FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of April, 2005
Legrand Holding S.A.
(Translation of registrant's name into English)
128, avenue du Maréchal de Lattre de Tassigny
87000 Limoges
France
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________
LEGRAND SAS
CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004
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Consolidated statements of income FRENCH GAAP
Legrand SAS | ||||||||||
Statutory period from | Statutory period from | Statutory period from | ||||||||
Jan 01, 2004 to | Period from Jan 01, | Period from Aug 01, | Aug 01, 2002 to | Jan 01, 2002 to | ||||||
Dec 31,2004 | 2003 to Dec 31, 2003 | 2002 to Dec 31, 2002 | Dec 31, 2003 | Jul 31, 2002 | ||||||
€ in millions | ||||||||||
Net sales | 2,926.3 | 2,761.8 | 222.0 | 2,983.8 | 0.0 | |||||
Operating expenses | ||||||||||
Cost of goods sold | (1,575.3 | ) | (1,640.4 | ) | (179.0 | ) | (1,819.4 | ) | 0.0 | |
Administrative and selling expenses | (758.5 | ) | (733.5 | ) | (64.0 | ) | (797.5 | ) | 0.0 | |
Research and development expenses | (251.0 | ) | (258.5 | ) | (113.0 | ) | (371.5 | ) | 0.0 | |
Other operating income (expenses) | 13.0 | 17.3 | 6.0 | 23.3 | 0.0 | |||||
Amortization of goodwill | (43.9 | ) | (44.7 | ) | (3.0 | ) | (47.7 | ) | 0.0 | |
Operating income (loss) | 310.6 | 102.0 | (131.0 | ) | (29.0 | ) | 0.0 | |||
Interest income (expense) | (242.9 | ) | (194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | |
Loss on extinguishment of debt | (50.7 | ) | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Profit (losses) from disposal of fixed assets | 5.3 | (3.7 | ) | (5.0 | ) | (8.7 | ) | 0.0 | ||
Other income (expenses) | (76.5 | ) | (42.2 | ) | (6.0 | ) | (48.2 | ) | 0.0 | |
Income (loss) before taxes, minority interests | ||||||||||
and equity in earnings of investees | (54.2 | ) | (138.2 | ) | (162.0 | ) | (300.2 | ) | 0.0 | |
Income taxes | (62.1 | ) | (33.2 | ) | 29.0 | (4.2 | ) | 0.0 | ||
Net income (loss) before minority interests | ||||||||||
and equity in earnings of investees | (116.3 | ) | (171.4 | ) | (133.0 | ) | (304.4 | ) | 0.0 | |
Minority interests | (1.2 | ) | (0.9 | ) | 2.0 | 1.1 | 0.0 | |||
Equity in earnings of investees | 2.6 | 2.4 | 2.0 | 4.4 | 0.0 | |||||
Net income (loss) | (114.9 | ) | (169.9 | ) | (129.0 | ) | (298.9 | ) | 0.0 | |
The accompanying notes on pages 7 to 47 are an integral part of these financial statements.
