauffeur-driven Company cars
made available to Group senior management. This
benefit in kind can be estimated €4,779.72.
Pierre Bouchut received stock options under plans 26
through 28, and stock grants under plan 1. In 2006, he
received 32,000 performance options with an exercise
price of €82.14 and expiring in 2016 under plan 28
(the 2007 plan), and 2,000 stock grants under plan 1.
As of January 1, 2007, he held 102,000 performance
options and 2,000 performance stock grants.
Stock options and stock grants
Jean-Pascal Tricoire received stock options under
plans 18 through 21, 24 and 26 through 28, and stock
grants under plan 1. He did not exercise any options
during the year.
In 2006, Mr. Tricoire received 80,000 performance
options with an exercise price of €82.14 and expiring
in 2016 under plan 28 (the 2007 plan) and 5,000 stock
grants under plan 1.
As of January 1, 2007, he held 469,000 options,
including 380,000 performance options based on
Group performance, and 5,000 performance stock
grants.
Member of the Management Board –
Pierre Bouchut
Compensation
The Supervisory Board noted that Pierre Bouchut’s
technical functions as the Group’s Chief Financial Officer justified continuing his service contract with
Schneider Electric Industries SAS, which provides for
the payment of an annual salary of €360,400 and a
target bonus of 50% of this amount with a maximum of
100%.
Compensation paid to members
of senior management other than
Management Board members
Changes in senior management
At the beginning of 2006, the Group had a 12-member
senior management team comprising the Chairman
and Chief Executive Officer, the Chief Operating Officer and the Executive Vice Presidents of the four Operating Divisions (North America, Europe, Asia-Pacific,
International & Iberia), the four Central Functions
(Customers & Markets, Products & Technology, Globalization & Industry and Strategic Deployment & Services) and the two Corporate Functions (Finance &
Control – Legal Affairs and Human Resources).
Following adoption of the new bylaws and the new
management organization, the senior management
team now consists of the Management Board, assisted by the Executive Committee. The thirteen-member
Executive Committee is chaired by the Chairman of
the Management Board. It comprises:
The
members of the Management Board
The
Based on the recommendation of the Remunerations
and Appointments & Corporate Governance Committee, at its meeting on May 3, 2006, the Supervisory
Board set limits on Mr. Bouchut’s compensation for the
period from May 3 to December 31, 2006. The Board
recommended raising his target bonus to 60% of his
salary, with a maximum of 120%. Sixty percent of the
bonus is based on Group performance targets in terms
of operating profit, organic growth and return on capital employed, and 40% on measurable personal targets.
Executive Vice Presidents of the four Operating
Divisions (unchanged)
In 2006, Pierre Bouchut received €360,400 in salary
and a 2005 bonus of €174,978. His variable bonus for
2006, paid in 2007, amounted to €377,188.
Compensation
Benefits
Under his service contract, Pierre Bouchut is covered
by the top hat pension plan for senior executives (see
above) and is also entitled to a termination benefit.
The Executive Vice President, Globalization & Industry and Executive Vice President, Strategy, Customers
& Technology, Services & Projects Business Unit
The Executive Vice Presidents of the Power,
Automation, Secured Power and Building Automation
Business Units.
The
Executive Vice President, Human Resources.
In 2006, total gross compensation, including benefits
in kind, paid to the members of senior management
other than the Management Board members (and the
Chairman and Chief Executive Officer before the
change in management system) amounted to
€7,558,450 million, including €4,153,051 in variable
bonuses for 2005.
53
Corporate governance
Variable bonuses are based on the attainment of business targets set at the level of the Group and the managed entity and of personal targets. For 2005, the
Group targets were as follows:
As of January 1, 2007, the members of senior management held a total of 971,600 stock options, including 661,800 performance options, and 4,800 performance stock grants.
Organic growth, with no bonus being paid if the
Group’s 2005 sales represented 104.5% or less of
2004 sales.
During 2006, the members of senior management
exercised a total of 99,200 stock options granted under
plans 16 to 21 at a weighted average price of €55.80.
Operating margin, with no bonus being paid if the
2005 margin rate was 12.5% or less.
Stock options and stock grants
The members of senior management other than the
Management Board members (and the Chairman and
Chief Executive Officer before the change in management system) received a total of 129,800 performance
stock options under plan 28 (the 2007 annual plan),
with an exercise price of €82.14 expiring in 2016, and
4,800 stock grants under plan 1.
Date
Name
Feb. 16
Feb. 24
Feb. 24
Feb. 24
Feb. 24
Feb. 27
Feb. 27
Feb. 27
Feb. 27
Feb. 27
Feb. 28
Feb. 28
Feb. 28
March 29
June 16
March 1
March 1
March 2
March 2
Aug. 11
Aug. 31
Sept. 4
Sept. 4
Sept. 15
Catherine Kopp
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Henri Lachmann
Willy Kissling
Alain Burq
Alain Burq
Alain Burq
Alain Burq
Pierre Bouchut
Willy Kissling
Pierre Bouchut
Pierre Bouchut
Alain Burq
Sept. 15
Nov. 23
Alain Burq
René de La Serre
Transactions in Schneider Electric
shares in 2006 by senior
management, members of the
former Board of Directors and
members of the Supervisory Board
and Management Board
Transactions disclosed in application
of article 621-18-2 of the French Monetary
and Financial Code:
Type of transaction
Number of shares
Share purchase
Exercise of options
Share sale
Share sale
Share sale
Exercise of options
Share sale
Share sale
Share sale
Share sale
Exercise of options
Share sale
Share sale
Exercise of options
Share sale
Exercise of options
Share sale
Exercise of options
Share sale
Share purchase
Share purchase
Sale of financial instruments
Share purchase
Exercise of options
Exercise of options
Share sale
Share purchase
250
20,700
2,000
2,000
16,700
22,000
13,000
4,000
2,000
3,000
4,000
2,000
2,000
57,000
400
2,000
2,000
1,100
1,100
25,000
600
42,000
17,000
1,100
100
1,200
1,000
Price per share
€84.65
€50.73
€85.80
€85.85
€85.786
€50.73
€86.052
€85.75
€85.90
€86,00
€50.73
€86,00
€86.40
€50.73
€72.50
€50.73
€87,00
€50.73
€88.50
€81.51
€83.30
€14.45
€84.75
€53.73
€65.88
€87.00
€83.05
10. Regulated agreements
At its meeting of January 6, 2006, the Board of Directors authorized the signature of a shareholders’ agreement between AXA and Schneider Electric SA. The
agreement calls for the continuation of stable crossshareholdings between the two groups. In particular,
Schneider Electric SA undertakes to hold no less than
8.8 million AXA shares. Each group also holds a call
option that may be exercised in the event of a hostile
takeover. The one-year agreement is automatically
renewed each year unless it is expressly terminated.
54
At its meeting on May 3, 2006, the Supervisory Board
decided that Jean-Pascal Tricoire should continue to
be entitled to all the pension and other benefits provided for in his service contract with Schneider Electric
Industries SAS, which was suspended on his appointment to the Management Board as Chairman. The
Supervisory Board also authorized the signature of an
addendum to his service contract defining the terms
under which it will resume or be terminated.
11. Auditors
Appointed
Appointment
expires
2
Statutory auditors
Ernst & Young et Autres
41, rue Ybry - 92576 Neuilly-sur-Seine Cedex
Represented by Pierre Jouanne and Christian Chochon
1992
2010
Mazars & Guérard
Tour Exaltis - 61, rue Henri Regnault - 92576 Neuilly-sur-Seine Cedex
Represented by Jean-Louis Simon and Pierre Sardet
2004
2010
Charles Vincensini
2004
2010
Philippe Diu
2004
2010
Substitute auditors
Fees paid to the Auditors and members of their networks in 2005 and 2006
(€ thousands)
Barbier Frinault
et Autres
Ernst & Young
2006
%
Audit
- Statutory auditing,
certification, review of
individual and consolidated
financial statements
7,601 80%
- Related engagements
1,597 17%
Sub-total
Other services
- Legal, fiscal
and labor issues
Total
9,198 97%
245
3%
9,443 100%
2005
Mazars
&
Guérard
%
2006
%
2005
Total
%
2006
%
2005
%
6,739 90%
541 7%
4,800 90%
360 7%
3,738 93% 12,401 84% 10,477 91%
140 3% 1,957 13%
681 6%
7,280 97%
5,160 97%
3,878 97% 14,358 97% 11,158 97%
249
3%
7,529 100%
On the Audit Committee's recommendation, the Board
of Directors decided on December 11, 2003 and
December 1, 2005 to limit services provided by the
Auditors or units belonging to their networks to audit
and audit-related engagements. Total audit fees billed
140
3%
5,300 100%
136
3%
4,014 100%
385
3%
14,743 100%
385
3%
11,543 100%
from each audit firm for these engagements must not
exceed 1/3 of total fees billed for statutory accounting.
Audit-related engagements must be authorized by the
Audit Committee Chairman if they exceed €500,000 or
by the Chief Financial Officer.
12. 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 of registered shares. Holders of bearer
shares are sent the notice of meeting by the bank or
broker that holds their share account. Holders of both
registered and bearer shares are required to provide
evidence of their ownership of the shares at the time of
the Meeting.
The following represent proof of ownership:
Registered shares: an entry in the Company's share
register, made at least five days prior to the date of the
Meeting.
Bearer shares: a certificate issued by the custodian
stating that the shares have been placed in a blocked
account, 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 of meeting.
55
Corporate governance
Voting rights
1 - Double voting rights
(article 19 of the bylaws)
Voting rights attached to shares are proportionate to
the equity in the capital represented by each share,
assuming that they all have the same par value. Each
share carries one voting right, unless there are any
unavoidable legal restrictions on the number of voting
rights that may be held by any single shareholder.
Notwithstanding the foregoing, double voting rights are
attributed to fully paid-up shares registered in the
name of the same holder for at least two years prior to
the end of the calendar year preceding the one in
which the Annual Meeting takes place, subject to compliance with the provisions of the law. In the case of a
bonus share issue paid up by capitalizing reserves,
earnings or additional paid-in capital, each bonus
share allotted in respect of shares carrying double voting rights will also have double voting rights.
The shares are stripped of their double voting rights if
they are converted into bearer shares or transferred to
another person, except in the case of an inheritance or
family gift, with the transfer from one registered holder
to another.
Double voting rights may also be stripped by a decision of the Extraordinary Shareholders' Meeting, ratified by a special meeting of shareholders benefiting
from double voting rights.
The minimum holding period to qualify for double voting rights was reduced from four to two years by decision of the combined Annual and Extraordinary Shareholders' Meeting of June 27, 1995.
2 - Ceiling on voting rights
(article 19 of the bylaws)
At the Annual Meeting, no shareholder may exercise
more than 10% of the total voting rights attached to the
Company's shares. The 10% ceiling is calculated on
the basis of the single voting rights and proxies held by
the shareholder concerned. If the shareholder holds or
represents shares carrying double voting rights, the
limit may be raised to 15%, provided that the 10% ceiling is exceeded solely by virtue of the double voting
rights.
The above ceilings will no longer apply, without it being
necessary to put the matter to the vote at a further
Annual Meeting, if any individual or legal entity, acting
alone or jointly with one or other individuals or legal
entities, acquires or increases its stake to at least twothirds of the Company's capital through a public tender
offer for all the Company's shares. In this case, the
Board of Directors will place on record the lifting of the
above ceilings and will amend the bylaws accordingly.
The ceiling on voting rights was approved by the combined the Annual and Extraordinary Shareholders'
meeting of June 27, 1995.
56
Income appropriation
(article 21 of the bylaws)
Net income for the year less any losses brought forward from prior years is appropriated in the following
order:
5% to the legal reserve (this appropriation is no
longer required once the legal reserve represents one
tenth of the capital, provided that further appropriations are made in the case of a capital increase).
To discretionary reserves, if appropriate, and 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 to
the State in accordance with the law.
Disclosure thresholds
(article 7 of the bylaws)
In addition to the legal disclosure thresholds, the
bylaws stipulate that any individual or legal entity that
owns or controls (as 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 with return
receipt requested, within five trading days of the disclosure threshold being crossed.
In the case of failure to comply with these disclosure
obligations, the shares in excess of the disclosure
threshold will be stripped of voting rights at the request
of one or several shareholders owning at least 2.5% of
the Company's capital, subject to compliance with the
relevant provisions of the law.
These disclosure thresholds were approved by the
combined Annual and Extraordinary Shareholders'
Meetings of June 27, 1995 and May 5, 2000.
Identifiable holders of bearer shares
(article 7.3 of the bylaws)
As approved by the combined Annual and Extraordinary Shareholders' Meetings of June 30, 1988 and
May 5, 2000, the Company may at any time request
that Euroclear identify holders of bearer shares carrying voting rights either immediately or in the future.
3
3
General
presentation of
Schneider Electric SA
1. General information . . . . . . . . . . . . . . . . . p. 57
2. Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 57
4. Employee profit sharing, stock ownership,
stock option and stock grant plans . . . . . p. 60
3. Ownership structure . . . . . . . . . . . . . . . . . p. 59
5. Stock market data . . . . . . . . . . . . . . . . . . p. 62
1. General information
2. Capital
Schneider Electric SA is a Société Anonyme (jointstock corporation) governed by the French Commercial Code, with issued capital of €1,821,586,784.
Since May 3, 2006, it has had a two-tier management
structure, with a Supervisory Board and a Management Board. Its head office is located at 43/45, boulevard Franklin Roosevelt - 92500 Rueil-Malmaison,
France (phone: +33 (0)1 41 29 70 00).
The Company is registered in Nanterre under no.
542 048 574, business identifier code (APE) 741J.
Schneider Electric SA was founded in 1871. Its term is
up to July 1, 2031. The Company, which was called
Spie Batignolles, changed its name to Schneider SA
when it merged with Schneider SA in 1995, and then
to Schneider Electric SA in May 1999.
Its summarized corporate purpose is to operate,
directly or indirectly, in France and abroad, any and all
businesses related to electricity, industrial control and
general contracting, as well as to carry out any and all
commercial, securities, real estate and financial transactions (Article 2 of the bylaws). Schneider Electric's
fiscal year runs from January 1 to December 31.
The bylaws, minutes of Shareholders’ Meetings, Auditors’ Reports and other legal documents concerning
the Company are available for consultation at the
Company's head office (Management Board Secretariat) located at 43/45 boulevard Franklin Roosevelt 92500 Rueil-Malmaison, France. The bylaws, auditors’
reports and other documents are also available on the
corporate website (www.schneider-electric.com).
Share capital and voting rights
6. Investor relations . . . . . . . . . . . . . . . . . . . p. 64
The Company's share capital at December 31, 2006
amounted to €1,821,586,784, represented by
227,698,348 shares with a par value of €8.00, all
fully paid up. At December 31, 2006, 247,190,648
voting rights were attached to the 227,698,348 outstanding shares.
Potential capital
No share equivalents were outstanding at December
31, 2006. Stock options granted under the stock option
plans in force at December 31, 2006 represent
3,262,404 shares, of which 6,859,920 correspond to
options to either subscribe new shares or purchase
existing shares, the precise type of such options has
not been determined so far. Stock grants made or to be
made under the plan in force at December 31, 2006
concerned 52,006 shares. The type of options (options
to subscribe new shares or purchase existing shares)
and stock grants (exercisable for existing or new
shares) will be determined at a later date by the Management Board. Details of the plans are provided on
pages 61 and 62.
On the basis of the share capital of the Company as of
December 31, 2006, the potential maximum dilution in
case of issue of all the shares as a result of the exercise of the option to subscribe and stock grants would
be 4.44%.
57
General presentation of Schneider Electric SA
Authorizations to issue shares
At the Annual Shareholders’ Meeting of May 3, 2006,
shareholders transferred to the Management Board
the authorizations given to the Board of Directors on
May 12, 2005 to:
Increase the share capital by a maximum of €500
million (62.5 million shares) by issuing shares or share
equivalents. In the case of an issue without pre-emptive subscription rights, the ceiling stands at €300 million (37.5 million shares).
Increase the capital by a maximum of €300 million
by issuing shares in payment for shares of another
company tendered to a public exchange offer, or, within a limit of 10% of the Company’s issued capital, in
payment for shares or share equivalents of an unlisted
company.
The following authorizations were also given to the
Management Board at the Annual Shareholders’ Meeting of May 3, 2006:
Authorization to issue new shares to members of the
Employee Stock Purchase Plan, within a limit of 5% of
the Company's share capital over 5 years.
Authorization to issue new shares to entities set up
to purchase shares of the Company under programs to
promote employee stock ownership, within a limit of
0.5% of the Company’s share capital over 18 months.
Authorization to grant existing or new Schneider
Electric SA shares to employees and corporate officers of the Company and its affiliates under the provisions of article L.225-197.1 et seq. of the French Commercial Code.
Authorization to grant options to purchase new or
existing shares to employees and corporate officers of
the Company and its affiliates under the provisions of
articles 225-177 and L.225-180 of the French Commercial Code.
On December 21, 2006, the Supervisory Board
authorized the Management Board to issue new
shares to members of the Employee Stock Purchase
Plan during 2007, within a limit of 1% of the Company’s share capital. The Management Board will use this
authorization on May 31, 2007 to issue new shares to
employees under a leveraged stock ownership plan.
At the 2007 Annual Shareholders’ Meeting, the Management Board will ask shareholders to renew the
authorizations to (i) issue shares and share equivalents with or without pre-emptive subscription rights,
(ii) make stock grants to employees and (iii) issue new
shares to members of the Employee Stock Purchase
Plan and entities set up to purchase shares of the
Company under programs to promote employee stock
ownership.
The authorizations currently in force are as follows:
Maximum aggregate
Number of
par value of authorized
shares
share issues
(in millions)
Authorization date/ Used at
Authorization
December
expires
31, 2006
I - Issues with pre-emptive
subscription rights:
shares, warrants and other securities
convertible, exchangeable, redeemable
or otherwise exercisable for shares
€500 million (1)
62.5
May 12, 2005
July 11, 2007
–
II - Issues without pre-emptive
subscription rights:
a) Shares, warrants and other securities
convertible, exchangeable, redeemable
or otherwise exercisable for shares,
for cash or in payment of listed shares
€300 million (1)
37.5
–
10% of the capital (1)
22.8
May 12, 2005
July 11, 2007
May 12, 2005
July 11, 2007
5% of the capital
11.4
May 3, 2006
May 2, 2011
- (6)
Share issues to entities set up
to promote employee stock ownership
0.5% of the capital (2)
1.1
- (6)
Stock options
3% of the capital (3) (5)
6.8
Stock grants
0.5% of the capital (5)
1.1
May 3, 2006
November 2, 2007
May 3, 2006
July 2, 2009
May 3, 2006
July 2, 2009
b) In payment of unlisted shares
III - Employee share issues (ESPP)
–
0.57% (4)
0.02%
(1) The ceilings for issues with and without pre-emptive subscription rights are not cumulative and are capped at €500 million
in the aggregate.
(2) Issues of shares to entities set up to hold shares on behalf of employees will be deducted from the ceiling for employee share issues
(ESPP) without pre-emptive subscription rights.
(3) The number of options to subscribe new shares or purchase existing shares that have been granted and not yet exercised or cancelled
may not exceed 3% of the issued capital.
(4) Options granted under plan 28 are exercisable for either existing or new shares.The origin of the shares will be decided by the
Management Board at the latest at the start of the option exercise period.
(5) Stock grants and options to subscribe existing shares or purchase new shares may not exceed 3% of the issued capital.
(6) At its meeting on December 21, 2006, the Supervisory Board authorized the Management Board to issue new shares to members
of the Employee Stock Purchase Plan during 2007, within a limit of 1% of the Company's issued capital.The Management Board will
use this authorization on May 31, 2007 to issue new shares to employees under a leveraged stock ownership plan.
58
Three-year summary of changes in capital
Changes in share capital and additional paid-in capital since December 31, 2003 as a result of the exercise of
stock options, shares issued to the Employee Stock Purchase Plan and the December 9, 2004 share cancellations were as follows:
Number of shares
issued or cancelled
Capital at December 31, 2003
Share cancellation
Exercise of stock options
Shares issued to the ESPP
(2004 worldwide plan)
New number
of shares
New share
capital
231,842,170
€1,854,737,360
226,194,177
€1,809,553,416
226,619,227
€1,812,953,816
227,698,348
€1,821,586,784
3
(7,000,000)
646,160
705,847
Capital at December 31, 2004 (1)
Exercise of stock options
425,050
Capital at December 31, 2005 (2)
Exercise of stock options
1,079,121
Capital at December 31, 2006 (3)
(1) €45.18 million reduction in share capital, €240.90 million reduction in additional paid-in-capital.
(2) €3.40 million increase in share capital, €19.04 million increase in additional paid-in-capital.
(3) €8.63 million increase in share capital, €52.06 million increase in additional paid-in-capital.
Share buybacks
The Annual Shareholders’ Meeting of May 12, 2005 authorized the Board of Directors to buy back shares on the
open market. No shares were bought back under this authorization in 2006.
The Annual Shareholders’ Meeting of May 3, 2006 authorized the Management Board to buy back shares on the
open market. Pursuant to this authorization, the Company set up a liquidity contract with a broker, under which
the broker purchased 2,292,219 shares at an average unit price of €85.29 and sold 2,172,219 shares at an average unit price of €85.32.
3. Ownership structure
Three-year summary of changes in ownership structure
Capital
%
December 31, 2006
Number
Voting
of shares
rights
%
Number
of voting
rights
December 31, 2005 Dec. 31, 2004
Capital Voting
Capital Voting
%
rights
%
rights
%
%
CDC
4.42
10,062,852
5.36
13,237,852
4.44
5.30
4.45
5.24
Employees
3.09
7,028,765
5.22
12,911,628
3.35
5.67
3.76
6.04
Own shares (1)
0.94
2,150,352
-
-
0.95
-
0.95
-
Treasury stock
2.08
4,725,771
-
-
2.61
-
2.25
-
Public
89.47
203,730,608
86.65
214,165,045
88.65
85.79
88.59
85.86
Total
100.00
227,698,348
100.00(2) 247,190,648 (2)
100.00
100.00(2) 100.00 100.00(2)
(1) Via Cofibel / Cofimines.
(2) Number of voting rights resulting from section 222 12-5 of the Regulation of the French Autorité des Marchés Financiers,
which includes shares stripped of voting rights.
As of December 31, 2006, 25,401,339 shares benefited from double voting rights.
Disclosure thresholds
To the best of the Company's knowledge, no shareholders other than Caisse des Dépôts et Consignations, listed above, hold, either directly or indirectly,
more than 5% of Schneider Electric's capital or voting
rights.
Pledges on Schneider Electric shares
To the best of the Company's knowledge, shares
pledged by shareholders represent 0.0044% of the
issued capital.
Pledges on subsidiaries' shares
Schneider Electric has not pledged any shares in significant subsidiaries.
59
General presentation of Schneider Electric SA
4.
Employee profit sharing,
stock ownership, stock option
grants for grantees who are resident in France for tax
purposes, on the basis of one stock grant for four stock
options according to the following rule:
and stock grant plans
Members of the Management Board and Executive
Committee: 20% of the number of options
Profit-sharing plans
Profit-sharing and other profit-based incentive plans
have been in effect at Schneider Electric Industries
SAS since 1994. The amounts allocated over the past
five years were as follows:
€2.2 million in 2002 (profit-based incentive plan and
profit sharing).
€13 million in 2003 (profit-based incentive plan).
€35.2 million in 2004 (profit-based incentive plan).
€19.5 million in 2005 (profit-based incentive plan).
€18.9 million in 2006 (profit-based incentive plan
and profit sharing).
The "Schneider Electric"
corporate mutual fund
Schneider Electric has long been committed to developing worldwide 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 last employee share issue was carried out in
2004. At its meeting on December 21, 2006, the
Supervisory Board authorized the Management Board
to carry out a new worldwide employee share issue
during 2007, within a limit of 1% of the Company’s
issued capital at December 31, 2006.
As of December 31, 2006, employees held a total of
7,029,981 Schneider Electric SA shares through the
corporate mutual funds or directly, representing 3.09%
of the capital and 5.22% of the voting rights, taking into
account double voting rights.
Other grantees: 30% of the number of options.
The following plans were set up:
Stock option plan 28, covering 489 grantees
Stock grant plan 1, covering 221 grantees.
Description of the stock option plan
The option exercise price is equal to the average share
price of the twenty trading days prior to the date of
grant by the Management Board. No discount is
applied.
Since 2006, options have a ten year life. Options granted under plans 16 through 19 are exercisable as from
the fourth year following the grant date, except for
options granted under plans 16 and 19 which are exercisable as from the fifth and third year respectively.
Under all four plans, the shares (to be held in registered form) are subject to a five-year lock-up. Options
granted under plans 20, 21, 24 and 26 through 28 vest
automatically and are exercisable as from the fourth
year or, in certain cases, as from the third year.
Options granted under plans 24, 26 and 28 may also
be exercised in the case of a public offer for the Company’s shares. Exceptionally, options granted under
plans 22, 23 and 25 may be exercised as from the first
year.
Options may only be exercised by Group employees.
In addition, the exercise of options granted under plans
16 through 18, 20, 21, 24 and 26 through 28 is fully or
partially dependent on specific targets being met concerning profit, value creation, revenue or operating
margin, as described in the table below.
Because these targets were only partially achieved,
2,319,800 options granted under plans 16 through 21
were cancelled.
Description of the stock grant plan
Stock option and stock grant plans
Grant policy
Stock option and stock grant plans are decided by the
Management Board with the authorization of the
Supervisory Board, following a review of the plans by
the Remunerations and Appointments & Corporate
Governance Committee.
Grantees include members of Senior Management,
top managers in all countries, high-potential managers
and employees who performed exceptionally during
the year.
Grants to members of Senior Management, including
the Chairman and CEO and members of the Management Board, represent between 20% and 25% of the
total, depending on the plan.
In 2005, the decision was made to set up annual plans
at the end of the fiscal year so that grantees will be
informed of stock option grants and stock grants at the
same time that their bonus targets are determined.
For the annual plan set up in December 2006, a certain proportion of stock options were replaced by stock
60
The vesting and lock-up periods for stock grants made
under plan 1 dated December 2006 are 3 years and
2 years respectively.
Grantees must be Group employees for their stock
grants to vest. Half of each grant is subject to performance targets, based on revenue and operating margin.
Options and stock grants received and
exercised by corporate officers and the top
grantees during the year
The following were granted to members of the Management Board:
Jean-Pascal Tricoire: 80,000 performance options
under plan 28 (exercise price €82.14, expiry date 2016)
and 5,000 performance stock grants under plan 1.
Pierre Bouchut: 32,000 performance options under
plan 28 (exercise price €82.14, expiry date 2016) and
2,000 performance stock grants under plan 1.
Henri Lachmann, who was granted options under
plans 16 through 21, 24, 26 and 27, exercised 46,700
plan 16 options at a price of €50.73 and 71,600 plan
17 options at a price of €50.73 during the year.
Options granted to the top ten employee grantees during the year
and exercised by the ten employees exercising the most options during the year
Number
of options
Exercise price
(in €)
Expiry date
Options granted in 2006 to the top ten employee grantees
(not including corporate officers)
Plan 28
138,300
82.14
2016
Options exercised in 2006 by the ten employees exercising the largest
number of options during the year (not including corporate officers)
282,900
54.11(1)
NA
3
(1) Weighted average price.
Stock grants made to the top ten employees during the year
Number of shares
Grants made in 2006 to the top ten employee grantees
(not including corporate officers)
Plan 1
6,591
Stock option plan details
Plan
no.
Plan
date
Initial
Initial
number of number
grantees of options
Exercise Vesting conditions
price
(in €)
% of
target
met
Cancelled
options
(1)
Options
Options
Options
granted to
granted outstanding
corporate
to top 10 at Dec. 31,
officers (2) employees (2) 2006 (3)
16
April 1, 1999 P
337
1,259,300
50.73
50% - value creation
1999-2001
55.4
245,900
85,600
154,500
167,550
17
April 1, 1999 P
542
2,123,100
50.73
100% - 2001 sales, base
costs and operating profit
47.7 1,078,600
107,400
172,900
200,143
18 March 24, 2000 P 1,038
1,421,200
65.88
50% - value creation
2000-2002
19
April 4, 2001 S
1,050
1,557,850
68.80
None
20
Dec. 12, 2001 S
180
1,600,000
51.76
100% - 2004 sales and
operating profit
21
Feb. 5, 2003 S
433
2,000,000
22
Feb. 5, 2003 S
111
23
May 6, 2004 S
0
686,600
63,000
87,900
358,628
NA
NA
205,500
163,600
1,048,458
89.0
166,800
89,000
296,800
602,346
45.65
50% - 2005 operating profit
84.0
and return on capital employed
141,900
138,000
322,100
1,439,900
111,000
45.65
None – reserved for winners
of the NEW2004 trophies
NA
NA
-
10,000
59,050
107
107,000
56.09
None - reserved for winners
of the NEW2004 trophies
NA
NA
-
10,000
52,600
24 May 6, 2004 S/P
402
2,060,700
56.09
50% - operating margin.
1/3 per year over 2004, 2005
and 2006
-
-
150,000
282,200
1,999,900
25
157
138,500
57.02
None - reserved for winners
of the NEW2004 trophies
NA
NA
-
15,000
60,050
26 June 28, 2005 S/P
458
2,003,800
60.78
50% - 2005 and 2006 sales
and operating margin
-
-
200,000
300,000
1,989,200
27 Dec. 1, 2005 S/P
419
1,614,900
72.10
50% - 2006 and 2007 sales
and operating margin
-
-
150,000
293,000
1,613,700
28 Dec. 21, 2006 S/P
489
1,257,120
82.14
50% - 2007 and 2008 sales
and operating margin
-
-
112,000
138,300
1,257,120
May 12, 2005 S
17,254,470
2,319,800 1,300,500
2,246,300 10,848,645
(1) Number of options cancelled because the targets were not met (plans 16 to 21).
(2) Number of options after deducting options cancelled because the targets were not met.
(3) Number of options outstanding after deducting all options cancelled and exercised since the plan’s inception.
S=Options to subscribe new shares.
P=Options to purchase existing shares.
61
General presentation of Schneider Electric SA
Stock grant plan details
Plan
no.
Plan
date
Type
(1)
Expiration
date
Price
in euros
Number
of options
outstanding
(2)
Options
granted to
corporate
officers
Options
exercised
in 2006
Options
cancelled
in 2006
(2)
Number
of options
outstanding
at Dec. 31,
2006
16
April 1, 1999
P
March 31, 2007
50.73
478,720
50,600
311,170
0
167,550
17
April 1, 1999
P
March 31, 2007
50.73
622,052
97,400
421,909
0
200,143
18
March 24, 2000
P
March 23, 2008
65.88
583,981
63,000
225,353
0
358,628
19
April 4, 2001
S
April 03, 2009
68.80
1,426,375
205,500
374,917
3,000
1,048,458
20
Dec. 12, 2001
S
Dec. 11, .2009
51.76
970,850
89,000
362,904
5,600
602,346
21
Feb. 5, 2003
S
Feb. 4, 2011
45.65
1,861,100
138,000
280,900
140,300
1,439,900
22
Feb. 5, 2003
S
Feb. 4, 2011
45.65
69,950
-
10,900
0
59,050
23
May 6, 2004
S
May 05, 2012
56.09
74,000
-
21,400
0
52,600
24
May 6, 2004
S/P
May 05, 2012
56.09
2,024,900
150,000
0
25,000
1,999,900 (3)
25
May 12, 2005
S
May 11, 2013
57.02
89,150
-
28,100
1,000
60,050
26
June 28, 2005
S/P
June 27, 2013
60.78
1,994,800
200,000
0
5,600
1,989,200 (3)
27
Dec. 1, 2005
S/P
Nov. 30, .2013
72.10
1,614,900
150,000
0
1,200
1,613,700 (3)
28
Dec. 21, 2006
S/P
Dec. 20, 2016
82.14
1,257,120
112,000
0
0
1,257,120 (3)
13,067,898
1,255,500
2,037,553
181,700
(1) S=Options to subscribe new shares / P=Options to purchase existing shares.
(2) As of January 1, 2006 for plans 16 to 27.
10,848,645
(3) Assuming exercise criteria are met.
Stock grant plan details
Plan
no.
Plan
date
Initial
number of
grantees
Initial
number of
grants
Vesting
period
Lock-up
period
Vesting
conditions
% of target
met
Cancelled
grants (1)
1
Dec. 21, 2006
221
52,006
3 years
2 years
50% - 2007 and
2008 revenue and
operating margin
-
-
7,000
6,591
0
7,000
6,591
52,006
Grants made Grants made
to corporate to top 10
officers (2) employees (2)
(1) Number of grants cancelled because the targets were not met.
(2) Number of grants after deducting grants cancelled because the targets were not met.
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
2006
2005
2004
2003
2002
1,058.84
88.85
947.34
59.31
942.82
50.49
1,198.06
53.92
1,068.17
53.87
High and low share prices (in euros) (1) :
- High
- Low
93.40
70.85
77.15
51.15
58.25
49.20
54.30
37.40
59.85
37.16
Year-end closing price (in euros)
84.10
75.35
51.20
51.90
45.09
3.57
2.99
3.52
3.18
3.33
Average daily trading volume Euronext Paris
- Thousands of shares
- Millions of euros
Yield including tax credit (%)
(1) During the trading session.
62
18-Month Trading Data
Year
Month
2005
2006
2007
Trading
volume
(in thousands
of shares)
Value
(in millions
of euros)
Price
(in euros) (1)
High
Low
September
17,532
1,124.51
65.80
62.25
October
22,359
1,526.80
69.90
65.50
November
16,298
1,169.77
74.00
68.40
December
15,252
1,140.87
77.15
72.75
January
20,947
1,682.25
87.50
75.05
February
18,948
1,609.60
87.35
82.10
March
20,506
1,775.79
89.80
83.55
April
18,199
1,610,90
92.05
84.05
May
36,779
3,178.99
93.40
77.25
June
23,684
1,826.62
83.70
70.85
July
17,390
1,349.18
82.00
72.80
August
15,596
1,287.73
85.50
79.35
September
17,821
1,535.55
90.75
82.95
October
28,518
2,501.32
93.35
81.35
November
30,241
2,522.78
87.10
78.45
December
21,376
1,775.16
85.25
79.80
Total 2006
270,005
22,655.87
January
32,657
2,940.66
94.85
84.40
February
26,628
2,515.83
97.70
90.00
3
(1) During the trading session.
The Schneider Electric SA share vs. the CAC 40 index over 5 years
(Thomson Financial data)
Schneider Electric
share
CAC 40
Index
100
97.05
80
75.35
84.10
6,000
60
54.00
51.90
5,000
51.20
45.09
4,000
40
3,000
2,000
20
Dec. 31,
2001
Dec. 31,
2002
n Share price in euros
Dec. 31,
2003
Schneider Electric share
Dec. 31,
2004
Dec. 31,
2005
Dec. 31, Feb. 22,
2006
2007
CAC 40 index (base: Schneider Electric
on December 31, 2000)
Monep
Options on Schneider Electric SA shares have been traded on the MONEP market since December 20, 1996.
63
General presentation of Schneider Electric SA
Ordinary bonds
Shareholders' Relations Committee
Schneider Electric SA has made several bond issues
as part of its Euro Medium Term Notes (EMTN) program over the past few years. Issues that had not yet
come due as of December 31, 2006 were as follows:
The Committee is made up of eight individual shareholders appointed by Schneider Electric for a threeyear term. Members may serve a maximum of two
terms. The Committee is designed to relay shareholders' concerns in the area of financial communication to
the Company. It gives an opinion and makes suggestions on financial communication actions and
resources for individual shareholders. In 2006, the
members met three times and made numerous suggestions that were then implemented by Schneider
Electric's financial communication department.
In July 2006, Schneider Electric issued €500 million
worth of bonds at a variable rate, due July 2011. Also
in July 2006, Schneider Electric issued €500 million
worth of 4.5% bonds due January 2014. These bonds
are traded on the Luxembourg stock exchange under
code numbers XS0260903348 and XS0260896542.
In August 2005, Schneider Electric issued €1.5 billion
worth of bonds as part of its EMTN program. The issue
comprises a €900 million five-year tranche at 3.125%
and a €600 million twelve-year tranche at 4%. These
bonds are traded on the Luxembourg stock
exchange under code numbers FRF0010224337 and
FRF0010224929.
In October 2003, Schneider Electric issued €750 million worth of 3.875% bonds due October 2008. These
bonds are traded on the Luxembourg stock exchange
under code number FR0010023200.
In October 2000, Schneider Electric issued two tranches
of 6.1275% bonds due October 2007, in principal
amounts of €400 million and €50 million, respectively.
These bonds are traded on the Paris and Luxembourg
stock exchanges under code number FR004833091.
Examples include:
A stronger communication strategy for individual
shareholders, including the booth at the Actionaria
investment fair, information meetings outside Paris and
site tours.
The
content of the Letter to Shareholders.
Changes in financial advertising (form and media).
The Committee’s participation in the Q&A session
with the Chairman at the Annual Shareholders’ Meeting. In this capacity, Committee members relay certain
questions phoned in to the toll-free number.
Shareholder documents
In addition to the annual report and a summary report
entitled "In Brief", the Company also publishes:
6. Investor relations
General, economic and financial information (presentations, press releases).
Investor Relations Officer
Pierre Bouchut
Member of the Management Board,
Chief Financial Officer
43-45, boulevard Franklin-Roosevelt
92500 Rueil-Malmaison - France
Phone: +33 (0)1 41 29 71 34
Contacts
Institutional investors, financial analysts and private
shareholders may request information and documents
from:
Alexandre Brunet
Vice-President Financial Communication and
Investors Relations at +33 (0)1 41 29 87 50.
Toll-free number for individual investors in France :
0 800 20 55 14.
64
A Shareholders' Letter (three times a year).
A corporate website (www.schneider-electric.com).
4
Business
review
1. 2006 highlights . . . . . . . . . . . . . . . . . . . . p. 65
4. Sustainable development . . . . . . . . . . . . . p. 73
2. Operating performance . . . . . . . . . . . . . . p. 67
5. Outlook for 2007 . . . . . . . . . . . . . . . . . . . . p. 93
3. Change in financial situation . . . . . . . . . . p. 70
6. Auditors report on profit forecasts . . . . . . p. 94
1. 2006 highlights
A sustained acquisitions strategy
Measures and investments deployed as part of the
new2 company program produced higher-than-expected operating and financial results in 2006. The Group
achieved record growth during the year, with an operating margin of more than 14.6%. This represents an
increase of 2.2 points in two years.
The Group is making full use of four key levers–
growth, efficiency, competencies and commitment–to
speed its transformation and optimize performance.
Growth
During the year, the Group pursued its strategy of
enhancing core businesses, actively expanding geographically, launching innovative products and integrating new activities to offer customers more complete
solutions and the best possible service.
Its performance garnered the 2006 Award for Competitive Strategy Leadership from Frost & Sullivan, a global growth consulting company.
4
Schneider Electric acquired or jointly founded a dozen
companies in 2006 that together represented around
€800 million in additional revenues over the full year.
In electrical distribution, the Group strengthened
its position as the world’s second-largest provider of
installation systems and control by acquiring five companies in Europe and Asia. These included Merten in
Germany, a leader in home automation that ranks
fourth in its domestic market; OVA in Italy, domestic
market leader in emergency lighting; AEM in Spain, a
cable tray manufacturer; GET in the United Kingdom;
and Clipsal Asia. Full-year revenue from installation
systems and control amounted to €1.5 billion.
During the year, Schneider Electric also created a critical power subsidiary in India to serve a market that is
growing by 20% a year.
In automation and control, the Group broadened
its presence in the building market by acquiring Invensys Building Systems' IBS business in North America
and Asia. With this acquisition, building automation
and control represented full year revenue of nearly
€900 million.
In automation and industrial control, Schneider Electric
expanded its high-power speed drive lineup by acquiring Austria-based Va Tech Elin EBG Elektronik, which
reported revenue of around €34 million.
65
Business review
With the acquisition of Citect (Australia), the Group is
now the uncontested leader in Supervision Control
and Data Acquisition (SCADA) software and Manufacturing Execution Systems (MES).
A major strategic
initiative in critical power
In October 2006, Schneider Electric made a friendly
offer to acquire all the outstanding shares of US-based
APC, the world leader in critical power with 2006 revenue of €2.4 billion (up 20% from 2005). APC offers a
perfect fit with Group subsidiary MGE UPS Systems,
which leads the European critical power market and
ranks second worldwide with 2006 revenue of €668
million. This combination will make Schneider Electric
a high-performance powerhouse in the most vibrant
segment of the electrical distribution market. Worth an
estimated $7 billion, the global critical power market is
expected to grow by 7%-8% a year over the long term.
The value created by this transaction is expected to
exceed $3 billion.
The $6.1 billion acquisition was finalized on February
14, 2007.
Innovative new products
and services
The productivity of our R&D teams, who work in close
cooperation with marketing to meet customers’ expectations, was reflected in the introduction of several
innovative products during the year.
In electrical distribution, 2006 saw the launch of
new products in the areas of protection and safety,
energy savings, installation systems and control and
critical power. Highlights included:
Okken, a low voltage switchboard offering enhanced
safety and uninterrupted service features. Okken is
built to fully withstand vibration and corrosion.
Pragma, modular enclosures for commercial and toprange residential buildings.
Domae Quick PF, the first lightning arrestor with an
integrated grounding device and a complete end-of-life
security system. This innovative, ergonomic and efficient lighting arrestor was specifically designed for the
residential and small business market.
RED, a recloseable residual current circuit breaker that
automatically reinstates power supply after checking
for earth faults, for secure protection.
FIP’clic, an easy-to-program range of products to
manage electrical heating in homes and achieve significant energy savings.
Alvaïs, a range of antibacterial light switches that
meets the demanding cleanliness standards of healthcare facilities, food service outlets, childcare centers,
food and beverage companies and pharmaceutical
firms.
In Automation & Control, the Group rolled out
products with more and more embedded intelligence,
smart and simple solutions and software to enhance
development productivity. Notable launches included:
66
Altivar 71 and 61, speed drives that are particularly
well-suited for high performance applications. These
high-power drives feature advanced functionalities.
Altivar 21, a speed drive for motors from 0.18 to 30
kW. Altivar 21 is designed especially for HVAC systems.
Lexium 05 and Lexium 15, motion controllers that are
compatible with Ethernet, CANopen and other standard networks and that are easy to integrate in all
types of automation architectures.
A global R&D base
The Group has substantially internationalized its R&D
base to bring its R&D centers closer to customers,
innovate closer to needs and adapt production
processes to local conditions.
As in France, the Group has high-performance R&D
teams of around 1,500 people in Germany, the United
States and Japan.
In 2006, the Group stepped up its research and innovation in digital electronics, power electronics, mechatronics, software and Internet-based technologies. Key
events:
In January, the Electropole center in Grenoble,
France opened. Electropole is the world’s largest
power protection and control R&D center.
In March, the Group’s highly innovative HOMES project was selected as one of five supported by the Industrial Innovation Agency (AII) set up by the French government. In cooperation with world leaders in lighting,
building control, shutters, HVAC and other systems,
the Group will develop technologies and solutions for
active energy control that will reduce energy use in
buildings by up to 20%, in both the new and renovation
segments. This project underscores the Group’s ambitions in the energy efficiency market.
In May, the Group-led Minalogic competitiveness
cluster was certified. Bringing together researchers
and manufacturers in the Grenoble region, Minalogic
develops chip-based embedded intelligence technologies that will be a core part of the intelligent electrical
distribution and automation systems of the future.
Efficiency
New customer-focused organization
In July 2006, the Group aligned its organization to be
closer to customers and speed execution by being
more responsive, innovative and efficient. The new
organization includes seven business units, a corporate Strategy, Customers and Technology Department
responsible for overseeing the deployment of Group
strategy in the business units, and an Innovation
Department created to speed the process of identifying needs, developing products and bringing them to
market and to expand scientific and technical partnerships.
Optimized resources
The Group continued to re-balance costs and sales
within currency zones while optimizing its production
base.
Stepped-up measures to increase productivity were
taken in all countries to offset the higher cost of raw
materials, energy and transport. The Group achieved
productivity gains of €307 million during the year.
The supply chain was rationalized with the closure of
centers and expansion of platforms with a broader
scope.
Support functions were slimmed down and concentrated in mature countries, and new resources were
deployed in emerging markets, notably for R&D, marketing and services.
benefited from strong demand for capital goods in
emerging markets. Machine building was also very
vibrant in China, Eastern Europe and other emerging
markets.
Non-residential buildings
The non-residential building market also benefited
from exceptional worldwide growth in corporate capital
spending in 2006. Europe saw its largest increase
since 2000, with the strongest gains in the office and
commercial building segments. Growth also accelerated in the US, particularly for industrial buildings,
telecommunication and energy infrastructure and
offices.
4
The market was very active in China, Australia and the
rest of the Asia-Pacific zone.
In the Middle East, oil revenues continued to support
the construction of hotels, hospitals, offices and stores.
Employees
Residential
Competencies and commitment
The Group is implementing a single human resources
management system worldwide following pilot tests in
France and India in 2006.
In 2006, the Group stepped up recruitment of new
MBAs to create a reservoir of high-potential talent. It
has also increased investment in training at all levels.
Schneider Electric University has launched new programs on customer focus, innovation and entrepreneurial spirit. At the same time, a new manufacturing
operations institute has been created at the Group
level and a training institute has been opened in China.
Occupational health and safety action plans have led
to a significant decline in the lost time injury rate per
employee.
Lastly, a new worldwide employee share purchase
plan has been prepared for launch in the first half of
2007. It will be open to approximately 70,000 employees in 12 countries.
The residential market remained on a good trend in
most of Europe, notably in Spain and the Nordic countries. Germany returned to growth for the first time in
years. Demand in Europe was supported by still attractive real interest rates and longer mortgages.
In the US, on the other hand, the residential market
contracted sharply after one of the strongest booms in
its history.
In Australia, the overall market was down slightly in
2006 despite a significant upswing in the second half.
Energy & Infrastructure
Global demand for more reliable and better quality
supply has prompted regulators and other government
agencies to invest heavily in more effective distribution
grids.
The energy market was shaped by continued uncertainty over energy prices, supply security (notably during peak periods), transmission grid interconnection
capacity and the lack of investment in generation and
transmission infrastructure.
2. Operating performance
In addition, environmental issues have become a
major concern for the entire industry, both for producers, who want to limit greenhouse gas emissions, and
for consumers, who want to use energy as efficiently
as possible.
Trends in the Group’s
core markets
The infrastructure market enjoyed strong growth in
2006. High crude prices are driving substantial investment in the oil and gas industry, notably in the Middle
East, Russia and North America.
Industry
Demand in the Industry market rose sharply throughout the year around the world.
In Europe, the US and Japan, the firm economy, high
profits and the need to improve productivity drove a
significant increase in corporate capital investment.
Large OEM exporters, notably in Germany and Japan,
Demand for water supply and water treatment infrastructure has also increased sharply, particularly in
emerging markets. Middle Eastern nations have continued to invest in desalination units, while customers
in Europe have been investing to bring their installations into compliance with environmental legislation.
Demand for telecommunication infrastructure is back
on a growth path, particularly in the US, Europe, India
and China.
67
Business review
Consolidated
financial statements
Sector information by geographic region is based on
management’s current vision of Group performance.
Additional analyses are being conducted to bring this
information into compliance with IFRS 8, pending its
adoption.
These companies have been fully consolidated from
their respective acquisition dates.
The following companies acquired in 2005 and consolidated in 2006 had an impact on the scope of consolidation in relation to 2005:
Power Measurement Inc, consolidated as from April
14, 2005,
ELAU, fully consolidated as from June 1, 2005,
ABS EMEA, consolidated as from July 29, 2005,
Changes in the scope
of consolidation
The Group made several acquisitions in 2006 that
expanded its positions in Installation Systems and
Control, Critical Power and Building and Industrial
Automation.
installation systems and control
On January 1, 2006, the Group bought out CIH Ltd’s
interest in the Clipsal Asia joint venture, in accordance
with the terms of the agreement between the two partners. Clipsal Asia was previously accounted for by the
equity method.
BEI Technologies Inc, consolidated as from October
1, 2005.
Other changes in the scope
of consolidation
On 2006, the Group acquired further stakes in MGEUPS group, raising its interest to 95.67% as at December 31, 2006.
On January 31, 2006, the Group announced the sale
of its Num SA numerical control subsidiary.
On February 27, 2006, the Group announced the sale
of Mafelec SAS, a specialty manufacturer of onboard
push-button switches.
On February 28, 2006, the Group acquired AEM SA, a
Spanish company that designs, manufactures and
markets low voltage electrical and installation and control products.
Together, these changes in scope of consolidation
added €800 million, or 6.9%, to revenue and €103 million, or 6.6%, to operating profit for the year.
On April 30, 2006, the Group acquired OVA G.
Bargellini SpA, Italy’s leading emergency lighting company with operations in the installation systems and
control segment.
The average operating margin of newly consolidated
entities stood at 12.4%. Before amortization of intangible assets recognized on purchase accounting, the
average operating margin came to 13.3%.
On May 31, 2006 the Group acquired Merten GmbH &
Co Kg, a German firm that offers intelligent low voltage
solutions and installation systems and control for the
residential and buildings markets.
Acquisitions in progress
Lastly, on November 23, 2006, the Group acquired
UK-based GET Group Plc. This acquisition will expand
Schneider Electric’s Installation Systems and Control
lineup with wiring devices for the UK and British Standard export markets.
Industrial automation
On February 15, 2006, the Group acquired the assets
of US-based Silicon Power Corporation’s Crydom
brand Custom Sensors business.
On March 27, 2006, the Group acquired the entire capital of Citect, an Australian manufacturer of Supervision Control and Data Acquisition (SCADA) solutions
and Manufacturing Execution Systems (MES).
On September 26, 2006, the Group finalized the acquisition of Austria-based VA Tech Elin EBG Elektronik, a
company that develops and manufactures high-power
speed drive products and solutions.
Building automation
On July, 27, 2006 the Group acquired the Invensys
Building Systems (IBS) business in North America and
Asia. Following on the acquisition of Invensys'
Advanced Building Systems business (ABS EMEA) in
July 2005, this transaction extends Schneider Electric’s
current positions in Building Automation.
68
Juno Electric Inc, consolidated as from August 24,
2005,
APC
On October 30, 2006, the Group announced a friendly
offer to purchase all outstanding shares of American
Power Conversion (APC), the world leader in Critical
Power.
By combining APC with its subsidiary MGE-UPS, the
Group will become the global benchmark in Critical
Power.
The anti-trust regulatory review in the United States
ended on December 12, 2006 when the waiting period
under the Hart-Scott-Rodino Antitrust Improvements
Act expired.
APC’s shareholders approved the proposed merger in
Extraordinary Meeting on January 16, 2007.
The European Commission’s competition authorities
granted final clearance under some divestment commitments on February 8, 2007. The Group plans to
divest its MGE-UPS Systems operations in small systems below 10kVA. With estimated sales around €150
million, the divestment represents 6% of the combined
operations of APC and MGE-UPS in Critical Power.
On February 14, 2007, the Group announced the completion of the acquisition for approximately $6.1billion.
Since the purchase price allocation to acquired identifiable assets and liabilities has not been completed,
the impact of the purchase accounting on balance
sheet line items cannot be estimated at this stage. The
global impact on net assets is estimated at $4.5 billion
before purchase accounting.
Other acquisitions
The Group is currently negotiating or finalizing several
transactions (acquisitions, participations and/or partnerships) for a total enterprise value of about €800
millions. This amount includes in particular two projects already announced: SBVE (Shaanxi Baoguang
Vacuum Electronic) and Delixi Electric.