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Consolidated balance sheets FRENCH GAAP
Legrand SAS | ||||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalent | 68.3 | 67.9 | 559.0 | |||
Marketable securities | 13.1 | 32.6 | 196.0 | |||
Restricted cash | 27.0 | 37.0 | 23.0 | |||
Trade accounts receivable | 495.7 | 509.9 | 598.0 | |||
Deferred income taxes | 30.3 | 34.7 | 48.0 | |||
Other current assets | 124.2 | 112.1 | 85.0 | |||
Inventories | 422.0 | 385.5 | 530.0 | |||
Total current assets | 1,180.6 | 1,179.7 | 2,039.0 | |||
Property, plant and equipment, net | 816.0 | 914.9 | 1,025.0 | |||
Investments | 18.4 | 21.8 | 26.0 | |||
Goodwill, net | 788.8 | 810.4 | 844.0 | |||
Trademarks, net | 1,526.3 | 1,591.1 | 1,643.0 | |||
Developed Technology, net | 337.7 | 449.9 | 586.0 | |||
Restricted cash | 0.0 | 90.5 | 127.0 | |||
Deferred income taxes | 42.2 | 32.3 | 124.0 | |||
Other non-current assets | 38.9 | 93.9 | 167.0 | |||
Total non-current assets | 3,568.3 | 4,004.8 | 4,542.0 | |||
Total assets | 4,748.9 | 5,184.5 | 6,581.0 | |||
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Legrand SAS | ||||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities | ||||||
Short-term borrowings | 232.2 | 130.8 | 734.0 | |||
Accounts and notes payable | 311.3 | 252.7 | 269.0 | |||
Deferred income taxes | 3.8 | 3.0 | 48.0 | |||
Other current liabilities | 328.7 | 347.4 | 435.0 | |||
Total current liabilities | 876.0 | 733.9 | 1,486.0 | |||
Deferred income taxes | 198.3 | 167.4 | 280.0 | |||
Other non-current liabilities | 290.7 | 227.3 | 205.0 | |||
Long-term borrowings | 1,150.1 | 1,707.7 | 2,606.0 | |||
Subordinated securities | 68.9 | 108.9 | 158.0 | |||
Related party | 1,940.5 | 1,839.6 | 1,156.0 | |||
Minority interests | 19.5 | 18.2 | 64.0 | |||
Shareholders' equity | ||||||
Capital stock | 759.4 | 759.4 | 759.4 | |||
Accumulated deficits | (413.7 | ) | (298.8 | ) | (129.0 | ) |
Translation reserve | (140.8 | ) | (79.1 | ) | (4.4 | ) |
204.9 | 381.5 | 626.0 | ||||
Total liabilities and shareholders' equity | 4,748.9 | 5,184.5 | 6,581.0 | |||
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Consolidated statements of cash flows FRENCH GAAP
Legrand SAS | |||||||||||
Statutory period fromJan 01, 2004 to Dec 31,2004 | Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period fromAug 01, 2002 to Dec 31, 2003 | Statutory period fromJan 01, 2002 to Jul 31, 2002 | |||||||
€ in millions | |||||||||||
Net income (loss) | (114.9 | ) | (169.9 | ) | (129.0 | ) | (298.9 | ) | 0.0 | ||
Reconciliation of net income to net cash : | |||||||||||
– depreciation of tangible assets | 141.5 | 155.8 | 13.0 | 168.8 | 0.0 | ||||||
– amortization of intangible assets | 177.8 | 191.2 | 108.0 | 299.2 | 0.0 | ||||||
– allowance for tangible and intangible assets | 0.6 | ||||||||||
– loss on extinguishment of debt | 50.7 | ||||||||||
– changes in long-term deferred taxes | (17.0 | ) | (50.4 | ) | (2.0 | ) | (52.4 | ) | 0.0 | ||
– changes in other long-term assets and liabilities | 65.9 | 4.6 | (2.0 | ) | 2.6 | 0.0 | |||||