On June 27, 2006, the Group announced its intention
of taking an equity stake of about 40% in SBVE
(Shaanxi Baoguang Vacuum Electronic), a leading
China-based manufacturer of Vacuum Interrupters.
Such an equity stake may only be obtained if the equity reform plan presented by SBVE is approved by relevant authorities and shareholders, and a number of
other conditions precedent are satisfied.
On December 18, 2006, the Group announced that it
had signed an agreement to create Delixi Electric, a
joint venture with Chinese partner Delixi Group. The
50-50 joint venture will manufacture, market and distribute low-voltage products in China, pending
approval from local authorities.
Exchange rate fluctuations
Fluctuations in the euro exchange rate had a very limited impact compared with 2005, reducing consolidated revenue by €3 million and lifting operating profit by
€1 million.
Revenue
Consolidated revenue totaled €13,730 million for the
year ended December 31, 2006, up 17.6% on a current structure and currency basis from the year before.
The Group achieved record organic growth of 10.7%
for full-year 2006. Acquisitions accounted for 6.9% of
growth.
Breakdown by region
Data by region includes the contribution from Critical
Power activities.
Revenue in Europe rose 13.5% to €6,402 million on a
current basis. On a constant structure and currency
basis, the increase came to 9.6%.
This excellent performance, attributable to strong
demand in all end markets, demonstrates Schneider
Electric’s ability to generate additional growth by leveraging an expanded product portfolio and developing
services. Growth was strong in most European countries, with particularly good increases in the UK and
Spain (higher than 10%). Revenue climbed by nearly
13% in Eastern Europe, led by the very active construction market.
In North America, revenue rose 21.3% on a current
basis, to €3,698 million, and 7.5% on a constant structure and currency basis. Firm demand in the non-resi-
dential building market offsets the decline in the residential market.
Revenue from the Asia-Pacific division totaled €2,514
million, up 23.8% on a current basis and 15.7% on a
constant basis.
The region’s contribution continued to be driven by
high growth in China (over 15%), India and Southeast
Asia. These countries are benefiting from the powerful
momentum generated by investment in infrastructure
and industry.
Revenue from the Rest of the World rose 16.6% on a
current basis, to €1,116 million, and 17.6% on a constant structure and currency basis. Sustained strong
demand in the Middle East (notably from numerous
infrastructure projects), Africa and South America supported the region’s overall performance.
4
Breakdown by business
Electrical Distribution generated revenue of €8,605
million, or 62.7% of the consolidated total. This represents an increase of 17.8% on a current basis and
11.8% like-for-like.
Automation & Control revenue rose 17.2% on a current
basis to €4,456 million. Like-for-like growth came to
7.8%.
Critical power generated revenue of €668 million. This
represents an increase of 17.4% on a current basis
and 15.1% on a constant basis.
Operating profit
Data by region includes the contribution from Critical
Power activities.
Operating profit rose a reported 27.8% to €2,001 million from €1,565 million in 2005. On a constant structure and currency basis, the increase came to 21.1%.
The operating margin widened 1.2 points over the year
to 14.6% from 13.4%.
Operating profit includes an €18 million charge for
amortization of intangible assets recognized on business combinations in 2006, versus €13 million in
2005. The Group measures operating performance on
the basis of EBITA (Earnings Before Interest, Taxes
and Amortization of purchase accounting intangibles).
During the year, EBITA margin grew by 1.2 points to
14.7% from 13.5%.
The increase in raw material costs over the year (€227
million) was widely passed on in higher selling prices
(€141 million) and also partially offset by productivity
gains in the Group’s manufacturing operations (€307
million).
Operating profit includes €116 million in non-recurring
expenses related to asset impairment (€35 million)
and restructuring programs (€81 million). At December 31, 2005, non-recurring impairment and restructuring expenses totaled €115 million.
Non-recurring expenses primarily stemmed from the
reorganization of the Building Automation business in
Europe, for €16 million, continued industrial reorganization in the Group's core businesses in France, the
UK and Italy, for €67 million, and the reorganization of
operations in Australia, for €7 million.
69
Business review
In addition, provisions in an amount of €38 million
were set aside to cover delays and difficulties in
deploying information systems.
The Group recorded gains of €46 million on the disposal of property assets in 2006, notably with the sale
of the historic Telemecanique site in the Paris area.
At December 31, 2006, capitalization of development
costs had a positive net impact on operating profit of
€98 million, virtually the same as in 2005 (€100 million).
Breakdown by region
Operating margin in Europe rose by 1.9 point during
the year to 15.4% at December 31, 2006.
North America reported an operating margin of 14.0%
at year-end, up 0.7 point from December 31, 2005.
The Group’s share of profits of associates came to €2
million at December 31, 2006.
The year-earlier figure primarily reflected the results of
Clipsal Asia, which has been fully consolidated since
January 1, 2006.
Minority interests
Minority interests totaled €37 million in 2006. Minority
interests mainly correspond to the share of income
attributable to minority shareholders of Clipsal Asia,
MGE-UPS, Feller AG, EPS Ltd, and a number of Chinese companies.
Operating margin in the Asia-Pacific region improved
by 0.1 point to end the year at 13.0%.
Profit attributable to
equity holders of the parent
Operating margin in the Rest of the World came to
15.5% compared to 14.0% in 2005.
Profit attributable to equity holders of the parent grew
31.7% to €1,309 million.
Breakdown by business
Earnings per share
Operating margin in the Electrical Distribution business widened by 1.4 point to 15.3%. Changes in the
scope of consolidation and exchange rates had no
impact on operating margin rate.
The 30.5% increase from €4.56 to €5.95 reflects
growth in profit for the period.
The Automation & Control business achieved an operating margin of 13.5%, up 0.9 point from 2005. On a
constant structure and currency basis, operating margin would have been 13.6%.
Operating margin in the Critical Power business
reached 12.9% in 2006, an increase from 0.8 point
from 2005.
3.
Change in
financial situation
Finance costs and other
financial income and expense, net
Balance sheet and cash flow
statement items
Finance costs and other financial income and
expense, net totaled a negative €121 million compared with a negative €105 million in 2005.
Total assets stood at €18,964 million at December 31,
2006, up 14.1% from the previous year-end. Non current assets amounted to €10,413 million and represented 54.9% of total assets, an increase of 1.8% from
2005.
Net finance costs amounted to €104 million, virtually
unchanged from the €103 million recorded in 2005.
The cost of increased average net borrowings (€1,700
million in 2006 versus €1,070 million in 2005) was offset by a better return on invested cash and the modification of financing solutions.
Goodwill
Exchange rate fluctuations and their impact on currency hedging positions added €15 million to financial
expense.
Acquisitions in 2006 added €728 million.
Lastly, changes in the fair value of financial instruments did not have any impact in 2006.
Income tax
The effective tax rate stood at 28.5% compared with
29.1% at December 31, 2005.
70
Share of profit/(losses) of associates
Goodwill rose by €307 million over the period to
€6,186 million, or 32.6% of total assets.
The provisional accounting for the BEI Technologies
business combination was adjusted, leading in 2006 to
the recognition of amortizable intangible assets in an
amount of €72 million net of deferred taxes, which was
deducted from the goodwill recognized in 2005.
The currency effect reduced total goodwill by €324
million.
Impairment tests conducted at the end of the year did
not reveal any material losses.
Property, plant and equipment
and intangible assets
Property, plant and equipment and intangible assets
came to €3,115 million, or 16.4% of total assets, up
7.2% from the year before.
Intangible assets
Trademarks rose by €20 million over the year to €760
million. Acquisitions added €46 million (of which €35
million for the BEI trademark), while the negative currency effect reduced the total by €27 million.
Gross capitalized development costs totaled €315 million (€264 million net), reflecting the capitalization of
costs related to current projects in an amount of €121
million. Other intangible assets, net, primarily comprising software and patents, rose €75 million over the
year. The increase stems from the recognition of customer lists and patents in an amount of €67 million following the acquisitions of BEI Technologies, capitalized development costs for the global SAP system in
an amount of €52 million, and a negative currency
effect in an amount of €28 million.
Property, plant and equipment
Property, plant and equipment came to €1,615 million
versus €1,601 million the year before. Acquisitions
added €102 million, while the currency effect had a
negative impact of €55 million. Net investments totaled
€254 million.
Investments in associates
Investments in associates decreased by €38 million to
€10 million following the full consolidation of Clipsal
Asia since January 1, 2006.
Non-current financial assets
Non-current financial assets, primarily equity instruments listed in an active market and loans and receivables related to investments, totaled €430 million, a
decrease of €167 million from December 31, 2005.
The decrease stemmed from the other non-current
financial assets decline, following the payment of the
€177 million balance on the vendor loan granted to the
buyer of Legrand shares. Available-for-sale financial
assets remained stable at €316 million compared to
€315 million the year before.
€1,588 million, up 19.8% from €1,325 million in 2005.
Capital expenditure, which includes capitalized development projects, represented an outlay of €481 million
compared with €476 million in 2005. These investments represented 3.5% of revenue in 2006.
Acquisitions used a total of €898 million, net of the
cash acquired.
Cash proceeds from the sale of treasury stock on
exercise of stock options amounted to €53 million
(the Group bought back Company shares in a net
amount of €73 million in 2005). Dividends paid
totaled €517 million, (of which €15 million to minority interests) including €9 million for the dividend
equalization tax.
4
Other payments with a material impact on cash included the payment of the €177 million balance on the
vendor loan granted to the buyer of Legrand shares in
2002.
At December 31, 2006, net debt totaled €1,835 million or 21.1% of equity attributable to equity holders of
the parent, representing an increase of €73 million
from the year before. Net cash used in investing activities was almost entirely financed by cash from operations.
Cash and cash equivalents totaled €2,544 million of
which €735 million in cash, €1,733 million in money
market funds and €76 million in marketable securities,
comprising short-term instruments such as commercial paper, monetary mutual funds and equivalents.
Total current and non-current financial liabilities
amounted to €4,379 million. Of this, bonds represented €3,688 million, including the issuance of two bonds
in 2006 for €1,000 million and two tranches of a
€1,500 million issue in August 2005 as part of the
Group's EMTN program. Lastly, acquisition debt
accounted for €37 million of the total (net of the
amount held in escrow for Clipsal’s acquisition). Current financial liabilities totaled €885 million at December 31, 2006 and primarily included bank overdrafts,
accrued interest and the current portion of bonds
(€450 million).
Equity
Equity attributable to equity holders of the parent came
to €8,717 million, or 46.0% of the balance sheet total.
The €473 million increase over the year is the net
result of the following:
Payment of the 2005 dividend, in an amount of €493
million.
Profit for the period of €1,309 million.
Cash and net debt
Shares issued on the exercise of stock options for
€61 million.
Net cash provided by operating activities before
changes in operating assets and liabilities rose 24.1%
to €1,921 million, representing 14.0% of revenue.
Changes in operating working capital represented a
negative €413 million, reflecting strong business
growth over the year. The working capital ratio
increased by 0.2 point to 21.4% from 21.2% the year
before.
Net cash provided by operating activities totaled
Changes in treasury stock, which increased equity
by €53 million.
The impact of currency fluctuations, which reduced
the translation reserve by €353 million.
Fair value adjustments to hedging instruments and
available-for-sale financial assets, which decreased
equity by €133 million.
Changes in actuarial gains and losses stemming
from the measurement of employee benefits, which
increased equity by €24 million.
71
Business review
Minority interests increased by €28 million to €122
million, reflecting the €37 million profit for the period,
partially offset by dividend payments of €15 million.
Parent company
financial statements
Provisions
Schneider Electric posted total portfolio revenues of
€557.1 million in 2006 compared with €337.8 million
the previous year. Profit before tax came to €663.3 million versus €401.8 million in 2005. Net profit stood at
€887.8 million versus €450.8 million in 2005.
Current and non-current provisions totaled €1,729 million, or 9.1% of the balance sheet total. Of this, €287
million covered items that are expected to be paid out
in less than one year.
This item primarily comprises provisions for pensions
and medical care in an amount of €1,159 million. The
decrease over the period corresponds to translation
adjustments (€41 million) and actuarial gains and
losses, recognized net of tax in equity, for a negative
€30 million. The changes in the scope of consolidation, represented an increase of €27 million.
Provisions for contingencies totaled €570 million.
These provisions cover product risks (warranties, disputes over identified defective products), for €145 million, economic risks (tax risks, financial risks generally
corresponding to seller’s guarantees), for €161 million,
customer risks (customer disputes and losses on longterm contracts), for €57 million, and restructuring, for
€85 million.
In addition, provisions in an amount of €38 million
were set aside to cover delays and difficulties in
deploying information systems.
The Group acknowledges the European Commission’s
decision concerning two former subsidiaries’ alleged
participation in a high voltage switchgear cartel and set
aside the amount of the fine for €8.1 million.
The year’s acquisitions added €19 million to provisions in the balance sheet, while translation adjustments reduced provisions by €20 million.
Other non-current liabilities
Other non-current liabilities amounted to €90 million,
corresponding primarily to the put option granted to
minority shareholders of MGE-UPS (€35 million). It
also includes the debt related to the seller’s guarantee
amount in relation with Clipsal’s acquisition (€47 million). This amount is being held in escrow.
Equity before appropriation of net profit amounted to
€7,298.7 million at December 31, 2006 versus
€6,848.9 million at the previous year-end, after taking
into account 2006 profit, dividend payments, and
shares issued on the exercise of stock options in an
amount of €60.7 million.
Subsidiaries
Schneider Electric Industries SAS
Revenue totaled €3.0 billion in 2006, the same as
2005.
Operating profit decreased by 22.1% to €216.5 million
from €278.0 million in 2005 and represented 7.2% of
revenue.
Net profit came to €863.2 million compared with
€582.5 million in 2005.
Cofibel
Cofibel's portfolio consists entirely of Schneider Electric shares.
Profit before tax came to €4.8 million versus €4.0 million in 2005.
Profit after tax stood at €4.7 million compared with
€3.4 million the year before.
Cofimines
Profit from continuing operations before tax amounted
to €1.7 million, versus €1.1 million from 2005.
After taking into account corporate income tax, net
profit stood at €1.6 million same as 2005.
Deferred taxes
Deferred tax assets came to €673 million, reflecting
unused tax losses, in an amount of €245 million, and
future tax savings on provisions for pensions, in an
amount of €362 million.
Compensation and benefits
paid to corporate officers
Deferred tax liabilities totaled €305 million and primarily comprised deferred taxes recognized on trademarks purchased during acquisitions.
Details on compensation and benefits paid to corporate officers are provided in the chapter on Corporate
Governance.
The €174 million change over the year stems primarily from the use of €133 million in tax loss carryforwards.
72
4.
Sustainable
development
Policies
All of the Group’s policies are aligned with the Principles of Responsibility.
Introduction
Environmental issues
Schneider Electric’s sustainable
development approach
In 1992, Schneider Electric published a formal environmental policy. It was revised in 2004 to reflect changes
inside and outside the Group, with the emergence of
new regulations and environmental approaches. The
policy is designed to improve manufacturing processes, increase the use of eco-design and integrate customers’ concerns in the area of environmental protection.
Schneider Electric emphasizes sustainable development-related improvement targets in its new2 company
program for 2005-2008, demonstrating the depth of its
commitment in this area.
Social issues
In a world in which energy efficiency has become a
major issue, the Group is leveraging sustainable development to differentiate its offer and drive growth.
Schneider Electric has staked out positions in new
markets, such as energy efficiency, building automation and critical power, that will drive growth in the
years ahead as it supports customers in a way that is
mindful of the environment. The Group’s acquisitions
strategy, R&D processes and sales approach are
designed to support this objective. More than ever,
Schneider Electric is positioning itself as a responsible
partner in energy efficiency.
Our Principles of Responsibility also serve as a social
charter. In it, the Group clearly states that "All employees can express their cultural diversity and are managed without discrimination. Team members are
encouraged to develop their team spirit and their new
competencies. At the same time, they are recognized
for their initiatives and risk taking in contributing to the
Company’s growth." Human resources policies governing diversity, recruitment, international mobility,
training, global compensation, leadership skills and
health were deployed throughout the Group in 2006.
Responsibility, a key concept in sustainable development, is an integral part of Schneider Electric’s corporate culture and strategy. Because it acts responsibly,
the Group is able to meet the social, economic and
environmental challenges facing it in today’s marketplace.
Sustainable development
organization
Schneider Electric published a reference document
entitled Our Principles of Responsibility in 2002 to
give all team members a common reference. Similarly,
the Planet & Society Barometer set up in 2005
involves employees around the world in the Group’s
main commitments and allows them to track the action
plans along with other stakeholders.
Framework
Reference documents are distributed throughout the
Group so that all team members can embrace this
responsibility approach and apply it in line with local
culture and legislation.
Principles of Responsibility
In a globalizing world, Our Principles of Responsibility
provides a framework to guide each team member’s
decisions and actions. The document outlines the
Group’s commitments to each of its stakeholder
groups, including employees, business partners,
shareholders, the community and the planet.
Adopted in late 2002/early 2003, the Principles of
Responsibility were drawn up by 600 employees in 15
international working groups. They provide a frame of
reference for each team member and for the Group as
a whole. Failure to comply with these guidelines is considered serious misconduct.
4
Planet & Society Barometer
Schneider Electric created the Planet & Society
Barometer in 2005 to measure its corporate social
responsibility performance. With criteria covering people, environmental, community and corporate governance issues, the barometer expresses the Group’s
commitment to promoting sustainable development to
all stakeholders.
The barometer serves three purposes:
It provides a resource for training and raising awareness about sustainable development.
It defines strategic avenues for improvement.
It informs stakeholders of the Group’s results and
performance.
Information on the barometer is available at:
www.barometer.schneider-electric.com
A dedicated organization
Formed in 2002, the Sustainable Development Department is responsible for drawing attention to and
explaining the major transformations affecting the
world today. These include environmental protection,
energy-related geopolitical issues, economic and societal changes and globalization.
The Department and its thirty team members are
responsible for:
Organizing and executing the Group’s sustainable
development priorities.
73
Business review
Responding to stakeholders.
Deploying resources to raise awareness and promote action.
Guiding the environmental department's action plans.
Managing improvement plans in the areas of healthcare, diversity and community action.
In France, managing improvement plans in the areas
of training and local economic development.
James Ross, a member of the Supervisory Board of
Schneider Electric SA, has been assigned on behalf of
the Board to develop specific expertise in the area of
sustainable development and environmental and
social risks.
Four working groups
Four working groups set up in 2005 impel and track
action plans.
The Environmental Council
The Council is made up of representatives from the
corporate departments who meet quarterly to discuss
cross-functional issues and promote deployment of
appropriate measures across the Company. The
Council also devotes significant time to monitoring
environmental issues at both the eco-design and ecoproduction levels.
The Health Committee
Committee members include representatives from
each corporate department, the Business Units and
the Operating Divisions (North America, Europe, International and Iberia and Asia-Pacific). Each quarter, the
Committee meets to guide the Company’s health and
safety strategy and validate action plans. It leads the
Group’s health and safety approach and manages the
network of local health and safety correspondents. An
ad hoc committee met during the year to address risks
related to a potential pandemic set off by avian flu.
The Diversity Committee (France)
Made up of all the Human Resources managers in
France, this Committee is responsible for promoting
diversity awareness in hiring and employee management. It meets every other month to validate strategy
and action plans.
The Local Development
Committee (France)
74
Networks
Numerous culture carriers cascade Schneider Electric’s
sustainable development approach throughout the
Company.
As concerns the environment, a network of 210 correspondents oversees environmental management at
production sites. They are supported by an Environmental Director within the Globalization & Industry
department.
The Strategy, Customers & Technology department
coordinates the deployment of eco-design policy
among product environment managers.
In the area of social policy, each Operating Division
or Business Unit Executive Vice President is responsible for ensuring effective human resources management within his Division or Unit, implementing the new2
company program, deploying all human resources
policies (including those covering health and diversity)
and ensuring compliance with Our Principles of
Responsibility.
As for the Schneider Electric Youth Opportunities
Foundation, a network of 200 volunteer team members
lead and manage local projects. These correspondents, appointed for two years, are responsible for
managing relationships with targeted associations
involved in promoting job opportunities and training.
This entails selecting the organization, submitting the
project to the Foundation for validation and monitoring
the partnership.
Improvement
plans and indicators
New Reporting
As part of new2, each unit determines improvement
paths aligned with both the program’s vision and the
unit’s local reality. To ensure overall consistency and
measure performance effectively, new2’s New Reporting system expresses each initiative in terms of strategic goals, target result and means. Ten of its tracking
indicators directly concern sustainable development
and make up the Planet & Society Barometer.
Planet & Society Barometer
The barometer tracks these ten indicators on a quarterly basis.
The Group’s overall rating as of January 1, 2005 was
5.21 out of 10. The target for 2008 is 8 out of 10. The
end-2006 rating was 7.01 out of 10.
This Committee’s mission is to drive and coordinate all
responsible measures initiated by the Company in its
employment pools. These highly regional yet highly
cross-functional initiatives require ongoing dialogue
among the various players within the Group–people
involved in community outreach, business development, research, training, job opportunities, diversity
and other issues–and field workers. The Committee
meets three to four times a year, as well as for encounters on special topics.
The most noteworthy trends during the year concerned the environmental indicators, all of which
improved, the clear upswing in the health indicator and
the 10 out of 10 rating achieved by the improvement
plan to donate equipment.
Other working groups also address corporate social
responsibility issues, such as the social policies committee chaired by the Executive Vice President,
Human Resources and Managerial Communication.
The new indicator focuses clearly on the role of
women in the Company. It states, more simply, that the
Group should "ensure that 20% of the participants in
annual international mobility programs are women".
The diversity indicator was modified in 2006. The original indicator ("ensure that 30% of the Top managers
have been in their positions for less than one year) was
a means to an end, in that it measured opportunities to
increase diversity by measuring mobility.
Consolidation
All of the quantitative data, with the exception of the
barometer indicators provided in this section, have
been consolidated using two Group-wide methods:
Social data: A global human resources scorecard,
established annually over the past seven years based
on a bottom-up reporting process.
Environmental data: Reporting tables from the
Group Environmental Affairs department, based on an
annual manufacturing site survey.
This data is then reconciled with information from
accounting and purchasing reporting systems to
ensure consistency.
All Group units are included, except in specific identified cases.
Audit
All audit missions, no matter what their initial focus,
also verify key responsibility factors such as policy
deployment and reporting transparency.
The Planet & Society Barometer’s ten indicators
Objectives for end-2008
Performance
4
Rating on a scale of 10
2006
2005
2006
2005
Reduce the number of lost days
from work accidents by 20%
per employee and per year.
0.247 days 0.4 days
8.60
5.6
Ensure that all employees have
full basic health insurance.
100%
100%
10
10
Ensure that 20% of people
under international mobility
program are women.
14.5%
13%
4.5
3
Ensure that all manufacturing and
logistic sites are certified ISO 14001.
90.6%
85%
6.86
5
Provide an environmental profile
for 120 products representing more
than 50% of total product revenue.
65 PEPS 27 PEPS
5.4
2.3
Reduce energy consumption
per production site employee by 10%
(in MWh/year).
16.5 MWh
16.8 MWh
7.5
6.7
Donate €1 million worth
of Schneider Electric equipment.
€2 ,394 ,300
€300,000
10
3
Ensure that 90% of our sites have
a lasting commitment with
the Schneider Electric Foundations in
the area of youth opportunities.
84%
84%
7
7
12%
2.6
2
3 families
7.5
7.5
7.01
5.21*
People
Environment
Community
Corporate governance
Make 60% of total purchases
from suppliers who support
the Global Compact.
16%
Be included in the four major socially
responsible investment index families.
3 families
Overall performance at Dec. 31
* The end-2005 rating was revised to account for the new diversity indicator.
A responsible corporate citizen
In devising its strategy, Schneider Electric constantly includes improvement targets for economic, social and environmental performance and sets up indicators to measure its achievements objectively, as well as areas for further progress.
2006 audited indicators
75
Business review
Social performance
Schneider Electric’s people are critical to its success.
The Group motivates its employees and promotes
involvement by making the most of diversity, supporting professional development, and ensuring safe,
healthy working conditions.
Framework
> France
Certain data concern France and cover more than
80% of the workforce in France. In this case, they are
flagged as "French data".
Improvement plans Planet & Society Barometer
Health and safety
Reduce the number of lost days from work
accidents by 20% per employee and per year.
Scope of data consolidation
Rating
2005
2006
5.6 / 10
8.60 / 10
> Global scope
All data published in the following section covers the
Group’s global scope:
Consolidated units: Corporate Functions, Operating
Ensure that all employees have basic health
insurance.
Rating
2005
2006
10 / 10
10 / 10
Divisions, Business Units.
Non-consolidated units for compensation data:
Senior management, subsidiaries (Elim - Austria, GET
- UK and MGE UPS Systems - outside France).
Non-consolidated units: Companies that are less
than 51%-owned by Schneider Electric.
Diversity
Ensure that 20% of people under international
mobility program are women.
Rating
2005
2006
3 / 10
4.5 / 10
Health
Schneider Electric’s health policy, applied across the
Group in 2006, is aligned with the World Health Organization's definition of health ("Health is a state of complete physical, mental and social well-being and not
merely the absence of disease or infirmity").
For Schneider Electric, health is a challenge shared by
all of its team members and partners. The Group also
considers that health insurance coverage is a crucial
lever for maintaining a high level of good health. It
believes in deploying local approaches to achieve its
goal of being the health benchmark in all host countries.
> Deployment
Schneider Electric has created the Health Policy
Deployment (HPD) indicator to track the deployment of
its health policy across the Group. The indicator comprises three sub-criteria:
Local language translation of the policy and distribution to all employees.
Percentage of team members with coverage for work
accidents, illness and disability.
Formal health/safety management system in each
unit that complies with an international benchmark.
> Management involvement
Sponsoring
Units with the most critical accident records are tracked
individually by a member of senior management. For
example, Hal Grant, Executive Vice President Globalization & Industry and member of the Executive Committee, monitored the action plan in Australia. Some 17
units in nine countries were tracked by a sponsor in
2006, leading to an improved situation at all 17. In
Argentina, for example, the number of days lost following a work accident fell to 29 in 2006 from 65 in 2005
and 113 in 2004.
Compensation
Since 2006, significantly improving safety has become
a criterion in managerial compensation both in the United States and France. This principle will be gradually
extended to other countries.
76
> Local measures that
contribute to the global action plan
Health management system
The Group encourages all its units to adopt an occupational health management system in line with the main
international standards (ILO OSH and OHSAS). The
units may decide to apply for certification if they wish. A
number sites and country organizations initiated this
approach in 2006.
Examples:
Australia: Clipsal’s health, safety and environmental
management system has been certified to ISO 14001
and OHSAS 18001 standards since November 2006.
Employee commitment and involvement is a key part of
this management system.
China: Schneider Beijing Low Voltage has also received
OHSAS 18001 certification, a goal that provided a base
for building a health and environmental management
system in 2006.
France: SAPEM received its first OHSAS health/safety
certification in May 2006. The number of work injuries
declined to 3 in 2006 from 16 in 2006.
Other initiatives
Schneider Electric’s occupational health department
continued to work with occupational psychologists from
France’s national conservatory of arts and crafts
(CNAM) in 2006. Together, they organized discussion
groups and awareness workshops for technicians, line
managers, managers and occupational health professionals.
In France, the sales department launched a campaign
on the driving hazards presented by such substances
as alcohol, tobacco and illegal and prescription drugs.
Developed in partnership with associations and institutions, the campaign included posters, communication
media, training for culture carriers and a session to
raise awareness among roving staff at the annual meeting on professional risk.
Indicators
Gender and category
(percent)
White collar
Workforce
Total workforce
2005
2006
Average workforce* 84,866
88,670
100,078 Fixed-term and openended contracts
84,184
84,819
96,529 Average
production staff
40,792
46,135 40,582
2005
2006
56.6%
59%
56.9%
Men
-
75%
72.5%
Women
-
25%
27.5%
43%
41%
43.1%
Blue collar
2004
2004
Men
50%
51%
53%
Women
50%
49%
47%
4
Age
(percent)
2004
2005
2006
14-24
8.1%
11.9%
11.2% 53,943 25-34
29.1%
28.10%
29.6% 16,070
31,141
35-44
29%
27.40%
27.7% 15,820
23,387
45-54
24%
22.9%
21.8% 55-64
9.6%
9.3%
9.2% > 64
0.2%
0.4%
0.5% Average nonproduction staff
44,284
47,878
New hires
13,726
Departures
12,342
* Including staff from temporary employment agencies.
Breakdown by region
(based on year-end spot count)
(percent)
2004
2005
2006
Seniority
Asia-Pacific
18%
20%
22%
(percent)
Europe
54%
49%
46%
North America
21%
24%
Rest of the World
7%
7%
2004
2005
2006
< 5 years
37.6%
42%
43.4%
25%
5-14 years
29%
28.3%
27.5%
7%
15-24 years
17.6%
16%
15.1%
25-34 years
13%
11%
10.6%
> 34 years
2.8%
2.7%
3.4%
2004
2005
2006
Countries with the most employees
(percent)
2006
% change
France
21%
-1%
Function
USA
16%
+ 12.5%
(percent)
China
9%
+ 60.2%
Marketing
4%
4.1%
4.4%
Mexico
7%
+ 6.2%
Sales
16%
18.3%
18.3%
Spain
4%
+ 10.8%
Support
21%
15.7%
15.7%
Australia
4%
+ 12.5%
Technical
6%
7.5%
8.3%
UK
3%
+ 11.1%
Production
10%
10.8%
10.2%
Germany
3%
+ 36.4%
Italy
3%
+ 8.5%
Indonesia
2%
+ 32.5%
(Direct variable costs employees linked
directly to production
of range core and
adapted products
43%
43.6%
43.1%
Sweden
2%
+ 6%
India
2%
+ 27.8%
2004
2005
2006
17.9%
18.1%
19.5%
Type of contract
(percent)
Men / women
2004
2005
2006
Men
63.7%
65%
64%
Women
36.3%
35%
36%
(percent)
Flexibility rate
(temporary staff/
total workforce)
2006 audited indicators
77
Business review
Breakdown by region
Workforce (France)
Workforce
2004
2005
2006
19,843
20,538
20,364
883
2,842
1,637
0
1,197
13
1,908
2,337
1,864
0
54
253
2004
2005
2006
Open-ended
96.9%
95.4%
94.4%
Fixed-term
3.1%
4.6%
5.6%
Spot headcount
New hires
o/w from acquired
companies
Departures
o/w from divested
companies
(percent)
2005
2006
Asia-Pacific
25%
29%
Europe
27%
28%
North America
41%
34%
Rest of the World
7%
9%
2005
2006
4,460
3,795
Dismissals
Type of contract
Change
(percent)
Number
o/w layoffs for economic reasons 1,070
620
Individuals on work-study programs account for two-thirds of
fixed-term contracts in France.
Type of contract
Category
2005
2006
Open-ended
85.8%
88.5%
Fixed-term
14.2%
11.5%
2005
2006
White collar
37.5%
35.4%
Blue collar
62.5%
64.6%
(percent)
2005
2006
Asia-Pacific
17%
15%
Europe
25%
27%
North America
52%
50%
Rest of the World
6%
8%
(percent)
2005
2006
Line employees
35.6%
34.4%
Supervisors
1.2%
1.1%
Administrative
and technical staff
33.5%
33.1%
Category
Engineers and managers
26.5%
27.5%
(percent)
Work-study participants
3.2%
3.9%
(percent)
Men/women
2005
2006
Men
64.3%
64.8%
Women
35.7%
35.2%
(percent)
New hires
Breakdown by region
Type of contract
Reasons for dismissals
2004
2005
2006
Open-ended
58.3%
65.2%
68%
Fixed-term
41.7%
34.8%
32%
(percent)
Category
78
(percent)
2005
2006
White collar
45%
48%
Blue collar
55%
52%
As part of the redeployment of resources carried out to
re-balance costs and revenues geographically, headcount increased significantly in China, India, Indonesia
and other countries.
At the same time, workforce reduction plans were
implemented in other countries, such as France. The
Group took assertive steps going beyond its legal obligations to assist employees in re-directing their
careers at all concerned sites.
In 2006, Schneider Electric signed agreements in
France to help re-invigorate employment pools in the
depressed Barentin and Dijon areas. In Barentin, for
example, the Group contributed up to €280,000 to
support the creation of 77 jobs.
As of December 31, 2006, the local partners had
drawn €211,825 and 67 jobs had been or were in the
process of being created, of which six for disadvantaged youth, in partnership with Association pour le
droit à l'initiative économique (ADIE).
In Dijon, Schneider Electric contributed up to
€241,000 for a target of 50 new jobs. As of December
31, 2006, the partners had drawn €50,300 to create
13 jobs, of which 12 for disadvantaged youth, in partnership with ADIE.
Payroll and compensation
Information on profit-based incentive
and profit sharing programs and/or employee
share ownership
(percent)
Variable
compensation
2004
2005
2006
5%
6.10%
7.9%
For many years, French team members have benefited from variable compensation representing up to 9%
of the total (depending on the Group’s financial results)
through profit-based incentive or profit sharing programs.
Contractors
(France)
Temporary staff
Average cost per employee
Total
2005
2006
2,457
2,810
2004
Gross salary
o/w
2005
12%
11%
+ payroll expenses
Blue collar
88%
89%
+ individual and collective benefits
Workweek organization
and management
Employee share ownership
Average annual hours worked
2006
Number of hours
2,076
The last employee share issue took place in 2004 and
was open to employees in 48 countries. The subscribed shares were issued at a discount of 15% to the
average trading price.
As of December 31, 2006, 30,000 employees held
3.09% of the issued capital through corporate mutual
funds. A new employee share issue is planned in 2007
with a matching payment by the Company.
Part-time or flex-time employees
(France)
2005
2006
€40.2
€40.2
€38.9
thousand thousand thousand
White collar
2006
Total
1,456
1,387
(% employees)
7.09%
6.81%
Men
1.52%
1.48%
Women
18.05%
17.46%
Men/women
Absenteeism (France)
Days absent
4
2004
2005
2006
6.9%
7.3%
5.8%
Social dialogue and relations
Sites declaring employee representation
(percent)
2005
2006
Unions
47%
51%
Works council
55%
55%
Health and safety committee
68%
69%
(% out of theoretical working days)
European committee
Reasons for absence (France)
Sick leave
2004
2005
2006
71.7%
65.8%
73.4%
4.5%
5.0%
4.4%
Schneider Electric’s European Committee keeps
employee representatives informed of changes within
the Group. Committee members have their own training and information resources, including an online
database and forum and a quarterly e-newsletter.
(% of total absences)
Work/commute
injuries
(% of total absences)
Group works council, France
This council, which supports the various works councils in Schneider Electric’s French subsidiaries, provides a setting for information and discussion with
employee representatives of the Group’s French units.
The members’ terms were renewed for a period of
three years in 2006.
2006 audited indicators
79
Business review
Schneider Electric’s commitment with this council, created in 1997, goes far beyond legal requirements. To
give members an overall view of the Company and a
good understanding of its business, Schneider Electric
offers training, provides access to electronic resources
and organizes plant tours, among other things. A fiveday training session is organized for all new members
to provide a panorama of the Group’s operations and
business environment.
Collective agreements
In 2006, 39 agreements were signed with labor unions
in France (versus 11 in 2005), of which four were
Group agreements. These agreements covered a wide
range of issues, including the creation of a Group
negotiating body, mutualized profit-based incentive
programs and profit sharing plans (Schneider Electric
Industries and Schneider Electric France) and apprenticeships.
Health and retirement coverage
2006
Supplementary coverage
offered by the Company *
Unemployment
5.2%
Social security pension benefits
26.1%
Supplementary pension benefits
35.2%
Work accidents – benefits in kind
12.4%
Work accidents – cash benefits
19.3%
Illness – benefits in kind
35.4%
Illness – cash benefits
41.3%
Life insurance
(death coverage and survivor benefits)
60.8%
Disability
49.6%
Family allowances - benefits
16.0%
People Scope
To achieve new2’s goal of "improving together",
Schneider Electric leverages the People Scope internal satisfaction survey, which also serves as a reference for benchmarking with other companies. As of
August 31, 2006, all the Operating Divisions and Business Units had responded to the survey’s 56 questions. Some 78,600 employees expressed their opinions, for a response rate of 78%. Topics receiving the
most positive ratings included safety, personal involvement and the Group’s societal commitment.
Health and safety
Health /safety
2004
2005
Frequency rate
22.8
16.7
9.8 Severity rate
0.19
0.16
0.10 * Percentage of units declaring that they offer supplementary
coverage in relation to current legislation for the items listed.
Training
Training costs by type of training
(percent)
2004
2005
2006
Health, safety,
environment
10.6%
8.9%
7%
Technical
38.7%
33.3%
30%
Foreign languages
and IT
17.2%
13.1%
13%
Management
and leadership
14.8%
24.7%
31%
Other
18.7%
20%
19%
2005
2006
2006
Category
(percent)
Accidents by category
2004
Training costs
2006
White collar
88.9%
88.4%
77%
Total accidents
1,936
Blue collar
11.1%
11.6%
23%
Fatal accidents
3*
Serious accidents
Minor accidents
346
Training days
White collar
69.8%
70.4%
68%
Blue collar
30.2%
29.6%
32%
1,587
* The three fatalities in 2006 occurred during commutes
(one in China, one in Thailand and one in the United States).
Detailed information on the Group’s health/safety
improvement plan is provided on page 76.
Average number
of days of training per employee
(days)
2004
2005
2006
White collar
4
4.7
4.4
Blue collar
2.2
2.1
2.5
The average number of days of training per employee
rose to 3.8 in 2006 from 3.6 in 2005 and 3.3 in
2004.
80
Breakdown
Training policy
Schneider Electric’s training policy is designed to
develop and lock-in talented men and women whose
skills will help the Company meet its strategic objectives, in keeping with trends in its markets. Major paths
include:
Developing competencies and changing behavior.
Allowing team members to anticipate and manage
ongoing change.
Deepening team members’ integration in their function and in the Company.
(percent)
2006
Men / women
Women
28%
Men
72%
Category
Engineers and managers
28%
Supervisors, administrative
and technical staff
40%
Line employees
32%
4
Tracking and evaluating the return on investment in
training.
Meeting current and future needs for improving performance.
Schneider Electric University
One of new2’s priorities is to deploy a shared vision
and to develop the Group’s talents. Schneider Electric
University plays a major role in this area. In 2006, it
launched a new program to train in-house trainers
called "Schneider teaches Schneider." This initiative is
based on the conviction that the enterprise’s various
units are reservoirs of know-how and talent that can
contribute to the Group’s development. Not only does
the program leverage this capital, but it also gives team
members new ways to fulfill their potential.
Three new institutes were created in 2006 dedicated to
product design, human resources and budget control,
with the goal of deploying shared resources for these
horizontal functions.
In all, 1,126 team members from 72 countries attended the University’s leadership development and
expertise building seminars in 2006, up 66% from the
year before. The number of women participants
increased by 85%.
The Schneider Electric Industries/Schneider Electric
France corporate agreement on training signed in
December 2005 was deployed in 2006.
During the year, Schneider Electric France also
launched an employability project as part of the new2
program. Within the framework of this project:
200 managers and 70 human resources directors
were trained in managing employability in a 26-session
course.
38 action plans to develop employability were
launched.
77 day-long sessions to profile talents and professions were organized at 45 sites across France to
motivate team members and encourage professional
development. The sessions highlighted Schneider
Electric’s different skills sets, external skills sets and
the support system for future growth.
Eliminating
discrimination
Gender equality
Some 4,000 employees took e-learning courses to
improve their English during the year and more than
6,000 benefited from locally deployed programs.
Diversity is a key topic of the new2 company program.
In 2006, the diversity indicator was re-worded and simplified to focus on the critical issue of women’s role in
the Company.
Training (France)
The "Choose your life" program deployed in France in
2006 in connection with the gender equality agreement signed by Schneider Electric in late 2004 reflects
this commitment. It gave 20 women students from the
INSA and ENSTA engineering schools in Lyon and
Paris the opportunity to structure their professional
choices through a three-month internship. The program will be offered every year.
Main topics
(percent)
2006
Health, safety, environment
8.5%
Technical
19%
Foreign languages and IT
13.5%
Management and leadership
12.1%
Manufacturing
9.9%
In 2006, 60% of the workforce in France received
some type of training, lasting an average 24.3 hours.
The number of programs offering a diploma or certification was twice as high as in previous years.
To promote equal opportunity for men and women,
also as part of the gender equality agreement, Schneider Electric played an active role in the opening of the
first inter-company day care center in Eybens, France.
The center cares for 45 children of Schneider Electric
employees.
A similar center is scheduled to open in Rueil-Malmaison, France in February 2007 with 25 slots for children
of Schneider Electric employees.
2006 audited indicators
81
Business review
Employment opportunities
for disabled workers
Monitoring working conditions
among sub-contractors and suppliers
In 2006, Schneider Electric pursued its policy to bring
disabled individuals into the workforce, with a focus on
direct employment. This ongoing commitment dates
back to 1985.
Schneider Electric uses a certification process called
Schneider Supplier Quality Management to select new
suppliers. The process is based on a questionnaire
comprising nine sections, one of which concerns the
environment and sustainable development. The Group
evaluates suppliers’ performance in the areas of labor
relations, social accountability (SA8000), environmental protection (ISO 14001), compliance with the
Restriction of Hazardous Substances (RoHS) directive
and support for the Global Compact. In 2006, the
questionnaire was used to evaluate 350 new suppliers,
primarily in emerging markets.
In France, disabled employees made up 5.38% of the
workforce in France in accordance with new legislation
(2.38% direct jobs and 3% via subcontractors), for a
total of 326 team members.
Diversity and temporary agencies
During the year, Schneider Electric reviewed the situation of temporary employees with Adecco. A survey on
preventing discrimination and promoting integration
and diversity was conducted in the Adecco agencies
that work with Schneider Electric’s major sites. The
results should help both partners identify areas for
improvement and devise action plans.
Improving working conditions
among sub-contractors and suppliers
Support for the Global Compact is a major criterion in
the selection of key suppliers. This approach helps
encourage suppliers to meet the Compact’s objectives.
Training for purchasing teams
Relations with
sub-contractors and suppliers
Framework
Schneider Electric makes 92% of its purchases from
3,000 suppliers and sub-contractors.
Improvement plans –
Planet & Society Barometer
Make 60% of total purchases from suppliers
who support the Global Compact.
Rating
Performance
2005
2006
2 / 10
12%
2.66 / 10
16%
As part of the program to internationalize the purchasing function, the Group continued to recruit and develop skills in emerging markets during the year, primarily in Asia and Eastern Europe. Training new team
members in internal processes and methods is critical
to maintaining a uniform purchasing strategy worldwide. In 2006, the training programs were adjusted to
meet the challenges of internationalization. They
include a section on the Group’s commitment within
the Global Compact.
These measures produced tangible results in 2006,
with the percentage of purchases from Global Compact signatories rising to 16% from 12% in 2005.
Community outreach
Framework
Type of purchases
(€ million)
2006
Raw materials
1,600
Electronic components
1,500
Manufactured components
1,800
MRO purchases
2,200
Schneider Electric’s long-term commitment to helping
unskilled young people has expanded rapidly with support from the Schneider Electric Youth Opportunities
Foundation. The Foundation has backed real-world,
lasting projects that promote education, training and
mentoring since 1998 and encouraged Schneider
Electric employees to participate.
(See p. 84 "Impact on regional development and community relations".
Breakdown by region
(€ million)
2006
Improvement plans Planet & Society Barometer
Europe
3,600
Americas
1,500
Donate €1 million worth of Schneider Electric
equipment.
Asia-Pacific
1,500
Rest of the World
500
Rating
2006
3 / 10
10 / 10
Ensure that 90% of our sites have a lasting
commitment with the Schneider Electric Foundations
in the area of youth opportunities.
Rating
82
2005
2005
2006
7 / 10
7 / 10
Tsunami in Southeast Asia:
Schneider Electric’s involvement in reconstruction
Schneider Electric and its employees were deeply
involved in helping the local population recover after
the unprecedented natural disaster that hit Southeast Asia on December 26, 2004. The corporate
community collected €2,861,686 for disaster relief,
of which €658,821 from employees, and also donated equipment and services.
Electric Foundation and the World Vision Foundation
of Thailand. A three-storey building with 18 classrooms was rebuilt to house the largest number of
schoolchildren possible, in particular those whose
school had been destroyed by the 2004 tsunami.
The primary, middle and high school complex in
Phang Nga province has capacity for 646 students.
These resources were used to fund several projects
in Indonesia, Sri Lanka, India and Thailand, with a
focus on daily necessities.
Schneider Electric’ tsunami solidarity drive,
launched in 2005, includes three programs:
Each project is tracked by the Schneider Electric
Foundation and local partners on the ground.
Most of the projects backed by the Foundation were
inaugurated in 2006. Some 70% were completed by
end-2006 and 89% will be finished by February
2007.
Examples
> In Indonesia, four schools were inaugurated in
July 2006 in Meulaboh and Banda Aceh, two communities devastated by the tsunami. More than 800
children were able to move out of temporary tentschools into the brand new facilities in time for the
new school year.
> In Thailand, the Baan Hin Lad School was rebuilt
and expanded thanks to support from the Schneider
A Foundation to encourage
action and federate energies
One of the Schneider Electric Youth Opportunities
Foundation’s flagship programs is the Luli international mobilization campaign. Launched in 2002, the annual campaign raises awareness among the Schneider
Electric workforce around the world and encourages
employees to participate in the Foundation’s programs.
The theme for Luli 2006 was “bringing young people
into society through sports”. A competition to forecast
the results of the soccer World Cup called “Luli Foot”
was organized on the intranet for the benefit of local
associations in each country, with matching funds
donated to five international associations.
Along with this federating competition, the campaign
called on team members to:
Marshall their talents to organize an event that would
bring together the largest number of employees possible so as to raise awareness about the issues supported by the sponsored association.
Support the projects presented by the associations
with time and money, through lasting partnerships.
More than 75% of the Group’s sites participated,
providing support for 205 associations.
4
1. Emergency response: purchase of ambulances,
equipment for emergency housing and shelter and
basic necessities, and installation of mobile water
treatment units.
2. Donation of equipment and services to restore
drinking water and electricity in cooperation with
partners: more than €770,000 is available for distribution depending on local needs and the suitability
of proposed programs. These donations fall within
the scope of the €385,000 target set out in the
Group’s new2 company program.
3. Reconstruction (primarily of schools and
orphanages): projects to build or help build 12
schools, equip a training center, an orphanage and
a medical center.
Long-term commitments
The Foundation and Schneider Electric volunteers
support association-led projects over the long term.
In France, for example, representatives from the Carros site organize an annual event to collect funds for
Institut Rossetti, an association that provides personalized assistance and material, educational and paramedical support to children who cannot study in the
traditional school system.
In Mexico, Schneider Electric’s local subsidiary organized and sponsored a multi-sports competition for disabled children in 2006 with its 25 leading distributors
and ten largest suppliers.
In the United States, the Schneider Electric/Square D
Foundation supports initiatives in the areas of education, social inclusion, healthcare and culture. Created
in 1953, it supports hundreds of projects each year
from a budget corresponding to 1.5% of Square D’s
net earnings from the previous year. In 2006, the budget amounted to $3 million. More than 40% of these projects are related to education. One of the Schneider
Electric/Square D Foundation’s headline actions is the
matching gift program, through which the Company
matches employee donations to the association of
their choice. In all, 3,351 employees have participated
in the program over the past four years.
2006 audited indicators
83
Business review
Compliance with
international law and other
commitments
Global Compact
Launched in 1999 by UN Secretary-General Kofi
Annan, the Global Compact brings companies and
non-governmental organizations together under the
aegis of the United Nations to “unite the power of market with the authority of universal ideals”. Signatories
are expected to embrace, support and enact ten principles in the areas of human rights, labour standards
and the environment. Schneider Electric publicly
expressed its support for universal values by joining
the Global Compact in December 2002. The Group
has primarily worked to share this commitment with its
partners since 2003.
World Health Organization
Schneider Electric uses the World Health Organization’s definition of health in defining its policies (“Health
is a state of complete physical, mental and social wellbeing and not merely the absence of disease or infirmity”).
Diversity Charter
Schneider Electric signed the Diversity Charter
launched by Institut Montaigne in 2004. Going beyond
France, the Group has decided to apply the charter’s
principles in all host countries or to update similar policies, for example in the United States.
Apprenticeship Charter
(France)
Schneider Electric has signed an apprenticeship charter in France. The charter grew out of the Group’s initiatives after Jean-Louis Borloo, the French Minister for
Employment, Social Cohesion and Housing chose
Henri Lachmann to lead a specific mission to promote
corporate support for developing apprenticeship.
Observatoire
Social International
Schneider Electric also takes part in the work of the
Observatoire Social International (OSI). It has signed
on to the “right to lifelong education and training”,
which aims to develop a relationship of partnership
and co-responsibility between companies and educators and trainers.
Other associations
Schneider Electric leads discussions on management
and societal issues within the Institut de l’Entreprise
think tank. It is a member of the Board of Directors of
the French study center for corporate responsibility
84
(ORSE) and of the French Global Compact network.
For many years, the Group has also actively supported Association pour le développement du mécénat
(Admical), a French not-for-profit organization involved
in corporate sponsorship issues that is a member of
the Ceres European network, and Institut du mécénat
social (IMS), an association that helps companies
implement their corporate social responsibility policies.
Standards organizations
Schneider Electric plays an active role within AFNOR,
the French standards organization. In particular, it participates in the working group on sustainable development. The Group also works with international standards organizations in developing the standards that
apply to its products. These organizations include
France’s Union Technique de l’électricité et de la communication (UTE), the European Committee for Electrotechnical Standardization (CENELEC), the International Electrotechnical Commission (IEC) and the
International Standards Organization (ISO).
Impact on regional
development and community
relations
Wherever it operates, the Group makes a strong commitment to community partners. This is indispensable
for a global enterprise that wants to keep in touch with
real-life conditions in its local markets. Numerous projects under way and on the drawing board demonstrate
Schneider Electric’s desire to be engaged, notably in
the area of employment, and to contribute fully to local
economic development.
Agreements
As of end-2006, Schneider Electric’s main sites in
France (including all manufacturing facilities) had
signed target agreements with officials in charge of
local development. These agreements cover inclusion,
diversity and economic development. They strengthen
Schneider Electric’s presence in its local employment
pools, notably by creating a tighter network with local
bodies involved in economic development.
Youth opportunities
Schneider Electric has been involved in training programs for disadvantaged youth and high school noncompleters for many years. Team members’ involvement in these programs has been a key success factor. In each host country, the Group looks for the most
effective way to make a difference, from partnerships
with schools and associations to financial support for
young students and participation in technical or general training courses. These programs dovetail with the
partnerships forged through the Schneider Electric
Youth Opportunities Foundation (see "Community outreach" page 82).
Examples
In Spain, the city of Meliana’s business development
council asked Schneider Electric to participate in a
pilot project to encourage the hiring of disadvantaged
individuals, including foreigners, single parents, victims of domestic violence and people with disabilities.
The program attracted some 200 participants. Half of
those who received training were hired to work on
assembly lines at Schneider Electric’s local site.