– minority interests | 1.2 | 0.9 | (3.0 | ) | (2.1 | ) | 0.0 | ||||
– equity in earnings of investees | (2.6 | ) | (2.4 | ) | (2.0 | ) | (4.4 | ) | 0.0 | ||
– other items having impacted the cash | 48.5 | 138.1 | 63.0 | 201.1 | 0.0 | ||||||
(Gains) losses on fixed asset disposals | (5.6 | ) | (1.2 | ) | 14.0 | 12.8 | 0.0 | ||||
(Gains) losses on sales of securities | 0.3 | (0.6 | ) | 0.0 | (0.6 | ) | 0.0 | ||||
Changes in operating assets and liabilities, net of effect | |||||||||||
of investments in consolidated entities : | |||||||||||
– inventories | (40.8 | ) | (1.9 | ) | 54.0 | 52.1 | 0.0 | ||||
– accounts receivable | 9.8 | 61.1 | 17.0 | 78.1 | 0.0 | ||||||
– accounts and notes payable | 60.9 | (7.5 | ) | (77.0 | ) | (84.5 | ) | 0.0 | |||
– other operating assets and liabilities | (5.7 | ) | (62.7 | ) | (137.0 | ) | (199.7 | ) | 0.0 | ||
Net cash (used in) provided from operating activities | 370.6 | 255.1 | (83.0 | ) | 172.1 | 0.0 | |||||
Net proceeds from sales of fixed assets | 45.4 | 16.8 | 170.0 | 186.8 | 0.0 | ||||||
Capital expenditures | (95.7 | ) | (112.6 | ) | (16.0 | ) | (128.6 | ) | 0.0 | ||
Proceeds from sales of marketable securities | 138.4 | 312.3 | 213.0 | 525.3 | 0.0 | ||||||
Investments in marketable securities | (18.5 | ) | (29.0 | ) | (202.0 | ) | (231.0 | ) | 0.0 | ||
Investments in consolidated entities | 0.0 | (72.8 | ) | (3,067.0 | ) | (3,139.8 | ) | 0.0 | |||
Investments in non-consolidated entities | (0.1 | ) | (0.2 | ) | 0.0 | (0.2 | ) | 0.0 | |||
Net cash (used in) provided from investing activities | 69.5 | 114.5 | (2,902.0 | ) | (2,787.5 | ) | 0.0 | ||||
Related to shareholders' equity : | |||||||||||
– capital increase | 0.0 | 0.0 | 760.0 | 760.0 | 0.0 | ||||||
– dividends paid by subsidiaries | (0.8 | ) | (1.1 | ) | (2.0 | ) | (3.1 | ) | 0.0 | ||
Other financing activities : | |||||||||||
– reduction of subordinated securities | (39.9 | ) | (50.0 | ) | (4.0 | ) | (54.0 | ) | 0.0 | ||
– new borrowings | 929.7 | 604.0 | 3,063.0 | 3,667.0 | 0.0 | ||||||
– repayments of borrowings | (1,282.4 | ) | (820.3 | ) | (273.0 | ) | (1,093.3 | ) | 0.0 | ||
– debt issuance costs | (6.3 | ) | (7.5 | ) | 0.0 | (7.5 | ) | 0.0 | |||
– increase (reduction) of commercial paper | 0.0 | (508.0 | ) | (30.0 | ) | (538.0 | ) | 0.0 | |||
– increase (reduction) of bank overdrafts | (40.2 | ) | (87.2 | ) | 23.0 | (64.2 | ) | 0.0 | |||
Net cash (used in) provided from financing activities | (439.9 | ) | (870.1 | ) | 3,537.0 | 2,666.9 | 0.0 | ||||
Net effect of currency translation on cash | 0.2 | 9.4 | 7.0 | 16.4 | 0.0 | ||||||
Increase (reduction) of cash and cash equivalents | 0.4 | (491.1 | ) | 559.0 | 67.9 | 0.0 | |||||
Cash and cash equivalents at the beginning of the period | 67.9 | 559.0 | 0.0 | 0.0 | 0.0 | ||||||
Cash and cash equivalents at the end of the period | 68.3 | 67.9 | 559.0 | 67.9 | 0.0 | ||||||
The accompanying notes on pages 7 to 47 are an integral part of these financial statements.
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Consolidated statements of shareholder’s equity FRENCH GAAP
Capital stock, at par value | Additional paid-in capital | Retained earnings | Translation reserve | Total shareholders' equity | |||||||
Euros, in millions | |||||||||||
As of December 31, 2001 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Net income for the period | |||||||||||
Capital increase | |||||||||||
Changes in translation reserve | |||||||||||
As of July 31, 2002 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Net income for the period | |||||||||||
Capital increase | |||||||||||
Changes in translation reserve | |||||||||||
As of July 31, 2002 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Net income for the period | (129.0 | ) | (129.0 | ) | |||||||
Capital increase | 759.4 | 759.4 | |||||||||
Changes in translation reserve | (4.4 | ) | (4.4 | ) | |||||||
As of December 31, 2002 | 759.4 | 0.0 | (129.0 | ) | (4.4 | ) | 626.0 | ||||
Net income for the period | (169.9 | ) | (169.9 | ) | |||||||
Capital increase | 0.0 | ||||||||||
Changes in translation reserve | 0.1 | (74.7 | ) | (74.6 | ) | ||||||
As of December 31, 2003 | 759.4 | 0.0 | (298.8 | ) | (79.1 | ) | 381.5 | ||||
Net income for the period | (114.9 | ) | (114.9 | ) | |||||||
Capital increase | 0.0 | ||||||||||
Changes in translation reserve | (61.7 | ) | (61.7 | ) | |||||||
As of December 31, 2004 | 759.4 | 0.0 | (413.7 | ) | (140.8 | ) | 204.9 | ||||
The accompanying notes on pages 7 to 47 are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
List of consolidated companies
The most significant consolidated operating subsidiary, Legrand SA is 100 % owned (operating subsidiaries of Legrand SA are all 100% owned by Legrand SA except for Fael, which is 93% owned). The following is a list of Legrand SAS's significant subsidiaries:
French subsidiaries: | ||
Legrand SA | ||
APW | ||
Arnould-FAE | ||
Baco | ||
Inovac | ||
Legrand Deri | ||
Legrand SNC | ||
Martin & Lunel | ||
Planet-Wattohm | ||
Ura | ||
Foreign subsidiaries: | ||
Anam Legrand | South Korea | |
Bticino | Italy | |
Bticino de Mexico | Mexico | |
Bticino Quintela | Spain | |
Bufer Elektrik | Turkey | |
Electro Andina | Chile | |
Fael | Poland | |
Legrand | Germany | |
Legrand | Italy | |
Legrand Electric | United Kingdom | |
Legrand Electrica | Portugal | |
Legrand Electrique | Belgium | |
Legrand Espanola | Spain | |
Legrand | Greece | |
Luminex | Colombia | |
Legrand India | India | |
Ortronics | United States | |
Pass & Seymour | United States | |
Pial | Brazil | |
The Watt Stopper | United States | |
The Wiremold Company | United States |
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1) | Accounting policies |
The Group's consolidated financial statements are prepared in conformity with accounting principles generally accepted in France. They comply with the requirements of French laws and regulations. The financial statements of each company, whether (“French GAAP”) consolidated or accounted for by the equity method, are prepared in accordance with local accounting principles and regulations, and have been adjusted to comply with French GAAP.
a) | Basis of presentation and acquisition of Legrand SA |
Prior to December 10, 2002, Legrand SAS had no significant operations of its own. As of December 31, 2001, the Group had total assets and shareholders' equity of less than €100,000 and total liabilities of less than € 10,000. For the period from January 1, 2002 to July 31, 2002 and each of the years ended December 31, 2001 and 2000, the Group had no revenues, incurred expenses of less than € 10,000, earned interest income of less than € 5,000 and generated a net loss of less than € 5,000.
The aggregate purchase price for the acquisition of Legrand SA, as well as related fees and expenses was financed by a combination of funds provided by a consortium of investors (€ 1,765 million), external banks (a facility under the senior credit agreement was drawn for an amount of € 1,833 million) and a vendor loan from Schneider Electric (€ 150 million).
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed, as of the date of the acquisition of Legrand SA.
As of December 10, 2002 | |||||
Total purchase price | 3,700 | ||||
(+) transaction costs | 93 | ||||
(-) net assets acquired(a) | (794 | ) | |||
= Excess of purchase price over the book value of net assets acquired | 2,999 | ||||
(-) Revaluation of assets & liabilities: | (2,152 | ) | |||
Intangible assets | 2,231 | ||||
Trademarks | 1,566 | ||||
Technology | 570 | ||||
In-process research and development | 95 | ||||
Tangible assets | 214 | ||||
Property, plant and equipment | 39 | ||||
Inventories | 175 | ||||
Liabilities(b) | 68 | ||||
Subordinated perpetual notes (TSDIs) | 57 | ||||
Yankee Bonds | 11 | ||||
Deferred income taxes(c) | (329 | ) | |||
Other | (48 | ) | |||
Minority interest | 16 | ||||
Goodwill | 847 |
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(a) | Shareholders' equity of € 1,805 million excluding goodwill of € 1,011 million |
(b) | Carrying value in excess of fair value |
(c) | Deferred income taxes have been computed based on a 35.43 % tax rate, applied to trademarks, technology and revalued tangible assets. Under French GAAP, deferred income taxes were not computed on trademarks with an indefinite useful life. |
As part of the acquisition of Legrand SA, the Group acquired approximately € 95 million of in-process research and development assets. This allocation represents the estimated fair value based on risk-adjusted future cash flows related to the incomplete projects. At the date of the acquisition, the development of these projects had not yet reached technological feasibility and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the date of the acquisition in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method ("FIN 4").