In France, the national government launched a campaign called "100 opportunities – 100 jobs" with the
city of Grenoble and Schneider Electric in January
2006. The campaign targets low-skilled residents of
depressed neighborhoods, aged 18 to 30, who are
motivated and ready to take part in a job opportunity
program. The objective is to open the door to long-term
employment within a period of 36 months by offering
personalized skills-qualification paths with the help of
30 companies brought together and led by Schneider
Electric. A positive outcome target of 60% has been
set, meaning that participants obtain a fixed-term contract of more than six months, an open-ended contract
or a skills-qualification training contract. The first "100
opportunities – 100 jobs" campaign was held in January 2005 in Chalon sur Saône, in partnership with
Schneider Electric subsidiary SFG. A similar campaign
is planned in 2007 in Normandy.
Research and innovation program management
(innovation practices, scientific and technical cooperation, patent strategy, international deployment, customer involvement, suppliers, etc.).
The
Group’s global competencies strategy.
Increasingly, Schneider Electric is focusing its research
on such topics as energy efficiency, speed drives,
energy metering and lighting management. In medium voltage, it is doing work on new sensors and software to give devices advanced diagnostic functions.
Group teams are also designing new electrical distribution products to feed energy from solar power,
micro-turbines, wind farms or fuel cells into the power
grid.
4
(See "Worldclass R&D", page 25).
Environmental
performance
Schneider Electric fully assumes its environmental
responsibility at all levels of the business by participating in the definition of new regulations and applying
them early, by making sites more energy efficient, by
promoting eco-design, and by raising employees’ and
partners’ environmental awareness.
Business creation
Over the past ten years, Schneider Electric has supported employee projects in France to create businesses or buy going concerns through Schneider Initiatives Emploi (SIE)–a dedicated structure that allows
the Group to address its employment and regional
development responsibilities. The association provides
confidential support during all stages of business creation, as well as afterwards, with a minimum follow-up
period of three years. More than 500 project sponsors
have gone on to head their own businesses in a variety of professions, from baker to consultant to electrician. SIE-backed projects show a success rate of 85%
over three years. On average, each project creates
1.95 jobs.
A directory of 350 participants was widely circulated
throughout the Company in 2006, as well as among
the program’s alumni.
Innovation
To prepare the solutions of the future, Schneider Electric devotes nearly 5% of its revenue to R&D. In 2005,
the Group set up a scientific council to provide guidance on the ongoing evolution of science, technology
and innovation. In particular, the council is responsible
for understanding the Group’s approaches and making
recommendations in the following areas:
Scientific and technical policy governing products,
product development, manufacturing, services, etc.,
notably as concerns emerging technologies and/or
technologies from other industries that could have an
impact on Schneider Electric’s businesses.
Framework
Schneider Electric neither generates nor distributes
electricity. Its business primarily relies on assembly
and monitoring techniques and includes very few
processes with a more significant environmental
impact, such as metal processing and treatment.
The Group has 205 manufacturing facilities.
It is committed to including all units in the scope of
reporting. In 2005, environmental reporting was expanded from manufacturing sits to logistics facilities. The
number of units covered grew to 184 in 2006 from 172
in 2005 and 139 in 2003, despite site closures and
consolidation during the year.
The environmental reporting principles were officially
audited in early 2006 and in early 2007.
In 2006, the Group implemented a process to measure
CO2 emissions from primary energy consumption and
to estimate volatile organic compound emissions. The
data will be published for the first time in 2007.
ISO 14001 certification
Total
Dec. 31, 2005
174
Target for end-2006
38
New certifications at end-2006
18
192* Dec. 31, 2006
* Including site closures and consolidation in 2006.
2006 audited indicators
85
Business review
Indicators
Reported scope
Like-for-like 2005/2006
2003
2004
2005
2006
2005
2006
139
159
172
184
154
154
Number of employees
at manufacturing
and logistics sites
43,944
47,140
50,644
60,462 47,887
50,064
Amount of waste
produced (in metric tons)
93,736
94,821
100,547
105,502 102,244
98,893
Waste produced per
employee (in metric tons)
1.94
2.01
1.99
2.14
1.98
Recovered waste
(in metric tons)
62,645
69,741
76,286
84,836 78,439
80,286
Percentage of
waste recovered
65%
73.5%
75.9%
80.4% 76.7%
81.2%
674,967
692,298
793,898
918,024 822,465
823,856
15.3
14.7
15.7
17.2
16.5
1,643,483
1,838,221
1,874,329
37.4
39.0
37.0
Number of
responding sites
Energy consumption
(MWh equivalent)
Energy consumption
per employee (in MWh)
Water consumption
(in cubic meters)
Water consumption per
employee (in cubic meters)
1.74
15.2
2,122,381 1,687,349
35.1
1,820,887
35.2
36.4
Estimates
2006 CO2 emissions (in metric tons)
285,655 244,177
CO2 emissions per employee (in metric tons)
4.7 337,548 330,299
2006 VOC emissions (in kg)
VOC emissions per employee (in kg)
5.6
Sites
Ensure that all manufacturing and logistics
sites are certified ISO 14001.
2005
2006
5 / 10
6.86 / 10
Customers
Provide an environmental profile for
120 products representing more than 50% of total
product revenue.
Rating
6.6
The 2006 figures include data from 184 sites compared with 172 in 2005.
Improvement plans Planet & Society Barometer
Rating
4.9
2005
2006
2.3 / 10
5.4 / 10
The energy, waste, waste recovery and water ratios all
improved on a reported basis despite a significant
increase in production and outsourcing and a notable
improvement in productivity. Meaningful progress was
made on a like-for-like basis, except in the area of
water consumption.
Readers should note that corrections have been made
to data published in 2005, primarily as concerns North
America.
Water, energy and
raw materials consumption
Energy efficiency
Reduce energy consumption per production
site employee by 10%.
Rating
86
2005
2006
6.7 / 10
7.5 / 10
Water and energy
Since 2006, the Group has provided a more detailed
breakdown of water consumption that takes into
account groundwater and water from the public network. The decline in consumption per employee since
2003 reflects the continuous improvement plans at
each site.
Water and energy consumption data are consolidated
in the table on page 86.
Raw materials
In its ongoing drive to protect the environment, Schneider Electric is making its products more compact to
conserve natural resources and constantly improving
its lineup to make electrical installations more energy
efficient. To facilitate end-of-life processing, it chooses
materials that are easy to recycle and clip-together
systems that are easy to disassemble. Life cycle analyses and recyclability assessments help the Group
identify areas for improvement.
Example:
The latest generation Galaxy uninterruptible power
supplies from MGE UPS Systems are significantly
more efficient than the previous generation (now
around 15 years old). As a result, the energy loss from
this equipment has declined by around 15 toe (1 toe =
11,626 kWh).
Measures to reduce
energy consumption
Energy consumption at production sites
As the marketplace’s energy efficiency partner,
Schneider Electric applies its solutions in its own operations through the "Energy Action" program to reduce
consumption.
The objective is to reduce energy consumption per
production site employee by 10% by the end of 2008.
The program focuses on five key areas: heating, air
conditioning, equipment (notably for data processing),
lighting and specific manufacturing processes.
As of December 2006, 50 sites had launched action
plans, including 26 in the United States, 5 in the United Kingdom, 18 in France and 1 in India.
In the US, the Oxford, Ohio site reduced its electricity
expenses by 27% and its water bill by 9% with a return
on investment within two to three years.
The five pilot sites in the UK have cut their consumption by 22%.
European RoHS directive
électroniques et de communication (FIEEC), which
presents a shared vision for the electric industry.
The European Restriction of Hazardous Substances (RoHS) directive, which came into effect on
July 1, 2006, bans lead, mercury, cadmium, hexavalent chromium and brominated flame retardants in
certain electrical and electronic equipment–primarily household goods–sold in Europe.
Throughout the transition period, the Group
focused continuously on ensuring product quality
and reliability while complying with customer deadlines.
The directive affects only a small portion of Schneider Electric’s lineup directly, but it impacts a larger
share indirectly. This is the case for equipment integrated in finished products covered by RoHS.
The Group has gone far beyond the directive's
requirements and decided to stop using these
substances all together.
Step one: July 1, 2006
In line with its commitment, the Group brought all
directly concerned and frequently integrated products into compliance with the directive as of July 1,
2006. Examples include:
> The GV2 contactor, now made using trivalent
chromium instead of hexavalent chromium.
> The C60 circuit breaker, now made without lead,
with trivalent chromium rather than hexavalent
chromium, and with bromine-free materials for the
plastic parts.
As part of this program, Schneider Electric has
worked closely with suppliers to identify substitute
components and materials that meet quality and
performance requirements. In particular, specific
measures were taken to ensure component reliability in the area of lead-free electronics.
The Group has also participated actively in the
publication of guides, such as the document prepared by the Fédération des industries électriques,
4
Partners can find all the information they need to
understand the directive, track implementation and
consult the RoHS-compatible catalog at
www.rohs.schneider-electric.com.
The date of RoHS-compliant production is given for
each product.
Step two: end-2008
The Group is currently eliminating the six substances from its entire low voltage lineup, including
in products not covered by the directive.
In addition, the Group has decided to stop using
cadmium in its products’ electrical contacts, even
though it could obtain a time extension from the EU.
Eliminating hazardous
substances in other countries
Although the RoHS Europe directive only applies to
products sold in Europe, Schneider Electric has
decided to bring its entire lineup into compliance
worldwide before the end of 2008. In this way, it will
be prepared for regulatory changes in other countries, such as China. Products in China will be compliant long before hazardous substances are effectively banned. New regulations are expected in the
months ahead in India, the United States, South
Korea, Australia and other countries.
2006 audited indicators
87
Business review
Promoting renewable energy sources
The Group is also making wider use of renewable
energy sources. For example, the corporate restaurant
at the Electropole R&D Center in Eybens, France is
powered by solar energy.
Releases into the soil
The International and Iberian Operating Division’s new
headquarters is equipped with a photovoltaic system
and a centralized HVAC solution that reduces energy
costs by 15%. And the Group’s future headquarters
under construction in Rueil-Malmaison will comply with
France’s HQE green building standards, notably as
concerns energy consumption.
No substances are purposely released into the soil in
the course of site operation. Workshop flooring is specially treated to prevent any leakage. Hazardous substances are systematically stored and handled in
areas equipped with retention tanks. Retention systems are designed to compensate in the event of malfunctions or emergencies, such as fires.
Respecting ecosystems
During the year, Schneider Electric conducted its
annual review of pollution risks at all manufacturing
sites as part of ISO 14001 tracking.
Schneider Electric’s plants in Seneca and Columbia,
South Carolina have introduced innovative initiatives to
help protect wildlife on their sites. Thanks to time volunteered by employees, the plants created or re-created native wildlife and plant habitats in partnership with
community groups through the Wildlife and Industry
Together (WAIT) program.
Projects included a Carolina Fence garden, butterfly
and shade gardens, bluebird boxes and amphibian
houses.
Employees and partners have made recommendations for future activities to make wildlife preservation
an integral part of property and production area management.
Releases,
nuisance and waste
None of the sites are classified Seveso. However, the
Group continuously monitors 13 facilities, of which 7 in
France, often because of their past manufacturing history. Monitoring is conducted in liaison with local
authorities and preventive measures are carried out
when necessary. Such measures were taken at the
Yates site in the United States and at Maizières-lesMetz in France, where soil contaminated by transformer oil was excavated. No major incidents were
reported in 2006.
Noise and odors
All Schneider Electric sites comply with noise limits.
Waste
Waste represents the majority of the Group’s releases.
Waste management is continuously being improved,
with a recovery rate of more than 80%.
Virtually all Schneider Electric sites are located in
urban or industrial areas and do not affect any notable
biotopes. None of the Group’s businesses involve
extraction or landfarming.
Because classification systems vary widely from country to country, the Group does not consolidate global
data by category (hazardous and non-hazardous).
Waste is processed to ensure local traceability. In
France, for example, hazardous industrial waste
accounts for around 14% of total waste. All waste is
channeled to the appropriate treatment facility.
Releases into the water and air
End-of-life management
Because Schneider Electric is mainly an assembler, its
releases into the air and water are very limited.
Mechanical component production workshops are
carefully monitored, in keeping with their ISO 14001
certification. Their releases are tracked locally as
required by current legislation. No major spills or
releases were reported in 2006.
The Group informs customers about its products’ environmental impact and provides Product Environmental
Profiles (PEPs) to assist them with disassembly.
Land use
The Group’s actions are guided by the principle of
continuous improvement. In 2005, for example, the
Beaumont-le-Roger plant stopped using trichloroethylene as a cleaning solvent, while in 2006, Rectiphase
in France phased out zinc metal spraying for its
capacitors.
Special attention is being paid to volatile organic compound (VOC) emissions in accordance with the socalled best available technology (BAT) directive
(96/61). These emissions are covered by a comprehensive reporting system deployed in 2005.
For medium voltage products and equipment, the
Group has signed a voluntary agreement to eliminate
88
SF6 emissions throughout the devices’ life cycle. This
entails producing and operating in leak-proof conditions and offering an end-of-life recycling service.
In Europe, Schneider Electric offers a service to take
back end-of-life products.
In 2006, MGE UPS Systems launched the “Swap pac”
program so that customers would not have to manage
electrical and electronic waste from outdated uninterruptible power supplies. The program comprises an
environmental review of the installation’s electricity
consumption and quality; removal and certified
destruction of the end-of-life equipment; and delivery
of new equipment.
This goes far beyond the requirements of waste from
electrical and electronic equipment (WEEE) regulations, which concern only a very small portion of
Schneider Electric’s lineup.
Evaluation and
compliance approaches
efficiency was distributed to all of Schneider Electric’s
600 managers worldwide.
When the ISO 14001 environmental management
standard was published in 1996, Schneider Electric
immediately initiated a process to certify its sites. The
Group’s goal is to obtain certification for all manufacturing and logistics sites within two years after their
acquisition or construction.
Environmental risk
management and prevention
As of December 31, 2006, 90.6% of the manufacturing
and logistics sites were certified ISO 14001, for a
total of 192 facilities. The rate in France was 100%.
Aside from the voluntary prevention measures discussed above for sites with a soil contamination history, no amounts have been paid out in connection with
a legal ruling.
Newly certified sites in 2006 included the Florida plant
in Buenos Aires, Argentina; the regional distribution
center in Budapest, Hungary; the international distribution center in Hong Kong; and Schneider Electric
Logistics Asia in Singapore.
The ISO 14001 environmental management system
covers management of environmental risks. No
Schneider Electric sites are classified Seveso.
Measures for addressing accidental
pollution with consequences outside the
perimeter of Group establishments
An environmental management system has also been
deployed on an experimental basis at non-production
sites, with 13 now certified. These include all the sales
agencies in Germany. In France, the Metz and Strasbourg agencies were certified in 2006 and there are
plans to extend the process to agencies nationwide in
2007.
All of the Group’s industrial sites, which are certified
ISO 14001, have organizations in place to prevent
emergencies and respond effectively if necessary. Preventive and corrective action plans are based on an
analysis of non-standard situations and their potential
impact. This analysis draws in part on hazard reviews
for classified installations.
Regulatory watch and compliance is a systematic part
of the environmental management system and is certified by a third party with the ISO 14001 label.
In France, for example, certain sites that handle large
amounts of chemical compounds, such as Le Vaudreuil, MGA and 38Tex, are equipped with balloontype containment systems to avoid any pollution
through the water network. Others, like SDE, which is
located next to a river, have floating beams.
Environmental
management organization
and training
Organization
The organization comprises:
A corporate Environmental Affairs department.
A skills network.
> Sites: environmental managers in all countries with
significant operations and at all manufacturing and
logistics units.
> Products: an environmental relay in each business
unit who is responsible for integrating environmental
concerns in lineup management and environmental
representatives in each department.
4
Drills are held regularly throughout the year to ensure
that supporting procedures are ready and effective.
A national organization has been set up to track sensitive sites, whose managers systematically receive
training in environmental crisis management. Directives, procedures and national guidelines concerning
environmental crisis management, historical and current operations management, pollution risk prevention
and other topics are available on the intranet. Internal
audits verify that these procedures are applied correctly.
In France, a soil environment committee meets quarterly to validate action plans designed to reduce potential pollution risks and eliminate any environmental
consequences of past activities at sites under surveillance.
This network has access to a wide range of management and experience sharing resources including
directives, application guides, an intranet site and
databases.
Employee training and information
Training and informing employees is a key mission for
country and unit environmental managers. Particularly
emphasized during site certification, training is facilitated by a 28-module e-learning package that takes
about 15 hours to complete. The modules are fun and
educational, with exercises and tests to ensure that
learners have understood and retained the information
presented.
All employees have access to the package via the
intranet. In 2006, an educational CD-ROM on energy
2006 audited indicators
89
Business review
Ratings
> The Executive Committee’s exemplary cultural and
generational diversity.
This section presents the findings of the leading sustainable development ratings agencies and a number
of ethical investment funds. The results allow for comparison with an industry benchmark.
> The internal auditors’ work to evaluate deployment of
corporate social responsibility policies.
Improvement plans Planet & Society Barometer
Energy efficiency study
Equities with high top-line potential –
September 2006
Ensure that Schneider Electric is included
in the four major socially responsible investment
index families
Rating
> The appointment of a woman to the Supervisory
Board.
2005
2006
7.5 / 10
7.5 / 10
In September 2006, Oddo Securities published a study
on energy efficiency that particularly highlighted Schneider Electric’s positioning.
The selection was drawn from the group of European
equities covered by Oddo on the basis of several criteria.
Special mention was given to:
ASPI Eurozone® Index
The Advance Sustainable Performance Indices’ Eurozone listing tracks the financial performance of 120
leading euroland sustainability performers from the DJ
Euro Stoxx benchmark financial universe. Schneider
Electric has been included since 2001. Vigeo ratings
are used to select the listed stocks, in keeping with
ASPI Eurozone® guidelines.
> Companies in a position to benefit in the short and
medium term from a surge in revenue growth thanks to
the rising importance of energy efficiency issues.
> Stocks with a differentiating energy efficiency profile in
terms of products or services, target customers and performance.
> Pure players in terms of energy efficiency positioning.
As of the publication date, Schneider Electric topped the
list of recommended investments.
www.vigeo.com
Investor-solicited rating – July 2006
Market sector: Electrical components and equipment.
(Companies in panel sector: 9)
Component
(min -- / max ++)
Rating
2006 / 07
Score
2006 / 07
Human Resources
+
40
Environment
++
40
Customers & Suppliers
+
46
Corporate Governance
=
44
Community Involvement
++
50
Human Rights
+
51
Dow Jones Indices
After being selected for the first time in 2002, Schneider Electric was included in 2007 in the Dow Jones
Sustainability Index World. This family of indices bases
its decisions on research provided by Sustainable
Asset Management (SAM), an independent asset
manager headquartered in Switzerland.
www.sustainability-index.com
Score scaling: 0 to 100
Ethibel Investment Register
Schneider Electric was included in the Ethibel Investment Register in 2006. This reference for socially
responsible investing is used by a growing number of
European banks, fund managers and institutional
investors.
Benchmark: company/industry sector
100
75
50
Ethibel offers two products based on its register: the
Ethibel Label and the Ethibel Sustainability Index.
25
www.ethibel.com.
0
Human Environment Customers Corporate Community
resources
& suppliers governance involvement
Max. sector Min. sector
Human
rights
Schneider Electric
Schneider Electric is in discussions with Vigeo to
obtain a re-evaluation of the corporate governance rating, taking into account:
> The appointment of a Supervisory Board member to
monitor sustainable development practices and management of environmental and social risks.
> Tracking of these risks by the Supervisory Board’s
Audit Committee.
90
Bank Sarasin
Schneider Electric is included in a number of Bank
Sarasin’s ethical investment funds. The Switzerlandbased bank rates companies both for its own purposes and for its customers, mainly pension funds.
www.sarasin.com
Methodology underlying human resources,
safety and environmental indicators
Frame of reference and definitions
In the absence of any recognized and meaningful
benchmark for companies involved in manufacturing
and assembling electronic components, Schneider
Electric has drawn up a frame of reference with reporting methods for human resources, safety and environment indicators. The frame of reference includes all relevant definitions, measurement procedures and methods for collecting information. As part of its continuous
improvement process, Schneider Electric is gradually
adapting the sustainable development indicators as
the Group evolves. The frame of reference is regularly
updated.
Consolidation scope and methods
Human resources and safety indicators are consolidated at the worldwide level for all companies that are
fully consolidated in the Group’s financial statements.
As concerns environmental data, production and logistics sites are included in the scope of consolidation
after two full calendar years of operation. In 2006, the
scope of environmental reporting expanded from 172
to 184 manufacturing and logistics sites, in keeping
with the policy of covering the broadest possible base.
Units belonging to fully consolidated companies are
included on a 100% basis, as are units belonging to
proportionally consolidated companies. Companies
accounted for by the equity method are not included in
the reporting.
Data collection and monitoring
Human resources, safety and environment indicators
are drawn from several dedicated reporting sources
available on the Group’s intranet. Depending on their
nature, the data are consolidated by the Human
Resources or the Environmental Affairs departments.
Data is checked during consolidation, with a review of
changes from the previous year and inter-site comparisons. No estimates are used to replace inconsistent or
missing data. In keeping with its commitment to continuous improvement, Schneider Electric asked Ernst &
Young to conduct a review in order to obtain a moderate level of assurance for certain human resources,
safety and environment indicators.
Calculation methods
with 184 for the other environmental indicators. ISO
14001 certification is one of the Planet & Society
Barometer’s performance indicators.
Volatile Organic Compounds (VOCs): given the nature
of the Group’s business, an estimate was made of VOC
emissions in 2006 to provide a rough approximation.
Product Environmental Profiles (PEPs): This indicator
corresponds to the number of PEPs compiled by
Schneider Electric. It is one of the Planet & Society
Barometer’s performance indicators.
4
Social data
Lost time injury rate per employee: this indicator is calculated on the basis of working days and includes all
injury-related time off exceeding one day during the
current and previous years. A ratio of 6/7ths has been
applied to calendar days declared by the French units
to obtain a corresponding number of working days,
thereby increasing the final indicator. Employees of
units that do not report a lost time injury figure are not
included in the denominator. The lost time injury rate is
one of the Planet & Society Barometer's performance
indicators.
Social coverage: all units that provide benefits for at
least one of the seven following areas are considered
to offer basic coverage – family allowances, retirement,
death insurance, illness (benefits in cash or in kind),
work accidents (benefits in cash or in kind), disability
and unemployment. The indicator, which includes
units acquired no less than two years previously, is
one of the Planet & Society Barometer’s performance
indicators.
Number of days of training: this indicator does not
include awareness-raising campaigns, which are not
considered to be part of training. The hours/days conversion is based on an 8-hour day.
Diversity: this indicator tracks the percentage of
women participating in international mobility programs,
which serve to identify high-potential talent within
Schneider Electric. Diversity is one of the Planet &
Society Barometer’s performance indicators.
Global Compact: this indicator, which tracks the percentage of unit purchases made from Global Compact
signatories, covers the 2,000 largest referenced suppliers in the Group’s supplier base. This tends to
reduce the final amount, given that suppliers who comply with the Electronic Industry Code of Conduct
(EICC) also meet the Global Compact’s requirements.
The volume of purchases from Global Compact signatories is one of the Planet & Society Barometer’s performance indicators.
Environmental data
CO2: The Group uses the method endorsed by the
International Energy Agency in 2006 to convert energy consumption into CO2 equivalent. The conversion
factors may be global (natural gas, fuel oil, diesel) or
national (electricity, urban heating, etc.).
Waste: the figures do not include exceptional waste,
such as that from building demolition.
Methodological limits
Methodologies used to establish environmental indicators may provide incomplete data due to current-month
estimates made during reporting. These estimates,
which represent a sixth of the period, are not adjusted
afterwards.
ISO 14001 certification: the ISO 14001 indicator covers 192 manufacturing and logistics sites compared
91
Business review
Assurance report on certain human resources,
safety and environment indicators
To the shareholders,
In our capacity as Statutory Auditors of Schneider
Electric and as requested, we have performed a review
that allowed us to provide a moderate level of assurance on the 18 environment, safety and social indicators (hereafter referred to as "the indicators") for 2006
identified in the annual report by the symbol.
Schneider Electric’s Sustainable Development Department was responsible for preparing the indicators in
accordance with the frame of reference applicable in
2006. This frame of reference, which may be consulted at Group headquarters, is summarized on page 91.
Our responsibility is to express a conclusion on these
indicators, based on our review.
The type of tests to be conducted for all environmen-
tal and social data, as well as the individuals responsible for testing should be specified and made more efficient to ensure the continued reliability of reporting.
The Group has provided detailed information on the
methodologies used to establish data on page 91 and
in comments to published data. We bring the following
items to your attention with regard to this information:
Environmental data is transmitted in June and
December on the basis of estimates for at least the last
month of each six-month period. The data is not
adjusted at the end of the year.
Environmental data is transmitted for the manufac-
turing operations, which represent around 55% of the
Group’s total workforce.
Nature and scope of our review
We performed a limited review to provide a moderate
level of assurance that the indicators are free of material misstatement. A higher level of assurance would
have required a more extensive review.
We reviewed the frame of reference with regard to its
meaningfulness, completeness, neutrality and clarity.
We met with 15 people in charge of the reporting
process at the Group level and in France and the United States to assess the frame of reference’s application. At these levels, we reviewed internal control of
data consolidation, analyzed meaningful variations
and verified, on a test basis, calculations and data consolidation.
We selected a sample of four operating units at
which we verified understanding and application of the
frame of reference and, on a test basis, verified the calculations and reconciled the data with supporting documentation.
Conclusion
During our review, we observed the following errors:
The frame of reference was not always correctly
applied in determining the work accident frequency
rate and work accident severity rate.
The frame of reference was not always correctly
applied in determining the breakdown between headcount by direct variable costs (DVC) and headcount by
non-direct variable costs (NDVC). Our review of this
data did not allow us to reach a conclusion.
On the basis of our review and subject to this reservation, nothing has come to our attention that causes us
to believe that the reviewed indicators have not, in all
material respects, been prepared in accordance with
the frame of reference.
We used teams specialized in sustainable development led by Eric Duvaud to perform this work.
Neuilly Sur Seine, February 20, 2007
Information and comments
We have the following comments on the reporting
frame of reference defined by Schneider Electric for
the selected data:
The individuals responsible for environmental and
social reporting at the Group’s sites and units should
be more aware of the importance of their work. In
applying the frame of reference, special attention
should be paid to the distinction between "Headcount
by direct variable costs (DVC) and non-direct variable
costs (NDVC)" and to "Number of days lost per
employee (NDL)".
The accuracy of the method for calculating the average workforce at manufacturing sites should be
improved and the methods for calculating the number
of product environmental profiles compiled and the
percentage of product ranges in compliance with the
RoHS directive should be formalized.
92
Ernst & Young et Autres
Ernst & Young
Ernst & Young
Environment and
Sustainability Services
Pierre Jouanne
Eric Duvaud
> To find out more:
www.schneider-electric.com
(> group > sustainable development)
www.barometre.schneider-electric.com
The amortization charge for intangibles resulting from
acquisitions came to €13 million in 2005 and €18 million in 2006. Measured in terms of EBITA margin, the
new2 program’s original target would have been
between 12.6% and 14.6%.
www.rohs.schneider-electric.com
www.fondation.schneider-electric.com
> To contact us:
Assumptions
used to prepare forecasts
E-mail:
[email protected]
The forecasts and targets presented above are based
primarily on the following assumptions:
Postal address:
Schneider Electric Industries SAS
Sustainable Development Department
89, boulevard Franklin-Roosevelt
92500 Rueil-Malmaison, France
Full consolidation of APC from February 15, 2007
4
Aside from the consolidation of APC, forward-looking
data is based on the current scope of consolidation.
Exchange rate assumptions have been determined
at Group level. In particular, a US dollar/euro exchange
rate of 1.32 has been used for 2007.
Anticipated revenue growth has been calculated
based on world economic growth projections (GDP).
5. Outlook for 2007
Certain price changes have been anticipated to offset higher raw material costs, notably for copper.
The Group anticipates a negative margin impact
from changes in its geographic and business mix.
On the other hand, its ongoing strategy to control
Revised targets for
the new2 Company Program
In light of the success of the new2 company program’s
action plans, the Group has set new financial targets
for 2007-2008:
Organic revenue growth of more than 6% per year
(compared with 5% previously), due in particular to
additional growth from APC.
An EBITA margin of between 13% and 15% (com-
pared with 12.5% and 14.5% previously). This corresponds to a potential improvement of 1 to 1.5 points
(compared with the pro forma 2006 margin including
APC but without non-recurring costs of 13.7%) in similar economic conditions.
A 2-point increase in return on capital employed
(ROCE) (compared with the pro forma 2006 figure
including APC of 9.3% and the initial target of a 2- to
4-point increase between 2005 and 2008).
The Group’s aim is to surpass global GDP growth by 3
points on average. Historical data shows that global
GDP grows by around 3% a year over an average
period.
EBITA is defined as Earning Before Interest, Taxes and
Amortization of purchase accounting intangibles.
ROCE is defined as Return On Capital Employed.
Capital employed is the quarterly average of capital,
the net debt and non standard provisions.
base costs, improve industrial productivity and rebalance costs should have a positive margin impact.
Some of these amounts, assumptions and estimates
are based or partly based on the expectations or decisions of the Management of the Group and its subsidiaries that may change or be altered.
The forecasts, targets and forward-looking statements
and information summarized above are based on data,
assumptions and estimates discussed earlier that the
Group considers reasonable.
Forward-looking statements depend on present expectations of future events. They are not historical facts
and should not be construed as guaranteeing that the
forecasts and/or objectives will be met. These
amounts, assumptions and estimates, as well as all
the factors taken into account to determine targets, forward-looking statements and information, are subject
to various uncertainties concerning the Group’s business, financial and competitive environment that could
cause actual results to differ materially from those
described in the forward-looking statements.
In addition, the occurrence of certain risks described in
Chapter 1 (pages 28-31) of this document could have
an impact on the Group’s business and the achievement of the targets and forward-looking statements
and information presented above.
As from 2007, the Group has decided to change its
indicator for measuring operating performance from
EBIT margin to EBITA margin. EBITA margin excludes
the amortization charge related to business combinations, because the amount of this charge does not
have a direct link to the company’s performance. The
charge results from the decision to allocate goodwill to
certain intangible assets and makes it difficult to compare a company acquired from another. The dividends
distribution plan determined by new2 has not changed.
93
Business review
6. Auditors’ report on profit forecasts
To the Chairman of the Management Board,
In our capacity as Statutory Auditors of Schneider
Electric SA, and as required by regulation 809/2004/EC,
we present below our report on the profit forecasts for
Schneider Electric SA included in section 11.4 of the
Offering Memorandum dated March 7, 2007.
These forecasts and the principal assumptions on
which they are based were prepared under your supervision in accordance with regulation 809/2004/EC and
recommendations concerning forecasts issued by the
Committee of European Securities Regulators
(CESR).
In our opinion:
The forecasts have been properly compiled on the
stated basis.
The basis of accounting used for the profit forecast is
compatible with the accounting policies of Schneider
Electric SA.
This report is issued solely in connection with the offering made to the public in France and other countries of
the European Union in which the prospectus approved
by Autorité des Marchés Financiers (AMF) may be distributed.
It is our responsibility to report our conclusions on the
manner in which the forecasts were compiled, as
required by regulation 809/2004/EC, Annex I, Point
13.2.
We performed our work in accordance with professional standards in France. Our review consisted of evaluating the procedures implemented by Management to
prepare the forecasts and examining evidence demonstrating that the basis of accounting used for the forecasts was consistent with the accounting policies used
to prepare Schneider Electric SA’s historical financial
information. We also interviewed members of Schneider Electric SA’s senior management to obtain the
information and explanations we deemed necessary to
have reasonable assurance that the forecasts were
properly compiled on the basis of the stated assumptions.
Because forecasts are subject to various uncertainties
that could cause actual results to differ materially, we
have no conclusion to express about the likelihood that
these forecasts will be fulfilled.
94
Courbevoie and Neuilly-sur-Seine, March 5, 2007
The Statutory Auditors
Mazars & Guérard
Ernst & Young et Autres
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
5
Consolidated
financial statements
at Dec. 31, 2006
1. Consolidated statement of income . . . . . . p. 96
2. Consolidated statement of cash flows . . . . p. 97
3. Consolidated balance sheet . . . . . . . . . . . p. 98
4. Consolidated statement of changes
in equity and minority interests . . . . . . . . p. 100
5
5. Notes to the consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . . . . p. 101
6. Report of the Statutory Auditors on
the consolidated financial statements . . . p. 152
The consolidated and parent company financial statements for the years ended December 31, 2004 and 2005
are presented in the registration documents registered with Autorité des marchés financiers (AMF) under
number D.06-0158 and D.05-0309 on March 27, 2006 and March 31, 2005, respectively.
95
Consolidated financial statements at December 31, 2006
1. Consolidated statement of income
(in millions of euros except for earnings per share)
Revenue
(note 22)
Cost of sales
Gross profit
Research and development expenses
(note 23)
Selling, general and administrative expenses
Other operating income and expenses
(note 25)
Operating profit
Other financial income and expenses
Finance costs and other financial income and expense, net (note 26)
(note 7)
Profit before tax
Income tax expense
2005*
2004
13,729.7
11,678.8
10,349.3
(8,050.6)
(6,923.8)
(6,177.4)
5,679.1
4,755.0
4,171.9
(327.6)
(273.7)
(295.1)
(3,234.8)
(2,812.8)
(2,549.7)
(116.0)
(103.2)
(40.7)
2,000.7
Finance costs, net
Share of profit /(losses) of associates
2006
Profit of continuing operations
1,286.4
(104.0)
(103.1)
(16.9)
(1.5)
(120.9)
(104.6)
(59.3)
(3.6)
(3.6)
1.9
1,881.7
(note 12)
1,565.3
(535.1)
1,457.1
(427.5)
(64.4)
5.1
1,223.5
(365.2)
1,346.6
1,029.5
858.3
1,346.6
1,029.5
858.3
1,309.4
994.3
823.9
37.2
35.2
34.4
Discontinued operations
Profit for the period
– Attributable to equity holders of the parent
– Attributable to minority interests
Basic earnings per share (in euros)
(note 14.3)
5.95
4.56
3.73
Diluted earnings per share (in euros)
(note 14.3)
5.90
4.54
3.72
* IAS 32/39 applied as from January 1, 2005 with no adjustment for 2004 (note 2).
The accompanying notes are an integral part of the consolidated financial statements.
96
2. Consolidated statement of cash flows
2006
(in millions of euros)
I - Cash flows from operating activities:
Profit attributable to equity holders of the parent
Minority interests
Share of (profit)/ losses of associates, net of dividends received
Adjustments to reconcile net profit to net cash provided by operating activities:
Depreciation of property, plant and equipment
Amortization of intangible assets other than goodwill
Losses on non current assets
Increase/(decrease) in provisions
Change in deferred taxes
Losses/(gains) on disposals of assets
Other
Net cash provided by operating activities before changes
in operating assets and liabilities
(Increase)/decrease in accounts receivable
(Increase)/decrease in inventories and work in process
Increase/(decrease) in accounts payable
Change in other current assets and liabilities
Change in working capital requirement
Total I
1,309.4
37.2
(1.9)
2005*
2004
994.3
35.2
2.8
823.9
34.4
3.5
282.1
110.4
32.2
80.7
99.0
(38.0)
10.2
279.3
88.8
20.7
22.5
97.0
(0.7)
8.2
285.7
76.7
1,921.3
(255.8)
(382.5)
225.0
79.9
1,548.1
(185.0)
(85.2)
165.6
(118.8)
1,282.1
(186.0)
(162.1)
37.9
212.2
(333.4)
(223.4)
(98.0)
1,587.9
1,324.7
(27.7)
78.1
(9.0)
16.5
1,184.1
II - Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Purchases of intangible assets
Proceeds from disposals of intangible assets
(330.1)
76.6
(225.4)
(2.0)
(308.1)
45.2
(213.7)
0.6
(277.8)
45.1
(97.2)
0.4
Net cash used by investment in operating assets
Purchases of financial investments - net (note 3)
Purchases of other long-term investments
Increase in long-term pension assets
(480.9)
(897.8)
163.1
(19.6)
(476.0)
(1,267.3)
(20.7)
(48.1)
(329.5)
(800.9)
(25.5)
(13.4)
Sub-total
(754.3)
(1,336.1)
(839.8)
(1,235.2)
(1,812.1)
(1,169.3)
996.8
(148.7)
52.9
298.5
76.5
(502.6)
(14.6)
1,490.9
(70.4)
(73.2)
(76.1)
22.4
(395.4)
(22.9)
(1,352.3)
(278.2)
(49.6)
61.0
(334.2)
(23.3)
Total III
758.8
875.3
(1,976.6)
Total IV
11.5
(31.1)
Net increase/(decrease) in cash and cash equivalents: I + II + III + IV
1,123.0
356.8
(1,955.8)
1,303.3
1,123.0
946.5
356.8
2,902.4
(1,955.9)
2,426.2
1,303.3
Total II
III - Cash flows from financing activities:
Issuance of long-term debt (note 17)
Repayment of long-term debt
Sale/(purchase) of treasury shares
Increase/(reduction) in other financial debt
Issuance of shares
Dividends paid: Schneider Electric SA (1)
Minority interests
IV - Net effect of exchange rate :
Cash and cash equivalents at beginning of period
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at end of period (note 13)
5
6.0
946.5
(1) Includes a précompte withholding tax back payment.
* IAS 32/39 applied as from January 1, 2005 with no adjustment for 2004 (note 2).
The accompanying notes are an integral part of the consolidated financial statements.
97
Consolidated financial statements at December 31, 2006
3. Consolidated balance sheet
Assets
Dec. 31, 2006
(in millions of euros)
Dec. 31, 2005
Jan. 1, 2005*
Dec. 31, 2004
Non-current assets
Goodwill, net
(note 4)
6,185.7
5,878.8
Intangible assets, net
(note 5)
1,493.1
1,299.1
894.5
894.5
Property, plant and equipment, net
(note 6)
1,615.1
1,600.6
1,456.7
1,456.7
Assets held for sale
(note 6)
6.4
6.8
7.6
7.6
3,114.6
2,906.5
2,358.8
2,358.8
(note 7)
10.2
48.2
65.3
65.3
Available-for-sale financial assets
(note 8)
315.7
315.4
198.5
154.3
Other financial assets
(note 8)
114.2
281.4
288.1
288.1
429.9
596.8
486.6
442.4
672.8
795.0
832.7
830.3
10,413.2
10,225.3
8,282.4
8,159.1
(note 9)
2,055.9
1,636.6
1,409.4
1,409.4
Trade accounts receivable
(note 10)
2,882.8
2,586.7
2,135.7
2,135.7
Other receivables and prepaid expenses
(note 11)
994.8
783.0
550.8
529.1
Total tangible and intangible assets
Investments in associates
Total non current financial assets
Deferred taxes
(note 12)
Total non-current assets
4,539.0
4,462.3
Current assets
Inventories and work in process
Current financial assets
Cash and cash equivalents
Total current assets
Total assets
(note 8)
73.5
0.0
0.0
0.0
(note 13)
2,544.1
1,383.2
975.8
1,062.8
8,551.1
6,389.5
5,071.7
5,137.0
18,964.3
16,614.8
13,354.1
13,296.1
* IAS 32/39 applied as from January 1, 2005 with no adjustment for 2004 (note 2).
The accompanying notes are an integral part of the consolidated financial statements.
98
Liabilities and equity
Dec. 31, 2006 Dec. 31, 2005
(in millions of euros)
Equity
Jan. 1, 2005*
Dec. 31, 2004
(note 14)
Share capital
1,821.6
1,813.0
1,809.6
1,809.6
Share premium account
4,121.0
4,069.0
4,049.9
4,049.9
Retained earnings
2,925.9
2,160.8
1,571.1
1,620.1
Translation reserve
(152.0)
200.8
(84.3)
(84.5)
8,716.5
8,243.6
7,346.3
7,395.1
121.6
93.9
76.2
72.8
8,838.1
8,337.5
7,422.5
7,467.9
Equity attributable to equity holders of the parent
Minority interests
Total equity
5
Long-term provisions
Provisions for pensions and
other post-employment benefits
(note 15)
1,159.0
1,200.4
1,026.2
1,026.2
Provisions for contingencies
(note 16)
283.1
210.0
192.3
192.3
1,442.1
1,410.4
1,218.5
1,218.5
3,237.9
2,691.1
1,200.0
1,200.0
Total long-term provisions
Non-current liabilities
Ordinary and convertible bonds
(note 17)
Perpetual bonds
(note 17)
0.0
-
-
73.3
Other long-term debt
(note 17)
219.2
63.6
72.5
24.9
3,457.1
2,754.7
1,272.5
1,298.2
Total non-current financial liabilities
Deferred tax liabilities
(note 12)
305.3
259.4
225.9
203.2
Other non-current liabilities
(note 18)
90.2
178.8
177.7
104.4
5,294.6
4,603.3
2,894.6
2,824.3
1,948.5
1,710.8
1,384.4
1,384.4
1,206.5
1,093.1
849.5
849.5
286.7
276.7
236.5
236.5
505.3
340.5
338.9
279.2
884.6
252.9
227.7
254.3
4,831.6
3,674.0
3,037.0
3,003.9
18,964.3
16,614.8
13,354.1
13,296.1
Total non-current liabilities
Current liabilities
Trade accounts payable
Accrued taxes and payroll costs
Short-term provisions
(note 16)
Other current liabilities
Short-term debt
Total current liabilities
Total equity and liabilities
(note 17)
* IAS 32/39 applied as from January 1, 2005 with no adjustment for 2004 (note 2).
The accompanying notes are an integral part of the consolidated financial statements.
99
Consolidated financial statements at December 31, 2006
4.
Consolidated statement of changes
in equity and minority interests
(in millions of euros except
for number of shares)
December 31, 2004 IFRS excluding IAS 32/39
Number
of shares
(thousands)
Share
capital
Share
premium
account
Retained
earnings
Treasury
stock
226,194.2
1,809.6
4,049.9
1,797.5
(199.7)
Other Translation
Equity
Minority
reserves reserve attributable to interests
equity holders
of the parent
22.3
(84.5)
7,395.1
72.8
Total
7,467.9
IAS 32/39 adjustments (note 2)
– Treasury stock
(87.0)
– Currency hedges
1.1
– Revaluation of available-for-sale
financial assets
– Metal price hedges
– Interest rate swaps
(87.0)
(87.0)
7.9
9.0
9.0
29.0
29.0
29.0
5.0
5.0
5.0
(5.0)
(5.0)
(5.0)
– Put option granted to MGE
minority shareholders
0.0
– Translation adjustment
January 1, 2005 - IFRS
after application of IAS 32/39
226,194.2
1,809.6
4,049.9
Profit for the year
1,793.6
(286.7)
64.2
Total recognized income and expense
for the period (comprehensive income)
Exercise of stock options (note 14)
994.3
425.0
3.4
35.6
Other
76.2
7,422.5
994.3
35.2
1,029.5
35.6
1,813.0
4,069.0
Profit for the year
285.1
8.3
293.4
285.1
1,315.0
43.5
1,358.5
(22.9)
(418.3)
(395.4)
(68.7)
(68.7)
16.8
16.8
2,399.6
(338.6)
99.8
200.8
1,309.4
Valuation gains/(losses) taken
to equity (note 14)
(109.2)
Exchange differences on translating
foreign operations
Total recognized income and expense
for the period (comprehensive income)
1,309.4
1,079.1
8.6
(109.2)
Stock options (note 14)
4.2
8,243.6
93.9
8,337.5
1,309.4
37.2
1,346.6
(109.2)
(10.1)
(362.9)
(352.8)
847.4
27.1
874.5
(14.6)
(507.6)
(493.0)
20.8
3,200.2
(264.9)
60.6
52.9
52.9
20.8
(15.8)
4,121.0
(2.9)
(352.8)
52.9
1,821.6
16.8
7.1
60.6
Change in treasury stock (note 14)
227,698.3
(68.7)
(352.8)
(493.0)
Other (1)
22.5
(109.2)
52.0
Dividends (note 14)
35.6
285.1
7.1
226,619.2
0.2
22.5
Stock options (note 14)
December 31, 2006
7,346.3
(395.4)
Change in treasury stock (note 14)
Exercise of stock options (note 14)
(84.3)
19.1
Dividends (note 14)
December 31, 2005
0.2
35.6
Exchange differences on
translating foreign operations
(9.4)
(152.0)
20.8
(15.8)
15.2
(0.6)
8,716.5
121.6
8,838.1
(1)Of which the effect of a €24 million tax decrease for items initally recognized in equity and €7 million due to the effect of the capital gain
on own shares.
The accompanying notes are an integral part of the consolidated financial statements.
100
3.4
0.2
994.3
Valuation gains/(losses)
taken to equity (note 14)
3.4
5.
Notes to the consolidated
financial statements
All amounts in millions of euros unless otherwise
indicated.
The accompanying notes are an integral part of the
consolidated financial statements.
The consolidated financial statements for the year
ended December 31, 2006 were approved by the Management Board of Schneider Electric on February 16,
2007 and reviewed by the Supervisory Board on February 20, 2007. They will be submitted to shareholders
for approval at the Annual General Meeting of April 26,
2007.
The Group’s main businesses are described in Chapter 1 of the Annual Report.
Note 1 - Summary of
significant accounting policies
1.1 - Accounting standards
In accordance with EU regulations 1606/2002 and
1725/2003, Schneider Electric’s consolidated financial
statements have been prepared in compliance with the
international accounting standards adopted by the
European Union as of December 31, 2006. These
include International Financial Reporting Standards
(IFRSs), International Accounting Standards (IASs)
and the related interpretations issued by the Standards Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC). The accounting policies and methods
used are described below.
The opening balance sheet at January 1, 2004 has
been restated in accordance with IFRS 1 – First-Time
Adoption of IFRS – based on the standards and interpretations applicable as of December 31, 2005. In
keeping with the recommendations of the French
securities regulator (AMF) during the transition period,
the options used in first time adoption at January 1,
2004 were presented in the 2004 Annual Report,
along with a description of the changes in accounting
policies and methods and their impact on the opening
and closing balance sheets and the statement of
income for the year ended December 31, 2004. This
information is presented in note 29 of the present
report.
IAS 32 – Financial Instruments: Disclosure and Presentation – and IAS 39 – Financial Instruments: Recognition and Measurement – have been applied as from
January 1, 2005. The data for 2004 has not been
restated, as allowed under IFRS 1. The impact of this
change in accounting method, described in note 2, has
been recognized in opening equity at January 1, 2005.
Because the 2004 figures have been not been restated, data for the 2004 financial year is not comparable.
However, the impact on profit for the year ended
December 31, 2005 is not meaningful (note 29).
The Group has applied the amendment to IAS 19 –
Employee Benefits – concerning actuarial gains and
losses since January 1, 2004, and the amendments to
IAS 39 – Financial Instruments: Recognition and Measurement – concerning cash flow hedges of forecast
intragroup transactions and the fair value option since
January 1, 2005. It decided against early application of
the amendment to IAS 1 – Capital Disclosures – and
of IFRS 7 – Financial Instruments: Disclosures – which
will be mandatory as of January 1, 2007. Early application of IFRIC interpretation 6 – Liabilities arising
from participating in a specific market – and IFRIC
interpretation 4 – Determining whether an arrangement contains a lease – did not have any impact on the
Group’s financial statements.
The Group has not opted for early application of IFRS
8 – Operating Segments – published in November
2006, as the standard has not been adopted by the
European Union.
The financial statements present data prepared in
accordance with IFRS for the years ended December
31, 2006 and December 31, 2005. Data for the year
ended December 31, 2004 has been restated in accordance with IFRS.
5
A reconciliation of the 2004 French GAAP accounts to
the 2004 IFRS accounts is presented in note 29.
1.2 - Basis of presentation
The financial statements have been prepared on a historical cost basis, with the exception of derivatives and
available-for-sale financial assets, which are measured
at fair value. Financial liabilities are measured using
the cost model. The carrying amount of hedged assets
and liabilities and the related hedging instruments corresponds to their fair value.
1.3 - Use of estimates
The preparation of financial statements requires Group
and subsidiary management to make estimates and
assumptions that are reflected in the reported
amounts of assets and liabilities at the date of the
financial statements, revenues and expenses for the
reporting period and related disclosures. Actual results
could differ from those estimates.
These estimates mainly concern:
The recoverable amount of goodwill, property, plant
and equipment and intangible assets (described in
note 1.10).
The net realizable value of inventories and work in
process (described in note 1.12).
The recoverable amount of accounts receivable
(described in note 1.13).
The valuation of share-based payment (described in
note 1.18).
The calculation of provisions for contingencies, in
particular for warranties (described in note 1.19).
Pension and other post-employment benefit obligations (described in note 15).
1.4 - Consolidation principles
Companies over which the Group exercises exclusive
control, either directly or indirectly, are fully consolidated. Exclusive control is control by all means, including
ownership of a majority voting interest, significant
minority ownership, and contracts or agreements with
other shareholders.
Investments in operating entities controlled jointly with
a limited number of partners, such as joint ventures
and alliances, are accounted for by the equity method
in accordance with the alternative treatment allowed
under IAS 31 – Interests in Joint Ventures.
101
Consolidated financial statements at December 31, 2006
Companies over which the Group has significant influence ("associates") are accounted for by the equity
method. Significant influence is presumed to exist when
more than 20% of outstanding voting rights are held.
Companies acquired or sold during the year are
included in or removed from the consolidated financial
statements as of the date when effective control is
acquired or relinquished.
Intragroup balances and transactions are eliminated in
consolidation.
The list of consolidated subsidiaries and associates is
provided in note 30. Certain non-material subsidiaries
are not consolidated.
All of the companies included in the scope of consolidation have a December 31 year-end.
1.5 - Business combinations
In accordance with IFRS 3 – Business Combinations –
business combinations are accounted for using the
purchase method.
All identified acquired assets, liabilities and contingent
liabilities are recognized at their fair value as of the
date of acquisition. Provisional fair values are adjusted
within a maximum of twelve months following the date
of acquisition.
Intangible assets acquired separately or
as part of a business combination
Intangible assets acquired separately are initially recognized in the balance sheet at historical cost. They
are subsequently measured using the cost model, in
accordance with IAS 38 – Intangible Assets.
Brands, customer lists and other identifiable assets of
acquired companies are recognized in the balance
sheet at fair value, determined by qualified experts.
The valuations are performed using generally accepted methods, based on expected future cash flows. The
assets are regularly tested for impairment.
Intangible assets other than brands are amortized on
a straight-line basis over their useful life or the period
of legal protection. The amortization charge is recognized in "Cost of sales" or in "Selling, general and
administrative expenses", depending on the type of
asset involved.
Amortized intangible assets are tested for impairment
when there is any indication that their recoverable
amount may be less than their carrying amount.
Impairment losses are recognized under "Other operating income/(expense)".
Brands
If the cost of acquisition is higher than the fair value of
assets acquired and liabilities assumed at the date of
acquisition, the excess is recorded under goodwill. If
the cost of acquisition is lower than the fair value of
assets acquired and liabilities assumed at the date of
acquisition, the negative goodwill is immediately recognized in the income statement.
Brands acquired as part of a business combination are
not amortized when they are considered to have an
indefinite life.
Goodwill is not amortized, but tested for impairment at
least annually (note 1.10 below). Any impairment losses are recognized under Other operating income/
(expense).
Brands with indefinite lives are tested for impairment
annually and when there is any indication that their
recoverable amount may be less than their carrying
amount. When necessary, an impairment loss is
recorded.
1.6 - Translation of the financial
statements of foreign subsidiaries
Internally-generated intangible assets
This is determined on the basis of:
Brand awareness.
The Group’s strategy for integrating the brand into its
existing portfolio.