b) | Consolidation |
The financial statements of all subsidiaries, directly or indirectly controlled by the Group, are consolidated. Companies in which the Group owns directly or indirectly an interest of 20 to 50% are accounted for by the equity method. All intercompany transactions have been eliminated.
c) | Translation of foreign financial statements | |
For all countries other than those with highly inflationary economies: | ||
• | Assets and liabilities are translated using exchange rates in effect as of the balance sheet dates; | |
• | Statements of income are translated at average exchange rates for the period; and | |
• | Gains or losses arising from the translation of the financial statements of foreign subsidiaries are accounted for directly in the translation reserve included in consolidated equity, until these companies are sold or substantially liquidated. | |
For countries with highly inflationary economies: | ||
• | Inventories and non-monetary assets are recorded at their historical rates of exchange; | |
• | Gains or losses arising from the translation of the financial statements of subsidiaries | |
• | Other assets and liabilities are translated using exchange rates in effect as of the balance sheet dates; and located in these countries are included in the consolidated statement of income under the heading "Exchange and translation gains (losses)". | |
For all countries: | ||
• | Exchange differences arising from foreign currency transactions (transactions denominated in a currency other than the functional currency) are included in the consolidated statement of income under the heading "Exchange and translation gains (losses)", excepted intercompany transactions having the character of a permanent investment which are directly recorded in the translation reserve. |
d) | Earnings per share |
Earnings per share are not presented as the Group's shares are not held by the public.
e) | Statements of cash flows |
Cash and cash equivalents consist of cash, short-term deposits and all other financial assets with an original maturity not in excess of three months. Marketable securities are not considered cash equivalents.
f) | Intangible assets |
Goodwill, representing the excess of cost over the fair value of net assets as of the date of the acquisition, is amortized on a straight-line basis over 20 years. The Group assesses whether there has been a permanent impairment in the value of goodwill by evaluating economic factors including future cash flows from operating activities, income, trends and prospects as well as competition and other economic factors. The primary financial indicator used to assess impairment is whether
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undiscounted cash flows from operations over the amortization period will be sufficient to recover the carrying amount of goodwill. A loss is recognized for any excess of the carrying value over the fair value of the goodwill, determined as being the present value of such cash flows from operations.