Research and development costs
The consolidated financial statements are drawn up in
euros.
Research costs are recognized in the income statement when incurred.
The financial statements of subsidiaries that use
another functional currency are translated into euros
as follows:
Assets and liabilities are translated at official yearend exchange rates.
Income statement and cash flow items are translated at weighted-average annual exchange rates.
Development costs for new projects are capitalized if,
and only if:
The project is clearly identified and its related costs
are separable and reliably tracked.
The Group has demonstrated the project’s technical
feasibility and its intention to complete the intangible
asset and use or sell it, as well as the availability of
adequate financial resources for this purpose.
It is probable that the future economic benefits attributable to the project will flow to the Group.
Differences arising on translation are recorded in equity under "Translation reserve".
1.7 - Foreign currency transactions
Foreign currency transactions are recorded using the
official exchange rate in effect at the date the transaction is recorded or the hedging rate. At year-end, foreign currency payables and receivables are translated
into the reporting currency at year-end exchange rates
or the hedging rate. Gains or losses on foreign currency conversion are recorded in the income statement
under "Other financial income and expense, net". Foreign currency hedging is described below, in note
1.21.
102
1.8 - Intangible assets
Development costs that do not meet these criteria are
expensed in the year in which they are incurred.
Capitalized development costs are amortized over the
estimated life of the underlying technology, which generally ranges from 3 to 10 years. The amortization
charge is included in the cost of the related products
and reclassified into cost of sales when the products
are sold.
Software implementation
External and internal costs for the programming, coding and testing of enterprise resource planning (ERP)
applications are capitalized and amortized over the
applications’ useful lives.
1.9 - Property, plant and equipment
Land, buildings, plant and equipment are carried at
cost, less accumulated depreciation and any accumulated impairment losses, in accordance with the cost
model provided for in IAS 16 – Property, plant and
equipment.
Each part of an item of property, plant and equipment
with a useful life that is different from that of the item
as a whole is depreciated separately on a straight-line
basis. The main useful lives are as follows:
Buildings:
20 to 40 years
Plant and equipment:
3 to 10 years
Other:
3 to 12 years
The useful life of operating assets, such as production
lines, reflects the related products’ estimated life
cycles.
Useful lives are reviewed periodically and may be
adjusted prospectively if appropriate.
The depreciable amount of an asset is determined
after deducting its residual value, when the residual
value is material.
Depreciation is charged to the income statement or
included in the production cost of inventory or the cost
of internally-generated intangible assets. It is recognized under "Cost of sales," "Research expenses" or
"Selling, general and administrative expenses",
depending on the case.
Property, plant and equipment are tested for impairment when there is any indication that their recoverable amount may be less than their carrying amount.
Impairment losses are charged to the income statement under "Other operating income/(expense)".
Assets held for sale
Assets held for sale are no longer depreciated and are
recorded separately in the balance sheet under
“Assets held for sale” at the lower of amortized cost
and net realizable value.
Leases
Finance leases, defined as leases that transfer substantially all the risks and rewards of ownership to the
lessee, are recognized as an asset and a liability.
Leases that do not transfer substantially all the risks
and rewards of ownership are classified as operating
leases and the related payments are recognized as an
expense on a straight-line basis over the lease term.
Borrowing costs
Borrowing costs incurred during the construction or
acquisition of property, plant and equipment and intangible assets are expensed when incurred, in accordance with the recommended treatment under IAS 23
– Borrowing Costs.
1.10 - Impairment of assets
In accordance with IAS 36 – Impairment of Assets –
the recoverable amount of long-lived assets is
assessed as follows:
All depreciable and amortizable property, plant and
equipment and intangible assets are reviewed at each
balance sheet date to determine whether there is any
indication that the asset may be impaired. Indications
of impairment are identified on the basis of external or
internal information. If such an indication exists, the
Group tests the asset for impairment by comparing its
carrying amount to the higher of fair value less costs to
sell and value in use.
Non-amortizable intangible assets and goodwill are
tested for impairment annually and when there is any
indication that the asset may be impaired.
Value in use is determined by discounting estimated
future cash flows that will be generated by the tested
assets, generally over a period of not more than five
years. Estimated future cash flows are based on management’s economic assumptions and operating forecasts. The discount rate corresponds to Schneider
Electric’s weighted average cost of capital (7.5% at
December 31, 2006 and 2005 and 8.5% at December
31, 2004), plus a risk premium depending on the
region in question.
5
Impairment tests are performed at the level of the
cash-generating unit (CGU) to which the asset
belongs. A cash-generating unit is the smallest group
of assets that generates cash inflows 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, Asia-Pacific and Rest of the World).
Each of the Growth Platform businesses is also a
CGU.
Goodwill is allocated to a CGU when initially recognized. This allocation is made on the basis used to
track the performance of Group operations and to
assess the benefits derived from the synergies of the
business combination.
If the recoverable amount of an asset or CGU is lower
than its carrying amount, an impairment loss is recognized. To the extent possible, impairment losses on
CGUs comprising goodwill are recorded as a deduction from goodwill.
Most goodwill is allocated to CGUs in Europe and the
United States. The discount rate used to test goodwill
allocated to CGUs in Europe and the United States
corresponds to the Group’s weighted average cost of
capital, with no risk premium. The perpetuity growth
rate for these CGUs is 2%, unchanged from the previous year.
1.11 - Non-current financial assets
Investments in non-consolidated companies are classified in available-for-sale financial assets. They are initially recorded at cost and subsequently measured at
fair value, when fair value can be reliably determined.
The fair value of equity instruments quoted in an active
market corresponds to the quoted price on the balance
sheet date.
In cases where fair value can not be reliably determined, the instruments are measured at cost net of
any accumulated impairment losses. The recoverable
amount is determined by reference to the Group’s
equity in the underlying entity’s net assets and the entity’s expected future profitability and business outlook.
This rule is applied in particular to equity instruments
that do not have a quoted market price in an active
market.
103
Consolidated financial statements at December 31, 2006
Changes in fair value are accumulated in equity under
other reserves up to the date of sale, at which time
they are recognized in the income statement. Unrealized losses on assets that are considered to be permanently impaired are recorded under "Finance costs and
other financial income and expense, net".
Loans, recorded under other financial assets, are carried at amortized cost and tested for impairment if
there is any indication that their recoverable amount
may be less than their carrying amount. Long-term
financial receivables are discounted when the impact
of discounting is meaningful.
1.12 - Inventories
and work in process
Inventories and work in process are stated at the lower
of cost (generally determined by the weighted-average
cost method) or estimated net realizable value.
Net realizable value corresponds to the estimated selling price net of remaining expenses to complete
and/or sell the products.
Impairment losses on materials are recognized in
"Cost of sales" and on finished products in "Selling,
general and administrative expenses".
The cost of work in process, semi-finished and finished
products includes direct materials and labor costs,
subcontracting costs, production overheads based on
normal capacity utilization rates and the portion of
research and development costs related to the production process (corresponding to the amortization of capitalized projects in production and product and range
maintenance costs).
1.13 - Accounts receivable
An allowance for doubtful accounts is recorded when it
is probable that receivables will not be collected and
the amount of the loss can be reasonably estimated.
Doubtful accounts and the related allowances are
identified and determined based on historical loss
experience, the age of the receivables and a detailed
assessment of related credit risks. Once it is known
with certainty that a doubtful account will not be collected, the doubtful account and the related allowance
are written off to the income statement.
Accounts receivable in more than one year are discounted in cases where the discounting adjustment is
material.
1.14 - Deferred taxes
Deferred taxes, corresponding to temporary differences between the tax basis and reporting basis of
consolidated assets and liabilities, are recorded using
the liability method. Deferred tax assets are recognized when it is probable that they will be recovered at
a reasonably determinable date.
Future tax benefits arising from the utilization of tax
loss carry forwards (including amounts available for
carry forward without time limit) are recognized only
when they can reasonably be expected to be realized.
Deferred tax assets and liabilities are not discounted.
Deferred tax assets and liabilities that concern the
same unit and are expected to reverse in the same
period are netted off.
104
1.15 - Cash and cash equivalents
Cash and cash equivalents presented in the balance
sheet consist of cash, bank accounts, term deposits of
three months or less and other liquid marketable securities. Substantially all marketable securities represent
short-term instruments that can be easily converted
into a determinable cash amount, such as commercial
paper, mutual funds and equivalents. In light of their
nature and maturities, these instruments carry virtually no risk of impairment. The Group treats them as
cash equivalents.
1.16 - Treasury stock
Schneider Electric shares held by the parent company
or by fully consolidated companies are measured at
cost and deducted from equity. They are held at their
acquisition price until sold.
Gains and losses on the sale of treasury stock are recognized in equity, net of tax.
1.17 - Pensions and other postemployment benefit obligations
Depending on local practices 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 defined contribution plans are
recorded in the income statement, in the year of payment and are in full settlement of the Group’s liability.
Defined benefit plans
The present value of defined benefit obligations is
determined using the projected unit credit method.
The amount recognized in the balance sheet corresponds to the present value of the obligation, adjusted
for unrecognized past service cost and reduced by the
fair value of plan assets at the balance sheet date.
If the plan has a surplus (i.e. the fair value of plan
assets is greater than the present value of the obligation, as adjusted for unrecognized past service cost),
the recognized asset is limited to the lower of unrecognized past service cost and the present value of available refunds and reductions in future contributions to
the plan.
Changes resulting from periodic changes in actuarial
assumptions regarding general financial and business
conditions or demographics (i.e., changes in the discount rate, annual salary increases, return on plan
assets, years of service, etc.) are immediately recognized in the Group’s obligation and as a separate component of equity in "Other reserves".
Mandatory general plans
and multi-employer plans
In most countries, the Group participates in mandatory general plans, while in some countries, it contributes
to multi-employer plans. Depending on their terms and
conditions, these plans are treated as defined contribution or defined benefit plans. For defined benefit
plans, the Group recognizes its share of the related
obligation, assets and costs.
Supplementary pension benefits
The Group also provides supplementary pension benefits to a limited number of active and retired senior
executives. These defined benefit obligations are
accrued for based on the contractual terms of the
agreements, which provide guaranteed minimum benefits over and above those paid under general pension
schemes.
Technical risks:
- Provisions are recorded on a statistical basis for the
residual cost of product warranties not covered by
insurance. Such warranties may run up to 18 months.
- The Group also recognizes provisions to cover disputes concerning defective products and recalls of
clearly identified products.
Environmental risks. These provisions are primarily
set aside to cover potential reclamation costs.
Other commitments
Restructuring costs, when the Group has prepared a
Provisions are booked to cover the cost of providing
healthcare benefits for certain retired employees in
Europe and the United States.
detailed formal plan for the restructuring and has either
announced or started to implement the plan at yearend.
The Group also records for all its subsidiaries an obligation for seniority-related benefits (primarily long
service awards in its French subsidiaries).
1.20 - Financial liabilities
1.18 - Share-based payment
Financial liabilities primarily comprise bonds and short
and long-term bank debt. These liabilities are initially
recorded at fair value, taking into account any direct
transaction costs, and subsequently measured at
amortized cost based on their effective interest rate.
The Group grants different types of share-based payment to senior executives and certain employees.
These include:
Options to buy existing Schneider Electric shares
and to subscribe new shares.
Shares granted without consideration.
Stock Appreciation Rights (SARs).
IFRS 2 – Share-based payment – applies only to plans
set up after November 7, 2002 than did not vest prior
to January 1, 2005.
In accordance with IFRS 2, these plans are valued on
the date of grant, using the Cox, Ross, Rubinstein
binomial option pricing model, and are recognized as
an expense over the vesting period, generally three or
four years depending on the country.
A contra entry is posted to the own shares reserve for
shares granted without consideration and for options
to purchase or subscribe shares. In the case of SARs,
a liability is recorded corresponding to the amount of
the remeasured benefit at the closing date.
1.19 - Provisions for contingencies
A provision is recorded when the Group has a present
obligation as a result of a past event, and a reliable
estimate can be made of the amount of the obligation.
If the obligation is not probable and cannot be reliably
estimated, but remains possible, it is classified as a
contingent liability and disclosed in the notes to the
consolidated financial statements. Provisions are calculated on a case-by-case or statistical basis. Longterm provisions (greater than one year) are discounted. Discounting adjustments for long-term provisions
were calculated at a rate of 3.8% at December 31,
2006, 3.2% at December 31, 2005, and 3.4% at
December 31, 2004.
Provisions are primarily set aside to cover:
Economic risks. These include tax risks arising from
tax audits performed by various local tax administrations and financial risks arising primarily on guarantees given to third parties in relation to certain assets
and liabilities.
Customer risks. These provisions primarily concern
liability claims arising from alleged defects in products
sold to customers and other third parties and are
determined on a case-by-case basis.
5
1.21 - Financial instruments
and derivatives
Risk hedging management is centralized. The Group’s
policy is to use derivative financial instruments exclusively to manage and hedge changes in exchange
rates, interest rates or prices of certain raw materials.
These risks are managed and hedged primarily
through the use of swaps, options and futures,
depending upon the nature of the Group’s exposure.
Derivative financial instruments are never used for
speculative purposes.
Foreign currency hedges
The Group periodically enters into foreign currency
contracts to hedge foreign currency transactions.
Some of these contracts are designated as hedges of
operating receivables and payables carried in the balance sheets of Group companies. The Group does not
apply hedge accounting to these instruments because
at year-end, foreign currency contracts are marked to
market and gains or losses are recorded in other financial income and expense. These gains or losses offset
the losses or gains arising from converting foreign currency payables and receivables into the reporting currency at year-end rates, in accordance with IAS 21 –
The effects of changes in foreign exchange rates.
The Group may also hedge recurring future transactions or planned acquisitions or disposals of investments. In accordance with IAS 39, these are treated as
cash flow hedges. The hedging instruments are recognized in the balance sheet and are measured at fair
value at the period-end. The portion of the gain or loss
on the hedging instrument that is determined to be an
effective hedge is accumulated in equity, under other
reserves, and recognized in the income statement when
the hedged transaction affects profit or loss. The ineffective portion of the gain or loss on the hedging instrument
is recognized in other financial income and expense.
In addition, certain long-term receivables and loans to
subsidiaries are considered to be part of the Group’s
net investment, as defined by IAS 21 – Net Investment
in a Foreign Operation. In accordance with the rules
governing net investment hedging, the impact of
exchange rate fluctuations is recorded in equity and
recognized in the statement of income when the
investment is sold.
105
Consolidated financial statements at December 31, 2006
Interest rate swaps
Interest rate swaps, which synthetically adjust interest
rates on certain indebtedness, involve the exchange of
fixed and floating-rate interest payments. The differential to be paid (or received) is accrued (or deferred) as
an adjustment to interest income or expense over the
life of the agreement. The Group does not apply hedge
accounting as described in IAS 39 for interest rate
swaps. The impact is immediately recognized in the
income statement.
Commodity contracts
The Group also enters into raw material forward purchase contracts. Moreover the Group enters into contracts including swaps and options to hedge price risks
on all or part of its forecast future purchases. Under
IAS 39, these qualify as cash flow hedges. The hedging instruments are recognized in the balance sheet
and are measured at fair value at the period-end. The
portion of the gain or loss on the hedging instrument
that is determined to be an effective hedge is accumulated in equity, under other reserves, and reclassified
into the income statement under cost of sales when
the hedged transaction affects profit or loss, leading to
an adjustment of gross profit. The ineffective portion of
the gain or loss on the hedging instrument is immediately recognized in other financial income and
expense.
The Group’s revenues primarily include merchandise
sales and revenues from service and project contracts.
Merchandise sales
Revenue from sales is recognized when the product is
shipped and title transferred (standard shipping terms
are FOB).
Rebates offered to the distributors are accrued as a
deduction from revenue when the products are sold to
the distributor.
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 from service contracts is recorded over the
contractual period of service. It is recognized when the
result of the transaction can be reliably determined, by
the percentage of completion method.
Long-term contracts
Asset-backed securities issued by the
Special Purpose Entity holding perpetual
bonds
Income from long-term contracts is recognized using
the percentage-of-completion method, based either on
the percentage of costs incurred in relation to total estimated costs of the entire contract, or on the contract’s
technical milestones, notably proof of installation or
delivery of equipment. When a contract includes performance clauses in the Group’s favor, the related revenue is recognized at each project milestone and a
provision is set aside if targets are not met.
In accordance with SIC 12 – Special Purpose Entities
– and IAS 39, the special purpose entity that holds the
perpetual bonds issued by the Group in 1991 was consolidated at December 31, 2005.
Losses at completion for a given contract are provided
for in full as soon as they become probable. The cost
of work-in-process includes direct and indirect costs
relating to the contracts.
The swaps taken out by the special purpose entity in
connection with the perpetual bonds have been measured at fair value.
1.23 - Earnings per share
Cash flows from derivative financial instruments are
recognized in the statement of cash flows in a manner
consistent with the underlying transactions.
Interest rate swaps on the perpetual bonds taken out
directly by the Group are classified as derivative instruments that do not qualify for hedge accounting. They
are therefore measured at fair value and gains and
losses arising from remeasurement at fair value are
recorded in other financial income and expense.
On December 15, 2006, the Group bought back the
perpetual bonds issued in 1991 from the special purpose entity. As a result, the special purpose entity was
no longer consolidated at December 31, 2006.
Put options granted to minority
shareholders
Under IAS 32 – Financial Instruments: Disclosure and
Presentation, commitments to buy out minority shareholders (e.g. put options) must be recognized in debt,
in an amount corresponding to the purchase price of
the minority interest.
In the absence of established accounting practice, the
difference between the purchase price of the minority
interests and the share in the acquired net assets has
been posted to goodwill without remeasuring the
acquired assets and liabilities. Subsequent changes in
the fair value of the debt will be recognized by adjusting goodwill.
106
1.22 - Revenue recognition
Earnings per share is calculated in accordance with
IAS 33 – Earnings per share.
Diluted earnings per share is calculated by adjusting
profit and the weighted average number of shares outstanding for the dilutive effect of the exercise of stock
options outstanding at the balance sheet date. The
dilutive effect of stock options is determined by applying the "treasury stock" method, which consists of taking into account the number of shares that could be
purchased, based on the average 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. Net cash and cash equivalents represent cash
and cash equivalents as presented in the balance
sheet (note 1.15) net of bank overdrafts.
Note 2 - Application of IAS 32 and IAS 39 as from January 1, 2005
IAS 32 – Financial Instruments – Disclosure and Presentation and IAS 39 – Financial Instruments – Recognition and Measurement – have been applied as from January 1, 2005.
The following table, which reconciles the closing balance sheet for 2004 with the opening balance sheet for 2005, shows the
impact on the main balance sheet items affected by the application of IAS 32 and IAS 39.
Dec. 31, 2004 Treasury
IFRS before
stock
IAS 32 and 39
Goodwill
Available-for-sale financial assets
Deferred tax assets
Other accounts receivable
Cash and cash equivalents
Other assets
Total Assets
4,462.3
154.3
830.3
529.1
1,062.8
6,257.3
13,296.1
Retained earnings, net of tax
Own shares reserve
Other reserves, net of tax
Translation reserve
Total equity attributable to equity
holders of the parent
Minority interests
Perpetual bonds
Long-term financial debt
Deferred tax liabilities
Short-term financial debt
Other non current liabilities
Other current liabilities
Other liabilities
Total Liabilities
1,797.5
(199.7)
22.3
(84.5)
7,395.1
72.8
73.3
24.9
203.2
254.3
104.4
279.2
4,888.9
13,296.1
Fair value Hedging
adjustment instruments
Derivative Perpetual
Puts
Jan. 1, 2005
instruments bonds
granted
IFRS
not qualifying
to minority including
for hedge
interests IAS 32 and 39
76.7
4,539.0
198.5
832.7
550.8
975.8
6,257.3
76.7
13,354.1
44.2
1.0
1.8
1.4
19.9
19.9
2.8
1.4
(1.2)
(2.7)
(87.0)
(87.0)
44.2
1,793.6
(286.7)
64.2
(84.3)
(87.0)
29.0
12.9
0.2
(87.0)
29.0
12.9
(1.0)
(2.7)
0.0
3.4
(73.3)
47.6
15.2
7.0
0.5
(26.6)
73.3
(87.0)
44.2
2.1 - Treasury stock
IAS 32 requires all Schneider Electric shares held by
the parent company and subsidiaries to be recorded
as a deduction from equity, whatever the purpose for
which the shares are held. In accordance with this
standard, Schneider Electric shares with a value of
€87 million carried in assets in the French GAAP balance sheet at December 31, 2004, under "Cash and
cash equivalents", have been reclassified as a deduction from equity.
2.2 - Available-for-sale
financial assets
In accordance with IAS 39, investments in non-consolidated companies have been reclassified as availablefor-sale financial assets and measured at fair value
(corresponding to market value in the case of listed
shares). Gains and losses arising from remeasurement at fair value are accumulated in equity under
other reserves.
Fair value adjustments to available-for-sale financial
assets at January 1, 2005 amounted to €44.2 million.
19.9
3.3
56.4
2.8
1.4
5
76.7
7,346.3
76.2
0.0
72.5
225.9
227.7
177.7
338.9
4,888.9
13,354.1
2.3 - Derivative instruments
and hedge accounting
IAS 39 requires all derivative instruments to be recognized in the balance sheet and measured at fair value,
whereas in the French GAAP accounts, these instruments were generally carried off-balance sheet. The
treatment of gains and losses arising from remeasurement at fair value depends on whether or not the instruments qualify for hedge accounting under IAS 39.
Currency instruments qualified as cash flow hedges
under IAS 39 have been recognized in the balance
sheet under other receivables at their fair value of
€12.2 million, leading to an adjustment of equity in the
same amount, recorded under other reserves.
Hedges of future metal purchases qualified as cash
flow hedges under IAS 39 have been recognized in the
balance sheet under other receivables at their fair
value of €7.7 million, leading to an adjustment of equity in the same amount, recorded under other reserves.
2.4 - Derivative instruments
not qualifying for hedge accounting
Derivative instruments not qualifying for hedge accounting under IAS 39 have been recognized at fair value in
the balance sheet, in assets for €1.8 million and in liabilities for €3.3 million, leading to corresponding adjustments to equity. The instruments concerned consist
mainly of interest rate hedges on intragroup debt.
107
Consolidated financial statements at December 31, 2006
2.5 - Perpetual bonds
In the French GAAP accounts, the 1991 perpetual
bonds are recorded in debt at their nominal value,
while the related interest rate swaps are carried offbalance sheet.
In accordance with interpretation SIC 12 and IAS 39,
the Group consolidated the special purpose entity that
holds the perpetual bonds. The swaps taken out by the
special purpose entity in connection with the perpetual bonds have been measured at fair value.
Interest rate swaps on the perpetual bonds taken out
directly by the Group, which do not qualify for hedge
accounting, are recognized in the balance sheet at fair
value, with gains and losses arising from remeasurement at fair value recognized in other financial income
and expense.
At January 1, 2005, the value of the perpetual bonds
and the fair value of the swaps the special purpose
entity was €21 million, and the fair value of the swaps
entered into directly by the Group was €56.4 million.
2.6 - Put options granted
to minority shareholders
The Group has given commitments to buy out the
minority shareholders of consolidated subsidiaries (put
options). These commitments were reported off-balance sheet in the French GAAP accounts at December 31, 2004.
IAS 32 requires their recognition in debt, at fair value,
which corresponds to the option strike price. As
explained in note 1.21, in the absence of established
accounting practice, the difference between the fair
value of the put options and the underlying minority
interests has been posted to goodwill.
Note 3 - Changes in the scope of consolidation
3.1 - Additions and removals
The consolidated financial statements for the year ended December 31, 2006 include the accounts of the companies listed in note 30. The scope of consolidation at December 31, 2006, 2005 and 2004 is summarized as follows:
Number of companies
Parent company and fully consolidated subsidiaries
Dec. 31, 2005
France Abroad
Dec. 31, 2004
France Abroad
67
458
69
366
65
328
Proportionally consolidated companies
-
-
-
-
-
-
Companies accounted for by the equity method
1
2
1
3
2
5
Sub-total by region
68
460
70
369
67
333
Total
The principal changes at December 31, 2006 were as
follows:
Acquisitions
On January 1, 2006, the Group bought out CIH Ltd’s
interest in the Clipsal Asia joint venture, in accordance
with the terms of the agreement between the two partners. Clipsal Asia was previously accounted for by the
equity method.
On February 15, 2006, the Group acquired the assets
of US-based Silicon Power Corporation’s Crydom brand
Custom Sensors business.
On February 28, 2006, the Group acquired AEM SA, a
Spanish company that designs, manufactures and
markets low voltage electrical products and installation
systems and control.
On March 27, 2006, the Group acquired the entire capital of Citect, an Australian manufacturer of Supervision Control and Data Acquisition (SCADA) solutions
and Manufacturing Execution Systems (MES).
On April 30, 2006 Schneider Electric acquired OVA G.
Bargellini SpA, Italy’s leading emergency lighting company with operations in the Installation Systems and
Control segment.
On May 31, 2006 the Group acquired Merten GmbH &
Co Kg, a German firm that offers intelligent low voltage
solutions and Installation Systems and Control for the
residential and buildings markets.
108
Dec. 31, 2006
France Abroad
528
439
400
On July 27, 2006, the Group acquired the Invensys
Building Systems (IBS) business in North America and
Asia. Following on the acquisition of Invensys'
Advanced Building Systems business (ABS EMEA) in
July 2005, this transaction extends Schneider Electric’s current positions in Building Automation.
On September 26, 2006, Schneider Electric finalized
the acquisition of Austria-based VA Tech Elin EBG
Elektronik, a company that develops and manufactures high-power speed drive products and solutions.
Lastly, on November 23, 2006, the Group acquired
UK-based GET Group PLC. This acquisition will
expand Schneider Electric’s Installation Systems and
Control lineup with wiring devices for the UK and
British Standard export markets.
These companies have been fully consolidated from
their respective acquisition dates.
Details of the calculation of goodwill on these acquisitions are provided in note 4.
Newly consolidated companies
Several joint ventures were formed during the year
with Chinese partners to further develop business.
These included:
SSBEA (Schneider Shaanxi Baoguang Electrical
Apparatus Co.ltd) in February 2006, in the area of
medium voltage vacuum circuit breakers.
East in September 2006, in the area of Critical Power.
Divestments
During first-half 2006, the Group sold Num, a subsidiary specialized in numerical control systems, and
Mafelec, a specialty manufacturer of onboard push-button switches. The impact of these divestments on the
consolidated financial statements was not material.
The following table shows the full-year impact of these
acquisitions on 2006 revenue, operating profit and
profit attributable to equity holders of the parent (i.e. as
if the acquisitions had been made on January 1, 2006).
2006
2006 Incl.
Reported acquisitions
over the full
year
Acquisitions in progress
APC
On October 30, 2006, Schneider Electric announced a
friendly offer to purchase all outstanding shares of USbased American Power Conversion (APC), the world
leader in critical power.
By combining APC with its subsidiary MGE UPS Systems, Schneider Electric will become the global benchmark in critical power.
The anti-trust regulatory review in the United States
ended on December 12, 2006 when the waiting period
under the Hart-Scott-Rodino Antitrust Improvements
Act expired.
Revenue
Operating profit
13,729.7
14,058.5
2,000.7
2,015.9
Operating margin
14.6%
14.3%
Profit of the period
1,309.4
1,317.0
Impact on cash
APC's shareholders approved the proposed merger in
Extraordinary Meeting on January 16, 2007.
2006
The European Commission's competition authorities
granted final clearance on February 8, 2007 pending
certain divestments. The Group plans to divest its
MGE-UPS Systems operations in small systems
below 10kVA. With estimated revenue of around €150
million, the divestment represents 6% of the combined
operations of APC and MGE-UPS in Critical Power.
Acquisitions
(891.4)
Cash and cash equivalents paid
(935.8)
Other acquisitions
Net financial investments
On June 27, 2006, the Group announced its intention
to take an equity stake of 40% in SBVE (Shaanxi
Baoguang Vacuum Electronic), a leading Chinese
manufacturer of Vacuum Interrupters. Such an equity
stake may only be obtained if the equity reform plan
presented by SBVE is approved by the relevant
authorities and shareholders, and a number of other
conditions precedent are satisfied.
On December 18, 2006, Schneider Electric announced
that it had signed an agreement to create Delixi Electric, a joint venture with Chinese partner Delixi Group.
The 50-50 joint venture will manufacture, market and
distribute low-voltage products in China, pending
approval from local authorities.
Other changes
In 2006, the Group acquired a further 10.8% stake in
MGE UPS, raising its interest to 95.7%.
5
Changes in the scope of consolidation reduced the
Group’s cash position by a net €897.8 million, as
described below:
Cash and cash equivalents acquired
44.4
Disposals
(1.1)
Other operations
(5.3)
(897.8)
Impact on the balance sheet
at December 31, 2006
The impact of the year’s acquisitions on the main
balance sheet items at December 31, 2006 was as
follows:
Contribution Dec. 31,
from
2006
acquisitions Reported
Goodwill
793.2
Property, plant
& equipment and
intangible assets
6,185.7 12.8 %
98.8
3,114.6
3.2 %
226.7
2,991.9
7.6 %
1,118.7
12,292.2
9.1 %
Working capital
Capital employed
%
3.2 - Impact of changes in the scope
of consolidation on 2006 results
Changes in the scope of consolidation had the following impact:
Impact on 2006 revenue and profit
2005
Revenue
Operating profit
Operating margin
Profit attributable to equity holders
of the parent
2006
Reported
Excl. acquisitions
11,678.8
12,929.5
800.2
13,729.7
1,565.3
1,897.9
102.8
2,000.7
13.4%
994.3
14.7%
1,244.1
Acquisitions
12.9%
65.3
Reported
14.6%
1,309.4
109
Consolidated financial statements at December 31, 2006
Note 4 - Goodwill
4.1 - Breakdown of goodwill
The following table presents goodwill by company and the Cash Generating Unit (CGU) to which it is allocated:
Year of
acquisition
CGU
(1)
Dec. 31, 2006 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2004
Net
Net
Net
Net
Square D Company
1991
(A)
1,044.8
1,167.1
1,010.0
1,010.0
Lexel Group
1999
EOD
873.4
869.2
872.5
872.5
2003 to 2006
BA
605.8
637.2
563.9
563.9
TAC/ Andover/ Abacus/
Applied Control Tech.
MGE
UPS (2)
2000 to 2006
CP
545.5
559.0
546.1
469.4
Telemecanique
1988
(A)
462.6
462.6
462.6
462.6
ABS
2005
BA
113.9
118.8
-
-
IBS
2006
BA
197.2
-
-
-
Juno Lighting Inc.
2005
NAOD
301.0
335.2
-
-
BEI Technologies
2005
CST
283.1
390.3
-
-
Clipsal
APOD
278.0
261.0
245.0
245.0
Crouzet Automatismes
2004 to 2006
2000
CST
161.8
162.6
161.9
161.9
Power Measurement Inc.
2005
NAOD
145.0
162.7
0.0
0.0
Positec
2000
EOD
105.9
105.9
105.9
105.9
Merlin Gerin
1992
(A)
87.2
87.2
87.2
87.2
Kavlico
2004
CST
81.6
89.6
106.9
106.9
OVA
2006
EOD
80.0
-
-
-
Digital Electronics
2002
APOD
76.1
84.1
83.7
83.7
Citect
2006
APOD
67.2
-
-
-
Elau
2004 and 2005
EOD
55.6
55.3
6.6
6.6
NAOD
54.0
60.1
50.2
50.2
Federal Pioneer
Crydom
1990
2006
CST
43.9
-
-
-
2000 to 2004
EOD
43.1
43.1
43.1
43.1
Mita Holding
1999
EOD
34.7
41.9
40.7
40.7
PDL
2001
APOD
32.8
35.1
33.5
33.5
GET
2006
EOD
31.6
-
-
-
2006
EOD
30.4
-
-
-
Infra +
AEM
Other
subsidiaries (3)
Total
349.5
150.8
119.2
119.2
6,185.7
5,878.8
4,539.0
4,462.3
(1) Cash Generating Unit to which goodwill has been allocated.
EOD: European Operating Division, NAOD: North American Operating Division, APOD: Asia-Pacific Operating Division,
IIOD: International Operating Division, CST: Custom Sensors & Technologies, BA: Building Automation, CP: Critical Power.
(2) Of which €32.0 million related to the put option granted to minority shareholders at Dec. 31, 2006 (€75.4 million
at Dec. 31, 2005).
(3) Approximately 50 companies.
(A) Square D, Telemecanique and Merlin Gerin goodwill has been allocated on the basis of operating profit by
region as of the acquisition date:
Square D
110
Europe
North
America
Asia-Pacific
Rest of the
world
9%
80%
10%
1%
Telemecanique
71%
0%
20%
9%
Merlin Gerin
62%
10%
20%
8%
Acquisitions
4.2 - Changes in goodwill
The main movements between December 31, 2005
and December 31, 2006 are summarized in the following table:
Net goodwill at opening
Acquisitions
Disposals
Impairment
Translation adjustment
Reclassifications
Net goodwill at year end
Cumulative impairment
2006
2005
5,878.8
4,539.0
727.7 *
Other changes
Adjustments to the provisional accounting for the BEI
Technologies Inc business combination when the initial
accounting was completed led to the recognition in
2006 of intangible assets of $141.8 million (€117.9
million), of which $42.3 million (€35.2 million) for the
trademark and $80.5 million (€66.9 million) for the distribution network. This led to the recognition of $55.2
million (€44.5 million) for deferred tax liabilities.
1,079.5
(1.5)
-
-
(8.4)
(323.8)
301.5
(95.5)
(32.8)
6,185.7
5,878.8
(8.4)
Acquisitions primarily included Invensys Building Systems (IBS) and Silicon Power Corporation (Crydom) in
North America, Clipsal Asia and Citect in Asia-Pacific,
and OVA Bargellini SpA., AEM SA, GET Group Plc,
and Merten GmbH & Co Kg in Europe.
Impairment tests did not reveal any losses on goodwill
recognized in the balance sheet.
(8.4)
5
The main exchange rate fluctuations concerned goodwill in US dollars.
*On the basis of the exchange rate on the acquisition date.
Note 5 - Intangible assets
5.1 - Change in intangible assets
Trademarks
Software
Development
projects (R&D)
Other
Total
Dec. 31, 2004
617.8
390.6
76.9
145.1
1,230.4
Dec. 31, 2005
744.4
486.7
186.8
310.6
1,728.5
Acquisitions/Capitalization
Internally generated assets
Disposals
Translation adjustment
Reclassification
Changes in the scope
of consolidation and other
1.5
0.2
(26.9)
0.1
20.7
(0.2)
(4.7)
(10.1)
(60.8)
120.8
(4.5)
(7.8)
9.5
82.4
(10.1)
(33.6)
53.3
225.4
(0.2)
(19.1)
(78.4)
2.1
46.4
6.4
9.7
93.0
155.5
Dec. 31, 2006
765.7
438.0
314.5
495.6
2,013.8
Gross value
Accumulated amortization and impairment
Dec. 31, 2004
(2.5)
(228.9)
(15.0)
(89.5)
(335.9)
Dec. 31, 2005
(3.7)
(290.8)
(22.0)
(112.9)
(429.4)
Allocation and impairment
Recapture
Translation adjustment
Reclassification
Changes in the scope
of consolidation and other
(1.8)
0.2
0.1
(0.2)
(59.2)
6.7
8.0
(1.4)
(29.0)
2.5
1.5
(1.4)
(25.7)
3.2
7.3
4.5
(115.7)
12.6
16.9
1.5
0.1
(3.5)
(2.2)
(1.2)
(6.8)
Dec. 31, 2006
(5.3)
(340.0)
(50.6)
(124.8)
(520.7)
Net value
Dec. 31, 2004
615.3
161.7
61.9
55.6
894.5
Dec. 31, 2005
740.7
195.9
164.8
197.7
1,299.1
Dec. 31, 2006
760.4
98.0
263.9
370.8
1,493.1
111
Consolidated financial statements at December 31, 2006
In relation to the year’s acquisitions and following the
final valuation of BEI Technologies Inc, the Group recognized the BEI trademark and other intangible
assets, consisting primarily of patents and customer
lists (notes 4 and 5.2).
In 2006, costs totaling €52.3 million were capitalized in
connection with an ongoing project to develop a
Groupwide SAP core model. These on-going development costs, which were classified under software in
2004 and 2005, were reclassified under other intangible assets in 2006.
2006
Net
2005
Net
2004
Net
MGE
Clipsal
TAC / Andover
Juno
Digital
BEI
Kavlico
Other
300.0
152.5
121.3
86.8
34.8
30.8
11.8
22.4
300.0
158.0
121.2
96.9
39.3
300.0
145.8
120.6
39.1
13.1
12.2
9.8
Total
760.4
740.7
615.3
5.2 - Trademarks
Main trademarks recognized as of December 31, 2006
include:
Trademarks are not amortized as they are considered
to be assets with indefinite lives. Impairment tests did
not reveal any impairment of trademarks as of December 31, 2006.
Note 6 - Property, plant and equipment
6.1 - Change in property, plant and equipment
Land
Buildings
Dec. 31, 2004
87.2
875.8
Dec. 31, 2005
107.7
957.5
Machinery
and equipment
Other
Total
2,544.4
581.3
4,088.7
2,805.6
590.8
4,461.2
Gross value
Acquisitions
Disposals
Translation adjustment
Reclassification
Changes in scope
of consolidation and other
Dec. 31, 2006
5.8
(3.9)
(5.3)
(3.9)
35.1
(64.5)
(24.9)
68.9
165.2
(133.2)
(77.0)
12.6
146.6
(72.2)
(21.9)
(77.2)
352.7
(273.8)
(129.1)
0.4
5.5
70.4
141.0
32.3
249.2
105.9
1,042.5
2,914.2
598.4
4,660.6
Accumulated depreciation and impairment
Dec. 31, 2004
(13.6)
(452.3)
(1,818.4)
(347.6)
(2,631.9)
Dec. 31, 2005
(16.0)
(476.0)
(2,032.3)
(336.4)
(2,860.6)
(0.7)
1.3
0.9
0.1
(37.0)
30.0
8.8
(3.2)
(234.3)
130.7
51.6
(1.1)
(34.3)
36.4
13.3
(0.2)
(306.3)
198.4
74.6
(4.4)
(0.2)
(28.9)
(100.7)
(17.4)
(147.2)
(14.6)
(506.3)
(2,186.1)
(338.6)
(3,045.5)
Dec. 31, 2004
73.6
423.5
726.0
233.7
1,456.7
Dec. 31, 2005
91.7
481.5
773.0
254.4
1,600.6
Dec. 31, 2006
91.3
536.2
728.1
259.8
1,615.1
Depreciation and impairment
Recapture
Translation adjustment
Reclassification
Changes in scope
of consolidation and other
Dec. 31, 2006
Net value
Assets held for sale, presented separately in an amount of €6.4 million, correspond to land and buildings that are
expected to be sold in the first half of 2007.
Reclassifications primarily correspond to assets put into use.
112
6.2 - Finance leases
6.3 - Operating leases
Property, plant and equipment include the following
assets held under finance leases:
Rental expenses for operating leases in 2006, 2005
and 2004 are as follows:
Dec. 31,
2006
Dec. 31,
2005
Dec. 31,
2004
2006
2005
2004
2.8
78.9
2.1
63.6
2.7
80.0
Minimum rentals
Contingent rentals
Sub-lease rentals
96.0
4.6
(1.9)
94.4
1.2
(3.6)
84.4
1.1
(1.8)
29.9
31.5
39.6
Total rental expense
98.7
92.0
83.7
1.4
0.0
1.0
0.3
10.6
4.4
(79.9)
(60.5)
(87.0)
33.1
37.9
50.3
Land
Buildings
Machinery
and equipment
Other tangible
assets
Intangible assets
Accumulated
depreciation and
amortization
Assets under
finance lease, net
Future minimum lease payments under non-cancelable operating leases break down as follows at
December 31, 2006:
83.8
83.8
Future minimum lease payments under finance leases
as of December 31, 2006 are as follows:
Less than one year
Between one and five years
235.1
214.4
Five years and more
148.3
115.1
Minimum Discounted
payments minimum
payments
Total rental commitments
467.2
413.3
Less than one year
Between one year
and five years
Five years and more
2.8
2.8
10.9
9.3
10.0
6.8
Total commitments
23.0
16.8
Discounting effect
(6.2)
-
Discounted
minimum payments
16.8
-
5
Minimum Discounted
payments minimum
payments
The Group signed a lease contract for its new headquarters in the Paris region in 2006, with a nine-year
commitment as from 2008. Discounted future lease
payments amount to €92 million.
Note 7 - Investments in associates
Investments in associates can be analyzed as follows:
% interest at Dec. 31
Share in net assets
at Dec. 31
Share in net income
at Dec. 31
2006
2005
2004
2006
2005
2004
2006
2005
2004
Clipsal Asia Holdings Ltd
-
50.0%
50.0%
-
41.9
41.1
-
(5.3)
(2.8)
ELAU Administration GmbH (1)
-
-
49.1%
-
-
16.8
-
0.8
0.8
20.0%
20.0%
20.0%
13.2
11.9
11.5
1.3
1.2
1.4
-
-
-
-
-
-
-
-
(0.8)
Delta Dore Finance
VA Tech Schneider HV GmbH (2)
-
-
-
-
-
-
-
-
(0.5)
Other
N/A
N/A
N/A
(3.0)
(5.6)
(4.1)
0.6
(0.3)
(1.7)
Total
-
-
-
10.2
48.2
65.3
1.9
(3.6)
(3.6)
Entivity (2)
(1) Notes 3 and 4.
(2) Companies sold in 2004.
In 2006, the Group acquired all the outstanding shares in Clipsal Asia. As a result, Clipsal Asia has been fully consolidated since
January 1, 2006. The Group’s interest was accounted for by the equity method in 2004 and 2005.
113
Consolidated financial statements at December 31, 2006
Note 8 - Financial assets
8.1 - Available-for-sale financial assets
Available-for-sale financial assets, corresponding mainly to investments in non-consolidated companies, break
down as follows:
Dec. 31,
2006
% interest
I – Listed available
for sale financial assets
AXA
Gold Peak Industries Holding Ltd
Legrand
Other listed AFS (1)
Dec. 31,
2005
Fair value
Jan. 1,
2005*
Fair value
Dec. 31,
2004
Net
0.40% 101.5
10.06% 10.6
NS
2.2
0.4
199.0
(7.6)
-
300.5
3.0
2.2
0.4
240.3
4.6
10.1
38.0
120.9
10.1
5.5
76.7
10.1
5.5
114.7
191.4
306.1
293.0
136.5
92.3
20.7
16.4
8.8
6.6
5.5
22.4
(20.7)
(16.4)
(8.8)
(6.6)
(0.5)
(17.8)
0.0
0.0
0.0
0.0
5.0
4.6
0.0
0.0
0.0
5.8
0.0
5.0
11.6
26.5
16.8
5.5
4.5
8.7
26.5
16.8
5.5
4.5
8.7
80.4
(70.8)
9.6
22.4
62.0
62.0
195.1
120.6
315.7
315.4
198.5
154.3
Total listed AFS
II – Unlisted available
for sale financial assets
SE Relays LLC (2)
[email protected] France (3)
Abacus Engineered Systems (2)
Comipar
Easy Plug SAS (3)
Paramer (4)
SE Venture
Simak (5)
Other unlisted AFS (6)
Dec. 31,
Dec. 31,
2006
2006
Gross Reevaluation/ Fair value
value
depreciation
100.00%
100.00%
100.00%
4.15%
50.00%
98.96%
100.00%
98.50%
Total unlisted AFS
Financial assets
available-for-sale
*IAS 32/39 applied as from January 1, 2005.
(1) Between December 31, 2005 and December 31, 2006,
shares in an amount of €37.6 million, corresponding to
short-term investments (less than one year), were reclassified
under current financial assets.
(2) Consolidated as from January 1, 2005.
(3) Removed from the scope of consolidation – in liquidation.
(4) Consolidated as from January 1, 2006.
(5) Dormant companies.
(6) Valued at less than €5 million each.
Fair value corresponds to the closing listed price for investments listed in an active market and the carrying
amount for unlisted investments. Net gains arising from remeasurement at fair value of listed investments, recorded in equity under “Other reserves” (note 14.7), totaled €40.7 million.
The Legrand shares held at December 31, 2006, which were acquired under the mechanism for exchanging
Schneider Electric shares for Legrand shares set up when Schneider Electric sold Legrand in 2002, were sold
back to Legrand SAS in January 2007.
8.2 - Other non-current financial assets
Cost
Vendor loan to buyer of Legrand shares (1)
Receivable on divestment
of VA Tech Schneider HV GmbH (2)
Restricted cash on Clipsal acquisition (note 18)
Receivables on investments and loans
Other
Other non current financial assets
Dec. 31, 2006
Impairment
Net
Dec. 31, 2005 Dec. 31, 2004
Net
Net
-
-
-
176.8
167.9
47.0
6.4
68.7
(0.3)
(7.6)
47.0
6.1
61.1
41.4
14.0
49.2
17.5
35.6
18.7
48.4
122.1
(7.9)
114.2
281.4
288.1
(1) €150 million vendor loan granted in 2002, paying interest at 5.5%.The interest is capitalized and the proceeds from any
sales of shares held by the investor will be used to repay the loan, which has been granted for a maximum period of 13 years.
(2) Repaid in January 2005.
As provided for in the agreement with the consortium of investors that acquired Legrand in 2002, the vendor loan
was repaid early during first-half 2006 in connection with Legrand’s stock market flotation.
114
8.3 - Current financial assets
Dec. 31, 2006
Short-term investments (1)
48.2
Pension assets (2)
25.3
Total current financial assets
73.5
Substantially all pension assets concern plans in the
United States which had a surplus at December 31,
2006 (note 15).
(1) These investments were previously classifed under
"Available-for-sale financial assets" - see note 8.1.
(2) These assets were previously classified under "Other
receivables" - see note 11.
5
Note 9 - Inventories and work in process
Inventories and work in process changed as follows:
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Cost:
Raw materials
830.6
739.7
613.7
Work in process
341.8
333.2
297.3
Semi-finished and finished products
973.4
579.2
504.8
Goods
109.8
211.9
194.8
2,255.6
1,864.0
1,610.6
Inventories and work in process at cost
Impairment:
Raw materials
(91.3)
(97.9)
(70.4)
Work in process
(15.7)
(21.8)
(21.0)
Semi-finished and finished products
(81.1)
(63.9)
(54.8)
Goods
(11.6)
(43.8)
(55.0)
(199.7)
(227.4)
(201.2)
Impairment loss
Net :
Raw materials
739.3
641.8
543.3
Work in process
326.1
311.4
276.3
Semi-finished and finished products
892.3
515.3
450.0
98.2
168.1
139.8
2,055.9
1,636.6
1,409.4
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
2,509.2
2,204.4
1,772.5
386.7
417.5
396.2
85.9
71.4
63.0
2,981.8
2,693.3
2,231.7
(99.0)
(106.6)
(96.0)
2,882.8
2,586.7
2,135.7
Goods
Inventories and work in process, net
Note 10 - Trade accounts receivable
Accounts receivable
Notes receivable
Advances to suppliers
Accounts receivable at cost
Impairment
Accounts receivable, net
The Group’s accounts receivable are generated from sales to customers operating in a wide range of businesses
and geographic regions. Consequently, the Group believes that there is no significant concentration of credit risk.
All trade accounts receivable are due in less than one year.
115
Consolidated financial statements at December 31, 2006
Note 11 - Other receivables and prepaid expenses
Dec. 31,
2006
Dec. 31,
2005
Jan. 1,
2005
Dec. 31,
2004
311.5
183.1
203.6
203.6
50.0
76.0
-
-
97.0
97.0
97.0
97.0
421.0
298.0
148.0
148.0
Other receivables
Précompte Equalization tax credit*
Carryback credit
Other tax credits
Derivative instruments
Pension assets**
Prepaid expenses
-
14.8
21.7
-
-
7.0
-
-
115.3
107.1
80.5
80.5
Total
994.8
783.0
550.8
529.1
*Including long-term portion: €25.3 million in 2006 and €50.7 million in 2005
**Pension assets were reclassified under current financial assets at December 31, 2006.
The précompte equalization tax credit corresponds to a €76 million payment to the French Treasury to cover the
exceptional 25% exit tax on dividends distributed in 2005 following the repeal of the equalization tax and avoir
fiscal tax credit. The credit amounted to €51 million in 2006 after Schneider Electric was reimbursed the first one
third of the amount.
The Group also has a €97 million carry back credit with the French Treasury in addition to tax loss carry forwards
recorded under deferred tax assets (note 12). This credit can be deducted from income tax payable in 2007 or
can be reimbursed as at January 1,2008.
Note 12 - Income tax
Whenever possible, Group entities file consolidated tax returns. 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
2006
2005
2004
(38.1)
(15.7)
(13.5)
International
(393.6)
(314.8)
(265.9)
Total
(431.7)
(330.5)
(279.4)
(197.2)
(93.8)
(72.7)
93.8
(3.2)
(13.0)
Total
(103.4)
(97.0)
(85.8)
Income tax (expense)/benefit
(535.1)
(427.5)
(365.2)
Current taxes
France
Deferred taxes
France
International
116
12.2 - Tax proof
Profit attributable to equity holders of the parent
Income tax (expense)/benefit
Goodwill impairment
Minority interests
Share of profit of associates
Profit before tax and goodwill impairment
Statutory tax rate
Income tax expense calculated at the statutory
Reconciling items
Difference between French and foreign tax rates
Impact of tax rate reduction in France*
Tax credits and other tax reductions
Impact of tax losses
Other permenant differences
Income tax (expense)/benefit
Effective tax rate
2006
2005
2004
1,309.4
994.3
823.9
(427.5)
(8.4)
(35.2)
(3.6)
(365.2)
(34.4)
(3.6)
(535.1)
(0.2)
(37.2)
1.9
1,880.0
34.43%
(647.3)
65.2
35.4
20.3
(8.7)
(535.1)
28.46%
1,469.0
34.93%
1,227.1
35.43%
(513.1)
(434.8)
51.2
32.8
1.0
0.6
46.2
(14.3)
24.4
1.2
12.1
(427.5)
(365.2)
29.10%
5
29.76%
*Applicable in 2005 and beyond.
12.3 - Deferred taxes by type
Deferred tax assets
Tax credits and tax loss carryforwards
Provisions for pensions and other post-retirement benefit
Impairment of receivables and inventory
Non deductible provisions for contingencies and accruals
Other deferred tax assets
Deferred tax assets set off against deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Differences between tax and accounting depreciation
Trademarks and other intangible assets
Capitalized development costs (R&D)
Liabilities on fair value adjustments to financial instruments and
other items recognized in equity
Liabilities on debt instruments
Other deferred tax liabilities
Deferred tax assets set off against deferred tax liabilities
Total deferred tax liabilities
Dec. 31,
2006
Dec. 31,
2005
Jan. 1,
2005
244.6
361.9
74.5
132.9
152.5
(293.6)
377.2
394.2
57.6
114.7
116.3
(265.0)
463.2
342.9
52.6
85.2
106.2
(217.4)
672.8
795.0
832.7
(52.1)
(329.6)
(25.2)
(106.7)
(282.1)
(22.5)
(101.4)
(193.4)
(16.1)
(83.3)
(108.6)
293.6
(12.7)
(59.3)
(41.0)
265.0
(15.2)
(53.3)
(63.9)
217.4
(305.3)
(259.4)
(225.9)
Deferred tax assets recorded in respect of tax loss carry forwards at December 31, 2006 essentially concern
France (€119 million) and other European countries where certain tax losses can be carried forward indefinitely.
12.4 - Income tax recognized directly in equity
Tax on items recognized directly in equity amounted to €22.8 million at December 31, 2006 versus €16.3 million
the year before and a negative €11.5 million at December 31,2004. Income tax recognized directly in equity primarily reflects the effect of tax increases or decreases for items initially recognized in equity (as part of the transition to IFRS) and the tax impact of increases or decreases in items recognized in other reserves (note 14.7).
117
Consolidated financial statements at December 31, 2006
Note 13 - Cash and cash equivalents
Mutual funds and equivalent
Other
Short-term investments
Money market instruments and short-term deposits
Dec. 31,
2006
Dec. 31,
2005
Jan. 1,
2005
Dec. 31,
2004
1,718.0
749.3
355.2
355.2
15.3
5.5
63.9
63.9
1,733.3
754.8
419.1
419.1
76.3
117.3
11.9
11.9
Schneider Electric shares
-
-
-
87.0
734.5
511.1
544.8
544.8
Total cash and cash equivalents
2,544.1
1,383.2
975.8
1,062.8
Short-term bank loans and overdrafts
(116.1)
(79.9)
(28.0)
(28.0)
-
-
-
(87.0)
(1.8)
-
(1.3)
(1.3)
2,426.2
1,303.3
946.5
946.5
Cumulative
number
of shares
Total
(in €)
Cash
Treasury shares
Other
Net cash and cash equivalents
Note 14 - Equity
14.1 - Capital
Capital at Dec. 31, 2003
Share capital
The Company’s share capital at December 31, 2006
amounted to €1,821,586,784, represented by
227,698,348 shares with a par value of 8 euros, all
fully paid up.
As at December 31, 2006, a total of 247,190,648 voting rights were attached to the 227,698,348 shares
outstanding.
Cancellation of shares
Worldwide employee
stock purchase
Exercise of stock options
Capital at Dec. 31, 2004
Exercise of stock options
231,842,170 1,854,737,360
(7,000,000)
(56,000,000)
705,847
646,160
5,646,776
5,169,280
226,194,177 1,809,553,416
425,050
Capital at Dec. 31, 2005
Changes in share capital
Exercice of stock options
The following table shows changes in Schneider Electric SA’s share capital since December 31, 2003
through the exercise of stock options:
Capital at Dec. 31, 2006
3,400,400
226,619,227 1,812,953,816
1,079,121
8,632,968
227,698,348 1,821,586,784
Share premium account raised by €52,068,491
through the exercise of stock options.
14.2 - Ownership structure
Capital
%
December 31, 2006
Number
Voting
of shares
rights
%
Number
of voting
rights
December 31, 2005 Dec. 31, 2004
Capital Voting
Capital Voting
%
rights
%
rights
%
%
CDC
4.42
10,062,852
5.36
13,237,852
4.44
5.30
4.45
5.24
Employees
3.09
7,028,765
5.22
12,911,628
3.35
5.67
3.76
6.04
Own shares (1)
0.94
2,150,352
-
-
0.95
-
0.95
-
Treasury stock
2.08
4,725,771
-
-
2.61
-
2.25
-
Public
89.47
203,730,608
86.65
214,165,045
88.65
85.79
88.59
85.86
Total
100.00
227,698,348
100.00(2) 247,190,648 (2)
100.00
100.00(2) 100.00 100.00(2)
(1) Via Cofibel / Cofimines.
(2) Based on the number of voting rights as defined in article 222 12-5 of the AMF general regulations, which includes shares
stripped of voting rights.
No shareholders’ pact was in effect as of December 31, 2006.
118
14.3 - Earnings per share
Determination of the share base used in calculation
Dec. 31, 2006
Common shares*
Dec. 31, 2004
Diluted
Basic
Diluted
Basic
Diluted
220.003
220.003
218.206
218.206
220.923
220.923
-
2.094
-
0.708
-
0.334
220.003
222.097
218.206
218.914
220.923
221.257
Stock options
Average weighted number of shares
Dec. 31, 2005
Basic
(in millions of shares)
*Net of treasury stock and intragroup cross shareholdings.
Earnings per share
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Basic
Diluted
Basic
Diluted
Basic
Diluted
Profit before tax
8.55
8.47
6.68
6.66
5.54
5.53
Earnings per share
5.95
5.90
4.56
4.54
3.73
3.72
(in euros)
5
14.4 - Dividends
In 2005, the Group paid out the 2004 dividend of €1.80 per share, for a total of €395.4 million. In 2006, the Group
paid out the 2005 dividend of €2.25 per share, for a total of €493.0 million. In addition, a précompte withholding
tax back payment in an amount of €8.7 million was recognized in the consolidated financial statements.
At the Annual Meeting of April 26, 2007, shareholders will be asked to approve a dividend of €3.0 per share for
2006. At December 31, 2006, Schneider Electric SA had distributable reserves in an amount of €275 million (versus €323 million at the previous year-end), not including profit for the year.
14.5 - Share-based payment
Current stock option plans
The Board of Directors of Schneider Electric SA and later the Management Board have set up stock option plans
for senior executives and certain employees. The main features of these plans were as follows at December
31, 2006:
Plan
no.
Date
of board
meeting
Type
Starting
date of
exercise
period
Expiration
date
Price
(in euros)
Number
of options
initially
granted
Options
cancelled
because targets
not met
16
1-Apr-99
P
1-Apr-02
31-Mar-07
50.73
1,259,300
245,900
17
1-Apr-99
18
24-Mar-00
P
1-Apr-02
31-Mar-07
50.73
2,123,100
1,078,600
P
24-Mar-03
23-Mar-08
65.88
1,421,200
686,600
19
4-Apr-01
S
4-Apr-05
3-Apr-09
68.80
1,557,850
NA (2)
20
12-Dec-01
S
12-Dec-05
11-Dec-09
51.76
1,600,000
166,800
21
5-Feb-03
S
5-Feb-07
4-Feb-11
45.65
2,000,000
141,900
22
5-Feb-03
S
5-Jun-03
4-Feb-11
45.65
111,000
NA (2)
23
6-May-04
S
1-Oct-04
5-May-12
56.09
107,000
NA (2)
24
6-May-04
S or P
6-May-08
5-May-12
56.09
2,060,700
-
25
12-May-05
S
1-Oct-05
11-May-13
57.02
138,500
NA (2)
26
28-Jun-05
S or P
28-Jun-09
27-Jun-13
60.78
2,003,800
-
(1)
27
1-Dec-05
S or P
1-Dec-09
30-Nov-13
72.1
1,614,900
-
28
21-Dec-06
S or P
21-Dec-10
20-Dec-16
84.12
1,257,120
-
17,254,470
2,319,800
Total
(1) S = Options to subscribe new shares. P = Options to purchase existing shares.
(2) Not applicable because no criteria for exercise were set.
119
Consolidated financial statements at December 31, 2006
Rules governing the stock option plans are as follows:
To exercise the option, the grantee must be an employee or corporate officer of the Group. Exercise is also conditional on the achievement of performance criteria (note 14.5.2);
The options expire after 8 to 10 years;
The vesting period is 3 or 4 years in the United States and 4 years in the Rest of the World.
Outstanding options as of December 31, 2006
Plan
no.
Number of options
outstanding at
Dec. 31, 2005
Options
exercised and or
created in 2006
Options
cancelled
in 2006 (1)
Number of options
outstanding at
Dec. 31, 2006
16
478,720
(311,170)
-
167,550
17
622,052
(421,909)
-
200,143
18
583,981
(225,353)
-
358,628
19
1,426,375
(374,917)
(3,000)
1,048,458
20
970,850
(362,904)
(5,600)
602,346
21
1,861,100
(280,900)
(140,300)
1,439,900
22
69,950
(10,900)
-
59,050
23
74,000
(21,400)
-
52,600
24
2,024,900
25
89,150
26
1,994,800
27
28
Total
-
(25,000)
1,999,900
(1,000)
60,050
-
(5,600)
1,989,200
1,614,900
-
(1,200)
1,613,700
0
1,257,120
(28,100)
11,810,778
-
(780,433)
(181,700)
1,257,120
10,848,645
(1) After potential cancellations due to targets being only partially met or options being allowed to lapse without being exercised.
On December 21, 2006, the Management Board set
up stock option plan no. 28, granting 1,257,120 options
to subscribe new shares or purchase existing shares
of Company stock at a price of €84.12 in principle
exercisable between December 21, 2010 and November 20, 2016. For US employees, the plan awards
328,000 Stock Appreciation Rights (SARs) at a price
of €83.80, with the same vesting period and expiration
date as the options in plan 28.
To exercise the options granted under plans 26, 27 and
28 and the SARs, the grantee must be an employee or
corporate officer of the Group. In addition, exercise of
half the options is conditional on the achievement of
annual objectives based on revenue and operating
margin rate.
In 2006, 1,079,121 new Schneider Electric SA shares
were issued on the exercise of currently vested stock
options.
the Group. In addition, acquisition of half the shares is
conditional on the achievement of annual objectives
based on revenue and operating margin rate.
Valuation of share-based payment
In accordance with the accounting principles
described in note 1.18, the stock option plans have
been valued on the basis of an average estimated life
of between seven and ten years using the following
assumptions:
Expected volatility of between 20% and 25%, corresponding to implicit volatility;
A payout rate between 3% and 3.7%;
A discount rate of between 3.1% and 4.1%, corresponding to a risk-free rate over the life of the plans.
Based on these assumptions, the amount recorded
under "Selling, general and administrative expenses"
for plans set up after November 7, 2002 breaks down
as follows:
Shares granted without consideration
Acting on the authorization granted by shareholders at
the Annual Meeting of May 3, 2006, the Management
Board decided at its meeting of December 21, 2006 to
grant 52,006 shares without consideration. These
shares have a vesting period of three years (from
December 21, 2006 to December 20, 2009), followed
by a lock-up period of two years (from December 21,
2009 to December 20, 2011).
To acquire the shares without consideration the
grantee must be an employee or corporate officer of
120
2006
2005
Plan 21
2.5
5.8
Plan 24
5.6
5.9
Plan 25
0.0
1.5
Plan 26
6.1
3.1
Plan 27
6.6
0.5
Plan 28
0.0
-
20.8
16.7
3, 2006, no shares were purchased during the year
ended December 31, 2006.
14.6 - Treasury stock
A share buyback program was authorized by shareholders at the Annual Meeting on May 6, 1999, and
renewed at the Annual Meetings held on May 5, 2000,
June 11, 2001, May 27, 2002, May 16, 2003, May 6,
2004, May 12, 2005 and May 3, 2006.
The purpose of the program is to reduce dilution, optimize the management of capital and cover stock
option plans. The last authorized program provides for
the purchase of a maximum of 10% of the share capital within a period of up to eighteen months from May
3, 2006. Under the programs of May 12, 2005 and May
The Annual Shareholders’ Meeting of May 3, 2006
authorized the Management Board to buy back
shares. Acting on this authorization, the company set
up a liquidity contract under which the financial intermediary bought 2,292,219 shares at an average price
of €85.29 and sold 2,172,219 shares at an average
price of €85.32.
At December 31, 2006, the Group holds 6,876,123
Schneider Electric shares in treasury stock, acquired
at a cost of €311.4 million which has been recorded as
a deduction from retained earnings.
14.7 - Other reserves
5
Changes in other reserves were as follows:
Gains and losses from
remeasurement at fair value
Currency
Hedges
instruments of metal
and interest purchases
rate hedges
Availablefor-sale
financial
assets
December 31, 2004
Application of IAS 32/39 as from Jan. 1, 2005:
- Currency instruments
- Remeasurement of available-for-sale
financial assets
- Hedges of metal purchases
January 1, 2005
Actuarial
gains and
losses
22.3
7.9
29.0
5.0
5.0
- Unrealized net gains (losses)
on available-for-sale financial assets
5.0
29.0
22.3
115.6
(5.5)
- Net gains (losses) on hedges of metal purchases
(5.5)
3.5
3.5
- Net gains (losses) on post-retirement benefits
December 31, 2005
2.4
8.5
- Unrealized net gains (losses)
on available-for-sale financial assets
144.6
(78.0)
(78.0)
(55.7)
99.8
16.5
16.5
- Realized net gains (losses) on available-for-sale
financial assets reclassified in the statement
of income
- Net gains (losses) on currency instruments
- Net gains (losses) on interest rate hedges
0.0
(136.8)
(136.8)
(1.7)
- Net gains (losses) on hedges of metal purchases
(1.7)
(11.5)
(11.5)
- Net gains (losses) on post-retirement benefits
December 31, 2006
64.2
115.6
- Realized net gains (losses) on available-for-sale
financial assets reclassified in the statement
of income
- Net gains (losses) on currency instruments
22.3
7.9
29.0
7.9
Total
(136.1)
(3.0)
161.1
24.3
24.3
(31.4)
(9.4)
The main changes during the year stemmed from changes in the fair value of hedging instruments (note 20), the
remeasurement at fair value of the Group’s AXA shares (note 8) and differences in actuarial gains and losses
(note 15).
121
Consolidated financial statements at December 31, 2006
Note 15 - Pension and other post-employment 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 performed each year. The assumptions used vary according to the economic
conditions prevailing in the country concerned, as follows:
Weighted average rate
2006
2004
Discount rate
5.0%
4.9%
5.4%
Rate of compensation increases
2.9%
3.3%
3.4%
Expected yield on plan assets
7.8%
8.2%
8.4%
Rate of healthcare cost increases
9.5%
9.4%
9.2%
The post-employment healthcare obligation mainly concerns the United States. A one-point increase in healthcare costs would increase the post-employment
healthcare obligation by €38.9 million and the total of
service cost and interest expense by €2.8 million. A
one-point decrease in healthcare costs would
decrease the post-employment healthcare obligation
by €33.5 million and the total of service cost and interest expense by €2.4 million.
The discount rate is generally determined on the basis
of the interest rate on investment-grade corporate
bonds or government bonds.
Pension and termination
benefit obligations
Pension and termination benefit obligations primarily
concern 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 also
include top-hat payments granted to certain senior
executives guaranteeing supplementary retirement
income beyond that provided by general, mandatory
pension schemes.
Benefit obligations under these plans, which represent
89% of the Group’s total commitment or €1,802 million
at December 31, 2006, are partially or fully funded
through payments to external funds.
External funds are invested in equities (around 61%),
bonds (around 23%) and real estate (around 9%).
Contributions amounted to €19.6 million in 2006 and
are estimated at €14.3 million for 2007.
At December 31, 2006, provisions for pensions and
termination benefits totaled €642 million, compared
with €607 million in 2005 and €521 million in 2004.
These provisions have been included in non-current
liabilities, as the current portion was not considered
material in relation to the total liability.
Payments made under defined contribution plans are
recorded in the income statement, in the year of payment and are in full settlement of the Group’s liability.
Defined contribution plan payments totaled €30.7 million in 2006 and €32.3 million in 2005.
122
2005
Of which US plans
2006
2005
2004
5.8%
4.5%
9.0%
10.0%
5.8%
4.1%
9.0%
10.0%
6.2%
4.1%
9.0%
10.0%
Other post-employment benefits,
including healthcare and life insurance,
and other long-term benefits
The North American subsidiaries pay certain healthcare costs and provide life insurance benefits to retired
employees who fulfill certain criteria in terms of age
and years of service. These post-employment benefit
obligations are unfunded.
Healthcare coverage for North American employees
represents 86% of this obligation. In September 2005,
one of these plans was amended by changing the contributions and terms of eligibility. The effect of this plan
amendment, which reduced the obligation by around
$20 million (€17 million), is reflected in the income
statement over the vesting period, with €6 million recognized in 2005 for vested rights and €3.6 million recognized in 2006.
The assumptions used to determine post-employment
benefit obligations related to healthcare and life insurance are the same as those used to estimate pension
benefit obligations in the country concerned.
Other benefit obligations include healthcare coverage
plans in Europe, for €42 million, and long-service
awards due by subsidiaries in France, for €11 million.
At December 31, 2006, provisions for these benefit
obligations totaled €517 million, compared with €593
million in 2005 and €505 million in 2004. These provisions have been included in non-current liabilities, as
the current portion was not considered material in relation to the total liability.
15.1 - Changes in provisions for pensions
and other post-employment benefit obligations
Changes in provisions for pensions and other post-employment benefit obligations (net of assets) were as follows:
Pensions
and
termination
benefits
Dec. 31, 2004
Net cost recognized in
the statement of income
Of
which
US plans
Other postemployment
and long-term
benefits
Of
Provisions
which
for pensions
US plans and other post
employment
benefit
obligations
521.1
8.8
505.0
418.5
47.9
1.5
(23.6)
22.6
(23.5)
21.9
(22.4)
-
Benefits paid
(49.1)
Plan participants' contributions
(34.4)
Actuarial gains and losses
recognized in equity
117.2
-
Other changes
(10.7)
61.8
3.8
0.0
(0.1)
Dec. 31, 2005 *
600.0
52.2
593.4
498.1
44.3
(4.5)
0.0
(5.1)
26.4
(27.2)
23.3
(25.6)
-
Translation adjustment
5.6
Changes in the scope of consolidation
Net cost recognized in
the statement of income
2.4
Benefits paid
(32.4)
Plan participants' contributions
(19.6)
Actuarial gains and losses
recognized in equity
(6.0)
Translation adjustment
7.5
Changes in the scope of consolidation
27.9
Other changes
(4.9)
Dec. 31, 2006 *
616.8
1,026.2
70.5
(72.6)
(34.4)
132.1
4.3
14.6
65.5
-
1,193.5
14.9
67.1
3.0
-
(7.8)
(4.7)
0.0
0.1
(23.7)
30.2
516.9
(52.7)
(0.7)
1.4
5
72.7
5.4
(6.4)
70.7
(59.6)
(19.6)
(47.3)
(3.1)
(29.7)
(45.2)
27.2
(3.6)
445.4
1,133.7
*Including €7 million in pension assets recogonized under "Other receivables" (see note 11) in 2005 and €25.3 million in
pension assets recognized under "Other financial assets" in 2006.
15.2 - Provisions for pensions and termination benefit obligations
Annual changes in obligations, the market value of plan assets and the corresponding assets and provisions recognized in the consolidated financial statements can be analyzed as follows:
1. Reconciliation of balance sheet items
Dec. 31, 2006
Dec. 31, 2005
o/w US plans
Dec. 31, 2004
o/w US plans
o/w US plans
25.3
25.1
(642.1)
(55.3)
(607.0)
(59.2)
(521.1)
(8.8)
Net Asset/(Liability) recognized in the balance sheet (616.8)
(30.2)
(600.0)
(52.2)
(521.1)
(8.8)
Pension assets
Provisions for pensions and
other post-employment benefit
2. Components of net cost recognized
in the statement of income
Dec. 31, 2006
Past service cost
0.3
Curtailments and settlements
0.5
18.1
52.0
(75.0)
0.4
0.0
44.3
(4.5)
54.2
Interest cost (impact of discounting)
93.4
Net cost recognized in the statement of income
(104.1)
7.0
Dec. 31, 2005
o/w US plans
Service cost
Expected return on plan assets
7.0
Dec. 31, 2004
o/w US plans
51.8
92.9
(97.1)
47.9
5.9
15.9
50.5
(71.8)
6.9
(5.6)
o/w US plans
48.5
87.9
(87.4)
1.2
14.8
48.7
(64.6)
2.7
(0.8)
1.5
49.4
1.6
123
Consolidated financial statements at December 31, 2006
3. Change in projected benefit obligation
Dec. 31, 2006
Dec. 31, 2005
o/w US plans
Projected benefit obligation at beginning
of year
Dec. 31, 2004
o/w US plans
o/w US plans
1,993.5
972.1
1,665.6
747.5
1,614.9
760.1
Service cost
54.2
18.1
51.8
15.9
48.5
14.8
Interest cost (impact of discounting)
93.4
52.0
92.9
50.5
87.9
48.7
5.6
0.0
0.0
3.3
0.0
(92.8)
(41.5)
(104.7)
(39.2)
(49.9)
(36.4)
43.6
20.6
148.6
70.0
10.0
19.7
Modification of pension plan
(0.3)
0.0
6.3
6.0
Changes in the scope of consolidation
28.3
0.0
2.4
(103.7)
139.9
Plan participants' contributions
Benefits paid
Actuarial (gains)/losses recognized in equity
Translation adjustments
Other (including curtailments and settlements)
Projected benefit obligation at end of year
(98.5)
8.4
0.0
2,035.4
917.6
5.5
(0.8)
11.6
121.4
(59.9)
(59.4)
(14.8)
1,993.5
972.1
1,665.6
747.5
Actuarial gains and losses have been fully recognized in other reserves (note 14.7).
They stem from changes in actuarial assumptions (primarily the discount rates) used to measure obligations in
the United Kingdom, the euro zone and Canada.
Actuarial gains and losses related to experience adjustments amount to €12.1 million in the United States and
the United Kingdom.
4. Change in fair value of plan assets
Dec. 31, 2006
Dec. 31, 2005
o/w US plans
Fair value of plan assets at beginning of year 1,395.4
Expected return on plan assets
Plan participants' contributions
Employer contributions
Benefits paid
Actuarial gains/(losses) recognized in equity
104.1
Dec. 31, 2004
o/w US plans
o/w US plans
918.8
1,143.2
736.8
1,083.3
726.3
75.0
97.1
71.8
87.4
64.6
5.6
0.0
5.4
-
3.3
-
19.6
5.1
34.4
23.6
18.2
1.0
(60.4)
(41.5)
(55.6)
(39.2)
(46.9)
(36.4)
49.6
28.4
31.4
8.2
44.7
40.2
Modification of pension plan
-
-
-
Changes in the scope of consolidation
0.4
0.7
0.8
Translation adjustments
Other (including curtailments and settlements)
Fair value of plan assets at end of year
(105.8)
(99.0)
134.3
9.2
1,417.7
117.6
(47.6)
(58.9)
4.5
886.8
1,395.4
918.8
1,143.2
736.8
Actuarial gains and losses have been fully recognized in other reserves (note 14.7).
They stem from changes in the effective and expected return on assets in the United States and the United Kingdom.
5. Funded status
31.12.2006
31.12.2005
o/w US plans
Projected benefit obligation
Fair value of plan assets
31.12.2004
o/w US plans
o/w US plans
(2,035.4)
(917.6)
(1,993.5)
(972.1)
(1,665.6)
(747.5)
1,417.7
886.8
1,395.4
918.8
1,143.2
736.8
Effect of the asset ceiling
-
-
-
-
(1.9)
1.1
1.3
1.9
Deferred items:
Unrecognized past service cost
Net Asset/(Liability)
recognized in the balance sheet
0.9
(616.8)
0.6
(30.2)
(600.0)
(52.2)
15.3 - Provision for other post-employment benefits
Changes in provisions for other post-employment and long-term benefits were as follows:
124
(521.1)
(8.8)
1. Components of net cost
recognized in the statement of income
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Service cost
Interest cost (impact of discounting)
Expected return on plan assets
Past service cost
6.2
25.2
(5.0)
6.0
24.6
(8.0)
6.4
26.2
(5.1)
Net cost recognized in the statement of income
26.4
22.6
27.5
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Projected benefit obligation at beginning of year
Service cost
Interest cost (effect of discounting)
Plan participants' contribution
Benefits paid
Actuarial (gains)/losses recognized in equity
Past service cost
Changes in the scope of consolidation
Translation adjustments
Other (including curtailments and settlements)
543.6
6.2
25.2
1.7
(27.2)
(23.7)
489.8
6.4
26.2
0.7
(23.6)
0.9
(0.7)
(48.1)
0.2
471.0
6.0
24.6
1.3
(23.5)
14.9
(16.3)
3.0
67.1
(4.5)
Projected benefit obligation at end of year
477.2
543.6
471.0
2. Change in projected benefit obligation
5
(30.3)
0.9
Actuarial gains and losses have been fully recognized in other reserves (note 14.7). They stem from changes in
actuarial assumptions (primarily the discount rate). Substantially all plan changes concern the United States.
3. Funded status
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Projected benefit obligation
Deferred items:
Unrecognized past service cost
477.2
543.6
471.0
39.7
49.8
34.0
Provision recognized in the balance sheet
516.9
593.4
505.0
Note 16 - Provisions for contingencies
Economic
risks
Customer
risks
Product
risks
Environmental
risks
Dec. 31, 2004
59.6
47.0
120.3
34.7
Long-term portion
55.6
47.0
32.1
34.7
Additions
Discounting effect
Utilizations
Reversals of surplus provisions
Translation adjustments
Changes in the scope
of consolidation and other
16.9
0.3
(5.6)
(3.1)
2.2
9.1
4.8
(8.0)
7.7
63.8
(0.4)
(51.0)
(10.3)
8.7
2.4
0.6
(2.6)
1.7
68.5
(0.8)
(81.9)
(11.3)
3.6
4.8
7.1
8.8
2.9
7.7
(6.4)
24.9
Dec. 31, 2005
75.1
67.7
139.9
39.7
93.8
70.5
486.7
Long-term portion
37.0
43.6
34.4
32.6
20.0
42.4
210.0
Additions
Discounting effect
Utilizations
Reversals of surplus provisions
Translation adjustments
Changes in the scope
of consolidation and other
99.5
(0.3)
(9.9)
(7.5)
(0.5)
7.6
0.0
(10.2)
(1.0)
(5.8)
70.9
0.2
(59.0)
(17.6)
(5.1)
5.6
0.3
(1.6)
(0.3)
(1.2)
49.9
0.3
(53.8)
(1.6)
(1.2)
25.8
259.3
0.0
0.5
(9.3) (143.8)
(4.7) (32.7)
(5.9) (19.7)
4.5
(1.5)
16.1
1.3
(2.8)
1.9
19.5
160.9
56.8
145.4
43.8
84.6
78.3
569.8
83.8
50.0
34.9
32.1
15.2
67.1
283.1
Dec. 31, 2006
Long-term portion
Restructuring Other Provisions
108.0
59.2
428.8
22.9
192.3
25.1
185.8
0.5
5.0
(8.6) (157.7)
(3.0) (27.7)
3.7
27.6
125
Consolidated financial statements at December 31, 2006
(a) Economic risks
These include tax risks arising from tax audits performed by various local tax administrations and financial risks arising primarily on guarantees given to third
parties in relation to certain assets and liabilities.
During the year, the Group set aside provisions in an
amount of €38.0 million to cover delays and difficulties
in deploying information systems, notably the SAP
core model. The Group also acknowledged the European Commission’s decision concerning two former
subsidiaries’ alleged participation in a high voltage
switchgear cartel and set aside €8.1 million to cover
the related fine.
(b) Customer risks
The Group also recognizes provisions to cover disputes concerning defective products and recalls of
clearly identified products.
In 2006, the provision was increased by €11 million to
cover newly identified technical risks. The related technical difficulties were being resolved as of December
31, 2006.
(d) Environmental risks
These provisions are primarily set aside to cover
potential reclamation costs.
No new risks were identified during site reviews in
2006.
(e) Restructuring
These provisions primarily concern liability claims arising from alleged defects in products sold to customers
and other third parties and are determined on a caseby-case basis. They also cover losses at the end of
various long-term contracts in an amount of €6.0 million.
New provisions were set aside during the year to cover
the costs of restructuring plans in Europe (France,
United Kingdom, Italy) and in Australia (note 25).
(c) Product risks
Provisions are recorded on a statistical basis for the
residual cost of product warranties not covered by
insurance. Such warranties may run up to 18 months.
Note 17 - Long and short-term debt
Non current financial liabilities breaks down as follows:
Dec. 31, 2006 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2004
Convertible and non-convertible bonds
Perpetual bonds
Bank and other borrowings
Lease liabilities
Employee profit sharing
Short-term portion of convertible
and non-convertible bonds
Short-term portion of long-term debt
Non current financial liabilities
3,687.9
2,691.1
1,200.0
1,200.0
-
-
-
73.3
253.8
89.9
89.2
68.2
23.9
18.5
23.4
23.4
5.2
6.3
7.0
7.0
(63.7)
(51.1)
(47.2)
(73.8)
3,457.1
2,754.7
1,272.5
1,298.2
(450.0)
Current financial liabilities breaks down as follows:
Dec. 31, 2006 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2004
Commercial paper
55.0
-
60.4
60.4
Accrued interest
44.9
31.4
11.3
11.3
Other short-term borrowings
154.9
90.5
80.8
80.8
Bank overdrafts
116.1
79.9
28.0
28.0
Short-term portion of convertible
and non-convertible bonds
450.0
63.7
51.1
47.2
73.8
884.6
252.9
227.7
254.3
4,341.7
3,007.6
1,500.2
1,552.5
Short-term portion of long-term debt
Current financials liabilities
Total current and non current financial
126
17.1 - Breakdown by maturity
Dec. 31, 2006 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2004
2005
2006
2007
2008
2009
2010
2011
2012 and beyond
884.6
851.8
25.9
917.0
518.0
1,144.4
252.9
470.5
767.8
3.7
899.7
613.1
-
227.7
20.9
463.1
757.4
3.5
1.4
26.2*
-
254.3
46.6
463.1
757.4
3.5
1.4
26.2*
-
Total
4,341.7
3,007.6
1,500.2
1,552.5
* 2011 and beyond
5
17.2 - Breakdown by currency
Dec. 31, 2006 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2004
Euro
US dollar
Indian rupee
New Zealand dollar
Japanese yen
Other
4,100.9
30.5
53.1
2.5
22.3
132.4
2,842.0
54.6
25.1
11.6
7.8
66.6
1,372.1
11.7
14.5
18.6
25.6
57.7
1,424.4
11.7
14.5
18.6
25.6
57.7
Total
4,341.7
3,007.6
1,500.2
1,552.5
17.3 - Ordinary bonds
(in € million)
Schneider Electric SA 2007
Schneider Electric SA 2008
Schneider Electric SA 2010
Schneider Electric SA 2011
Schneider Electric SA 2014
Schneider Electric SA 2017
Total
Dec. 31,
2006
Dec. 31,
2005
Dec. 31,
2004
450.0
750.0
897.7
499.0
496.8
594.4
450.0
750.0
897.1
594.0
450.0
750.0
-
3,687.9
2,691.1
1,200.0
On July 17, 2006, Schneider Electric issued €500 million worth of bonds at the Euribor 3-month rate +
0.20%, due July 18, 2011. Also on July 17, 2006,
Schneider Electric issued €500 million worth of 4.5%
bonds due January 17, 2014. These bonds are traded
on the Luxembourg stock exchange.
On August 11, 2005, Schneider Electric SA issued
€1,500 million worth of bonds as part of its EMTN program. The issue comprises a €900 million five-year
tranche at 3.125% and a €600 million twelve-year
tranche at 4%. These bonds are traded on the Luxembourg stock exchange.
On October 31, 2003, Schneider Electric SA issued
€750 million worth of 3.875% bonds due October 31,
2008. These bonds are traded on the Luxembourg
stock exchange.
Effective
interest rate
Maturity
6.1275% fixed
October 2007
3.875% fixed
October 2008
3.125% fixed
August 2010
EUR + 0.2% variable
July 2011
4.500% fixed
January 2014
4.000% fixed
August 2017
19, 2007, in principal amounts of €400 million and
€50 million, respectively. These bonds are traded on
the Paris and Luxembourg stock exchange.
17.4 - Other information
At December 31, 2006, Schneider Electric had unused
confirmed credit lines of €1,038 million. These lines of
credit are available for the period.
As part of the financing package for the APC acquisition, Schneider Electric SA has obtained one-year
acquisition financing in an amount of €2.5 billion and
a three-year confirmed line of credit in an amount of
€2 billion.
On October 19 and 20, 2000, Schneider Electric SA
issued two tranches of 6.1275% bonds due October
127
Consolidated financial statements at December 31, 2006
Note 18 - Other non-current liabilities
Dec. 31, 2006
Dec. 31, 2005
Jan. 1, 2005
Dec. 31, 2004
MGE UPS acquisition debt
35.1
135.5
121.9
48.6
Clipsal acquisition debt
47.0
41.5
35.6
35.6
-
-
16.2
16.2
Magnecraft assets acquisition debt
Applied Control Technology acquisition debt
1.8
-
-
-
Other
6.3
1.8
4.0
4.0
90.2
178.8
177.7
104.4
Other non-current liabilities
MGE UPS acquisition debt corresponds to the put
option granted to minority shareholders of MGE UPS.
The amount of the debt declined to €35.1 million at
December 31, 2006 from €72 million at December 31,
2005 mainly as a result of the increase in Schneider
Electric’s interest in MGE UPS during the year (note 3).
The agreement for the acquisition of Clipsal includes a
seller’s warranty providing for part of the acquisition
price to be withheld until December 2007. This amount
has been placed in escrow (note 8.2).
Note 19 - Commitments and contingent liabilities
19.1 - Guarantees given and received
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Contract counterguarantees (1)
Mortgages and collateral (2)
Guarantees
Other commitments given (3)
176.0
20.1
0.5
187.2
173.8
17.8
1.0
209.4
171.0
33.4
4.2
209.1
Guarantees given
383.8
402.0
417.7
Other guarantees received
41.8
35.4
33.6
Guarantees received
41.8
35.4
33.6
(1) On certain contracts, customers require a guarantee from a bank that the contract will be fully executed by the Group.
For these contracts, the Group gives a counterguarantee to the bank. If a claim occurs, the risk linked to the commitment is
assessed and a provision for contingencies is recorded when the risk is considered probable and can be reasonably estimated.
(2)Certain loans are secured by property, plant and equipment and securities lodged as collateral.
(3)Other guarantees given primarily comprise letters of credit issued by Square D, as well as guarantees to certain lessors that
rental payments will be made until the end of the lease.
19.2 - Purchase commitments
In 2006, the expense related to this outsourcing agreement contractually amounted to €136.5 million (€148.3
million in 2005).
Equity investments
Commitments to purchase equity investments correspond to put options given to minority shareholders in
consolidated companies or relate to earn-out payments. The amount of these commitments was not
material at December 31, 2006.
Information technology services
In 2004, the Group signed an agreement with Cap
Gemini to outsource its European IT functions and
deploy shared management applications using SAP.
The agreement is currently being implemented in the
subsidiaries. Payments to Cap Gemini replace the cost
of the IT function, which was previously managed
internally. Schneider Electric initially had a ten-year
reciprocal agreement with Cap Gemini that has been
extended by two years.
128
19.3 - Contingent liabilities
Management is confident that balance sheet provisions for known disputes in which the Group is
involved are sufficient to ensure that these disputes do
not have a material impact on its financial position or
profit. This is notably the case for the potential consequences of a current dispute in Belgium involving former senior executives and managers of the Group.
The loan agreements related to the Group’s long-term
debt do not include any rating triggers.
The Group has also signed an agreement concerning
statutory employee training rights in France (DIF).
Because the vested rights cannot be reliably estimated, no corresponding provision has been set aside in
the financial statements.
Note 20 - Financial instruments
The Group uses financial instruments to hedge its
exposure to fluctuations in interest rates, exchange
rates and metal prices.
20.2 - Interest rate risk
The Group is exposed to risks associated with the
effect of changing interest rates. Interest rate risk on
borrowings is managed at Group level, based on consolidated debt and according to market conditions. The
core aim of interest rate management policies is to
optimize overall borrowing costs. Most bond debt is
fixed rate. Interest rate risk is managed primarily by
means of swaps.
20.1 - Currency risk
Because a significant proportion of transactions are
denominated in currencies other than the euro, the
Group is exposed to risk arising from changes in
exchange rates. If the Group is not able to hedge them,
fluctuations in exchange rates between the euro and
these currencies can have a significant impact on our
results of operations and distort year-on-year performance comparisons.
20.3 - Commodity price risk
The Group is exposed to fluctuations in energy and
raw material prices (in particular steel, copper, aluminum, silver, nickel, zinc and plastic). If the Group is
not able to hedge, compensate or pass on our
increased costs to customers, this could have an
adverse impact on our financial results.
The Group actively manages its exposure to currency
risk to reduce the sensitivity of earnings to changes in
exchange rates. Hedging programs mainly concern
foreign currency receivables, payables and operating
cash flows, which are generally hedged by means of
forward sales. Depending on market conditions, risks
in the main currencies may be hedged based on recurring forecast flows using contracts that expire in 12
months or less.
5
Schneider Electric has, however, implemented certain
procedures to limit our exposure to rising non-ferrous
raw material prices. Purchase commitments are
hedged using forward contracts, swaps and, to a lesser extent, options.
The Group’s currency hedging policy is to protect subsidiaries against risks on all transactions denominated
in a currency other than their functional currency. More
than twenty currencies are involved, with the US dollar,
Hong Kong dollar and British pound representing the
most significant sources of risk.
20.4 - Carrying amount and notional amount
of derivative financial instruments
December
31, 2005
IFRS
Carrying
designation amount
December
31, 2006
Other
Equity
(2)
financial
income and
expense (1)
December
31, 2006
Cash
Carrying Nominal amount
and cash amount Purchase
Sale
equivale
Foreign exchange
Futures - cash flow hedges
Futures - hedges
of balance sheet items
Options and
other hedging instruments
CFH*
5.9
(5.9)
(74.0)
-
(74.0)
1,393.6
-
Trading
(25.7)
44.8
-
-
19.1
136.9
563.8
Trading
and CFH*
(0.3)
(0.6)
-
-
(0.9)
507.0
-
CFH*
13.1
-
(17.5)
-
(4.4)
115.8
-
Metal prices
Futures and options
Interest rates
Swaps on credit lines
Trading
-
-
-
-
-
-
Other interest rate swaps
Trading
(20.1)
-
(1.7)
20.1
(1.7)
500.0
-
(27.1)
38.3
(93.2)
20.1
(61.9)
-
-
Hedging instruments
-
* Cash flow hedge.
(1) Gains and losses on hedging instruments for the period are offset by changes in the fair value of the underlying, which are
also recognized in other financial income and expenses.
(2) Reported in equity under other reserves.
The market value of financial instruments, which corresponds to their carrying amount, is estimated either internally by discounting future differential cash flows at current market interest rates or by third party banks.
129
Consolidated financial statements at December 31, 2006
20.5 - Carrying amount and fair value
of financial instruments other than derivatives
December 31, 2006
Notional
amount (1)
Fair value
December 31, 2005
Notional
amount (1)
Fair value
Available-for-sale financial assets
315.7
315.7
315.4
315.4
Other non-current financial assets
114.2
114.2
281.4
281.4
Marketable securities
Bonds
Other short and long-term debt
Financial instruments excluding derivatives
1,733.3
1,733.3
(3,687.9)
(3,626.4)
(2,691.1)
754.8
(2,729.2)
754.8
(653.8)
(653.8)
(316.5)
(316.5)
(2,178.5)
(2,117.0)
(1,656.0)
(1,694.1)
(1) The notional amount corresponds to either amortized cost or fair value.
20.6 - Currency risk
20.7 - Interest rate risk
Forward hedging positions by currency
At December 31, 2006, gross debt totaled €4,342 million, of which 77% was fixed rate. Total cash and cash
equivalents at that date amounted to €2,544 million.
December 31, 2006
Sales
Purchases
Net
USD
AUD
JPY
AED
DKK
GBP
HKD
Other
181.5
32.2
10.2
3.3
122.5
65.1
44.9
104.1
(1,145.3)
(4.2)
(34.5)
(11.3)
(253.2)
(29.7)
(52.3)
(963.8)
28.0
(24.3)
(8.0)
(130.7)
35.4
44.9
51.8
Total
563.8
(1,530.5)
(966.7)
A one point increase or decrease in interest rates
would have the effect of increasing or reducing the
Group’s net finance costs by €15 million.
The use of currency swaps to hedge intragroup loans
and borrowings exposes part of the Group’s debt to
changes in spread between the euro and the hedged
currencies. The sensitivity calculation above does not
take this effect into account.
Forward currency hedging positions include €1,098
million in hedges of intragroup loans and borrowings
and €131 million in hedges of operating cash flows.
Note 21 - Related party transactions
21.1 - Associates
These are primarily companies over which the Group
has significant influence. They are accounted for by the
equity method. Transactions with these related parties
are carried out on arm’s length terms.
In 2006, related party transactions with associates
were no longer material, as Clipsal Asia was fully consolidated as from January 1, 2006.
130
21.2 - Related parties
with significant influence
No transactions were carried out during the year with
members of the Board of Directors or with Supervisory
Board or Management Board members.
Compensation and benefits paid to the Group’s top
senior executives are described in note 27.3.
Note 22 - Segment information
The Group is divided into four operating divisions. Performance assessments and management decisions are
notably based on operating profit (earnings before interest and tax).
Geographical segment information is presented after allocating Critical Power data in 2006 and data for the
Growth Platforms (Building Automation, Critical Power and Custom Sensors) in 2005 and 2004. Details are provided in chapter 4 of the Annual Report (Business Review).
Europe
North
America
AsiaPacific
Rest of
the world
Total
6,402
3,698
2,514
1,116
13,730
December 31, 2006
Revenue (1)
EBIT
Capital employed (2)
983
518
327
173
2,001
6,052
3,866
1,922
443
12,283
5
December 31, 2005
Revenue (1)
EBIT
Capital employed (2)
5,644
3,047
2,031
958
762
406
263
134
11,679
1,565
5,272
3,873
1,718
435
11,298
5,266
2,501
1,828
754
10,349
672
314
207
94
1,286
4,949
2,155
1,531
346
8,981
December 31, 2004
Revenue (1)
EBIT
Capital employed (2)
(1) Based on destination of sales.
(2) Based on location of assets.
Revenue and operating margin by business:
2006
(1)
2005
restated
2005
reported
2004
reported
Revenue
Electrical distribution
8,605
7,307
7,307
6,509
Automation & control
4,456
3,802
2,892
2,717
1,480
1,123
Growth platforms
Critical power
668
570
-
-
13,730
11,679
11,679
10,349
Electrical distribution
15.3%
13.9%
13.9%
12.8%
Automation & control
13.5%
12.6%
12.7%
12.0%
12.2%
11.6%
Operating margin (in %)
Growth platforms
Critical power
12.9%
12.1%
-
-
14.6%
13.4%
13.4%
12.4%
(1) Following the Group’s recent expansion in the Critical Power segment, this now represents a separate reportable business
segment.The businesses included in Growth Platforms in 2005 and 2004 have therefore been allocated between “Critical Power”
(MGE UPS) and “Automation and Control” (all other businesses: Building Automation and Custom Sensors).
131
Consolidated financial statements at December 31, 2006
Note 23 - Research and development
Research and development costs break down as follows:
2006
2005
2004
Research and development costs recognized as an expense (1)
491.6
433.2
489.0
Capitalized development costs (2)
132.4
108.9
46.0
Total research and development costs of the year
624.0
542.1
535.0
(1) Of which €149.4 million recognized in cost of good sold, €14.6 million in commercial costs and €327.6 million in R&D costs.
(2) Of which €11.6 million recognized in software.
Amortization of capitalized development costs came to €23.0 million in 2006 and €8.5 million in 2005. In addition, impairment losses of €5.0 million were recorded on capitalized development costs in 2006.
Note 24 - Depreciation, amortization and provision expense
Depreciation, amortization and provision expenses recognized in operating expenses were as follows:
2006
2005
2004
(254.0)
(234.7)
(231.0)
(10.8)
(29.5)
(21.5)
(138.5)
(133.4)
(131.4)
(20.5)
28.2
28.5
(423.8)
(369.4)
(355.4)
Included in cost of sales:
Depreciation and amortization
Provisions
Included in selling, general and administrative expenses:
Depreciation and amortization
Provisions
Depreciation, amortization and provision expense
In 2006, provisions in an amount of €49.4 million were recorded in other operating income/(expense) (note 25)
and impairment of other non-current assets represented a charge of €32.2 million.
Note 25 - Other operating income and expenses
Other operating income and expenses break down as follows:
2006
2005
2004
Restructuring
(80.7)
(96.9)
(88.0)
Impairment losses on property,
plant and equipment and intangible assets
-
(35.2)
(10.1)
Impairment losses on goodwill
(0.2)
(8.4)
-
Gains on asset disposals
45.6
13.3
14.5
Losses on asset disposals (including scrapped assets)
(7.5)
(9.8)
(5.6)
(38.0)
8.7
38.4
Other
Other operating income and expenses
(116.0)
(103.2)
(40.7)
In 2006, the Group realized capital gains on sales of property assets, including the sale of the historical
Telemecanique site in the Paris area.
Operating profit includes €115.9 million in non-recurring expenses related to asset impairment (€35.2 million)
and restructuring programs (€80.7 million).
Non-recurring expenses primarily stemmed from the reorganization of the Building Automation business in
Europe, for €16 million, continued industrial reorganization in the Group's core businesses in Europe (France, the
UK and Italy), for €67 million, and reorganization of operations in Australia for €7 million.
In addition, provisions of €38 million were set aside to cover costs arising from certain delays and problems in
bringing new information systems on stream (in "other" above).
132
Note 26 - Finance costs and other financial income and expense, net
This item consists solely of income and expense relating to financial assets (including cash and cash equivalents)
and debt.
2006
2005
2004
Interest income
Interest expense
Net gains/(losses) on the sale of marketable securities
34.1
(188.6)
50.5
40.3
(156.4)
13.0
36.1
(126.5)
26.0
Finance costs, net
(104.0)
(103.1)
(64.4)
10.7
(15.5)
18.2
2.0
(20.0)
0.1
(12.4)
8.6
7.3
(5.7)
(7.8)
(2.8)
0.6
(1.7)
5.9
3.8
1.1
(1.4)
(4.3)
(120.9)
(104.6)
(59.3)
2006
2005
2004
46,135
53,943
40,792
47,878
39,092
45,102
100,078
88,670
84,194
46,962
23,610
22,753
6,753
43,626
21,724
17,379
5,941
43,444
19,028
15,576
6,146
2005
2004
Dividend income
Exchange gains and losses, net
Impairment losses on financial assets
Discounting adjustments to non-current assets and liabilities
Net gains/(losses) on disposal of long-term investments
Fair value adjustments*
Other financial expense, net
Finance costs and other financial income and expense, net
5
* IAS 32/39 applied as from January 1, 2005.
Note 27 - Employees
27.1 - Number of employees
The average number of permanent and temporary employees was as follows :
(number of employees)
Production
Administration
Total average number of employees
By region:
Europe
North America
Asia-Pacific
Rest of the World
The increase in employee numbers primarily reflects acquisitions for the year.
27.2 - Employee benefits expense
2006
Payroll costs (1)
Profit-sharing and incentive bonuses
Stock options
(3,796.7)
(78.4)
(20.8)
(3,485.8)
(62.4)
(16.8)
(3,307.6)
(72.7)
(8.9)
Total employee benefits expense
(3,895.9)
(3,565.0)
(3,389.2)
(1) Including €44.3 million for pension and other post-employment benefits and €26.4 million for other employee benefits
(note 15)
27.3 - Management
compensation and benefits
In 2006, directors’ fees of €0.7 million were paid to the
members of the Board of Directors. Total gross compensation paid to members of senior management
(excluding corporate officers) amounted to €7.6 million, of which €4.2 million in variable bonuses.
A total of 3,464,900 options to purchase existing
shares or subscribe new shares and 4,800 shares
without consideration have been granted to members
of Management through plans set up since 1998.
Pension and other post-employment benefit obligations with respect to members of Management
amounted to €41 million at December 31, 2006.
133
Consolidated financial statements at December 31, 2006
Note 28 - Subsequent events
Acquisitions - American Power Conversion
On October 30, 2006, Schneider Electric announced a
friendly offer to purchase all outstanding shares of USbased American Power Conversion (APC), the world
leader in Critical Power. By combining APC with its
subsidiary MGE UPS Systems, Schneider Electric will
become the global benchmark in Critical Power.
The anti-trust regulatory review in the United States
ended on December 12, 2006 when the waiting period
under the Hart-Scott-Rodino Antitrust Improvements
Act expired. APC’s shareholders approved the proposed merger in Extraordinary Meeting on January 16,
2007.
The European Commission’s competition authorities
granted final clearance on February 8, 2007. Schneider Electric plans to divest its MGE UPS Systems
operations in small systems below 10 kVA. With estimated sales of around €150 million, the divestment
represents 6% of the combined operations of APC and
MGE UPS Systems in Critical Power.
Note 29 - Impact
of the transition to IFRS
This note includes:
Tables reconciling the 2004 financial statements prepared in accordance with French generally accepted
accounting principles and rules (French GAAP) to the
2004 financial statements prepared in accordance with
International Financial Reporting Standards (IFRS).
A description of the options applied in first-time
adoption of IFRS, as of January 1, 2004.
A description of the nature and impact of changes in
accounting principles and policies on the 2004 opening and closing balance sheets and on the income
statement for the year ended December 31, 2004.
Information on standards with little or no impact on
the Group accounts.
29.1 - Reconciliation of the 2004
financial statements under French
GAAP and IFRS
The following tables reconcile the 2004 financial statements prepared and published in accordance with
French generally accepted accounting principles and
rules (French GAAP) to the 2004 financial statements
prepared in accordance with International Financial
Reporting Standards (IFRS), with the exception of IAS
32 and IAS 39 which were adopted prospectively from
January 1, 2005.
The effect on the opening balance sheet at January 1,
2005 of applying IAS 32 and IAS 39 is presented in
note 2.