g) | Property, plant and equipment |
Light buildings | 25 years |
Standard buildings | 40 years |
Machinery and equipment | 8 to 10 years |
Tooling | 5 years |
Furniture and fixtures | 5 to 10 years |
h) | Inventories |
i) | Deferred income taxes |
j) | Revenue recognition |
k) | Fair value of financial instruments |
l) | Derivative financial and commodity instruments |
m) | Environmental and product liabilities |
n) | Stock option plans |
o) | Use of estimates |
p) | Transfers and servicing of financial assets |
2) | Goodwill (note 1 (f)) |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Gross value | 876.3 | 856.2 | 847.0 | |||
Less Accumulated Amortization | (87.5 | ) | (45.8 | ) | (3.0 | ) |
788.8 | 810.4 | 844.0 | ||||
of which : | ||||||
– France | 272.3 | 287.5 | 288.0 | |||
– Italy | 200.2 | 211.4 | 212.0 | |||
– Other European countries | 64.1 | 67.6 | 68.0 | |||
– United States of America | 164.3 | 134.0 | 169.0 | |||
– Other countries | 87.9 | 109.9 | 107.0 | |||
788.8 | 810.4 | 844.0 | ||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Gross value | ||||||
At the beginning of the period | 856.2 | 847.0 | — | |||
– new acquisitions | — | — | 847.0 | |||
– translation effect and other | 20.1 | 9.2 | — | |||
At the end of the period | 876.3 | 856.2 | 847.0 | |||
Amortization | ||||||
At the beginning of the period | (45.8 | ) | (3.0 | ) | — | |
– amortization expense | (43.9 | ) | (44.7 | ) | (3.0 | ) |
– translation effect and other | 2.2 | 1.9 | — | |||
At the end of the period | (87.5 | ) | (45.8 | ) | (3.0 | ) |
3) | Trademarks and developed technology |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
At the beginning of the period | 1,596.9 | 1,644.0 | — | |||
– capital expenditure | — | — | 1,644.0 | |||
– disposals | — | — | — | |||
– translation effect and other | (60.3 | ) | (47.1 | ) | — | |
1,536.6 | 1,596.9 | 1,644.0 | ||||
Less amortization | (10.3 | ) | (5.8 | ) | (1.0 | ) |
1,526.3 | 1,591.1 | 1,643.0 | ||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
At the beginning of the period | 578.3 | 593.0 | — | |||
– capital expenditure | — | — | 593.0 | |||
– disposals | — | — | — | |||
– translation effect and other | (3.9 | ) | (14.7 | ) | — | |
574.4 | 578.3 | 593.0 | ||||
Less amortization | (236.7 | ) | (128.4 | ) | (7.0 | ) |
337.7 | 449.9 | 586.0 | ||||
Developed | Trademarks | Total | ||||
technology | ||||||
€ in millions | ||||||
France | 58.6 | 1.9 | 60.5 | |||
Italy | 29.3 | — | 29.3 | |||
Rest of Europe | 7.9 | 0.4 | 8.3 | |||
USA | 10.9 | 1.7 | 12.6 | |||
Rest of the World | 3.3 | 0.9 | 4.2 | |||
110.0 | 4.9 | 114.9 | ||||
Developped | Trademarks | Total | ||||
technology | ||||||
€ in millions | ||||||
Year 2005 | 96.2 | 4.6 | 100.8 | |||
Year 2006 | 80.2 | 4.3 | 84.5 | |||
Year 2007 | 57.3 | 4.0 | 61.3 | |||
Year 2008 | 45.8 | 3.8 | 49.6 | |||
Year 2009 | 28.6 | 3.5 | 32.1 | |||
4) | Property, plant and equipment (note 1 (g)) |
a) | Analysis of net tangible assets by geographic area |
Dec 31, 2003 | |||||||||||||
France | Italy | Rest of Europe | USA / Canada | Rest of the World | Total | ||||||||
€ in millions | |||||||||||||
Land | 24.4 | 5.4 | 21.5 | 3.6 | 16.6 | 71.5 | |||||||
Buildings | 156.4 | 66.2 | 72.0 | 28.5 | 22.3 | 345.4 | |||||||
Machinery and equipment | 186.4 | 90.9 | 51.2 | 48.8 | 25.4 | 402.7 | |||||||
In progress and other | 34.5 | 6.5 | 19.2 | 23.4 | 11.7 | 95.3 | |||||||
401.7 | 169.0 | 163.9 | 104.3 | 76.0 | 914.9 | ||||||||
Dec 31, 2004 | |||||||||||||
France | Italy | Rest of Europe | USA / Canada | Rest of the World | Total | ||||||||
€ in millions | |||||||||||||
Land | 23.6 | 5.4 | 20.5 | 3.3 | 16.9 | 69.7 | |||||||
Buildings | 144.7 | 68.8 | 60.0 | 24.7 | 19.1 | 317.3 | |||||||