29.1.1 - Reconciliation of the opening balance sheet and opening equity at January 1, 2004
Assets
Jan. 1, 2004
Notes
French
GAAP
29.3.2
3,512.8
29.3.1
29.4.3
29.4.3
1,439.1
(in millions of euros)
Jan. 1, 2004
Adjustments
IFRS
Non-current assets
Goodwill, net
Intangible assets
Property, plant and equipment
Assets held for sale
Total
Investments in associates
3,512.8
1,429.8
0.0
1.3
(9.3)
14.8
1,709.8
6.8
1,716.6
270.7
272.0
14.8
60.5
60.5
Available-for-sale financial assets
369.6
369.6
Other financial assets
585,4
585.4
Total investments
Deferred taxes
Other non-current assets
29.3.4
29.3.5
Total non-current assets
955.0
0.0
955.0
747.2
175.9
(315.2)
923.1
315.6
7,300.9
(132.5)
7,168.4
1,124.1
36.2
(31.6)
(40.4)
1,160.3
0.4
Current assets
Inventories and work in process
Trade accounts receivable
Other receivables and prepaid expenses
1,781.3
627.0
1,749.7
586.6
Cash and cash equivalents
3,087.5
Total current assets
6,619.9
(35.8)
6,584.1
13,920.8
(168.3)
13,752.5
Total assets
134
29.3.3
29.3.6
29.3.1/ 29.4.5
3,087.5
Liabilities and equity
Jan. 1, 2004
Notes
(in millions of euros)
French
GAAP
Jan. 1, 2004
Adjustments
IFRS
Equity
Share capital
1,854.7
1,854.7
Share premium account
4,290.8
Retained earnings
1,724.6
(714.6)
1,010.0
(211.4)
211.4
0.0
7,658.7
(503.2)
7,155.5
74.9
(0.5)
74.4
7,733.6
(503.7)
7,229.9
Translation reserve
29.4.2
Equity attributable to equity holders of the parent
Minority interests
Total equity
4,290.8
5
Long-term provisions
Provisions for pensions
and other post-employment benefits
29.3.5
672.5
419.5
1,092.0
Provisions for contingencies
29.4.5
156.7
(17.8)
138.9
829.2
401.7
1,230.9
Total long-term provisions
Non-current liabilities
Ordinary and convertible bonds
1,200.0
Perpetual bonds
Other long-term debt
29.4.3
Total non-current financial liabilities
Deferred taxes
1,200.0
113.6
29.3.4
Other non-current liabiilities
113.6
121.7
5.0
126.7
1,435.3
5.0
1,440.3
92.2
(42.5)
40.5
Total non-current liabilities
2,397.2
49.7
40.5
364.2
2,761.4
Current liabilities
Trade accounts payable
1,232.9
Accrued taxes and payroll costs
Short-term provisions
Other current liabilities
1,232.9
663.1
29.4.5
299.0
663.1
(28.8)
270.2
342.0
342.0
Short-term debt
1,253.0
1,253.0
Total current liabilities
3,790.0
(28.8)
3,761.2
13,920.8
(168.3)
13,752.5
Total equity and liabilities
135
Consolidated financial statements at December 31, 2006
Equity - French GAAP - Jan. 1, 2004
7,658.7
(in millions of euros)
IFRS adjustments
Notes
Pensions
29.3.5
(734.7)
Additional deferred taxes
29.3.4
(49.6)
Rebates
29.3.6
(31.7)
Inventory
29.3.3
36.2
Discounting of provisions
29.4.5
17.8
Elimination of deferred charges
29.3.1
(10.0)
Deferred tax impact of adjustments
29.3.4
268.0
Other
0.8
Equity - IFRS - Jan. 1, 2004
7,155.5
29.1.2 Reconciliation of the closing balance sheet at December 31, 2004
and the 2004 income statement and cash flow statement under French GAAP and IFRS
Assets
Dec. 31, 2004
Dec. 31, 2004
Notes
French
GAAP
29.3.2
4,077.7
384.6
4,462.3
Intangible assets
29.3.1
846.5
48.0
894.5
Property, plant and equipment
29.4.3
1,458.8
(2.1)
1,456.7
Assets held for sale
29.4.3
7.6
7.6
2,305.3
53.5
2,358.8
65.3
0.0
65.3
Available-for-sale financial assets
154.3
0.0
154.3
Other financial assets
288.1
0.0
288.1
442.4
0.0
442.4
(in millions of euros)
Adjustments
IFRS
Non-current assets
Goodwill, net
Total
Investments in associates
Total investments
Deferred taxes
29.3.4
752.8
77.5
830.3
Other non-current assets
29.3.5
262.1
(262.1)
0.0
7,905.6
253.5
8,159.1
29.3.3
1,369.7
39.7
1,409.4
29.3.6
2,135.7
0.0
2,135.7
571.5
(42.4)
529.1
Cash and cash equivalents
1,062.8
0.0
1,062.8
Total current assets
5,139.7
(2.7)
5,137.0
13,045.3
250.8
13,296.1
Total non-current assets
Current assets
Inventories and work in process
Trade accounts receivable
Other receivables and pre-paid expenses
Total assets
136
29.3.1/ 29.4.5
Liabilities and equity
Dec. 31, 2004
Notes
(in millions of euros)
French
GAAP
Dec. 31, 2004
Adjustments
IFRS
Equity
0.0
1,809.6
Share capital
1,809.6
Share premium account
4,049.9
Retained earnings
2,023.8
(403.7)
1,620.1
(308.2)
223.7
(84.5)
7,575.1
(180.0)
7,395.1
69.0
3.8
72.8
7,644.1
(176.2)
7,467.9
Translation reserve
29.4.2
Equity attributable to equity holders of the parent
Minority interests
Total equity
4,049.9
Long-term provisions
5
Provisions for pensions
and other post-employment benefits
29.3.5
660.9
365.3
1,026.2
Provisions for contingencies
29.4.5
208.7
(16.4)
192.3
869.6
348.9
1,218.5
1,200.0
0.0
1,200.0
73.3
0.0
73.3
20.8
4.1
24.9
1,294.1
4.1
1,298.2
Total long-term provisions
Non-current liabilities
Ordinary and convertible bonds
Perpetual bonds
Other long-term debt
29.4.3
Total non-current financial liabilities
101.5
101.7
203.2
104.4
0.0
104.4
2,369.6
454.7
2,824.3
1,384.4
0.0
1,384.4
849.5
0.0
849.5
264.2
(27.7)
236.5
Other current liabilities
279.2
0.0
279.2
Short-term debt
254.3
0.0
254.3
3,031.6
(27.7)
3,003.9
13,045.3
250.8
13,296.1
Deferred taxes
29.3.4
Other non-current liabilities
Total non-current liabilities
Current liabilities
Trade accounts payable
Accrued taxes and payroll costs
Short-term provisions
Total current liabilities
Total equity and liabilities
29.4.5
Net profit attributable to equity holders of the parent - French GAAP - 2004
564.6
(in millions of euros)
IFRS adjustments
Notes
Amortization of goodwill
29.3.2
217.1
Capitalization of development costs
29.3.1
45.6
Reversal of amortization of actuarial gains and losses
29.3.5
38.7
Stock opotion expense
29.3.7
(8.9)
Deferred tax impact of adjustments
29.3.4
(32.1)
Minority interests
Other
Net profit attributable to equity holders of the parent - IFRS - 2004
(4.3)
3.2
823.9
137
Consolidated financial statements at December 31, 2006
Consolidated statement of income
Dec. 31, 2004
French
GAAP
(in millions of euros except for earnings per share)
Dec. 31, 2004
Adjustments
IFRS
Revenue
10,365.3
(16.0)
10,349.3
Cost of sales
(5,965.1)
(212.3)
(6,177.4)
Gross profit
4,400.2
(228.3)
4,171.9
Research and development expenses
(535.2)
240.1
(295.1)
(2,554.3)
(36.1)
(2,590.4)
1,310.7
(24.3)
1,286.4
(65.9)
6.6
(59.3)
1,244.8
(17.7)
1,227.1
Selling, general and administrative expenses
Operating 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
(96.3)
96.3
0.0
(333.1)
(32.1)
(365.2)
815.4
46.5
861.9
(217.1)
217.1
0.0
(3.6)
(3.6)
Net income before minority interests
594.7
263.6
858.3
Minority interests
(30.1)
(4.3)
(34.4)
Net income (attributable to Schneider Electric SA)
564.6
259.3
823.9
Basic earnings per share (in euros)
2.56
3.73
Diluted earnings per share (in euros)
2.55
3.72
Cash flow statement
2004 Capitalization Reclassification Other
French
of
of short-term
GAAP development provisions for
expenses
contingencies
(in millions of euros)
Profit attributable to equity holders of the parent
565
46
Net cash provided by operating activities
before changes in operating assets and liaiblities
1,260
46
Change in working capital
(138)
Net cash provided by operating activities
1,122
46
Cash used by investment in operating assets
(284)
(46)
Cash used by financial and other investments
(840)
Net cash used by investing activities
(1,124)
Net cash used by financing activities
(1,976)
Other
Net decrease in cash and cash equivalents
Cash and cash equivalents
at the beginning of the year
Net change in cash and cash equivalents
Cash and cash equivalents at the end of the year
22
(46)
2004
IFRS
213
824
(24)
(0)
1,282
24
16
(98)
0
16
1,184
1
(329)
(0)
(840)
1
(1,169)
0
(1,976)
(17)
5
(1,956)
(1,956)
2,902
2,902
(1,956)
(1,956)
946
946
The main impact on the cash flow statement concerned capitalized development expenses, which appear under
cash used by investment in operating assets.
Application of IAS 7 led to the reclassification of movements in certain operating provisions from change in working capital to net cash provided by operating activities before changes in operating assets and liabilities, in a negative amount of €24 million in 2004.
138
29.2 - Adjustments arising
from the first-time adoption of IFRS
The opening IFRS balance sheet at January 1, 2004
was prepared using the following options and exemptions allowed under IFRS 1- First Time Adoption of
IFRS:
Business combinations carried out prior to January
The resulting changes in the presentation of R&D
costs are as follows:
Qualifying development costs are recorded in the
balance sheet (€46 million at December 31, 2004).
Maintenance and process engineering costs are
reported under "Cost of sales" and included in the
value of inventories, in an amount of €195 million at
December 31, 2004 (note 29.3.3).
1, 2004 were not restated.
The amount reported under "Research and develop-
Cumulative actuarial gains and losses for (off-bal-
ment expenses" corresponds solely to research costs.
ance sheet) defined benefit plans were recognized by
adjusting opening retained earnings.
Cumulative translation adjustments were reset to
zero at January 1, 2004 by adjusting opening retained
earnings, without any impact on total equity.
IAS 32 and IAS 39 were applied prospectively from
January 1, 2005. As a result, the 2004 financial statements were not restated for these standards.
The other options available under IFRS 1 were not
used.
Income statement presentation
The presentation of the income statement was
changed to comply with IAS 1 – Presentation of Financial Statements. The main change concerned 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.
Intangible assets previously
recognized in the balance sheet
All intangible assets carried in the opening French
GAAP balance sheet at January 1, 2004 complied
with the definition contained in IAS 38 – Intangible
Assets.
Deferred charges recognized in the French GAAP balance sheet under "Other accounts receivable and prepaid expenses" were reclassified under intangible
assets (€1 million at January 1, 2004 and €2 million
at December 31, 2004) or eliminated (€10 million at
January 1, 2004 and €12 million at December 31,
2004).
No changes were made to amortization periods.
Intangible assets
acquired in business combinations
29.3 - Main adjustments
recorded in 2004
Under IFRS 3 – Business Combinations, intangible
assets of the acquired company must be recognized
separately from goodwill where the assets concerned
qualify for recognition as intangible assets under IAS
38. These intangible assets were also recognized in
the French GAAP accounts and adoption of IFRS 3 did
not therefore result in any adjustments to the 2004
accounts.
29.3.1 - Intangible assets
29.3.2 - Goodwill
Intangible assets generated by development
activities
As explained above, the Group decided not to restate
business combinations carried out prior to January 1,
2004.
In addition, development costs were reclassified, as
explained in note 29.3.1 below.
Development costs for new products and comprehensive product upgrades may be capitalized under IAS 38.
Systems were set up to track and capitalize these
costs only in 2004. As a result, only development costs
for new products launched since 2004 are capitalized
in the IFRS accounts.
Development costs capitalized in 2004 amounted to
€46 million at December 31, 2004, before tax. These
costs are being amortized over the estimated life of the
underlying technology, which averages 5 years.
A substantial proportion of development costs consists
of maintenance or process engineering costs for existing products, which do not qualify for capitalization
under IAS 38. In the IFRS accounts, these costs continue to be charged directly to the income statement;
however, they are reclassified under "Cost of sales"
and included in the carrying amount of inventories
where appropriate. Only research costs continue to be
reported under "Research and development expenses", as they cannot be capitalized.
5
Goodwill arising on business combinations carried out
in 2004 (and final adjustments to goodwill arising on
business combinations carried out in 2003) was been
reported in the French GAAP accounts in accordance
with IFRS 3 – Business Combinations.
Net goodwill carried in the opening balance sheet at
January 1, 2004 is no longer amortized.
This change of method had a favorable impact of €217
million on 2004 profit and €209 million on the balance
sheet at December 31, 2004, after taking into account
translation adjustments.
Goodwill was also adjusted by €176 million at December 31, 2004 to take into account deferred tax liabilities recognized on purchased brands, in application of
IAS 12.
French GAAP (standard CRC 2002-10) comply with
IAS 36 - Impairment of Assets, and goodwill is tested
for impairment on the same basis in both the French
GAAP and the IFRS accounts.
139
Consolidated financial statements at December 31, 2006
29.3.3 - Inventories
The carrying amount of inventories in the IFRS balance sheet includes process engineering costs and
amortization of capitalized development costs.
The part of process engineering costs corresponding
to the industrialization and the adaptation of products
as well as amortization of capitalized projects are now
included in the unit cost of products sold.
This change of valuation method had the effect of
increasing the value of inventories by €36 million at
January 1, 2004 and €40 million at December 31,
2004.
29.3.4 - Deferred taxes
In the French GAAP accounts, deferred taxes were
recognized for all temporary differences between the
book value of assets and liabilities and their tax basis,
except for deferred taxes on non-amortizable intangible assets that could not be sold separately from the
acquired entity (§ 313 of standard CRC 99-02), corresponding in practice to trademarks.
Under French GAAP, material deferred tax assets and
liabilities were discounted when the period in which
they were expected to reverse could be reliably determined.
Application of IAS 12 – Income taxes – had the following impact:
A deferred tax liability is reported on trademarks rec-
ognized in connection with business combinations.
The effect of this change of method on opening
retained earnings at January 1, 2004 was €17 million.
For acquisitions carried out in 2004, the impact was
€176 million, leading to a corresponding adjustment of
the goodwill recognized on the acquisitions concerned
(note 29.3.2 above).
Deferred taxes are not discounted, resulting in an
increase of €33 million in deferred tax liabilities at January 1, 2004.
Deferred taxes are included in non-current assets and
liabilities in accordance with IAS 1 – Presentation of
Financial Statements, which requires a distinction to
be made between current and non-current items.
The other adjustments to deferred taxes arose from
adjustments made in application of other standards.
They included:
Deferred tax liability recognized in respect of the
change in inventory valuation (€13 million at January
1, 2004 and €14 million at December 31, 2004).
Deferred tax liability recognized in respect of capitalized development costs in an amount of €16 million at
December 31, 2004 (note 29.3.1 above).
Deferred tax asset recognized in respect of the addi-
tional obligation reported for defined benefit plans
(mainly actuarial gains and losses) in the IFRS balance sheet (note 29.3.5 below), in an amount of €274
million at January 1, 2004 and €248 million at December 31, 2004.
29.3.5 - Employee benefits
In connection with the transition to IFRS, the Group
performed a comprehensive review of its employee
benefit plans. Some plans that were previously qualified as defined contribution – including certain Euro-
140
pean retirement plans and certain healthcare plans –
constitute defined benefit plans under IAS 19 and were
therefore reclassified.
In addition, as explained above, cumulative actuarial
gains and losses and past service costs were recognized by adjusting retained earnings, as allowed under
IFRS 1 – First Time Adoption of IFRS. The total effect
of these adjustments on the opening balance sheet at
January 1, 2004 was €735 million.
Plan assets were reclassified as a deduction from corresponding plan liabilities (€315 million at January 1,
2004 and €262 million at December 31, 2004).
The net impact on the benefit obligation recognized in
liabilities was €420 million at January 1, 2004 and
€365 million at December 31, 2004.
The absence of amortization of previously recognized
actuarial gains and losses had a positive effect on the
IFRS income statement of €38 million in 2004, reported under administrative costs (€20 million) and "Cost
of sales" (€18 million).
Going forward, the Group has decided to recognize all
actuarial gains and losses in equity under "Other
reserves", as allowed under IAS 19 (revised). The
amount for 2004 was €22 million, net of tax.
29.3.6 - Revenue recognition
The revenue recognition policies applied in the French
GAAP accounts were not materially different from the
requirements of IAS 18 – Revenue and IAS 11 – LongTerm Contracts.
Sales of goods are recognized when the significant
risks and rewards of ownership are transferred to the
buyer.
Long-term contract revenue is recognized by the percentage-of-completion method and a provision is
booked for expected contract losses as soon as they
are considered probable.
Volume rebates granted to distributors are recognized
as an expense when the initial sales are made by
Schneider Electric to these distributors. The effect of
this change in recognition principle was recognized in
the French GAAP and IFRS financial statements at
January 1, 2004 and represented €32 million.
Certain cash discounts (€8 million in 2004) included in
interest expense, and certain sales incentives (€7 million in 2004) reported under selling expenses were
reclassified as a deduction from revenue in the IFRS
accounts.
29.3.7 - IFRS 2 - Share-based payments
IFRS 2 applies to stock options granted after November 7, 2002 that had not vested prior to January 1,
2005.
The plans concerned are plan no. 21 dated February
5, 2003 (2,000,000 options exercisable as from February 5, 2007) and plan no. 24 dated May 6, 2004
(2,060,700 options exercisable as from May 6, 2008).
The Group has chosen to value options using the Cox
Ross Rubinstein binomial option pricing model.
Based on market data at the grant dates, the total
stock option expense came to €9 million in 2004.
29.4 - Information on standards
with little or no impact on the Group
accounts
For the purpose of preparing the IFRS accounts, IAS
36 was also applied to internally-generated intangible
assets corresponding to capitalized development
costs.
29.4.1 - Consolidation
scope and methods
29.4.5 - Provisions
for losses and contingencies
Application of the control criteria set out in IAS 27 –
Consolidated Financial Statements And Accounting
For Investments In Subsidiaries – did not lead to any
change in the companies fully consolidated in the
Group accounts, except for consolidation of the special
purpose entity that holds the perpetual bonds,
described in note 2.
The transition to IFRS had no impact on provisions for
losses and contingencies because the criteria applied
in the French GAAP accounts to recognize these items
complied with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets.
29.4.2 - Foreign currency translation
Cumulative translation differences were reset to zero
in the opening IFRS balance sheet at January 1, 2004,
as allowed under IFRS 1. The impact at January 1,
2004 was €211 million.
Adoption of IAS 21 and IAS 29 had no impact on the
Group accounts because the foreign currency conversion and translation principles applied in the French
GAAP accounts (notes 1.4 and 1.5 to the 2004 French
GAAP consolidated financial statements) complied
fully with the methods prescribed under IFRS.
However, in the IFRS accounts, long-term provisions
for contingencies were discounted. The discounting
adjustment amounted to €18 million at January 1,
2004 and €16 million at December 31, 2004.
5
The following reclassifications were made:
Certain provisions for impairment of assets that were
previously reported as liabilities were reclassified as a
deduction from the corresponding assets (€29 million
at January 1, 2004 and €28 million at December 31,
2004).
Accrued liabilities related primarily to restructuring,
the environment and product warranties were reclassified under provisions for contingencies in the IFRS
financial statements at December 31, 2004, in an
amount of €237 million.
29.4.3 - Property, plant
and equipment and leases
Adoption of IAS 16 – Property, Plant And Equipment
and IAS 40 – Investment Property had no impact on
the Group accounts.
Property, plant and equipment consist mainly of manufacturing equipment dedicated to specific product
lines and material parts of individual items of equipment were already depreciated separately in the
French GAAP accounts. Consequently, there was no
need to change the assets' carrying amount or depreciation schedules to comply with IAS 16. In addition,
the Group does not own any investment property.
Adoption of IAS 17 – Leases led to the reclassification
of certain non-material leases. The impact of these
reclassifications at January 1, 2004 was €6 million on
assets and €5 million on debt.
In accordance with IFRS 5 – Non-Current Assets Held
For Sale And Discontinued Operations – assets held
for sale at the year-end (consisting mainly of real
estate) were reported separately, in an amount of €15
million at January 1, 2004 and €8 million at December
31, 2004.
29.4.4 - Impairment of assets
As recommended by the French securities regulator
(COB, now renamed AMF), the Group elected for early
adoption – starting in 2002 – of standard CRC 200210 concerning asset impairments. The method used to
test assets for impairment complies with IAS 36 –
Impairment Of Assets and the level (Cash Generating
Unit) at which the recoverability of goodwill is
assessed is also compatible with this standard.
The Group's business is highly sensitive to technological advances and property, plant and equipment were
already tested for impairment at regular intervals.
141
Consolidated financial statements at December 31, 2006
Note 30 - Consolidated companies
The main companies included in the Schneider Electric Group scope of consolidation are listed below.
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Europe
Fully consolidated
Asentics GmbH
Asentics GmbH & Co. KG
Andover Controls GmbH
Berger Lahr GmbH
Berger Lahr Positec GmbH & Co KG
Berger Lahr Services GmbH
Citect GmbH
Crouzet GmbH
Drive Tech Gmbh
Elau Elektronik AG
Elau Engineering GmbH
Elau Administration GmbH
Elau Systems GmbH
Elin EBG GMBH
Elso GmbH
Gerhard Berger GmbH & Co KG
Invensys Messner GmbH
Kavlico GmbH
Kind Beteiligung GmbH
MERTEN Beteiligung GmbH
MERTEN GmbH & Co.KG
MERTEN Holding GmbH
MERTEN Intec GmbH
MGE USV-Systeme GmbH
Num Guttinger GmbH
Power Measurement GmbH
Pulsotronic Merten GmbH & Co. KG
Sarel GmbH
Schneider Electric Deutschland GmbH
Schneider Electric GmbH
Schneider Electric Motion GmbH
Schneider Factoring GmbH
SVEA BCS GmbH & Co. KG
SVEA GmbH
TAC GmbH Control System
Vitrum Beteiligungs GmbH
Vitrum GmbH & Co. KG
Berger Lahr Positec GmbH
Merten Gesellschaft M.b.H
MGE UPS Systems VertriebsgmbH
Sarel GmbH
Schneider Electric Austria GmbH
STI Elin
DRIVEScom Internet Business Services
VA TECH ELIN EBG Elektronik Gmbh & Co
Cofibel
Cofimines
Crouzet NV
OVA Bargellini International SA
Sarel SA
Schneider Electric NV/SA
Schneider Electric International
UPS Systems MGE BV
142
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Austria
Austria
Austria
Austria
Austria
Austria
Austria
Austria
Austria
Austria
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
80.00
80.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
99.00
100.00
100.00
100.00
70.00
70.00
100.00
100.00
51.00
100.00
95.67
99.00
100.00
76.00
100.00
100.00
100.00
100.00
100.00
100.00
99.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
99.00
100.00
100.00
100.00
51.00
84.84
99.00
100.00
100.00
100.00
100.00
98.80
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
99.00
100.00
100.00
100.00
100.00
100.00
51.00
84.84
0.00
100.00
100.00
100.00
100.00
100.00
84.84
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Schneider Electric Bulgaria
Schneider Electric Ltd
Elmat ApS
ESMI A/S
Invensys Bygnings
JO-EL Electric A/S
Schneider Electric Danmark (ex Lauritz Knudsen)
Schneider Electric Danmark A/S
Schneider Nordic Baltic (ex Lexinvest A/S)
TAC A/S
AEM SA
EFI Electronics Europe SL
Himel SA
Mesa SA
MGE UPS Espana SA
Schneider Electric Espana
Telenum
Schneider Electric EESTI AS (ex A/S Lexel Electric)
Atmostec Oy
Elari Oy
Elko Suomi Oy
I-Valo
JO-EL Electric Oy
Oy Esmi AB
Oy 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
Behar Sécurité Sarl
Berger Lahr Positec Sarl
Boissière Finance
Citef SAS
Citect Sarl
Construction Electrique du Vivarais
Crouzet SA
DEXTUS
DINEL
Distrelec
Elau SARL
Electro Porcelaine
Elkron France
Euromatel
Financiere MGE
France Transfo
Infra +
JCN Participations
Le Moule Métallique
Machines Assemblage Automatique
Mafelec
Materlignes
Merlin Gerin Alès
Merlin Gerin Alpes
Merlin Gerin Loire
MGE Finances SAS
Bulgaria
Croatia
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Estonia
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
5
143
Consolidated financial statements at December 31, 2006
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
MGE UPS
MGE UPS Systems SAS
Muller & Cie
Napac
Newall France
Newlog SAS
Normabarre
Num SA
Prodipact
Rectiphase
SA2E
SAEI
SAE Gardy
Sarel Appareillage Electrique
Satchwell SAS
Scanelec
Schneider Automation SA
Schneider Electric Industries SAS
Schneider Electrique Foncière
Schneider Electric France
Schneider Electric International
Schneider Electric SA (Société mère)
Schneider Toshiba Inverter Europe SAS
Schneider Toshiba Inverter SAS
SCI du Pré Blanc
Senside
Société Alpine de
Préfabrication Electro-Mécanique - SAPEM
Société d'Application Electro-Mécanique - SAEM
Société Dauphinoise Electrique - SDE
Société du Rebauchet
Société Electrique d'Aubenas SA - SEA
Société Française Gardy SA
Sogefred
Sorhodel Bardin
Sovalmo
Société pour l'équipement des industries
chimiques (SPEI)
Spie-Capag
Sté Française de Constructions Mécaniques
et Electriques - SFCME
Sté Rhodanienne d'Etudes et de Participations - SREP
Systèmes Equipements Tableaux
Basse Tension - SETBT
Transfo Services
Usibati SCI
Ajax Electrical Ltd
Andover Controls Ltd
Avenue Solutions Limited
Berger Lahr Positec Ltd
Capacitors Ltd
CBS Group Limited
Citect UK
Crouzet Ltd
Crydom UK
E-GETIT Limited
Elau Ltd
Electric City Limited
GET Pension Scheme Limited
GET Group PLC
GET PLC
Grawater Ltd
144
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
95.67
100.00
100.00
100.00
100.00
100.00
100.00
95.67
95.67
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
60.00
100.00
100.00
60.10
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
84.84
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
60.00
100.00
100.00
60.10
84.84
100.00
100.00
100.00
100.00
100.00
100.00
84.84
84.84
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
60.00
100.00
80.01
France
France
France
France
France
France
France
France
France
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
-
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
France
France
100.00
100.00
100.00
100.00
100.00
100.00
France
France
100.00
100.00
100.00
100.00
100.00
100.00
France
France
France
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Grawater of Wakefield Ltd
JO EL Electric Ltd
JO JO (UK) Ltd
JO JO Products Ltd
Lexel Holdings (UK) Limited
MITA (UK) Ltd
MITA Holdings Ltd
MGE UPS Systems Ltd
Nestfarm Limited
Newall Measurement Systems Ltd
Num (UK) Limited
Sarel Ltd
Satchwell Controls Systems Ltd
Schneider Electric (UK) Ltd
Schneider Electric Ltd
TAC Regional Ltd
TAC UK Ltd
Thorsman Ltd
Tower Manufacturing Ltd
Tower Forged Products Ltd
Walker Mainstay Ltd
Westinghouse Systems
Yorshire Switchgear Group Ltd
MGE UPS Systems Hellas Abe
Schneider Electric AE
BEI Automative Hungary Manufacturing Inc
Merlin Gerin Zala
Prodax Elektromos
Schneider Electric Hungaria Villamassagi RT
Schneider Electric Ireland Ltd
Schneider Electric Manufacturing Celbridge
Square D Company Ireland Ltd
Thorsman Ireland Ltd
Thorsman Sales Ireland Ltd
Controlli Srl
Crouzet Componenti
Elau Systems Italia Srl
MGE Italia
Num SPA
OVA Bargellini SpA
Pamoco Srl
SAIP & Schyller Srl
Schneider Electric Spa
Schneider Electric Industrie Italia Spa
Schneider Italia Spa
Lexel Fabrika SIA
Schneider Electric Latvija SIA
UAB Schneider Electric Lietuva (ex UAB Lexel Electric)
Sté industrielle de réassurance (SIRR)
SGBTEMI
ELKO A/S
ESMI A/S
Lexel Holding Norway AS
Merten Norge AS
Satchwell Norge AS
Schneider Electric Norge A/S
Wibe Stiger A/S
MGE UPS Systemer AS
TAC Control Systems AS
Citect BV
Crouzet BV
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Greece
Greece
Hungary
Hungary
Hungary
Hungary
Ireland
Ireland
Ireland
Ireland
Ireland
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Latvia
Latvia
Lithuania
Luxemburg
Luxemburg
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Netherlands
Netherlands
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
5
145
Consolidated financial statements at December 31, 2006
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Polam Holding BV
Pro Face HMI (sous-groupe)
Sandas Montage BV
Sarel BV
Schneider Electric BV
Schneider Electric Logistic Centre BV
Stago BV
Andover Controls Sp Zo.o
Elda Eltra SA (ex Eltra SA)
ELDA Szczecinek SA
MGE UPS Systems Polska Sp.z.o.o
Schneider Electric Industries Polska SP
Schneider Electric Polska SP
Tour Andover Controls Polska Sp.Zo.o
Wibe Polska Sp.Zo.o
Merten Polska Sp. z o.o.
MGE Portugal Ondulatores
Schneider Electric Portugal LDA
Merten Czech s.r.o.
Schneider Electric AS
Schneider Electric CZ sro
Schneider Electric Romania SRL
Kalilingrad
MERTEN Russland
OOO "TAC"
UralElektroKontactor
ZAO Schneider Electric
ZAO Lexel Elektromaterialy (SPB)
Schneider Electric Jugoslavija doo
Schneider Electric Ltd
Schneider Electric Slovakia Spol SRO
AB Elektrokontakt EKT
AB Crahftere 1
AB Wibe
Crouzet AB
EFAB Electric AB
Elektriska Aktielbolaget Delta
ELJO AB
ESMI Multi Signal AB
Exportvärden AB
J.O. Sverige AB
Lexel AB
Lexel Electric AB
Merten Svenska AB
Num Norden
TAC Protect System AB
Schneider Electric Sverige AB
(ex Schneider Electric AB)
Schneider Electric Powerline Communications AB
T.A.C. AB
T.A.C. Holding AB
TAC Svenska AB
Thorsman & Co AB
Wibe Holding AB
Wibe Stegar AB
Wibe Stegar Holding AB
Berger Lahr Positec AG
Crouzet AG
Feller AG
MGE UPS Systems AG
Num Guttinger AG
146
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Portugal
Portugal
Czech Republic
Czech Republic
Czech Republic
Romania
Russia
Russia
Russia
Russia
Russia
Russia
Serbia
Slovenia
Slovakia
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
100.00
99.79
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
98.27
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
-
100.00
99.79
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
84.84
100.00
98.27
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.75
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
84.84
100.00
98.27
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
83.70
95.67
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
83.70
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
83.70
84.84
100.00
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Paramer
Sarel AG
Schneider Electric Finances
Schneider Electric Suisse AG
Selectron Systems AG
MERTEN Ukraine
Schneider Electric Ukraine
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Ukraine
Ukraine
100.00
98.20
100.00
100.00
100.00
100.00
100.00
98.20
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
-
-
50.00
20.00
34.00
20.00
34.00
49.00
20.00
34.00
100.00
99.79
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
80.00
100.00
100.00
100.00
100.00
100.00
99.79
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
80.00
100.00
100.00
100.00
100.00
100.00
99.75
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
80.00
100.00
-
Proportionate
Easy Plug
France
Accounted for by the equity method
Elau Administration GmbH
(fully consolidated)
Delta Dore Finance SA (sub-group)
Môre Electric Group A/S
Germany
France
Norway
5
North America
Fully consolidated
Cofimines Overseas Corporation
Indy Electronics Inc.
Juno Lighting Ltd
Power Measurement Ltd
Schneider Canada Inc.
MGE Systems Mexico SA de CV
Crouzet Automatismo
Crouzet Mexique
Custom Sensors & Technologies Mexico
Industrias Electronicas Pacifico SA de CV
Schneider Electric Mexico SA de CV
Square D Company Mexico SA de CV
Abacus
Andover Controls Corp
BEI Export Sales Co. Inc
BEI International Inc
BEI Properties
BEI Sensors & Systems
BEI Tactical Defense Systems Inc
BEI Technologies Inc.
Berger Lahr Motion Technology Inc.
CSI Acquisition Holding Corp.
Crydom. Inc
Defense Systems Company Inc
EFI Electronics Inc
Elau Inc.
Hyde Park Electronics LLC
Indy Lighting Inc.
Invensys Building System Inc
Juno Lighting Inc.
Juno Manufacturing Inc.
Kavlico Corp
MGE UPS Systems Inc
Neovasys Inc
Newall Electronics Inc
Num Corporation
OpticNet Inc
Palatine Hills Leasing Inc.
Powerbox Solutions LLC
Power Measurement EI Inc.
Power Measurement Inc.
Power Measurement USA Inc.
Canada
Canada
Canada
Canada
Canada
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
147
Consolidated financial statements at December 31, 2006
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Precision Systems
Pro Face America Inc.
Pulstronic USA Corp.
Quantronix Inc
Schneider Automation Inc.
Schneider Investment Holdings Pty
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
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100.00
99.79
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
100.00
100.00
100.00
100.00
99.79
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
100.00
100.00
100.00
99.75
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
100.00
100.00
100.00
USA
-
-
50.00
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
84.84
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
China
China
China
China
57.40
100.00
100.00
100.00
50.90
-
50.90
-
Accounted for by the equity method
Easy Plug Inc.
Asia-Pacific
Fully consolidated
Citect Coporation
Citect Pte Ltd
Clipsal Pacific Holdings Pty Ltd
Clipsal Industries Pacific Pty Ltd
Clipsal South Pacific Pty Ltd
Clipsal Pacific Pty Ltd
Australian Electrical Supplies Pty Ltd
Blue Point Products Pty Ltd
Clipsal Australia Holding Pty Ltd
Clipsal Australia Pty Ltd
Clipsal Controlgear Pty Ltd
Clipsal Extrusions Pty Ltd
Clipsal Integrated Systems Pty Ltd
Clipsal Technologies Australia Pty Ltd
Invensys Buiding System Pty Ltd
Efficient Energy Systems Pty Ltd
MGE UPS Systems Australia Pty Ltd
Moduline Holdings
Moduline Pty
Nu-Lec Industries Pty Ltd
Parkside Laboratories Australia Pty Ltd
PDL Holding Australia Ltd
PDL Industries Australia Pty Ltd
Power Measurement Ltd
Pro Face Australia
SE Australia Holding PTY
Schneider Investment Holdings 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
Citect Control System (Shanghai) Ltd
Clipsal China
Clipsal International Trading (Shanghai) Co., Ltd.
148
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Crouzet China
East Electric System Technoly
Foshan Wilco Electrical Trading Co
Invensys Building System 5
Invensys Building System Gaoming
MERTEN Shanghai Electric Technology Co. Ltd
MGE North Asia SHANGHAI
Schneider Electrical Devices
Pro Face International Shanghaï
Schneider Beijing Low Voltage
Schneider Beijing Medium Voltage
Schneider Busway (Guangzhou) Ltd
Schneider Electric China Invest Co Ltd
Schneider Electric Low Voltage (Tianjin) Cy Ltd
Schneider Electric Supply Beijing Co Ltd
Schneider Fuji Breakers (Dalian)
Schneider Shanghaï Apparatus parts Manufacturing
Schneider Shanghaï Industrial Control
Schneider Shanghaï Low Voltage Term. Apparatus
Schneider Shanghaï Power Distribution Electric App.
Schneider Shanghaï Supply Components Ltd
Schneider Shilin Suzhou Transformers
Schneider (Suzhou) Drives Company ltd
Schneider Suzhou Enclosure Systems Co Ltd
Schneider Wingoal
Shanghai Manufacturing
SSBEA
Tianjin Merlin Gerin Co Ltd
UPE Electronics SHENZEN
Wu Xi Factory
Clipsal Korea
MGE UPS Systems Korea Co. Ltd
Pro Face Korea
Samwha EOCR Co.ltd
Schneider Electric Korea Ltd
Bowden Extrusion HK
CIS Hong-Kong
Clipsal Asia Limited
Clipsal Asia Holding
Clipsal Datacom HK
Clipsal Datacomms Asia
Clipsal-Vtec (BCC)
Clipsal HK Ltd
Clipsal Industries HK Ltd
Crouzet Asia Limited
CVH Industries Ltd
GP Electrical HK
Invensys Building System Hong-Kong Ltd
Jansweet Ltd
Full Excel Pty Ltd
GET Santai Limited
GET Asia Limited
Linkpoint Investments
MGE China / Hong Kong Ltd
Schneider Busway Limited
Schneider Electric Business Solutions
Schneider Electric Hong Kong Ltd
TAC Pacific HK Ltd
MGE India
MGE Indonésie
PT Mega Gelar Elektronil Ometraco
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
South Korea
South Korea
South Korea
South Korea
South Korea
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
India
Indonesia
Indonesia
100.00
57.40
100.00
100.00
100.00
100.00
76.54
100.00
99.79
95.00
95.00
95.00
100.00
75.00
100.00
60.00
100.00
80.00
75.00
80.00
100.00
100.00
90.00
100.00
100.00
95.67
70.00
75.00
47.84
99.79
100.00
95.67
99.79
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
76.54
100.00
100.00
100.00
100.00
95.67
95.67
95.67
67.87
99.79
95.00
95.00
95.00
100.00
75.00
100.00
60.00
100.00
80.00
75.00
80.00
100.00
100.00
90.00
100.00
100.00
84.84
75.00
42.42
99.79
84.84
99.79
100.00
100.00
100.00
100.00
67.87
100.00
100.00
100.00
100.00
84.84
67.87
99.78
95.00
95.00
95.00
100.00
75.00
100.00
60.00
100.00
80.00
60.00
80.00
100.00
100.00
90.00
100.00
100.00
84.84
75.00
42.42
99.75
84.84
99.75
80.00
100.00
100.00
100.00
67.87
100.00
100.00
100.00
84.84
5
149
Consolidated financial statements at December 31, 2006
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
PT Bowden Indonesie
PT Merten Intec Indonesia
PT Schneider Electric Indonésia
Schneider Electric Manufacturing Batam
Digital Electronics Corporation
Schneider Electric Japan Ltd
Toshiba Schneider Electric Ltd
Toshiba Schneider Inverter Corp.
Clipsal Asia
Huge Eastern
KSLA Malaysia
CIS Malaysia
Clipsal (Malaysia) Sdn Bhd
Clipsal Datacomms (M) Sdn Bhd
Clipsal Manufacturing
MGE UPS Systems Malaisia SDN BHD
PDL Electric (M) Sdn Bhd
PDL Industries Asia
PDL Switchgear (Asia) Sdn Bhd
PDL Electronics Sdn Bhd
Schneider Electric Industries Sdn Bhd
Schneider Electric Malaysia Sdn Bhd
CER Technologies Pty Ltd
Citect NZ
Clipsal Industries NZ Ltd
PDL Electronics
Schneider Electric New Zealand Holdings Ltd
Clipsal Philippines
MGE UPS Philippines Inc.
Schneider Electric Philippines Inc
Andover Controls Singapore Pty Ltd
Citect Pte
Clipsal Datacomms Singapour
Clipsal Integrated Systems Pte Ltd
Clipsal International Singapour
Clipsal Singapour
GP Electrical Singapour
Invensys Building System Pte Ltd
KSLA Energy & Power Solution Pte Ltd
Merten Asia Pte Ltd
MGE Asia Pte Ltd
MGE Logistics South East Asia pacific Pte Ltd
PDL Electric (S) Pte Ltd
TAC Control Asia
Schneider Electric Export Services
Schneider Electric Industrial Development
Singapore Pte Ltd
Schneider Electric Logistic Asia Pte Ltd
Schneider Electric Overseas Asia Pte Ltd
Schneider Electric Singapore Pte Ltd
Schneider Electric South East Asia (HQ) Pte Ltd
Schneider Electric Sri Lanka
Clipsal Taiwan
Pro Face Taïwan
Schneider Electric Taïwan Co Ltd
GP Electrical (Taiwan) Limited
Clipsal Thailand
MGE UPS Systems SA
Pro Face South East Asia Pacific
Schneider Electric Thaïland Co Ltd
Schneider Thaïland Ltd
150
Indonesia
Indonesia
Indonesia
Indonesia
Japan
Japan
Japan
Japan
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Philippines
Philippines
Philippines
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
100.00
100.00
100.00
100.00
99.79
100.00
100.00
60.00
100.00
100.00
60.00
100.00
100.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
30.00
100.00
100.00
100.00
60.00
100.00
100.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
60.00
100.00
95.67
95.67
100.00
100.00
100.00
100.00
100.00
99.79
100.00
88.43
60.00
84.84
100.00
30.00
100.00
100.00
60.00
100.00
84.84
100.00
100.00
84.84
84.84
100.00
100.00
100.00
100.00
99.75
100.00
83.45
60.00
84.84
100.00
30.00
100.00
100.00
60.00
100.00
84.84
100.00
100.00
84.84
84.84
100.00
100.00
Singapore
Singapore
Singapore
Singapore
Singapore
Sri Lanka
Taïwan
Taïwan
Taïwan
Taïwan
Thailand
Thailand
Thailand
Thailand
Thailand
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.79
100.00
100.00
100.00
95.67
99.79
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.79
100.00
84.84
99.79
100.00
100.00
100.00
100.00
100.00
100.00
100.00
69.82
100.00
84.84
99.75
100.00
100.00
% interest % interest % interest
Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Square D Company Thaïland Ltd
Clipsal Vietnam
Schneider Electric Vietnam Ltd
Thailand
Vietnam
Vietnam
100.00
100.00
100.00
100.00
100.00
100.00
100.00
40.00
50.00
40.00
50.00
40.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
79.60
95.67
49.00
100.00
100.00
51.00
95.67
100.00
100.00
100.00
100.00
100.00
100.00
95.67
100.00
99.96
79.98
100.00
100.00
87.35
90.99
100.00
100.00
100.00
92.31
100.00
100.00
67.00
100.00
100.00
96.00
100.00
95.67
100.00
100.00
100.00
100.00
95.67
100.00
91.88
100.00
100.00
100.00
100.00
79.60
84.84
49.00
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.96
79.98
100.00
100.00
78.23
81.49
100.00
92.31
100.00
100.00
67.00
100.00
100.00
96.00
100.00
84.84
100.00
100.00
100.00
100.00
84.84
100.00
91.88
100.00
100.00
100.00
100.00
79.60
84.84
49.00
100.00
100.00
51.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.96
79.98
100.00
100.00
78.23
81.49
100.00
92.31
80.67
100.00
67.00
100.00
100.00
96.00
100.00
84.84
100.00
100.00
100.00
84.84
100.00
91.88
Accounted for by the equity method
Clipsal Asia Holding
Schneider Electric Engineering Ltd
Hong Kong
Japan
Rest of the World
Fully consolidated
Alight Investments Holdings Pty Ltd
Citect South Africa
Clispal Electronics Systems
Clipsal Industries Pty Ltd
Clipsal Manufacturing Pty
Clipsal South Africa Pty Ltd
Hoist-Tec (Pty) Ltd
Merlin Gerin SA (Pty) Ltd (Activité Conlog)
MGE UPS Systems SA Pty Ltd
Nu-Lec Africa Pty
Schneider Electric South Africa Pty Ltd
Schneider Electric Algérie SARL
EPS Ltd
MGE Argentina
Plasnavi SA
Schneider Electric Argentina
Clipsal Middle East
Palatine Ridge Insurance Company Ltd
SHL
CDI Power
Crouzet Brésil
MGE UPS Systems Do Brasil Ltda
Primelectrica
Schneider Electric Brasil LTDA
Schneider Electric Chile SA
Schneider de Colombia SA
SEP Le Guavio
Schneider Centroamerica SA
Schneider Electric Distribution Company
Schneider Electric Egypt SA
Clipsal Middle East FZCO
Clipsal Middle East Co WLL
Schneider Electric FZE
Square D Foreign Sales Corporation
LK India Private Ltd
Schneider Electric India Private Ltd
Schneider Electric Industries Iran
Telemecanique Iran
Schneider Electric LLP
Eastmed
Crouzet Maroc
MGE UPS Maroc SA
Schneider Electric Maroc
Schneider Electric Nigeria
Schneider Electric Peru SA
Metesan Lexel Elektrik Malzemeleri Sanayi Ve Ticaret AS
MGE UPS Systems Bilgisayar Sistemleri Ticaret A.S
Schneider Elektrik AS
Schneider Electric Venezuela SA
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Algeria
Saudi Arabia
Argentina
Argentina
Argentina
Bahrain
Bermuda
Bermuda
Brazil
Brazil
Brazil
Brazil
Brazil
Chile
Colombia
Colombia
Costa Rica
Egypt
Egypt
United Arab Emirates
United Arab Emirates
United Arab Emirates
Virgin Islands
India
India
Iran
Iran
Kazakhstan
Lebanon
Morocco
Morocco
Morocco
Nigeria
Peru
Turkey
Turkey
Turkey
Venezuela
5
151
Consolidated financial statements at December 31, 2006
6.
Report of the Statutory Auditors
on the consolidated financial statements
This is a free translation into English of the statutory
auditors’ report issued in the French language and is
provided solely for the convenience of English speaking readers. This report includes information specifically required by French law in all audit reports, whether
qualified or not, and this is presented below the opinion on the financial statements. This information
includes explanatory paragraphs discussing the auditors’ assessment of certain significant accounting matters. These assessments were made for the purpose
of issuing an opinion on the financial statements taken
as a whole and not to provide separate assurance on
individual account captions or on information taken
outside of the consolidated financial statements. The
report also includes information relating to the specific
verification of information in the group management
report. This report should be read in conjunction with,
and is construed in accordance with French law and
professional auditing standards applicable in France.
To the Shareholders,
In compliance with the assignment entrusted to us by
the Annual Shareholders’ Meeting we have audited the
accompanying consolidated financial statements of
Schneider Electric SA for the year ended December
31, 2006.
These consolidated financial statements have been
approved by the Management Board. Our role is to
express an opinion on these financial statements
based on our audit.
I. - Opinion on the financial statements
We conducted our audit in accordance with the professional standards applicable in France; those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
the management, as well as evaluating the overall
financial statements presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial
position of the company at December 31, 2006 and the
results of the consolidated group for the year then
ended, in accordance with IFRS as adopted by the
European Union.
As explained in note 1.10 to the consolidated financial
statements, intangible assets and goodwill are tested
for impairment at least once a year and when factors
exist indicating that the related assets may have suffered a loss of value. We reviewed, on a test basis, the
indicators of a loss of value and the other information
evidencing the absence of any loss of value.
As explained in note 1.21 to the consolidated financial
statements, and in the absence of any specific IFRS
recommendation, commitments to buy out minority
shareholders have been recognized in debt for an
amount corresponding to the purchase price of the
minority interests and the share in the acquired net
assets has been posted to goodwill without re-measuring the acquired assets and liabilities. We verified the
estimates used in recognizing the additional goodwill
and debt corresponding to the commitment and
obtained assurance that the option selected by the
Group is adequately disclosed in the notes to the consolidated financial statements.
As indicated in notes 1.14 and 12.3 to the consolidated financial statements, future tax benefits arising from
the utilization of tax loss carry forwards are recognized
only when they can reasonably be expected to be realized. We obtained assurance about the reasonableness of the assumptions used to produce the estimate
of future taxable income used to support assessments
of the recoverability of these deferred tax assets.
Notes 1.17 and 15 describe the method for valuing
pensions and other post-employment obligations.
Actuarial valuations were performed for these commitments. We reviewed the data, assumptions used, and
calculations made, and obtained assurance that adequate disclosure is made in the notes to the consolidated financial statements.
Note 25 ("Other operating income / expense") states
the amount of restructuring costs recorded in 2006. We
verified that, based on currently available information,
these costs concern restructuring measures initiated
or announced before December 31, 2006, for which
provisions have been recorded based on an estimate
of the costs to be incurred. We also reviewed the data
and assumptions used by the Group to make these
estimates.
The assessments were thus made in the context of the
performance of our audit of the consolidated financial
statements taken as a whole and therefore contributed
to the formation of our audit opinion expressed in the
first part of this report.
III. - Specific verification
II. - Justification of assessments
In accordance with the requirements of Article L. 823-9
of French Commercial Code (Code de commerce)
relating to the justification of our assessments, we
bring to your attention the following matters:
Note 1.8 to the consolidated financial statements
explains the method for recognizing research and
development costs and describes the criteria under
which development costs may be capitalized. We
reviewed the data and assumptions used to identify
development costs that qualify for capitalization, as
well as the Group’s calculations, and obtained assurance that adequate disclosure is made in the notes to
the consolidated financial statements.
152
In accordance with professional standards applicable
in France, we have also verified the information given
in the business review. We have no matters to report
regarding its fair presentation and conformity with the
consolidated financial statements.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Mazars & Guérard
Ernst & Young et Autres
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
6
Company
financial statements
at Dec. 31, 2006
1. Balance sheet . . . . . . . . . . . . . . . . . . . . . p. 154
2. Statement of income . . . . . . . . . . . . . . . . p. 156
3. Notes to the financial statements
of Schneider Electric SA . . . . . . . . . . . . p. 157
6
4. Auditors' report
on the financial statements . . . . . . . . . . . p. 164
5. List of securities at December 31, 2006 . . p. 165
6. Subsidiaries and affiliates . . . . . . . . . . . . . p. 166
7. Five-year financial summary . . . . . . . . . . p. 168
153
Company financial statements at December 31, 2006
1. Balance sheet
Assets
(€ thousands)
Cost
Depreciation Dec. 31, 2006
amortization
and provisions
Net
Dec. 31, 2005 Dec. 31, 2004
Net
Net
Non-current assets:
Intangible assets
(note 1a)
Intangible rights
Property, plant and equipment
27,474
(27,474)
-
-
-
3,281
-
3,281
3,444
3,671
172
(172)
-
-
-
1,730
(511)
1,219
1,203
1,207
32,657
(28,157)
4,500
4,647
4,878
(note 1b)
Land
Buildings
Other
Investments
Shares in subsidiaries
and affiliates
(note 2a)
1,819,483
(40,123)
1,779,360
2,014,108
1,880,685
Other investments
(note 2b)
211,063
(16,497)
194,566
132,835
159,348
Advances to subsidiaries
and affiliates
(note 2c)
2,980,848
(173)
2,980,675
2,972,761
2,972,874
Other
(note 2d)
30,200
-
30,200
177,161
189,921
5,041,594
(56,793)
4,984,801
5,296,865
5,202,828
5,074,251
(84,950)
4,989,301
5,301,512
5,207,706
193
-
193
52
228
350,714
(46,297)
304,417
214,626
131,778
350,907
(46,297)
304,610
214,678
132,006
(note 4)
169,012
-
169,012
182,262
87,046
Advances to the Group cash pool (note 5)
5,666,443
-
5,666,443
3,917,909
2,654,394
82
-
82
22
4
5,835,537
-
5,835,537
4,100,193
2,741,444
6,186,444
(46,297)
6,140,147
4,314,871
2,873,450
496
-
496
553
856
Total non-current assets
Current assets:
Accounts receivable
Accounts receivable - trade
Other
(note 3)
Cash and cash equivalents
Marketable securities
Other
Total current assets
Accruals and other assets:
Prepaid expenses
Deferred charges
(note 6a)
3,826
-
3,826
4,573
2,309
Bond call premiums
(note 6b)
10,229
-
10,229
7,485
2,091
10
-
10
10
10
11,275,256
131,247
11,144,009
9,629,004
8,086,422
Conversion losses
Total assets
The notes form an integral part of these financial statements.
154
Liabilities
and shareholders' equity
(€ thousands)
Dec. 31, 2006
Dec. 31, 2005
Dec. 31, 2004
Shareholders' equity:
Capital stock
(note 7a)
1,821,587
1,812,954
1,809,553
Additional paid-in capital
(note 7b)
4,121,037
4,068,968
4,049,932
192,650
192,650
192,650
275,145
323,112
169,239
887,825
450,793
558,768
425
425
425
7,298,669
6,848,902
6,780,567
Reserves and retained earnings
Legal reserve
Retained earnings
(note 7c)
Net income for the year
Untaxed provisions
Total equity
6
(note 8)
Provisions for contingencies and pension accruals:
Provisions for contingencies
Accruals for pensions
Total provisions for contingencies and pension accruals
4,730
6,613
8,912
31,226
30,395
18,800
35,956
37,008
27,712
3,700,000
2,700,000
1,200,000
99,806
30,708
70,437
Non-current liabilities:
Bonds
(note 9)
Other borrowings
(note 10)
Amounts payable to subsidiaries and affiliates
Short-term bank loans and overdrafts and other debt
13
13
13
3,221
3,073
2,191
3,803,040
2,733,794
1,272,641
Current liabilities:
Accounts payable - trade
52
4,472
937
Accrued taxes and payroll costs
3,972
1,880
1,296
Other liabilities
1,769
2,192
2,169
5,793
8,544
4,402
3,808,833
2,742,338
1,277,043
551
756
1,100
-
-
-
11,144,009
9,629,004
8,086,422
Total non-current and current liabilities
Deferred income
Conversion gains
Total liabilities and shareholders' equity
(note 11)
The notes form an integral part of these financial statements.
155
Company financial statements at December 31, 2006
2. Statement of income
2006
2005
2004
Sales of services and other
1,769
2,908
1,254
Reversals of provisions, depreciation and amortization
and expense transfers
1,711
4,191
-
Operating revenues
3,480
7,099
1,254
Purchases and external charges
8,944
16,429
6,449
Taxes other than on income
1,600
2,783
1,467
Payroll costs
4,842
5,137
2,976
Depreciation, amortization and provision expense
2,209
2,217
4,117
305
1,290
149
17,900
27,856
15,158
Operating loss
(14,420)
(20,757)
(13,904)
Dividend income
557,104
337,833
463,279
Interest income
255,244
168,809
164,002
24
359
1,553
Financial income
812,372
507,001
628,834
Interest expense
133,504
82,661
68,425
1,099
1,764
3,220
134,603
84,425
71,645
677,769
422,576
557,189
243,585
53,639
25,251
Provision reversals and expense transfers
2,830
6,076
2,125
Other
6,699
5,788
9,376
Non-recurring income
253,114
65,503
36,752
Carrying value of fixed asset disposals
232,719
50,701
31,992
4,042
32,762
6,875
910
1,146
2,831
237,671
84,609
41,698
(€ thousands)
Other operating expenses and joint-venture losses
Operating expenses
Reversals of impairment provisions for long-term receivables and other
Provision expense
Financial expenses
Net financial income
(note14)
Proceeds from fixed asset disposals
Provisions, depreciation and amortization
Other
Non-recurring expenses
Net non-recurring income/(expense)
(note15)
15,443
(19,106)
(4,946)
Net income tax benefit
(note 16)
209,033
68,080
20,429
887,825
450,793
558,768
Net income
The notes form an integral part of these financial statements.
156
3.
Notes to the financial
statements of Schneider Electric SA
(All amounts in thousands of euros
unless otherwise specified)
Significant events of the year
In 2006, Schneider Electric SA issued bonds worth
€1.0 billion in two tranches, due 2011 and 2014.
During the year, the Company sold the companies
acquired in 2005–Elau and six companies comprising
Invensys’ Advanced Building Systems business in
Europe and the Middle East– to two Schneider Electric
subsidiaries for a total €142.3 million.
Lastly, Schneider Electric SA implemented a €40 million liquidity contract to maintain a liquid market for its
shares.
carrying value is higher than the estimated value in
use at the end of the financial year. Value in use is estimated primarily on the basis of underlying net assets,
earnings outlook and economic forecasts. For recently-acquired investments, account is also taken of the
acquired business goodwill. For listed investments,
value in use is also based on the average stock price
over the last month. Unrealized gains on investments
are not recognized.
Treasury stock
Treasury stock is stated at cost. The unit cost of treasury stock removed from the portfolio is calculated
according to the average weighted cost method.
In the case of treasury stock held for allocation on the
exercise of stock options, a provision is recorded if the
exercise price is lower than the carrying value of the
related treasury shares.
6
Accounting principles
Pension obligations
The financial statements for the year ended December
31, 2006 have been prepared in accordance with the
1999 Plan Comptable Général and French generally
accepted accounting principles.
Non-current assets
Non-current assets are stated at cost.
Intangible assets
Intangible rights are amortized over a maximum of five
years.
The present value of pension obligations is determined
using the projected unit credit method.
Supplementary pension benefits are accrued for
based on the contractual terms of top-hat agreements.
The Company applies the corridor method to actuarial
gains and losses arising from changes in estimates.
Under this method, the portion of net cumulative actuarial gains and losses that exceeds 10% of the projected benefit obligation is gradually amortized.
Currency risk
Property, plant and equipment are depreciated by the
straight-line method over their estimated useful lives,
ranging from 3 to 10 years.
Unrealized exchange losses are reserved for when
necessary. Where unrealized exchange gains and
losses exist on investments and the related financing
in the same currency and with the same maturity, the
amount of the reserve is limited to the net loss.
Shares in subsidiaries and affiliates
Bonds
Shares in subsidiaries and affiliates are stated at cost.
Call premiums and issue costs are amortized over the
life of the bonds.
Property, plant and equipment
Allowances for impairment in value are recorded if the
Note 1: Non-current assets
1a - Intangible assets
This item primarily comprises share issue and merger expenses, which are fully amortized.
1b - Property, plant and equipment
Dec. 31, 2005
Cost
Depreciation
Net
5,363
(716)
4,647
Additions
Disposals
17
(197)
(1)
34
16
(163)
Dec. 31, 2006
5,183
(683)
4,500
157
Company financial statements at December 31, 2006
Note 2: Investments
2a - Shares in subsidiaries and affiliates
Dec. 31, 2005
Additions
Disposals
Dec. 31, 2006
Cost
Provisions
2,051,782
(37,674)
52,021
(2,449)
(284,320)
-
1,819,483
(40,123)
Net
2,014,108
49,572
(284,320)
1,779,360
During the year, the Company sold companies
acquired in 2005 to subsidiaries of the Schneider Electric Group. Six companies comprising Invensys’
Advanced Building Systems business in Europe were
sold to T.A.C. AB and Schneider Electric France for
€109.4 million, while Schneider Electric SA’s 49.05%
interest in Elau, acquired in 2005 for €33.0 million,
was sold to Schneider Electric Deutschland, which
already held the remaining 50.95%.
In 2006, Schneider Electric SA participated in a share
issue by AXA, acquiring €19.4 million worth of AXA
shares and raising the value of its holding to €101.5
million. Because these shares do not fully meet the criteria for classification under "Shares in subsidiaries
and affiliates", they were reclassified under "Other
investment securities" at December 31, 2006.
Also in 2006, Schneider Electric SA acquired a nonmaterial interest in Euronext for a total €8.0 million. It
sold the entire interest during the year.
Other material movements in this item concerned the
purchase and re-sale of Legrand shares as part of the
mechanism for exchanging Schneider Electric Shares
for Legrand shares on the exercise of options (see
note 17d). At December 31, 2006, Schneider Electric
SA held €2.2 million worth of Legrand shares following
the last exercise of options during the year. These
shares were sold back in January 2007.
The principal investments at December 31, 2006 were
as follows:
Shares in subsidiaries
and affiliates
Schneider Electric Industries SAS
Cofibel
Carrying value
1,531,981
136,898
Cofimines
82,609
Digital Holdings Co Ltd
21,249
Other (less than €20 million)
Total
6,623
1,779,360
2b - Other investment securities
Dec. 31, 2005
Increases
Decreases
Dec. 31, 2006
Schneider Electric SA
Other
Provisions for other shares
132,774
16,493
(16,432)
195,521
101,458
(65)
(235,175)
(8)
-
93,120
117,943
(16,497)
Net
132,835
296,914
(235,183)
194,566
Other investment securities primarily include Schneider Electric SA shares acquired for allocation on the
exercise of certain stock options. Treasury stock listed
under "Other investment securities" at December 31,
2004 was not reclassified at December 31, 2006. However, all Schneider Electric SA shares bought back
since then for allocation on the exercise of stock options
are recognized under "Marketable securities". Decreases correspond to shares removed on the exercise of
stock options (€49.7 million in 2006 for this item).
Pursuant to the authorization granted by shareholders
at the Annual Meeting of May 3, 2006, Schneider
Electric SA implemented a liquidity contract during the
year to maintain a liquid market for its shares. "Other
changes in treasury stock" correspond to share purchases and sales by the contract manager.
At December 31, 2006, 1,796,488 Schneider Electric
SA shares were recorded under "Other investment
securities" at a total cost of €93.1 million, of which
120,000 shares assigned to the liquidity contract in an
amount of €10.0 million.
The increase in "Other" shares reflects the accounting
transfer of AXA shares in an amount of €101.5 million
from "Shares in subsidiaries and affiliates", as they
did not fully meet the criteria for classification in that
category. Provisions for impairment almost exclusively
concern investments other than treasury stock and
AXA shares classified under this item.
2c - Advances to subsidiaries and affiliates
Dec. 31, 2005
158
Increases
Decreases
Dec. 31, 2006
Cost
Provisions
2,972,934
(173)
111,611
-
(103,697)
-
2,980,848
(173)
Net
2,972,761
111,611
(103,697)
2,980,675
At December 31, 2006, this item mainly comprised two
loans granted to Schneider Electric SAS due 2007 and
2008, in an aggregate amount of €2,948.4 million, as
well as accrued interest of €29.7 million. All increases
and decreases in 2006 concerned interest.
2d - Other
Dec. 31, 2005
Cost
177,161
31,361
-
-
177,161
31,361
Provisions
Net
Increases
At December 31, 2005, this item mainly comprised a
€176.2 million loan to Legrand. The loan was fully
repaid in 2006.
Decreases
Dec. 31, 2006
(178,322)
30,200
-
-
(178,322)
30,200
At December 31, 2006, this item primarily comprised
cash transferred to the manager of the liquidity contract (see note 2b) that had not yet been invested in
Schneider Electric shares.
6
Note 3: Other receivables
Dec. 31, 2005
Dec. 31, 2006
Cost
Provisions
260,325
(45,699)
350,714
(46,297)
Net
214,626
304,417
This item primarily comprises receivables from other
members of the Schneider Electric tax group in France
and Schneider Electric’s own tax receivables. At
December 31, 2006, €129.4 million was receivable
from the other members of the French tax group compared with €33.9 million at end-2005, primarily corresponding to group tax returns for 2006 (see note 16).
exit tax on dividends distributed in 2005 that was paid
in that year in an original amount of €76.0 million. The
exit tax gave rise to a tax credit in the same amount
that is utilizable or refundable in three equal installments over the three years following payment. In 2006,
the first installment was refunded to Schneider Electric
SA, bringing the balance of this receivable to €50.7
million.
As in prior years, this item included receivables related
to the Pinglin contract (previously managed by former
subsidiary Spie Batignolles and under dispute with a
foreign third party), in an amount of €45.3 million. The
receivables related to the Pinglin contract have been
fully written off.
This item also included a €97.0 million carryback credit and the unrecovered balance of the exceptional 25%
Note 4: Marketable securities
Dec. 31, 2005
Number
Value
of shares
Acquisitions
Value
Disposals
Value
Plan 16
456,103
19,384
-
6,134
144,333
Plan 24
2,023,637
117,266
-
-
117,266
2,023,637
Plan 26
761,313
45,587
-
-
45,587
761,313
3,241,053
182,237
-
168,987
2,929,283
Other
25
-
Total
182,262
-
Total Schneider
Electric SA shares
(13,250)
Dec. 31, 2006
Value
Number
of shares
(13,250)
(13,250)
25
169,012
Marketable securities primarily include Schneider Electric SA shares held in treasury for allocation on the exercise of stock options.
Note 5: Advances to the Group cash pool
This item corresponds to interest-bearing advances to the Group cash pool (Boissière Finance) that are recoverable on demand. The cash pool includes €55.0 million in commercial paper issued at end-2006.
159
Company financial statements at December 31, 2006
Note 6: Deferred charges
6a - Bond issue expenses
Bond issue expenses
Dec. 31, 2005
Increases
Decreases
Dec. 31, 2006
Oct. 19, 2000 due 2007 (€450 million)
376
-
(209)
167
Oct. 31, 2003 due 2008 (€750 million)
1,274
-
(450)
824
Aug. 11, 2005 due 2010 (€900 million)
1,523
-
(311)
1,212
Aug. 11, 2005 due 2017 (€600 million)
1,400
-
(96)
1,304
July 17, 2006 due 2011 (€500 million)
-
175
(22)
153
July 17, 2006 due Jan. 2014 (€500 million)
-
175
(9)
166
4,573
350
(1,097)
3,826
6b - Call premiums
Call premiums
Dec. 31, 2005
Increases
Decreases
Dec. 31, 2006
Oct. 19, 2000 due 2007 (€450 million)
25
-
(14)
11
Oct. 31, 2003 due 2008 (€750 million)
1,516
-
(535)
981
Aug. 11, 2005 due 2010 (€900 million)
1,411
-
(289)
1,122
Aug. 11, 2005 due 2017 (€600 million)
4,533
-
(311)
4,222
July 17, 2006 due 2011(€500 million)
-
930
(78)
852
July 17, 2006 due Jan. 2014 (€500 million)
-
3,200
(159)
3,041
7,485
4,130
(1,386)
10,229
Increases in deferred charges concern bond issues carried out in 2006 in a total amount of €1.0 billion (see
note 9).
Note 7: Equity
7a - Capital
Share capital
The Company’s share capital at December 31,
2006 amounted to €1,821,586,784, represented by
227,698,348 shares with a par value of 8 euros, all
fully paid up.
Changes in share capital
During the year, 1,079,121 shares were issued on the
exercise of 1,079,121 stock options, increasing the
share capital by €8.6 million.
Schneider Electric SA shares
Schneider Electric SA did not buy back any of its own
shares in 2006. However, various transactions were
carried out during the year under the liquidity contract
set up to maintain a liquid market in the Company’s
shares pursuant to the authorization granted by shareholders at the Annual Meeting of May 3, 2006. At
December 31, 2006, 120,000 Schneider Electric SA
shares were held under this contract (see note 2b).
The total number of shares held in treasury at yearend came to 4,725,771, with a cost of €262.1 million.
160
7b - Additional paid-in capital
Additional paid-in capital rose by €52.1 million following the issue of 1,079,121 shares on the exercise of
1,079,121 stock options.
7c - Retained earnings
Pursuant to the fourth resolution approved by shareholders at the Annual Meeting of May 3, 2006, part of
the 2005 dividend paid in 2006 was deducted from
retained earnings, in an amount of €59,101 thousand.
In addition, unpaid dividends on shares held in treasury as of the dividend payment date were allocated to
retained earnings.
As a result of these movements, retained earnings
totaled €275,145 thousand at December 31, 2006.
Note 8: Provisions for contingencies and pension accruals
Dec. 31, 2005
Increases
Decreases
Dec. 31, 2006
Provisions for contingencies
Stock option plan no. 24
3,760
-
-
3,760
Other
2,853
15
(1,898)
970
6,613
15
(1,898)
4,730
30,395
2,192
(1,361)
31,226
37,008
2,207
(3,259)
35,956
Provisions for pension accruals
Pension accruals
cover the potential consequences of a current dispute
in Belgium involving former senior executives and
managers of the Company.
8a - Contingencies
A provision was set aside for stock option plan 24
because the exercise price is lower than the carrying
value of the underlying treasury shares.
8b - Pension accruals
Other contingencies correspond to risks transferred to
Schneider Electric in connection with divestments or
mergers (Spie Batignolles) that have not yet entirely
disappeared. One of these identified risks was eliminated in 2006.
The Company has various obligations towards its current and retired senior executives and managers. Following an actuarial valuation performed in 2006, the
provision for these obligations was increased to €31.2
million.
Management is confident that balance sheet provisions for known disputes in which the Company is
involved are sufficient to ensure that these disputes do
not have a material impact on assets or income. In particular, sufficient provisions have been set aside to
The Company applied the corridor method to actuarial
gains and losses arising from this valuation (see
Accounting Principles). At December 31, 2006, the
amount to be recognized in the income statement over
10 years came to €6.0 million.
6
Note 9: Bonds
Amount
Interest rate*
Maturity
Dec. 31, 2005
Dec. 31, 2006
Schneider Electric SA 2007
450,000
450,000
6.125% F
Schneider Electric SA 2008
750,000
750,000
3.875% F
Oct. 31, 2008
Schneider Electric SA 2010
900,000
900,000
3.125% F
Aug. 11, 2010
Schneider Electric SA 2011
-
500,000
Eur + 0.2% V
July 18, 2011
Oct. 19, 2007
Schneider Electric SA 2014
-
500,000
4.500% F
Jan. 17, 2014
Schneider Electric SA 2017
600,000
600,000
4.000% F
Aug. 11, 2017
2,700,000
3,700,000
*F: Fixed - V:Variable.
On July 17, 2006, Schneider Electric SA issued
€1.0 billion worth of bonds. The issue comprises a
€500 million five-year tranche at the Euribor 3month rate + 0.20%, issued at a price corresponding
to 99.814% of par, and a €500 million 7.5-year
tranche at 4.5%, issued at a price corresponding to
99.36% of par. These bonds are traded on the Luxembourg stock exchange. The issue premium and
issue costs are amortized according to the effective
interest method.
Previous bond issues are as follows:
In 2005, Schneider Electric SA issued €1.5 billion
worth of bonds. The issue comprised a €900 million
tranche at 3.125% due August 11, 2010 and a €600
million tranche at 4.0% due August 11, 2017.
In 2003, Schneider Electric SA issued €750 million
worth of 3.875% bonds due October 31, 2008.
In 2000, Schneider Electric SA issued two tranches
of 6.125% bonds due October 19, 2007, in principal
amounts of €400 million and €50 million, respectively.
161
Company financial statements at December 31, 2006
Note 10: Other borrowings
Note 11: Deferred income
Other borrowings at December 31, 2006 included
accrued interest on bonds issued by the Company.
Accrued interest rose to €44.8 million from €30.7
million at end-2005 following the issue of €1.0 billion
worth of bonds in 2006.
This item includes income from a swap taken out on a
€750 million bond issue (see note 9). The income is
deferred over the life of the bonds.
At December 31, 2006, this item also included commercial paper issued on the market by Schneider
Electric SA on behalf of the Group in the amount of
€55 million.
Note 12: Maturities of receivables and payables
Total
Due within
1 year
Due in
1 to 5 years
Due beyond
5 years
2,980,848
478,117
2,502,731
-
30,200
30,200
-
-
193
193
-
-
Other receivables
350,714
270,183
79,196
1,335
Marketable securities
169,012
6,134
162,853
25
496
184
312
-
3,700,000
450,000
2,150,000
1,100,000
99,806
99,806
-
-
13
-
13
-
3,221
52
3,169
-
52
52
-
-
Accrued taxes and payroll costs
3,972
3,972
-
-
Other liabilities
1,769
1,769
-
-
Non-current assets
Advances to subsidiaries and affiliates
Other investments
Current assets
Accounts receivable - trade
Prepaid expenses
Debt
Bonds
Other borrowings
Amounts payable to subsidiaries and affiliates
Short-term bank loans and overdrafts
and other debts
Accounts payable - trade
Note 13:
Related party transactions
Note 14:
Net financial income
(minimum 10% interest)
Gross
Shares in subsidiaries
and affiliates
Advances
to subsidiaries and
affiliates
Accounts receivable
Cash and
cash equivalents
Amounts payable
to subsidiaries and
affiliates
Accounts payable
Revenues:
- Dividends
- Interest
162
Dec. 31, 2006 Dec. 31, 2005
Net
1,815,734
1,777,117
Dividends
557,104
Net interest income
121,740
86,148
(1,075)
(1,405)
677,769
422,576
Other
2,980,846
2,980,673
138,875
137,890
5,666,443
5,666,443
2,847
2,847
10
10
548,875
253,406
Net financial income
337,833
The main dividend received by Schneider Electric SA
is paid by subsidiary Schneider Electric Industries
SAS. This dividend totaled €537.9 million in 2006 versus €325.5 million in 2005.
Commitments received:
Note 15: Net non-recurring
income/(expense)
Bank counterguarantees:
Dec. 31, 2006 Dec. 31, 2005
Net gains/(losses)
on fixed and financial
asset disposals
Provisions net
of reversals
Other non-recurring
income - net
Net non-recurring
income/(expense)
10,866
2,938
(1,212)
(26,686)
5,789
4,642
15,443
(19,106)
As in 2005, capital gains stemmed primarily from the
sale of Schneider Electric SA shares held under
"Other investment securities" for allocation on exercise
of stock options. Capital gains on the sale of Schneider
Electric SA shares held under “Marketable securities”
are recorded under "Other non-recurring income –
net". Aggregate income from the sale of Schneider
Electric SA shares amounted to €10.1 million in 2006
compared with €6.8 million in 2005.
The Company also recorded a material capital gain on
the sale of Euronext shares in 2006 (see note 2a).
In 2005, net allocations to provisions included €22.9
million for impairment of receivables related to the
Pinglin contract (see notes 3) and €3.8 million for
contingencies related to stock option plan 24 (see
note 8a).
Note 16: Net income tax benefit
In 2006, this item primarily included group tax returns
in France recorded by the tax group headed by
Schneider Electric SA. They totaled €201.6 million, up
sharply from €68.1 million the year before, reflecting
non-recurring items in subsidiary Schneider Electric
Industries SAS’ income statement.
. . . . . . . . . . . . . . . None
17c - Financial instruments
As a general practice, the Company does not purchase or sell any financial instruments. Hedging transactions are carried out by the manager of the Group
cash pool, Boissière Finance, a wholly-owned subsidiary of Schneider Electric Industries SAS, which in
turn is wholly-owned by Schneider Electric SA. However, in 2006, Schneider Electric SA set up three interest rate swaps to hedge one of the bond issues made
during the year.
17d - Exchange of Legrand shares
As part of its public exchange offer for Legrand SA,
Schneider Electric SA made a commitment to
exchange shares held upon exercise of options granted by Legrand for Schneider Electric shares. When
Legrand SA was sold to KKR/Wendel Investissement,
Schneider Electric SA set up a call and put system for
the Legrand shares created through the exercise of
said options. These shares are re-sold to Legrand SAS
(formerly known as FIMAF), an investment vehicle of
the KKR/Wendel Investissement consortium.
The stock option plans in question are fully covered.
Note 18: Other information
18a - Number of employees
At December 21, 2006, the Company had two
employees.
18b - Consolidated financial
statements
Schneider Electric SA is the parent company of the tax
group comprising all French subsidiaries that are over
95%-owned. Tax loss carryforwards available to the
Company in this capacity totaled €139.5 million at
December 31, 2006.
Schneider Electric SA is the parent company of the
Group and therefore publishes the consolidated financial statements of the Schneider Electric Group.
Note 17: Off-balance sheet
commitments
On October 30, 2006, Schneider Electric announced a
friendly offer to purchase all outstanding shares of USbased American Power Conversion (APC), the world
leader in critical power. The Group also announced its
intention to finance the acquisition through borrowing
and a share issue.
17a - Partnership obligations
Share of the liabilities of "SC" non-trading companies
attributable to Schneider Electric SA as partner of the
companies concerned: not material.
Share of the liabilities of "SNC" flow-through entities
attributable to Schneider Electric SA as partner of the
entities concerned: not material.
6
Note 19: Subsequent events
The anti-trust regulatory review in the United States
ended on December 12, 2006 when the waiting period
under the Hart-Scott-Rodino Antitrust Improvements
Act expired.
17b - Guarantees given and received
APC’s shareholders approved the proposed merger in
Extraordinary Meeting on January 16, 2007 and the
European Commission's competition authorities granted final clearance on February 8, 2007 pending certain
divestments.
Commitments given:
Counterguarantees of bank guarantees: . . . . None
Other guarantees given: . . . . . . . . . . . €6.7 million
On February 14, 2007, Schneider Electric announced
that the acquisition had been finalized for around $6.1
billion.
163
Company financial statements at December 31, 2006
4.
Auditors' report
on the financial statements
This is a free translation into English of the statutory
auditors’ report issued in the French language and is
provided solely for the convenience of English speaking readers. This report includes information specifically required by French law in all audit reports, whether
qualified or not, and this is presented below the opinion on the financial statements. This information
includes explanatory paragraphs discussing the auditors’ assessment of certain significant accounting matters. These assessments were made for the purpose
of issuing an opinion on the financial statements taken
as a whole and not to provide separate assurance on
individual account captions or on information taken
outside of the consolidated financial statements. The
report also includes information relating to the specific
verification of information in the group management
report. This report should be read in conjunction with,
and is construed in accordance with French law and
professional auditing standards applicable in France.
To the Shareholders,
In compliance with the assignment entrusted to us by
your shareholders’ annual general meeting, we hereby
report to you, for the year ended December 31, 2006,
on:
The audit of the accompanying financial statements
of Schneider Electric SA.
The justification of our assessments.
The specific verifications and information required by
law.
These financial statements have been approved by the
Management Board. Our role is to express an opinion
on these financial statements based on our audit.
I - Opinion on
the financial statements
164
II - Justification of assessments
In accordance with the requirements of article L. 823-9
of French Commercial Code (Code de commerce)
relating to the justification of our assessments, we
bring to your attention the following matters:
As part of our assessment of the accounting principles
and methods used by your company, we verified the
appropriateness of the principles and methods used to
value shares in subsidiaries and affiliates, described in
the section on accounting principles and in note 2 to
the financial statements, and obtained assurance that
they were correctly applied.
The assessments were thus made in the context of the
performance of our audit of the financial statements,
taken as a whole, and therefore contributed to the formation of our audit opinion expressed in the first part
of this report.
III - Specific verifications
and information
We have also performed the specific verifications
required by law in accordance with professional standards applicable in France.
We have no matters to report regarding:
The fair presentation and the conformity with the
financial statements of the information given in the
Management Board’s report, and in the documents
addressed to the shareholders with respect to the
financial position and the financial statements.
The fair information given in the Management
Board’s report relating to the compensation and benefits paid to the Corporate Officers concerned and the
engagement granted to them on the occasion of the
arrival, suspension or change of duties or subsequently to it.
We conducted our audit in accordance with the professional standards applicable in France. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates
made by the management, as well as evaluating the
overall financial statements presentation. We believe
that our audit provides a reasonable basis for our
opinion.
In accordance with French Law, we have ensured that
the required information concerning the purchase of
investments and controlling interests and the names of
the principal shareholders has been properly disclosed
in the Management Board’s report.
In our opinion, the financial statements present fairly,
in all material respects, the financial position of the
company at December 31, 2006, and the results of its
operations for the year then ended in accordance with
the accounting rules and principles applicable in
France.
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
Courbevoie and Neuilly sur Seine, February 20, 2007
The Statutory Auditors
Mazars & Guérard
Ernst & Young et Autres
5.
List of securities
at December 31, 2006
(€ thousands)
Number
of shares
Company
Carrying
value
A. Investments with a carrying value of more than €15,000
27,582,141
9,796,300
Schneider Electric Industries SAS
AXA
1,531,981
101,458
44,271
S.E.L.F.
2,683
14,079
LEGRAND SAS
2,244
1,300
Vigéo SAS
53
5,000
SE 5W SAS
45
5,000
SE 7A SAS
45
5,000
SE 7E SAS
45
5,000
SE 2006 A
45
5,000
SE 2006 B
45
1,796,488
Schneider Electric SA treasury stock
6
93,054
1,731,698
B. Investments with a carrying value of less than €15,000
C. Investments in real estate companies
D. Investments in foreign companies
Total
1,042
241,186
1,973,926
Marketable securities
10,080
2,929,283
Total
Geodis
Schneider Electric SA shares
(stock option plans no. 16, 24 and 26)
25
168,987
169,012
165
Company financial statements at December 31, 2006
6. Subsidiaries and affiliates
(€ thousands)
Company
Capital
Reserves
and retained
earnings before
appropriation
of income for
the year*
%
interest
I. Subsidiaries and affiliates whose carrying value
exceeds 1% of Schneider Electric SA’s capital
A. Subsidiaries (at least 50%-owned)
Schneider Electric Industries SAS
89, boulevard Franklin Roosevelt – 92500 Rueil-Malmaison
441,314
1,628,969
100.00
Cofibel
18/20, avenue Winston Churchill - 1180 Brussels
55,362
47,831
99.62
Cofimines
18/20, avenue Winston Churchill - 1180 Brussels
41,522
33,838
99.80
2,479
193,241
16.07
B. Affiliates (10 to 50% owned)
Digital Holdings Co Ltd
8-2-52 Nanko-Higashi - 559 0031 Suminoe Osaka - Japan
II. Other subsidiaries and affiliates
A. Other subsidiaries (at least 50% owned)
a) French subsidiaries (aggregate)
b) International subsidiaries (aggregate)
B. Other affiilates (at least 50% owned)
a) French companies (aggregate)
b) International companies (aggregate)
*Including prior-year income or loss.
166
Book value
of shares
Cost
Outstanding
loans
and
advances
Net
1,531,981
1,531,981
2,948,439
Guarantees
Net sales
for
the year
Income
or loss
for
the year
Dividends
received
-
3,028,402
863,161
537,852
4,830
5,705
6
136,898
136,898
-
-
Holding
company
82,609
82,609
-
-
Holding
company
1,561
0
21,249
21,249
-
-
-
35,804
4,656
33,255
1,266
-
-
-
-
-
-
-
-
-
-
-
-
131,004
106,438
-
-
-
-
7,930
431
431
-
-
-
-
-
167
Company financial statements at December 31, 2006
7. Five-year financial summary
2002
2003
2004
2005
2006
1,926,503
1,854,737
1,809,553
1,812,954
1,821,587
240,812,905
231,842,170
226,194,177
226,619,227
227,698,348
-
-
-
-
-
-
-
-
-
-
5,744
5,707
7,140
10,126
10,174
1,980
1,896
1,208
2,868
1,735
Investment revenue, interest income
and other revenue
676,938
640,884
627,389
507,001
812,373
Income before tax, depreciation,
amortization and provisions
156,103
395,143
547,381
411,950
683,335
Capital and potential capital
at December 31
Capital stock (in thousands of euros)
Shares in issue
Convertible bonds in issue
(in thousands)
Maximum number of shares
to be created (in thousands):
- Through conversion of bonds
- Through exercise of rights
Results of operations
(in thousands of euros)
Sales net of VAT
Income tax
-
5,835
4,156
278
4,304
Net income
221,139
474,732
558,768
450,793
887,825
Dividends paid (1) excluding précompte
equalization tax and tax credit
228,813 (2)
255,026
407,150 (3)
509,893
683,095 (4)
Per share data
(in euros)
Net income before depreciation,
amortization and provisions
1.30
1.79
2.51
2.12
3.92
Earnings per share
0.92
2.05
2.47
1.99
3.90
Dividend per share, net of tax credit
1.00
1.10
1.80
2.25
3.00 (4)
3
3
3
3
2
3,823
2,213
2,443
4,446
3,648
668
416
534
690
1,194
Employees
Average number of employees
during the year
Total payroll for the year
(in thousands of euros)
Total employee benefits paid over the year
(payroll taxes, other benefits)
(in thousands of euros)
(1) Dividends on shares held in treasury on the dividend payment date and the associated précompte tax are credited to retained earnings.
(2) After cancellation of 12 million shares.
(3) In conjunction with the elimination of the avoir fiscal tax credit and précompte equalization tax, an exceptional 25% exit tax was due on
dividends paid out in 2005.The exit tax gave rise to a tax credit in the same amount that is utilizable or refundable in three equal installments over
the three years following the payment.
(4) Pending approval by shareholders at the Annual Meeting of April 26, 2007.
168
7
Unaudited pro forma
information related to
the 2006 consolidated
financial statements
1. Presentation . . . . . . . . . . . . . . . . . . . . . . p. 169
2. Pro forma financial statements
. . . . . . . p. 170
7
3. Comparison of Schneider Electric
and APC accounting principles . . . . . . . p. 172
4. Auditors' report on the pro forma
financial statements . . . . . . . . . . . . . . . . . p. 174
1. Presentation
The pro forma income statement and balance sheet
data presented below have been prepared as if the
business combination between Schneider Electric and
APC had taken place as of January 1, 2006.
The pro forma data are provided for information only;
they do not purport to be an accurate reflection of the
results that would have been obtained if the transaction had been carried out on January 1, 2006 or to provide any indication of future results. They should be
read in conjunction with the consolidated financial
statements of Schneider Electric and APC. The pro
forma data were prepared by the Schneider Electric
Finance Department on the basis of reported information and the unaudited financial statements of APC for
the year ended December 31, 2006 provided by APC
and available at the time of preparation, using criteria
that were considered as reasonable. The description of
differences between the accounting policies used to
prepare APC’s financial statements and IFRS consists
of a summary of the main identified and applicable dif-
ferences. The available information has not lead to
identify any other adjustment that could significantly
impact the pro forma income statement and balance
sheet data. No assurance is given that a detailed reconciliation of the two groups’ accounting policies would
not reveal any other material reconciling items or
adjustment.
At the time when the pro forma data were prepared,
the Group did not have sufficient information to assess
the effects of the business combination between the
two groups. As a result, the pro forma information does
not take into account the effects of applying IFRS 3
"Business Combinations", particularly the effect of
amortizing intangible assets recognized on the business combination.
169
Unaudited pro forma information related to the 2006 consolidated financial statements
2. Pro forma financial statements
2.1 - Unaudited combined income statement
Year ended December 31, 2006
(in millions of euros)
APC
US GAAP
unaudited
APC
adjustments
US GAAP
to IFRS
unaudited
APC
IFRS
unaudited
Schneider
Electric
+ APC
IFRS
unaudited
Revenue
13,729.7
1,897.3
-
1,897.3
15,627.0
Cost of sales
(8,050.6)
(1,285.0)
-
(1,285.0)
(9,335.6)
Gross profit
5,679.1
Research and development expenses
Selling, general and administrative expenses
Other operating income and expenses
612.3
-
612.3
(327.6)
(81.6)
-
(81.6)
(409.2)
(3,234.8)
(451.3)
-
(451.3)
(3,686.1)
-
-
79.4
-
79.4
(104.0)
-
-
-
(104.0)
(16.9)
15.5
-
15.5
(1.4)
(120.9)
15.5
-
15.5
(105.4)
1.9
-
-
-
1.9
1,881.7
94.9
-
94.9
1,976.6
(5.3)
-
(5.3)
1,346.6
89.6
-
89.6
1,436.2
-
-
-
-
-
Profit for the period
1,346.6
89.6
-
89.6
1,436.2
- Attributable to equity holders of the parent
1,309.4
89.6
-
89.6
1,399.0
37.2
-
-
-
37.2
Finance costs, net
Other financial income and expenses
Finance costs and other financial income
and expenses, net
Share of profit /(losses) of associates
Profit before tax
Income tax expense
Profit of continuing operations
Discontinued operations
- Attributable to minority interests
(116.0)
6,291.4
-
Operating profit
170
Schneider
Electric
IFRS
2,000.7
(535.1)
(116.0)
2,080.1
(540.4)
2.2 - Unaudited condensed combined balance sheet
Year ended December 31, 2006
ASSETS
Schneider
Electric
IFRS
APC
US GAAP
unaudited
(in millions of euros)
APC
adjustments
US GAAP
to IFRS
unaudited
APC
IFRS
unaudited
Schneider
Electric
+ APC
IFRS
unaudited
Non-current assets:
Goodwill, net
6,185.7
14.0
-
14.0
6,199.7
Intangible assets, net
1,493.1
15.6
-
15.6
1,508.7
Property, plant and equipment, net
1,615.1
157.9
-
157.9
1,773.0
6.4
-
-
-
6.4
3,114.6
173.5
-
173.5
3,288.1
10.2
-
-
-
10.2
Available-for-sale financial assets
315.7
0.2
-
0.2
315.9
Other financial assets
114.2
3.7
-
3.7
117.9
Total non-current financial assets
429.9
3.9
-
3.9
433.8
Deferred tax assets
672.8
87.9
-
87.9
760.7
10,413.2
279.3
-
279.3
10,692.5
Inventories and work in process
2,055.9
451.0
-
451.0
2,506.9
Trade accounts receivable
2,882.8
326.9
-
326.9
3,209.7
994.8
85.4
-
85.4
1,080.2
Assets held for sale
Total tangible and intangible assets
Investments in associates
Total non-current assets
7
Current assets:
Other receivables and prepaid expenses
Current financial assets
73.5
270.2
-
270.2
343.7
Cash and cash equivalents
2,544.1
183.7
-
183.7
2,727.8
Total current assets
8,551.1
1,317.2
-
1,317.2
9,868.3
18,964.3
1,596.5
-
1,596.5
20,560.8
Total assets
171
Unaudited pro forma information related to the 2006 consolidated financial statements
LIABILITIES AND EQUITY
Schneider
Electric
IFRS
APC
US GAAP
unaudited
(in millions of euros)
APC
IFRS
unaudited
Schneider
Electric
+ APC
IFRS
unaudited
Equity
Share capital
Share premium account
Retained earnings
1,821.6
4,121.0
2,773.9
1.4
76.9
1,168.0
-
1.4
76.9
1,168.0
1,823.0
4,197.9
3,941.9
Equity attributable to equity holders of the parent
8,716.5
1,246.3
-
1,246.3
9,962.8
121.6
-
-
-
121.6
Total equity
8,838.1
1,246.3
-
1,246.3
10,084.4
Long-term provisions
Provisions for pensions
and other post-employment benefits
Provisions for contingencies
1,159.0
283.1
-
-
-
1,159.0
283.1
Total long-term provisions
1,442.1
-
-
-
1,442.1
Non-current liabilities
Ordinary and convertible bonds
Perpetual bonds
Other long-term debt
3,237.9
219.2
-
-
-
3,237.9
219.2
Total non-current financial liabilities
3,457.1
-
-
-
3,457.1
305.3
90.2
7.7
-
-
7.7
-
313.0
90.2
Total non-current liabilities
5,294.6
7.7
-
7.7
5,302.3
Current liabilities
Current operating liabilities
Short-term debt
3,947.0
884.6
342.5
-
-
342.5
-
4,289.5
884.6
Total current liabilities
4,831.6
342.5
-
342.5
5,174.1
18,964.3
1,596.5
-
1,596.5
20,560.8
Minority interests
Deferred tax liabilities
Other non-current liabilities
Total equity and liabilities
3.
Comparison
of Schneider Electric and APC
accounting principles
As explained in note 1 of consolidated financial statements, Schneider Electric’s consolidated financial
statements have been prepared in compliance with the
international accounting standards adopted by the
European Union as of December 31, 2006. These
include International Financial Reporting Standards
(IFRSs), International Accounting Standards (IASs)
and the related interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC) and the Standing Interpretations Committee
(SIC).
APC’s consolidated financial statements have been
prepared in accordance with the accounting principles
generally accepted in the United States of America
(US GAAP). The adjustments made to APC’s US
GAAP accounts to prepare the pro forma financial
information under IFRS were estimated by Schneider
Electric’s Finance Department based on the description of accounting policies contained in APC’s annual
financial statements.
172
APC
adjustments
US GAAP
to IFRS
unaudited
3.1 Financial statement presentation
and foreign currency translation
The main income statement and balance sheet captions in the APC Group’s financial statements have
been reclassified to permit their combination with the
main captions in the Schneider Electric Group’s financial statements.
In particular, deferred taxes have been reclassified
from current assets and liabilities to non-current assets
and liabilities, to comply with IAS 12 - Income Taxes.
Other reclassifications may also be made when APC is
included for the first time in the Schneider Electric
Group’s published consolidated financial statements.
APC’s financial statements have been translated from
US dollars, corresponding to the company’s functional
currency, into euros, representing the Schneider Electric Group’s presentation currency, as follows: Assets
and liabilities have been translated at the exchange
rate on the balance sheet date and income and
expenses have been translated at the average rate for
the year. The exchange rates applied are as follows:
Dollar/euro exchange rate
2006
Exchange rate on December 31
0.759301
Average rate
0.797780
In addition, the operating profit of APC includes non
recurrent costs for an amount of $51 million (€41 million) that have not been separated in the combined
financial statements presentation.
No material restructuring provisions were recorded in
APC’s balance sheet at December 31, 2006 and therefore, no adjustment was recorded in the pro forma
financial statements.
3.2 Share-based payments
3.5 Research and development costs
Stock options have been granted to the management
and certain employees of APC.
Schneider Electric applies IAS 38 - Intangible Assets.
In accordance with this standard, development costs
for new projects are capitalized when:
The project is clearly identified and the related costs
are separately identified and reliably tracked.
The project’s technical feasibility has been demonstrated and the Group has the intention and financial
resources to complete the project and to use or sell the
related products.
It is probable that the project will generate future
economic benefits for the Group.
Schneider Electric applies IFRS 2 – Share-Based Payment. Accounting policies for the application of this
standard are described in note 1 of consolidated financial statements.
Effective from January 1, 2006, APC has applied
SFAS 123 R - Accounting for Stock-Based Compensation (Revised), which requires companies to recognize
in their income statement the compensation cost relating to share-based payment transactions such as
stock options at fair value. This method is consistent
with IFRS 2 and therefore no adjustment is required in
the pro forma financial statements for share-based
payments.
APC uses the Black & Scholes option pricing model to
measure the fair value of stock options, while Schneider Electric uses the binomial model. Although no estimate has been made of the difference between the
values obtained using these two models, it is not
expected to be material.
3.3 Provisions for pensions and other
post-retirement benefit obligations
Depending on local laws and practices, the subsidiaries of Schneider Electric and APC may have obligations under pension and other post-retirement benefit plans and long-tem benefit plans.
Schneider Electric applies IAS 19 - Employee Benefits
and recognizes actuarial gains and losses immediately in the amount of the benefit obligation, by adjusting
equity (see note 1 of consolidated financial statements
for further details).
APC accounts for its pension and post-employment
healthcare obligations in accordance with SFAS 87 Employers’ Accounting for Pensions, which requires
actuarial gains and losses to be recognized in profit by
the corridor method.
As APC’s reported defined benefit obligations are not
material, no adjustment has been recorded in the pro
forma financial statements for the effects of this difference in method.
Research and development costs may not be capitalized under US GAAP.
The information available about the APC Group is not
sufficiently detailed to determine whether any of its
development projects fulfill the criteria for capitalizing
development costs under IAS 38.
As a result, the pro forma financial statements have
not been adjusted for the effects of capitalizing development costs. Research and development costs recognized in APC’s 2006 income statement amount to
€81.6 million. It is probable that part of these costs will
be capitalized in the future.
3.6 Inventories
SFAS 151 - Inventory Costs, which has been applicable since January 1, 2006, is not materially different
from IAS 2 - Inventory.
From the disclosures contained in APC’s financial statements, the group’s adoption of SFAS 151 as of January
1, 2006 did not lead to any adjustments to the amounts
reported under the previous standard (ARB 43).
Consequently, no adjustments have been made to
APC inventories in the pro forma financial statements
under IFRS.
3.7 Provisions
Further analyses will be performed when APC is consolidated for the first time
Schneider Electric applies IAS 37 - Provisions, Contingent Liabilities and Contingent Assets. This standard
requires provisions to be discounted to the present
value of the expenditure required to extinguish the obligation if the effects of discounting are material at the
balance sheet date.
3.4 Restructuring provisions
APC does not record any long-term provisions and
therefore no adjustment was made in the pro forma
financial statements.
Under IFRS, restructuring provisions may be recognized when the Group has prepared a detailed formal
plan for the restructuring and has either announced or
started to implement the plan at year-end.
Under US GAAP (SFAS 146 - Accounting for Costs
Associated with Exit or Disposal Activities and SFAS
88 - Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits), provisions for employee termination costs may be recorded if, and only if, the affected
employees have accepted a termination offer and the
termination costs can be reliably estimated.
7
3.8 Items subject to the same
treatment under IFRS and US GAAP
No differences were identified between APC’s
accounting policies and the following IASs and IFRSs:
IAS 16 - Property, Plant and Equipment; IAS 17 Leases; IAS 18 - Revenue; IAS 36 - Impairment of
Assets; and IAS 32 and 39 - Financial Instruments.
Application of the other IASs and IFRSs not mentioned
above is not expected to have a material impact on the
financial statements of APC.
173
Unaudited pro forma information related to the 2006 consolidated financial statements
4.
Auditors' report on
the pro forma financial statements
Free translation of the original report in French.
To the Shareholders,
In our capacity as Statutory Auditors of Schneider
Electric SA, and as required by regulation 809/2004/EC,
we present below our report on the combined condensed pro forma financial information under IFRS for
2006 (hereafter referred to as "the pro forma information") prepared by Schneider Electric SA in connection
with the share issue intended to finance part of the
planned acquisition of APC in the United States. This
information is presented in section 11.7 of the Offering
Memorandum dated March 7, 2007.
The pro forma information was prepared under the
supervision of the Schneider Electric SA Management
Board in accordance with regulation 809/2004/EC on
the basis of Schneider Electric SA’s audited consolidated financial statements for the year ended December 31, 2006 and APC’s unpublished, unaudited consolidated financial statements for the same period.
The pro forma information was prepared solely to illustrate how the acquisition of APC shares might have
affected Schneider Electric SA’s assets and liabilities
and earnings for the year ended December 31, 2006
had the transaction been undertaken on January 1,
2006. Because of its nature, this information addresses a hypothetical situation and, therefore, does not
represent the Company’s actual financial position or
results.
It is our responsibility to report our conclusions, based
on our review, on the manner in which the pro forma
information was compiled, as required by regulation
809/2004/EC, Annex II, Point 7.
We performed our work in accordance with professional standards in France. Our review, which did not
include an examination of the underlying financial
information used to establish the pro forma information, primarily consisted of (i) ensuring that the basis
on which the pro forma information was compiled corresponded to the source documents described in the
notes to the pro forma financial statements; (ii) examining evidence supporting the absence of pro forma
adjustments; and (iii) interviewing Schneider Electric
SA’s senior management to obtain the information and
explanations we deemed necessary.
174
In our opinion:
The pro forma information has been properly com-
piled on the basis stated in note 11.7.1 of the Offering
Memorandum dated March 7, 2007.
The basis is consistent with (i) the accounting poli-
cies used by Schneider Electric to prepare its consolidated financial statements for the year ended December 31, 2006 in compliance with the IFRSs adopted by
the European Union, and (ii) the accounting policies
used by APC to prepare its consolidated financial
statements for the year ended December 31, 2006 in
accordance with US GAAP. As explained in note 11.7.3
of the Offering Memorandum dated March 7, 2007, no
adjustments have been made at this stage with
respect to differences between IFRS and US GAAP.
Without qualifying our opinion, we draw attention to
note 11.7.1 of the Offering Memorandum dated March
7, 2007 which states that APC’s financial statements
for the year ended December 31, 2006 are unaudited
and unpublished and that no assurance is given that a
detailed reconciliation of the two groups’ accounting
policies would not reveal any other material reconciling
items or adjustment.
This report is issued solely in connection with the offering made to the public in France and other countries of
the European Union in which the prospectus approved
by Autorité des Marchés Financiers (AMF) may be distributed.
Courbevoie and Neuilly-sur-Seine, March 7, 2007
The Statutory Auditors
Mazars & Guérard
Ernst & Young et Autres
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
8
Annual and
Extraordinary
Shareholders’Meeting
of April 26, 2007
8
1. Management Board’s report to the Annual and
Extraordinary Shareholders’ Meeting
. . p. 175
2. Auditors' special reports
. . . . . . . . . . . . p. 180
3. Resolutions . . . . . . . . . . . . . . . . . . . . . . . p. 185
1.
Management Board's
report to the Annual and
Extraordinary Shareholders’
Meeting
Resolutions to be voted on
in Annual Meeting
Profit appropriation and payment
of a dividend of €3 per share
- third resolution We recommend that profit available for distribution,
consisting of net profit for the year of €887.8 million
and retained earnings of €275.1, should be appropriated as follows:
Dividends
€683,095,044.00
Retained earnings
€479,875,074.94
Total
Approval of the annual financial
statements - first resolution We ask you to approve the transactions and financial
statements for the year, as presented, which show net
profit of €887.8 million.
Approval of the consolidated
financial statements
- second resolution We ask you to approve the consolidated financial
statements for the year, as presented, which show net
profit attributable to equity holders of the parent of
€1,309 million, an increase of 32% from 2005.
€1,162,970,118.94
If these appropriations are approved, the net dividend
paid on each of the shares carrying rights to the 2006
dividend will amount to €3.00
The dividend will be paid as from May 2, 2007.
Shareholders should note that France’s 2004 Finance
Act eliminated the avoir fiscal tax credit and précompte
equalization tax. However, for individual shareholders
who pay income tax in France, only 60% of the dividend will be included in their taxable income. In addition, they will be entitled to a tax credit on their total
dividend income from all sources, capped at €115 for
a single, divorced or widowed person and €230 for
couples who file a joint tax return.
175
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
The full dividend will be eligible for the 40% deduction
for individuals resident in France. No amounts eligible
or not eligible for the 40% deduction provided for in
Article 158-3-2 of the French Tax Code will be distributed, other than the dividend described above.
We remind you that dividends paid by Schneider
Electric SA for the last three years were as follows:
Dividend
Avoir fiscal
tax credit
€0.55 (1)
€0.11 (2)
Total
revenue
2003
€1.1
€1.65
€1.21
2004
€1.8
-
€1.8 (3)
2005
€2.25
-
€2.25 (4)
(1) 50% tax credit.
(2) 10% tax credit.
(3) Full dividend eligible for a 50% deduction for individuals
resident in France as of January 1, 2004. No non-eligible
dividends were distributed for 2004.
(4) Full dividend eligible for a 40% deduction for individuals
resident in France as of January 1, 2005. No non-eligible
dividends were distributed for 2005.
Agreements governed by article
L.225-38 and L.225-86
of the French Commercial Code
- fourth and fifth resolutions We ask you to approve the regulated agreements presented in the Auditors’ special report in accordance
with articles L.225-38 and L.225-86 of the French
Commercial Code. They include:
The shareholders’ agreement with AXA concerning
cross-shareholdings between AXA and Schneider
Electric authorized by the Board of Directors on January 6, 2006.
Measures decided by the Supervisory Board at its
meeting on May 3, 2006 to ensure that Jean-Pascal
Tricoire would continue to be entitled to all the pension
and other benefits provided for in his service contract
with Schneider Electric Industries SAS, which was
suspended on his appointment to the Management
Board as Chairman.
An addendum to Mr. Tricoire’s service contract defining the terms under which it will resume or be terminated.
Share buybacks
- sixth resolution We ask you to renew the authorization given to the
Company by shareholders at the Annual Meeting of
May 3, 2006 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 back to reduce the issued
capital, or in connection with 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 marketmaking under a liquidity agreement.
176
Shares bought back under this authorization may be
canceled in accordance with the twenty-third resolution approved by shareholders at the Annual Meeting
of May 3, 2006.
Our report on the use of the authorization given by the
Annual Meeting of May 3, 2006, prepared in accordance with article L.225-209 of the Commercial Code,
is presented on page 179.
You are asked to authorize the Company to buy back
shares representing at most 10% of the issued capital
as of the date of this Meeting (representing 22,769,834
shares on the basis of the number of shares outstanding at the last official count on December 31, 2006).
The maximum purchase price is set at €130.
Resolutions to be voted on
in Extraordinary Meeting
Amendment to the bylaws to provide
for the representation of employee
shareholders on the Supervisory
Board, in accordance with french
law - seventh and eighth resolutions Since 2001, the Board of Directors, and then the
Supervisory Board, has included a member representing employee shareholders who is elected at the Annual Meeting in accordance with procedures set by the
Board.
Under the French Act of December 30, 2006 on the
development of employee stock ownership, listed companies in which more than 3% of the issued capital as
of December 31, 2006 is held directly or indirectly
through corporate mutual funds by employees of the
company and its French and foreign subsidiaries must
amend their bylaws to provide for the representation of
employee shareholders on the Supervisory Board.
This member must be elected by the shareholders in
General Meeting.
As Schneider Electric employees held more than
3.09% of the issued capital on December 31, 2006,
Schneider Electric must amend its bylaws to define the
procedure under which employee shareholders may
designate candidates for election to the Supervisory
Board in General Meeting.
The amendment submitted for your approval stipulates
that the Supervisory Board shall include one member
representing employee shareholders, who shall be
elected by the shareholders in General Meeting
according to a process determined by the Supervisory
Board. However, if employees hold more than 3% of
the issued capital on December 31, said Supervisory
Board member shall be replaced by a member elected
for a four-year term by the General Meeting on the
basis defined below.