Machinery and equipment | 157.7 | 85.1 | 43.9 | 36.1 | 26.3 | 349.1 | |||||||
In progress and other | 27.9 | 3.5 | 17.6 | 21.9 | 9.0 | 79.9 | |||||||
353.9 | 162.8 | 142.0 | 86.0 | 71.3 | 816.0 | ||||||||
b) | Analysis of changes in tangible assets |
Changes in property, plant and equipment, can be analyzed as follows:
Dec 31, 2004 | |||||||||||||
France | Italy | Rest of Europe | USA / Canada | Rest of the World | Total | ||||||||
€ in millions | |||||||||||||
Capital expenditures | 31.0 | 20.0 | 14.7 | 10.8 | 10.5 | 87.0 | |||||||
Disposals at NBV | (18.4 | ) | (0.2 | ) | (20.8 | ) | (1.3 | ) | (4.4 | ) | (45.1 | ) | |
Amortization expense | (62.3 | ) | (25.9 | ) | (21.2 | ) | (21.7 | ) | (10.4 | ) | (141.5 | ) | |
Transfers | 1.9 | (0.1 | ) | 2.3 | — | (0.2 | ) | 3.9 | |||||
Translation effect | — | — | 3.1 | (6.1 | ) | (0.2 | ) | (3.2 | ) | ||||
(47.8 | ) | (6.2 | ) | (21.9 | ) | (18.3 | ) | (4.7 | ) | (98.9 | ) | ||
Dec 31, 2004 | |||||||||||||||
Capital | In progress | Disposals at | Amortization | Translation | |||||||||||
expenditures | transfer | NBV | expense | Transfers | effect | Total | |||||||||
€ in millions | |||||||||||||||
Land | — | — | (2.3 | ) | — | — | 0.5 | (1.8 | ) | ||||||
Buildings | 4.6 | 11.6 | (22.0 | ) | (21.8 | ) | 0.1 | (0.6 | ) | (28.1 | ) | ||||
Machinery and equipment | 43.7 | 22.9 | (15.4 | ) | (101.1 | ) | (1.6 | ) | (2.1 | ) | (53.6 | ) | |||
In progress and other | 38.7 | (34.5 | ) | (5.4 | ) | (18.6 | ) | 5.4 | (1.0 | ) | (15.4 | ) | |||
87.0 | — | (45.1 | ) | (141.5 | ) | 3.9 | (3.2 | ) | (98.9 | ) | |||||
c) | Property, plant and equipment include the following assets held under capital leases: |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Land | 3.9 | 3.9 | 4.0 | ||||
Buildings | 36.7 | 55.2 | 40.0 | ||||
Machinery and equipment | 35.4 | 7.6 | 6.0 | ||||
76.0 | 66.7 | 50.0 | |||||
Less depreciation | (37.2 | ) | (14.2 | ) | — | ||
38.8 | 52.5 | 50.0 | |||||
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d) | Capital lease obligations are presented in the balance sheets as follows: |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Long-term borrowings | 18.5 | 22.0 | 25.0 | ||||
Short-term borrowings | 7.3 | 5.8 | 9.0 | ||||
25.8 | 27.8 | 34.0 | |||||
e) | Future minimum lease payments related to capital leases are as follows: |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Payable within one year | 7.3 | 7.3 | 9.0 | ||||
Payable in one to two years | 8.1 | 6.8 | 10.0 | ||||
Payable in two to three years | 7.1 | 6.1 | 6.0 | ||||
Payable in three to four years | 3.2 | 5.2 | 5.0 | ||||
Payable in four to five years | 0.9 | 2.2 | 5.0 | ||||
Payable beyond five years | 1.8 | 2.3 | 2.0 | ||||
28.4 | 29.9 | 37.0 | |||||
Less interest portion | (2.6 | ) | (2.1 | ) | (3.0 | ) | |
Present value of future minimum lease payments | 25.8 | 27.8 | 34.0 | ||||
5) | Investments |
Investments which do not relate to consolidated companies are as follows:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Equity method investees | 12.5 | 11.7 | 15.0 | ||||
Other investments | 5.9 | 10.1 | 11.0 | ||||
18.4 | 21.8 | 26.0 | |||||
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The key figures, which relate to equity method investees, are as follows:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Net sales | 30.3 | 27.8 | 31.0 | ||||
Net income | 3.0 | 3.5 | 4.0 | ||||
Total assets | 22.9 | 22.9 | 28.0 | ||||
6) | Other non-current assets |
The other non-current assets are as follows :
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Deferred charges | — | 11.6 | 71.0 | ||||
Softwares | 11.5 | 13.5 | 18.0 | ||||
Miscellaneous | 27.4 | 68.8 | 78.0 | ||||
38.9 | 93.9 | 167.0 | |||||
The line Miscellaneous includes principally debt issuance costs.