The General Meeting shall vote on a list of candidates
presented by employee shareholders. The supervisory
boards of mutual funds invested in the Company’s
shares shall designate one or two candidates, selected at their discretion. Employees who hold their shares
directly will be asked to designate a candidate as well,
even though they represent a very small percentage of
employee shareholders. To keep the number of candi-
dates at a manageable level, the Company’s Management Board may decide to require two or more supervisory boards to consult together and to jointly designate one or two candidates.
Candidates for election as the representative of
employee shareholders on the Supervisory Board
must be employed under a contract that qualifies them
to sit on the Supervisory Board for a four-year term
and must hold at least 25 Schneider Electric SA
shares or an equivalent number of units in a mutual
fund invested in the Company’s shares.
The representative of employee shareholders’ term
shall end and he or she will be considered as having
resigned if he or she is no longer (i) an employee of the
Group, (ii) a shareholder or holder of units in a mutual
fund invested in the Company’s shares, or (iii) a member of the supervisory board of the mutual fund that
proposed him or her as a candidate. The representative’s term shall also end if employees hold less than
3% of the issued capital at the end of the financial year.
A representative of employee shareholders will be
elected to the Supervisory Board for the first time in
accordance with this amendment to the bylaws at the
Annual General Meeting to be held to approve the
2007 financial statements, if applicable.
We are also submitting an amendment to the bylaws
providing for the direct election of a member of the
Supervisory Board by the employees of the Company
and its direct or indirect subsidiaries that have their
registered office in France.
We ask you to vote against this resolution, which has
not been approved by the Management Board but that
must be submitted to the General Meeting in accordance with the French Commercial Code. Under the
French Commercial Code, if the General Meeting is
asked to amend the bylaws to provide for the representation of employee shareholders on the Supervisory
Board, as in the seventh resolution, it must also vote
on a resolution providing for the direct election of a
Supervisory Board member by employees of the Company and its subsidiaries in France.
Authorizations to increase the
capital with or without pre-emptive
subscription rights - ninth, tenth,
eleventh and twelfth resolutions We are tabling resolutions to renew authorizations
granted to the Management Board to increase the
capital.
You have authorized the Management Board to issue
shares, shares with equity warrants, convertible
bonds, stand-alone equity warrants and other share
equivalents, with or without pre-emptive subscription
rights.
Acting on this authorization, the Management Board
has announced that it will carry out a €1 billion share
issue with pre-emptive subscription rights to finance
part of the acquisition of US-based APC. This acquisition, which was finalized on February 14, 2007, has
made Schneider Electric the global leader in critical
power.
Because the authorizations will expire during the year,
we ask you to renew authorizations to increase the
capital with or without pre-emptive subscription rights
for a period of 26 months, as provided for in Article
L.225-192-2 of the French Commercial Code.
In the ninth resolution, you are asked to authorize the
Management Board to issue, in France or abroad,
common shares or legally recognized securities that
are convertible, redeemable, exchangeable or otherwise exercisable for shares, in all cases with pre-emptive subscription rights. This authorization would also
cover the raising of the par value of existing shares, to
be paid up by capitalizing reserves, earnings, or additional paid-in capital.
The aggregate par value of the issued securities may
not exceed €1.5 billion. The issued share capital may
be increased during the period by a maximum aggregate amount of €500 million, or 62.5 million shares.
This ceiling does not include an increase in the par
value of existing shares paid up by capitalizing
reserves, earnings or additional paid-in capital, nor
does it include the par value of any shares to be issued
to prevent dilution of the rights of holders of share
equivalents.
The €500 million ceiling takes into account authorized
capital increases without pre-emptive subscription
rights.
In the tenth resolution, your are asked to authorize the
Management Board to issue the above shares and
share equivalents without pre-emptive subscription
rights for existing shareholders on the French or international market.
8
This authorization may be used to issue shares of the
Company on conversion, redemption, exchange or
exercise of share equivalents issued by Schneider
Electric SA’s direct or indirect subsidiaries with the
Management Board’s agreement.
The aggregate par value of securities issued in accordance with this resolution may not exceed €1.5 billion. The issued share capital may be increased during the period by a maximum aggregate amount of
€300 million, or 37.5 million shares. The ceilings set
in this resolution and the ninth resolution would not be
cumulative.
The eleventh resolution authorizes the Management
Board to increase the number shares to be issued in
application of the ninth or tenth resolutions if the issues
are oversubscribed. The supplementary capital
increase that may be made within 30 days after the initial subscription period closes may not exceed 15% of
the original increase and must be carried out at the
same price.
The twelfth resolution authorizes the Management
Board to issue shares or share equivalents within the
ceilings set in the preceding resolutions in payment of
shares of another company tendered to a public
exchange offer initiated by Schneider Electric. In
accordance with the new measures in the Commercial
Code, the Management Board may also issue shares
or share equivalents representing, in the aggregate, a
maximum of 10% of the Company's issued capital, in
payment for shares or share equivalents contributed to
the Company.
The purpose of these authorizations is to give the
Management Board of Directors greater flexibility
when it comes to selecting the type of issues to be carried out, depending on demand and the conditions
prevailing in the French, foreign or international financial markets.
177
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
The authorization to issue shares and share equivalents without pre-emptive subscription rights is
designed to allow the Board to carry out issues quickly, in order to take immediate advantage of opportunities before they disappear, and to expand the shareholder base by placing the issues on foreign or international markets.
In the case of issues without pre-emptive subscription
rights, the Board of Directors may offer shareholders a
non-transferable priority subscription right. In accordance with Decree 2005-112 of February 10, 2005,
the resulting share issues would be carried out at a
price at least equal to the average weighted price for
the Company’s shares over the three trading days preceding the date on which the share or share equivalent
issues were decided by the Management Board. They
may be issued with a maximum discount of 5%
Authorization to be given to the
Management Board to grant shares
without consideration to officers
and employees of the company
and its subsidiaries and affiliates thirteenth resolution The General Meeting held on May 3, 2006 authorized
the Management Board to grant shares without consideration to the officers and employees Schneider
Electric SA and its subsidiaries and affiliates, as
defined in article L.225-197-2 of the Commercial
Code.
Acting on this authorization, the Management Board
granted 52,006 shares on December 21, 2006, half of
which are contingent on the achievement of performance criteria. The shares, which will vest after a period
of three years, are subject to a lock-up period of two
years. For tax reasons, share grants were restricted to
grantees who have France as their tax home, with the
exception of impatriates.
We ask you to renew this authorization early, before it
expires in 2009, so that the Management Board may
modulate the minimum vesting and lock-up periods in
accordance with the new measures introduced by the
French Act of December 30, 2006 on the development
of employee stock ownership. This would allow the
Management Board to set a vesting period of no less
than four years with no lock-up period for employees
who do not have France as their tax home and facilitate share grants to said employees.
In addition, the shares would vest and be available for
sale immediately if the grantee is declared disabled.
The other conditions remain unchanged. Part of the
grants will be conditional on the achievement of certain
performance targets. The total number of shares granted without consideration may not represent more than
0.5% of the Company’s issued capital; furthermore,
the sum of the shares that may be subscribed or purchased on exercise of options granted under the twenty-fourth resolution approved by the General Meeting
of May 3, 2006 and the shares that may be granted
without consideration under this resolution may not
represent more than 3% of the Company's capital.
Issuance of shares to employees
- fourteenth and fifteenth resolutions The General Meeting of May 3, 2006 authorized the
Management Board to issue shares to employees who
are members of an Employee Stock Purchase Plan. In
addition, the same General Meeting authorized the
Management Board to issue shares to entities set up
to purchase shares of the Company under programs to
promote employee stock ownership in certain foreign
countries whose local legislation is not wholly compatible with the rules governing the Company’s existing
plans.
In accordance with these authorizations, the Supervisory Board authorized the Management Board to
issue new shares to members of the Employee Stock
Purchase Plan during 2007, within a limit of 1% of the
Company's issued capital. The issue(s) should take
place before the end of May 2007.
Under the "NRE" Act, if a company asks shareholders
for an authorization to issue shares, a separate resolution must be tabled at the meeting covering the
issuance of shares to employees who are members of
an employee stock purchase plan. Since the ninth and
tenth resolutions concern the renewal of authorizations to issue shares, a resolution must be tabled seeking an authorization to issue shares to employees. We
are therefore asking for the early renewal of the
authorization given in May 2006.
The Management Board would have full powers to
carry out employee share issues up to the equivalent
of 5% of the Company's capital. Under the new authorization, the maximum discount at which the shares
could be offered is set at 20%.
This authorization, which will cancel and replace the
unused portion of the existing authorization, is being
sought for a period of five years.
In addition, as the authorization to issue shares to entities set up to purchase share of the Company will
expire in 2007, we ask you to renew it under the following conditions. The shares issued under the authorization will not exceed 0.5% of the capital. They will be
deducted from the ceiling of 5% of the capital set for
the issuance of shares to employees who are members of the Employee Stock Purchase Plan. At the discretion of the Management Board, the issue price will
be equal to either (i) the closing price of the Company’s shares quoted on the trading day preceding the
decision of the Management Board setting the issue
price, or (ii) the average of the opening prices quoted
for the Company's shares over the twenty trading days
preceding the decision of the Management Board setting the issue price. The Management Board may
apply a maximum discount of 20% to the reference
price. The discount will be determined by the Management Board taking into consideration any specific foreign legal, regulatory or tax provisions that may apply
to any beneficiary governed by foreign law.
This authorization, which will cancel and replace the
unused portion of the existing authorization effective
June 30, 2007, is being sought for a period of eighteen
months.
Lastly, the sixteenth resolution concerns powers to
carry out formalities.
178
Report of the Management Board to the Annual Shareholders’
Meeting of April 26, 2007 in accordance with Article L.225-209 of
the French Commercial Code concerning share buyback programs
The Annual Shareholders' Meeting of May 12, 2005
authorized the Company to buy back shares on the
open market. No shares were bought back under this
authorization in 2006.
The Annual Shareholders’ Meeting of May 3, 2006 also
authorized the Company to buy back shares on the
open market. Pursuant to this authorization, the Company set up a liquidity contract.
Details of the share buyback program submitted for
approval at the Annual and Extraordinary Shareholders’ Meeting of April 26, 2007 are as follows:
Number of shares and percentage of share capital
held directly and indirectly by Schneider Electric SA:
Treasury stock:
4,546,182 shares
or 2% of the capital
Schneider Electric
shares held via
Cofibel/Cofimines: 2,150,352 shares
or 0.94% of the capital
Total :
- Finance a future acquisition (rather than issue new
shares at the time of the acquisition).
- Market making under a liquidity agreement.
Maximum number of shares that may be acquired:
10% of the issued share capital, representing, on the
basis of the issued share capital at December 31,
2006, 22,769,834 shares with a par value of €8. Share
purchases may not exceed an aggregate maximum
amount of €2,960,078,420.
Duration: 18 months maximum, expiring on October
25, 2008.
Transactions carried out under the share buyback
program approved by shareholders at the Annual and
Extraordinary Meeting of May 3, 2006:
- Transactions carried out under the liquidity contract:
Number of shares acquired: 3,050,617
Number of shares sold: 2,870,517
- Number of shares transferred since the beginning of
the program: 672,016
6,696,534 shares
or 2.94% of the capital
8
Purpose: The 4,366,082 shares held in treasury
stock (excluding the liquidity contract) are intended to
serve stock option plans.
Buyback plan objectives:
- Reduce the capital by canceling shares.
- Serve stock option plans or plans to grant shares
without consideration or permit the conversion of
convertible debt securities.
Supervisory Board Report
Pursuant to Article L.225-68 of the French Commercial
Code, the Supervisory Board has no comments to
make on the Management Board’s business review or
on the financial statements for the year ended Decem-
ber 31, 2006. In consequence, it encourages shareholders to follow all the Management Board’s recommendations concerning the resolutions tabled for
approval.
179
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
2. Auditors' special reports
Auditors' special report on regulated agreements
Free translation of the original report in French.
Addendum to Mr. Tricoire’s service contract with
To the Shareholders,
Schneider Electric SAS suspending the said contract
and specifying that:
In our capacity as Statutory Auditors of Schneider
Electric SA, we present below our report on regulated
agreements that have been disclosed to us.
Agreements signed
during the year
In accordance with Article L.225-40 and L.225-88 of
the French Commercial Code, agreements that
received the prior authorization of your Board of Directors or Supervisory Board have been disclosed to us.
Our responsibility does not include identifying any
undisclosed agreements. We are required to report to
shareholders, based on the information provided,
about the main terms and conditions of agreements
that have been disclosed to us, without commenting on
their relevance or substance. Under the provisions of
Articles 92 and 117 of the Decree of March 23, 1967,
it is the responsibility of shareholders to determine
whether the agreements are appropriate and should
be approved.
We carried out our work in accordance with French
professional standards. Those standards require that
we perform procedures to verify that the information
given to us agrees with the underlying documents.
Shareholders’ agreement between AXA and
Schneider Electric SA. The agreement calls for the
continuation of stable cross-shareholdings between
the two groups. Each group also holds a call option
that may be exercised in the event of hostile takeover.
The one-year agreement, which is automatically
renewed each year unless it is expressly terminated,
was authorized by the Board of Directors on January
6, 2006 and signed on April 4, 2006.
Directors involved: Henri Lachmann and Claude
Bébéar.
- His period as an officer (mandataire social) of
Schneider Electric SA will be taken into account for the
calculation of his rights – pursuant to his service contract – under the Schneider Electric top hat pension
plan for senior executives, as well as for the calculation
of the termination benefit payable under his service
contract.
- His service contract will resume when he ceases to
be an officer (mandataire social) of Schneider Electric
SA and Schneider Electric Industries SAS.
The addendum, which was signed on May 2, 2006
contingent on Supervisory Board approval, was
authorized by the Supervisory Board on May 3, 2006.
It took effect on May 4, 2006.
Agreements entered into
in prior years that remained
in force during the year
In application of the Decree of March 23, 1967, we
were advised of the following agreement entered into
in prior years, which remained in force during the year.
With the authorization of the 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.
No payments were made in 2006 as the agreement
was terminated during the year.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Decision to allow Jean-Pascal Tricoire to be covered
by the Schneider Electric SA employee benefit plan,
with the same supplementary coverage for death and
disability provided for in his service contract with
Schneider Electric Industries SAS.
The Supervisory Board made this decision on May 3,
2006.
180
Mazars & Guérard
Ernst & Young et Autres
Pierre Sardet
Christian Chochon
Jean-Louis Simon
Pierre Jouanne
Auditors' special report on the authorization
to increase the capital and to issue share equivalents
with 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 Article L.228-92 et seq.,
L.225-135-1 and L.225-148 of the Commercial Code,
we present below our report on the authorizations
sought by the Management Board to increase the
Company’s capital by issuing, on one or several occasions, shares or share equivalents with pre-emptive
subscription rights in an aggregate maximum amount
of €500 million. Within this ceiling, the number of common shares or share equivalents to be issued may be
increased by a maximum amount of 15% for each
issue (eleventh resolution).
The issued share capital may be increased pursuant
to the ninth resolution by a maximum aggregate
amount of €500 million; the ceilings set in this resolution and the tenth resolution are not cumulative. The
aggregate par value of the issued securities may not
exceed €1.5 billion.
You are asked to authorize the Management Board,
on the basis described in its report, to increase the
Company’s issued share capital directly or through a
representative on one or several occasions by issuing
common shares or share equivalents with pre-emptive subscription rights, for a period of 26 months. If
the resolution is adopted, the Management Board will
set the terms and conditions of these transactions.
We have no matters to report concerning the method
for determining the issue price as described in the
Management Board’s Report, contingent upon our
final review of the terms of the proposed capital
increase.
Since the issue price has not yet been set, we cannot
formulate an opinion on the final conditions under
which the share issue(s) will be carried out.
Should this resolution be approved and as required by
Article 155-2 of the Decree of March 23, 1967, we will
prepare an additional report at the time the capital
increase(s) is (are) carried out by the Management
Board.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
8
The Statutory Auditors
Ernst & Young et Autres
Mazars & Guérard
Christian Chochon
Pierre Sardet
Pierre Jouanne
Jean-Louis Simon
The Management Board is responsible for reporting to
shareholders on the proposed share issue in accordance with Articles 154 and 155 of the Decree of
March 23, 1967. Our responsibility is to express an
opinion on the fairness of figures taken from the financial statements and of certain other information
included in this report.
We carried out our work in accordance with French
professional standards. Those standards require that
we perform procedures to check the content of the
report drawn up by the competent management body
concerning these transactions and the method used
to determine the share issue price.
181
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
Auditors' special report on the authorization
to increase the capital and to issue share equivalents
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 Article L.225-135 et seq.,
L.225-148 and L.228-92 et seq. of the Commercial
Code, we present below our report on the authorizations sought by the Management Board to increase
the Company’s capital by issuing, on one or several
occasions, shares or share equivalents without preemptive subscription rights in an aggregate maximum
amount of €300 million. Within this ceiling, the number of common shares or share equivalents to be
issued may be increased by a maximum amount of
15% for each issue (eleventh resolution).
The issued share capital may be increased pursuant
to the tenth resolution by a maximum aggregate
amount of €500 million; the ceilings set in this resolution and the ninth resolution are not cumulative. The
aggregate par value of the issued securities may not
exceed €1.5 billion, as stipulated in the ninth resolution.
You are asked to authorize the Management Board,
on the basis described in its report, to increase the
Company’s issued share capital directly or through a
representative on one or several occasions by issuing
common shares or share equivalents without preemptive subscription rights, for a period of 26 months.
If the resolution is adopted, the Management Board
will set the terms and conditions of these transactions.
The Management Board is responsible for reporting to
shareholders on the proposed share issue in accordance with Articles 154 and 155 of the Decree of
March 23, 1967. Our responsibility is to express an
opinion on the fairness of figures taken from the financial statements, on the proposal to cancel shareholders’ pre-emptive subscription right, and on certain
other information included in this report.
182
We performed our work in accordance with French
professional standards. Those standards require that
we perform procedures to check the content of the
report drawn up 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
Management Board Report, contingent upon our final
review of the terms of the proposed capital increase.
Since the issue price has not yet been set, we cannot
formulate an opinion on the final conditions under
which the share issue will be carried out, and consequently have no opinion on the proposal to cancel
shareholders' pre-emptive subscription right,
Should this resolution be approved and as required by
Article 155-2 of the Decree of March 23, 1967, we will
prepare an additional report at the time the capital
increase(s) is (are) carried out by the Management
Board.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Ernst & Young et Autres
Mazars & Guérard
Christian Chochon
Pierre Sardet
Pierre Jouanne
Jean-Louis Simon
Auditors' report on the proposal to grant existing
or new shares without consideration to officers and employees
of the company
Free translation of the original report in French.
To the Shareholders,
In our capacity as 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 in article L.225-197-2.
The Management Board is seeking authorization to
grant existing or new shares without consideration. It is
the Board's responsibility to draw up a report on the
grant that it wishes to carry out. It is our responsibility
to comment, if necessary, on the information given to
you about the grant.
Because no professional standard applies to this type
of operation, which was approved by law on December
30, 2004, we have performed the procedures we
deemed necessary to ensure that the methods being
considered are in accordance with the law.
We have no matters to report concerning the information provided about the grant in the Management
Board Report.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Ernst & Young et Autres
Mazars & Guérard
Christian Chochon
Pierre Sardet
Pierre Jouanne
Jean-Louis Simon
Auditors' report on the proposed employee
share issue with cancellation of shareholders’ pre-emptive
subscription right
Free translation of the original report in French.
To the Shareholders,
In our capacity as Statutory Auditors of Schneider
Electric SA and pursuant to Article L.225-135 et seq.
of the Commercial Code, we present below our report
on the proposal to authorize the Management Board to
issue shares, share equivalents or debt securities, on
one or several occasions, to employees who are members of an Employee Stock Purchase Plan set up by
French or foreign related companies, with cancellation
of shareholders’ pre-emptive subscription right. The
maximum nominal amount by which the capital may be
increased may not exceed 5% of the issued capital as
of the date on which this authorization is used. The
maximum discount at which shares may be offered is
set at 20% of the share price.
These authorizations are submitted for your approval
in accordance with Article L.225-129-6 of the Commercial Code and Article L.443-5 of the Labor Code.
You are asked to authorize the Management Board, on
the basis described in its report, to increase the Company’s issued share capital directly or through a representative on one or several occasions by issuing common shares or share equivalents without pre-emptive
subscription rights, for a period of five years as from
the date of this Meeting. If the resolution is adopted,
the Management Board will set the terms and conditions of these transactions.
The Management Board is responsible for reporting to
shareholders on the proposed share issue in accordance with Articles 154 and 155 of the Decree of
March 23, 1967. Our responsibility is to express an
opinion on the fairness of figures taken from the financial statements, on the proposal to cancel sharehold-
8
ers’ pre-emptive subscription right and on certain other
information included in this report.
We performed our work in accordance with French
professional standards. Those standards require that
we perform procedures to check the content of the
report drawn up 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
Management Board Report, contingent upon our final
review of the terms of the proposed capital increase.
Since the issue price has not yet been set, we cannot
formulate an opinion on the final conditions under
which the share issue will be carried out, and consequently have no opinion on the proposal to cancel
shareholders' pre-emptive subscription right,
Should this resolution be approved and as required by
Article 155-2 of the Decree of March 23, 1967, we will
prepare an additional report at the time the capital
increase(s) is (are) carried out by the Management
Board.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Ernst & Young et Autres
Mazars & Guérard
Christian Chochon
Pierre Sardet
Pierre Jouanne
Jean-Louis Simon
183
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
Auditors' report on the proposal to issue shares to entities
set up to hold shares on behalf of employees with cancellation
of shareholders’ pre-emptive subscription right
Free translation of the original report in French.
To the Shareholders,
In our capacity as Statutory Auditors of Schneider
Electric SA and pursuant to Article L.225-135 et seq.
of the Commercial Code, we present below our report
on the proposal to issue shares to entities set up to
hold shares on behalf of employees. Shareholders will
be asked to waive their pre-emptive right to subscribe
the issue(s). This authorization would be granted to the
Management Board. The maximum nominal amount
by which the capital may be increased may not exceed
0.5% of the issued capital as of the date of this Meeting. The amount of any capital increase carried out
under this authorization would be deducted from the
aggregate amount by which the capital may be
increased under the fourteenth resolution tabled at this
Meeting.
You are asked to authorize the Management Board, on
the basis described in its report, to increase the Company’s issued share capital directly or through a representative on one or several occasions by issuing common shares or share equivalents without pre-emptive
subscription rights, for a period of 18 months. If the
resolution is adopted, the Management Board will set
the terms and conditions of these transactions.
The Management Board is responsible for reporting to
shareholders on the proposed share issue in accordance with Articles 154 and 155 of the Decree of
March 23, 1967. Our responsibility is to express an
opinion on the fairness of figures taken from the financial statements, on the proposal to cancel shareholders' pre-emptive subscription right and on certain other
information included in this report.
We performed our work in accordance with French
professional standards. Those standards require that
we perform procedures to check the content of the
report drawn up by the competent management body
concerning this operation and the method used to
determine the share issue price.
184
We have no matters to report concerning the method
for determining the issue price as described in the
Management Board Report, contingent upon our final
review of the terms of the proposed capital increase.
Since the issue price has not yet been set, we cannot
formulate an opinion on the final conditions under
which the share issue will be carried out, and consequently have no opinion on the proposal to cancel
shareholders' pre-emptive subscription right,
Should this resolution be approved and as required by
Article 155-2 of the Decree of March 23, 1967, we will
prepare an additional report at the time the capital
increase(s) is (are) carried out by the Management
Board.
Courbevoie and Neuilly-sur-Seine, February 20, 2007
The Statutory Auditors
Ernst & Young et Autres
Mazars & Guérard
Christian Chochon
Pierre Sardet
Pierre Jouanne
Jean-Louis Simon
3. Resolutions
tion provided for in article 158-3-2 of the French Tax
Code will be distributed, other than the dividend
described above.
Resolutions to be voted on
in Annual Meeting
Dividend payments and any corresponding tax credits
for the last three years were as follows:
Dividend
Avoir fiscal
tax credit
2003
€1.1
€0,55 (1)
€0.11 (2)
€1.65
€1.21
2004
€1.8
-
€1.8 (3)
2005
€2.25
-
€2.25 (4)
First resolution
(2006 parent company financial statements)
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings, having heard the reports of the Management Board and
the Auditors, and noting that the Supervisory Board
had no comments on the Management Board’s report
or on the parent company financial statements,
approves the transactions and parent company financial statements for the year ended December 31,
2006, as presented by the Management Board. These
financial statements show a net profit for the year of
€887,824,631.27 euros.
Total
revenue
(1) 50% tax credit.
(2) 10% tax credit.
(3) Full dividend eligible for a 50% deduction for individuals
resident in France as of January 1, 2004. No non-eligible
dividends were distributed for 2004.
(4) Full dividend eligible for a 40% deduction for individuals
resident in France as of January 1, 2005. No non-eligible
dividends were distributed for 2005.
Fourth resolution
(Agreements governed by article L.225-38 of
the French Commercial Code)
Second resolution
(2006 consolidated financial statements)
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings, having heard the reports of the Management Board and
the Auditors, and noting that the Supervisory Board
had no comments on the Management Board's report
or on the consolidated financial statements, approves
the transactions and consolidated financial statements
for the year ended December 31, 2006, as presented
by the Management Board.
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings and
having heard the Auditors' Special Report on agreements governed by article L.225-38 of the French
Commercial Code, presented in accordance with article L.225-40 of said Code, approves the agreement
concerning a memorandum of understanding between
Schneider Electric SA and AXA, as presented in this
report, and notes the information concerning the
agreement signed in a previous year.
8
Fifth resolution
Third resolution
(Appropriation of profit and dividend payment)
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings,
approves the Management Board’s recommendations
and resolves accordingly to appropriate profit available
for distribution in the amount of €1,162,970,118.94, corresponding to profit for the year of €887,824,631.27
plus retained earnings of €275,145,487.67 as follows:
Dividends
€ 683,095,044.00
Retained earnings
€ 479,875,074.94
Total
€ 1,162,970,118.94
The dividend will amount to €3.00 for the 227,698,348
€8 par value shares cum dividend January 1, 2006 that
were outstanding on December 31, 2006.
The full dividend will be eligible for the 40% deduction
for individuals resident in France as of January 1,
2007, provided for in article 153-8-2 of the French Tax
Code.
Unpaid dividends on shares held in treasury as of the
dividend payment date will be allocated to retained
earnings.
No amounts eligible or not eligible for the 40% deduc-
(Agreements governed by article L.225-86 of the
French Commercial Code)
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings and
having heard the Auditors' Special Report on agreements governed by articles L.225-86, L.225-90-1 and
L.225-79-1 of the French Commercial Code, presented
in accordance with article L.225-88 of said Code,
approves the commitments and agreement concerning
Jean-Pascal Tricoire, as presented in this report.
Sixth resolution
(Authorization to trade in the Company's shares –
maximum purchase price: €130)
The General Meeting, acting with the quorum and
majority required for ordinary General Meetings, having
heard the report of the Management Board drawn up in
accordance with article L.225-209 of the French Commercial Code, authorizes the Management Board, in
accordance with article L.225-209 of the French Commercial Code, to buy back Company shares in order to
reduce the capital, or in connection with 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.
185
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
The maximum number of shares that may be
acquired pursuant to this authorization may not exceed
10 percent of the issued share capital as of the date of
this Meeting (representing 22,769,834 shares on the
basis of the number of shares outstanding at the last
official count on December 31, 2006).
Resolutions to be voted on
in Extraordinary Meeting
Seventh resolution
The maximum purchase price is set at €130. How-
ever, if all or some of the shares acquired pursuant
to this authorization are intended to be allotted on
exercise of stock options, in application of articles
L.225-177 et seq. of the French Commercial Code,
the selling price of the shares in question will be determined in accordance with the provisions of the law
governing stock options.
Share purchases may not exceed an aggregate
maximum amount of €2,960,078,420.
The shares may be acquired, sold or otherwise
transferred by any appropriate method, and in compliance with current legislation, on the market or over the
counter, including through block purchases or sales,
the use of all forms of derivatives traded on a regulated market or over the counter, or the use of put or call
options including combined puts and calls.
Shares acquired may also be canceled, subject to
compliance with the provisions of articles L.225-204
and L.225-205 of the French Commercial Code and in
accordance with the twenty-third resolution approved
by shareholders at the Annual Meeting of May 3,
2006.
The Management Board may adjust the maximum
and/or minimum prices set above in the following
cases: 1) an issue of bonus shares or increase in the
par value of existing shares paid up by capitalizing
reserves or earnings, 2) a stock split or reverse stock
split, or 3) more generally, any transaction affecting
equity, to account for the impact of such transactions
on the share price. The adjustment will be determined
by multiplying the price by the ratio between the number of shares outstanding before and after the transaction.
This authorization will expire at the end of a period of
eighteen months from the date of this Meeting.
(Amendment of the bylaws to provide for the
election to the Supervisory Board of a
representative of employee shareholders, in
accordance with article L.225-71 of the French
Commercial Code)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings,
having heard the report of the Management Board,
resolves to amend the Company’s bylaws as follows,
in accordance with article 32 of the French Act of
December 30, 2006 on the development of employee
stock ownership. Addition of the following provisions
to article 11:
« c) The Supervisory Board shall include one member
representing employee shareholders, who shall be
elected by the shareholders in General Meeting
according to a process determined by the Supervisory
Board.
If, however, employees of the Company and of related
companies (within the meaning of article L.225-180 of
the French Commercial Code) hold over 3% of the
Company’s capital – as evidenced by the disclosures
made in the annual report drawn up by the Management Board in application of article L.225-102 of the
French Commercial Code – said Supervisory Board
member shall be elected for a four-year term by the
General Meeting voting on a motion tabled by the
shareholders referred to in article L.225-102 of the
French Commercial Code on the basis defined in paragraphs (i) to (iii) below.
(i) The Supervisory Board member representing
employee shareholders shall take up his or her seat on
the Supervisory Board on the date of his or her election by the General Meeting. Where applicable, he or
she shall replace the incumbent member elected on
the basis decided by the Supervisory Board, whose
term shall be considered as having expired. His or her
term shall end at the close of the annual General
Meeting called during the final year of the period for
which he or she was elected. However, his or her term
shall end ipso jure and he or she will be considered as
having resigned in the following cases:
- If he or she is no longer i) an employee of the Company or a related company within the meaning of article L.225-180 of the French Commercial Code, ii) a
shareholder or a holder of units in a mutual fund invested in the Company’s shares, iii) a member of the
supervisory board of the mutual fund that proposed
him or her as a candidate, or
- If employees of the Company and of related companies within the meaning of article L.225-180 of the
French Commercial Code hold less than 3% of the
Company’s capital – as evidenced by the disclosures
made in the annual report drawn up by the Management Board in application of article L.225-102 of the
French Commercial Code.
186
(ii) The General Meeting shall vote on the list of candidates presented by employee shareholders, selected
as follows:
Eighth resolution
a) When the voting rights attached to shares held by
the employees and former employees referred to in
article L.225-102 of the French Commercial Code are
exercised by the supervisory boards of mutual funds
invested in the Company’s shares, each of these
supervisory boards shall designate one or two candidates, selected at their discretion, The Company’s
Management Board may, however, decide to require
two or more supervisory boards to consult together
and to jointly designate one or two candidates.
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings,
having heard the report of the Management Board,
resolves to amend the Company’s bylaws as follows, in
accordance with article L.225-71 of the French Commercial Code:
b) When the voting rights attached to shares held
directly by employees or indirectly by employees or former employees through mutual funds invested in the
Company’s shares, are exercised directly by said
employees or former employees, the candidates shall
be designated through a written consultation process
initiated by the Chairman of the Management Board.
Only candidates endorsed by a group of employee
shareholders together representing at least 5% of the
shares held by employees who exercise their voting
rights directly shall be eligible for election.
c) Candidates for election as the representative of
employee shareholders on the Supervisory Board
must be employed under a contract that qualifies them
to sit on the Supervisory Board for a four-year term
and must hold at least 25 Schneider Electric SA
shares or an equivalent number of units in a mutual
fund invested in the Company’s shares.
d) The conditions and procedures for the designation
of candidates not specified by the applicable laws and
regulations and these bylaws shall be determined by
the Management Board, particularly as regards the
timeline for the selection of candidates.
e) The list of duly designated candidates shall be
drawn up by the Chairman of the Management Board
and appended to the notice of meeting for the General Meeting during which the Supervisory Board member representing employee shareholders is to be elected.
(Amendment to the bylaws to permit the
employees of the French companies in the Group
to be represented on the Supervisory Board)
Addition of the following provisions to article 11:
« d) One member of the Supervisory Board shall be
elected by the employees of the Company and its
direct or indirect subsidiaries that have their registered
office in France. Said member shall be elected according to the process specified in articles L.225-27 to
L.225-34 of the French Commercial Code and these
bylaws, for a four-year term. However, if the member
no longer fulfils the conditions of eligibility set out in
article L.225-28 of the French Commercial Code or his
or her employment contract is terminated in the circumstances set out in article L.225-32 of the Code, he
or she will be considered as having resigned from the
Supervisory Board ipso jure.
All employees of the Company and its French subsidiaries, as defined above, shall be eligible to stand as
candidates and to take part in the vote. Each ballot
paper shall include the name of the candidate and of a
substitute who can be called upon to replace the elected member if he or she becomes unable to serve on
the Supervisory Board for any reason.
8
Candidates other than those presented by a representative trade union within the meaning of article L.423-2
of the French Labor Code, must submit a document
containing the names and signatures of the one hundred employees endorsing the candidate and his or
her substitute.
The election shall comprise two rounds of voting. The
successful candidate shall be the one who receives an
absolute majority of the votes cast in the first round or
a relative majority in the second round.
(iii) The candidate who receives the greatest number
of votes cast by the shareholders present and represented at the General Meeting shall be elected to the
Supervisory Board.
Elections shall be held every four years. They shall be
timed so that the second round of voting, if any, takes
place no later than fifteen days prior to the end of the
normal term of the incumbent Supervisory Board
member representing employees.
If the seat on the Supervisory Board reserved for a
representative of employee shareholders falls vacant,
a new representative shall be appointed on the same
basis prior to the next General Meeting, or at the next
General Meeting if it is held within three months of the
seat falling vacant. The Supervisory Board may meet
and validly conduct business pending the appointment
or election of a new member representing employee
shareholders. »
In all cases where a new election is necessary to
ensure the continued representation of employees on
the Supervisory Board, as provided for in these
bylaws, said election shall be organized without delay.
The new Supervisory Board member shall take up his
or her seat on the Board on the date when the results
of the election are announced. The Supervisory Board
may meet and validly conduct business in the intervening period.
The General Meeting notes that a representative of
employee shareholders will be elected to the Supervisory Board for the first time in accordance with this
amendment to the bylaws at the Annual General Meeting to be held to approve the 2007 financial statements, if applicable.
The election schedule and the aspects of the election
process not dealt with in the French Commercial Code
or these bylaws shall be determined by the Chairman
of the Management Board or by any person duly
empowered by the Chairman. »
187
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
Ninth resolution
(Authorization to increase the capital by
a maximum of €500 million by issuing common
shares or other share equivalents, in all cases
with pre-emptive subscription rights)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings
and having heard the report of the Management Board
and the Auditors’ special report, resolves, in accordance with articles L.225-129-2 and L.228-92 of the
Commercial Code:
To authorize the Management Board, directly or
through a representative, to increase the Company’s
issued share capital on one or several occasions by
issuing, in France or abroad, common shares or
legally recognized securities that are convertible,
redeemable, exchangeable or otherwise exercisable
for shares, at any time or on fixed dates. The securities may be denominated in euros or in any other currency or any monetary unit determined by reference
to a basket of currencies. This authorization is given for
a period of twenty-six months from the date of this
Meeting.
That the issued share capital may be increased during the period by a maximum aggregate amount of
€500 million, taking into account the increases authorized in the 10th and 12th resolutions. The €500 million
ceiling will not include the par value of any shares to be
issued to prevent dilution of the rights of holders of
share equivalents.
That the aggregate par value of debt securities that
are convertible, redeemable, exchangeable or otherwise exercisable for shares may not exceed €1.5 billion.
That holders of existing shares will have a pre-emptive right to subscribe any securities to be issued pro
rata to their existing holdings.
implement this authorization.
That this authorization cancels and replaces the
unused portion of all similar authorizations given at
previous General Meetings.
Tenth resolution
(Authorization to increase the capital by a
maximum of €300 million by issuing common
shares or other share equivalents, in all cases
without pre-emptive subscription rights)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings
and having heard the report of the Management
Board and the Auditors’ special report, resolves, in
accordance with articles L.225-129-2, L.225-135,
L.225-136, L.228-92 and L.228-93 of the Commercial
Code:
To authorize the Management Board, directly or
through a representative, to increase the Company’s
issued share capital on one or several occasions by
issuing, in France or abroad, common shares or
legally recognized securities that are convertible,
redeemable, exchangeable or otherwise exercisable
for common shares in the Company or in any other
company in which it holds more than half of the
issued capital either directly or indirectly, at any time or
on fixed dates. The securities may be denominated in
euros or in any other currency or any monetary unit
determined by reference to a basket of currencies. In
accordance with article L.228-93 of the French Commercial Code, this authorization may be used to issue
shares of the Company on conversion, redemption,
exchange or exercise of share equivalents issued by
companies in which the Company holds more than half
of the issued capital either directly or indirectly.
That if all the securities offered are not taken up by
This authorization is given for a period of twenty-six
months from the date of this Meeting.
shareholders exercising their pre-emptive rights, as
provided for above, the Management Board may offer
all or some of the remaining securities for subscription
by the public, in accordance with article L.225-134 of
the French Commercial Code.
That the issued share capital may be increased during the period by a maximum aggregate amount of
€300 million and that the ceilings set in this resolution
and the ninth resolution are not cumulative.
That this authorization automatically entails the waiver by shareholders of their pre-emptive right to subscribe any common shares issued on redemption,
conversion, exchange or exercise of share equivalents
issued in application of this resolution.
To authorize the Management Board to increase the
Company’s issued share capital on one or several
occasions over a period of twenty-six months by issuing bonus shares or raising the par value of existing
shares to be paid up by capitalizing reserves, earnings, additional paid-in capital or other legally acceptable items in accordance with the bylaws.
That the aggregate capital increases that may be
carried out by issuing bonus shares or raising the par
value of existing shares, combined with any additional
increases to protect the rights of holders of share
equivalents in accordance with the law, may not
exceed the sum of retained earnings, additional paidin capital and earnings before the capital increase.
188
That the Management Board has full powers to
The €300 million ceiling will not include the par value
of any shares to be issued to prevent dilution of the
rights of holders of share equivalents.
That the aggregate par value of debt securities that
are convertible, redeemable, exchangeable or otherwise exercisable for shares may not exceed €1.5 billion and that the ceilings set in this resolution and the
ninth resolution are not cumulative.
That holders of existing shares will not have a pre-
emptive right to subscribe any securities issued, as
allowed under current legislation; however, the Management Board may grant shareholders a non-transferable priority subscription right in accordance with
article L.225-135 of the Commercial Code.
That the amount received by the Company for each
share issued – including where applicable the issue
price of any stand-alone warrants – shall be at least
equal to the minimum price called for by the laws
and/or regulations applicable on the date of issue,
regardless of whether the shares or share equivalents
rank pari passu with existing shares or share equivalents.
That this authorization entails the waiver by shareholders of their pre-emptive right to subscribe any
common shares issued on redemption, conversion,
exchange or exercise of share equivalents issued in
application of this resolution.
That the Management Board has full powers to
implement this authorization.
That this authorization cancels and replaces all sim-
ilar authorizations given at previous General Meetings.
Eleventh resolution
(Authorization to increase the number of
shares to be issued, with or without pre-emptive
subscription rights, if any issue decided in
application of the ninth or tenth resolutions is
oversubscribed)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings
and having heard the report of the Management Board
and the Auditors' special report, resolves, in accordance with article L.225-135-1 of the Commercial
Code:
To authorize the Management Board, directly or
through a representative, to increase, for each issue,
the number of common shares or securities to be
issued in application of the ninth or tenth resolutions as
provided for by law and within the ceilings set out in the
ninth and tenth resolutions.
That the Management Board has full powers to
implement this authorization.
Twelfth resolution
(Authorization to issue shares without
pre-emptive subscription rights in payment for
shares tendered to a public exchange offer
or for contributed assets)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings
and having heard the report of the Management Board
and the Auditors’ special report, resolves that the
authorization given in the tenth resolution may be used
to issue shares in payment for shares of another company tendered to a public exchange offer governed by
article L.225-148 of the Commercial Code.
The General Meeting also gives the Management
Board a 26-month authorization to use the authorization given in the tenth resolution to carry out one or
several share issues representing, in the aggregate, a
maximum of 10% of the Company's issued capital, in
payment for shares or share equivalents contributed to
the Company in transactions not governed by article
L.225-148, based on the values specified in the merger auditors’ report.
In all cases, the amounts of any capital increases carried out pursuant to this resolution and the ceilings set
in the ninth and tenth resolutions are not cumulative
The General Meeting notes that the Management
Board, directly or through a representative, has full
powers to carry out the transactions described in this
resolution and, in consequence, to increase the capital
and place the increase on record.
Thirteenth resolution
(Authorization given to the Management Board
to grant shares without consideration to officers
and employees of the Company and its
subsidiaries and affiliates)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings,
and having heard the report of the Management Board
and the Auditors' special report, resolves, in accordance with articles L.225-197-1 et seq. of the French
Commercial Code:
To authorize the Management Board to grant to officers and employees of the Company, as defined in
article L.225-197-1 of the French Commercial Code,
and its subsidiaries and affiliates, as defined in article
L.225-197-2 of said Code, on one or several occasions, existing or new shares of the Company without
consideration.
That the Management Board shall draw up the list of
8
recipients of the grants, as well as the conditions and
criteria for making said grants.
That the total number of shares granted without consideration under this resolution may not represent
more than 0.5% of the Company's issued capital as of
the date of this Meeting; furthermore, that the sum of
the shares that may be subscribed or purchased on
exercise of options granted under the twenty-fourth
resolution approved by the General Meeting of May 3,
2006 and the shares that may be granted without consideration under this resolution may not represent
more than 3% of the Company's capital.
That rights to said shares shall vest after a period set
by the Management Board, conditional on the achievement of the operating margin and revenue targets set
by the Management Board. The Management Board
shall set the vesting and lock-up periods for the shares
granted without consideration in accordance with article L.225-197-1 of the French Commercial Code. This
may include, for all or some of the shares granted, a
vesting period of no less than four years with no lockup period, or, for the remaining shares, a vesting period of no less than two years with a lock up period of
two years.
That notwithstanding the foregoing, the said shares
shall vest and be available for sale immediately if the
grantee is declared disabled, as defined in article
L.225-197-1 of the French Commercial Code.
To authorize the Management Board to adjust the
number of shares in the case of any corporate actions,
in order to prevent any dilution of beneficiaries’ rights.
That holders of existing shares shall waive their pre-
emptive right to subscribe the shares issued for the
purpose of being granted without consideration. Such
a share issue would be carried out solely when the
said shares vest.
189
Annual and Extraordinary Shareholders’ Meeting of April 26, 2007
That this authorization is given for a period of thirtyeight months from the date of this Meeting. This
authorization cancels and replaces the unused portion
of the authorization given in the twenty-fifth resolution
at the General Meeting of May 3, 2006.
That the Management Board shall have full powers
Shareholders give full powers to the Management
Board to carry out, directly or through a representative,
any and all formalities required to use this authorization, and, where necessary, to adjust the number of
shares to take into account the effects of any corporate
actions, to place on record the capital increase or
increases undertaken pursuant to this authorization,
amend the bylaws to reflect the new capital and generally do everything necessary.
- decide the characteristics of the securities to be
issued, the amounts of the issues, the issue price, the
subscription date or period, the terms and conditions
of subscription, payment and delivery of the securities,
as well as the cum-dividend or cum-interest date, subject to compliance with the applicable laws and regulations;
Fourteenth resolution
- where appropriate, charge the share issue costs to
the related premiums and credit all or part of the
remaining premiums to the legal reserve as needed in
order to raise this reserve to one-tenth of the new capital after each increase;
(Issuance of shares to employees who are
members of an Employee Stock Purchase Plan)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings,
having considered the report of the Management
Board and the Auditors' special report, resolves, pursuant to articles L.443-1 et seq. of the French Labor
Code and L.225.129-6 and L.225-138-1 of the French
Commercial Code, and in accordance with said Commercial Code:
To give the Management Board a five-year authori-
zation from the date of this Meeting to increase the
share capital on one or several occasions, at its discretion, by issuing shares and share equivalents to the
members of an Employee Stock Purchase Plan set up
by French or foreign related companies, in accordance
with article L.225-180 of the French Commercial Code
and article L.444-3 of the French Labor Code. The
maximum nominal amount by which the capital may be
increased may not exceed 5% of the issued capital as
of the date on which this authorization is used.
To set the maximum discount at which shares may
be offered under the Employee Stock Purchase Plan
at 20% 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 to reduce the above discount,
within legal and regulatory limits.
That in the case of an issue of share equivalents,
the characteristics of these securities will be determined in accordance with the applicable regulations by
the Management Board.
That shareholders shall waive their pre-emptive right
to subscribe the shares and share equivalents to be
issued under this authorization.
That shareholders shall waive their pre-emptive right
to subscribe the shares issued on redemption, conversion, exchange or exercise of share equivalents attributed in application of this resolution.
That, effective June 30, 2007, this authorization shall
cancel and replace the unused portion of the authorization given in the twenty-sixth resolution at the General Meeting of May 3, 2006.
190
to use this authorization, including the powers of delegation provided for by law, subject to the limits and
conditions described above. In particular, the Board
shall have full powers to:
- place on record the capital increases corresponding
to the aggregate par value of the shares subscribed
directly or on redemption, conversion, exchange or
exercise of share equivalents;
- enter into any and all agreements, carry out any and
all operations and formalities, directly or through a representative, including the formalities related to the capital increase and the corresponding amendment of the
bylaws, and generally do whatever is necessary;
- generally, enter into any and all underwriting or other
agreements, take any and all measures and perform
any and all formalities related to the issue, quotation
and servicing of the securities issued under this
authorization and the exercise of the related rights.
Fifteenth resolution
(Issuance of shares to entities set up to hold
shares on behalf of employees)
The General Meeting, acting with the quorum and
majority required for extraordinary General Meetings
and having heard the report of the Management Board
and the Auditors' special report, resolves, in accordance with articles L.225-129 to L. 225-129-2 and L.
225-138-1 of the French Commercial Code:
1. To authorize the Management Board, directly or
through a representative, to increase the share capital
on one or several occasions, at its discretion, by issuing shares or share equivalents to the persons falling
into the category defined below. Said shares or share
equivalents will rank pari passu with existing shares.
The maximum nominal amount by which the capital
may be increased may not exceed 0.5% of the issued
capital as of the date of this Meeting. The amount of
any capital increase carried out under this authorization shall be deducted from the aggregate amount by
which the capital may be increased under the tenth
and fourteenth resolutions of this Meeting.
2. To waive shareholders’ pre-emptive right to subscribe shares or share equivalents issued under this
resolution to the following category of beneficiaries: all
incorporated and unincorporated entities governed by
French or foreign law created at the request of a company belonging to the Schneider Electric Group, in
order to enable said entities to subscribe Schneider
Electric shares or share equivalents as permitted
under any applicable foreign law, for the purpose 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 based on
the price quoted for the Company’s shares on the
Eurolist market of Euronext Paris. At the discretion of
the Management Board, said price will be equal to
either (i) the closing price of the Company’s shares
quoted on the trading day preceding the decision of
the Management Board setting the issue price, or (ii)
the average of the opening prices quoted for the Company's shares over the twenty trading days preceding
the decision of the Management Board setting the
issue price. When setting the issue price for these
shares, the Management Board may apply a maximum
discount of 20% to the quoted price of Schneider
Electric shares as determined in accordance with
either (i) or (ii) above. The discount will be determined
by the Management Board taking into consideration
any specific foreign legal, regulatory or tax provisions
that may apply to any beneficiary governed by foreign
law.
Sixteenth resolution
(Powers)
The General Meeting gives full powers to the bearer of
a copy or extract of the minutes of the meeting to carry
out all legal filing and other formalities.
4. That the Management Board shall have full powers
to use this authorization as provided for by law, including the powers of delegation, subject to the limits and
conditions described above. The Management Board
shall have full powers to draw up the list of beneficiaries within the categories defined in this resolution and
set the number of shares to be offered to each beneficiary. It may decide to limit the issue to the number of
shares subscribed, providing that no less than 75% of
the shares or share equivalents offered have been
subscribed. In particular, the Management Board shall
have full powers to:
8
- decide the characteristics of the securities to be
issued, the issue price, the subscription date or period,
the terms and conditions of subscription, payment and
delivery of the securities, as well as the cum-dividend
or cum-interest date, subject to compliance with the
applicable laws and regulations;
- place the share issue on record, issue shares and
share equivalents and amend the bylaws to reflect the
new capital;
- generally, enter into any and all underwriting or other
agreements, take any and all measures and perform
any and all formalities related to the issue, quotation
and servicing of the securities issued under this
authorization and the exercise of the related rights.
5. That, effective June 30, 2007, this authorization
shall cancel and replace the unused portion of the
authorization given in the twenty-sixth resolution at the
General Meeting of May 3, 2006.
This authorization is given for a period of eighteen
months from the date of this Meeting.
The Management Board shall report to the General
Meeting called to approve the financial statements for
the year ended December 31, 2007 on its use of this
authorization, as provided for by law.
191
Attestation
Person responsible for
the registration document
Jean-Pascal Tricoire, Chairman of the Management
Board and CEO
Attestation by the person
responsible for the registration
document
I hereby declare that, having taken all reasonable care
to ensure that such is the case, the information contained in the registration document is, to the best of my
knowledge, in accordance with the facts and contains
no omission likely to affect its import.
I obtained a statement from the Statutory Auditors at
the end of their engagement affirming that they have
read the whole of the registration document and
examined the information about the financial position
and the historical accounts contained therein.
The Statutory Auditors' reports on the historical data
presented in the registration document are provided
on pages 152 and 164 of the said document. The auditors did not have any matters to report concerning this
information and did not qualify their opinion.
The Statutory Auditors’ report on pro forma financial
information presented in the registration document is
provided on page 174. In this report, the Statutory
Auditors draw attention to the fact that APC’s financial
statements for the year ended December 31, 2006 are
unaudited and unpublished and that no assurance is
given that a detailed reconciliation of the two groups’
accounting policies would not reveal any other material reconciling items or adjustment.
Rueil-Malmaison, March 26, 2007
Chairman of the Management Board
Jean-Pascal Tricoire
192
Layout: J. Grison - Sequoia / Photo credits: François Mori, Ambroise Tezenas, Groupe Manitoba, Benoit Decout (Agence Réa), Denis Morel, Bruno Levy (les Echos) / Printing: Gibert Clarey / English text: ICC
Schneider Electric SA
Headquarters
43-45, boulevard Franklin-Roosevelt
F-92500 Rueil-Malmaison Cedex (France)
Tel. : +33 (0) 1 41 29 70 00
Fax : +33 (0) 1 41 29 71 00
Incorporated in France, governed by
a Management Board and Supervisory Board,
with issued capital of € 1,931,467,624 euros
Registered in Nanterre, RCS 542 048 574
Siret no: 542 048 574 01775
www.schneider-electric.com
Printed on paper made from 100% recycled fibers, 100% chlorine free.
All production waste has been recycled.
April 2007
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