Debt issuance cost related to Senior credit agreement has been entirely written off following reimbursement of this facility.
7) | Restricted cash |
Under the terms of the "senior credit agreement" (note 16), a bank deposit amounting to € 150 million was required to be maintained in an account with the facility agent under the senior credit agreement and will be released according to the amortization schedule set forth below. The deposit earns interest based on market conditions and is available only for payments on the TSDIs or related derivative obligations.
Concomitant to the new ‘facility agreement’, the bank deposit has been released accordingly. The remaining part concerns cash collateral related to other existing derivative obligations.
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
2003 | — | — | 23.0 | ||||
2004 | — | 37.0 | 37.0 | ||||
2005 | 27.0 | 43.0 | 43.0 | ||||
2006 | — | 31.5 | 31.0 | ||||
2007 | — | 16.0 | 16.0 | ||||
27.0 | 127.5 | 150.0 | |||||
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8) | Inventories (note 1 (h)) |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Purchased raw materials and parts | 143.6 | 129.5 | 133.0 | ||||
Sub-assemblies, work-in-process | 93.2 | 89.1 | 118.0 | ||||
Finished goods | 246.9 | 227.7 | 340.0 | ||||
483.7 | 446.3 | 591.0 | |||||
Less : allowances | (61.7 | ) | (60.8 | ) | (61.0 | ) | |
422.0 | 385.5 | 530.0 | |||||
Inventories were revalued by € 175.2 million as of the date of the acquisition of Legrand SA by the Group.
The reversal of this revaluation was as follows:
Euros, in | |||
millions | |||
Inventory revaluation | 175.2 | ||
Reversal in 2002 | 49.4 | ||
Reversal in 2003 | 125.8 | ||
9) | Trade accounts receivable |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Trade accounts receivable | 433.4 | 428.0 | 432.0 | ||||
Notes receivable | 94.8 | 115.1 | 191.0 | ||||
528.2 | 543.1 | 623.0 | |||||
Less : allowances | (32.5 | ) | (33.2 | ) | (25.0 | ) | |
495.7 | 509.9 | 598.0 | |||||
The Group realizes over 95 % of its sales from sales to distributors of electrical fittings, each of the two largest distributors representing approximately 13 % of consolidated net sales.
10) | Marketable securities |
Marketable securities are carried at the lower of cost or market.
The fair values of the marketable securities are equal to the net book values.
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11) | Capital stock |
Capital stock consists of the following:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Common shares | 75,971,090.0 | 75,933,590.0 | 75,933,590.0 | ||||
Issued and Outstanding | — | — | — | ||||
Held by the Group | — | — | — | ||||
75,971,090.0 | 75,933,590.0 | 75,933,590.0 | |||||
12) | Stock options and employee profit sharing |
a) | Legrand SA stock option plans |
In May 1999, the shareholders authorized the company to issue, until May 2004, up to 700,000 options to purchase or subscribe to common shares or preferred, non-voting shares. This option plan is open to all French employees. On December 13, 1999, the company established a new plan for the purchase of common shares, open to all French employees meeting certain limited employment qualifications. The exercise price is equal to the average opening market price of the shares on the Paris stock exchange for twenty trading days prior to December 13. The options may not be exercised for 5 years subsequent to the date of the grant and may be exercised for a period of 2 years subsequent to that date. Options granted do not vest for 5 years subsequent to the date of the grant and are forfeited if the employee is dismissed for wilful misconduct. On November 21, 2000, the company established a new stock subscription plan open to all French employees meeting certain limited employment qualifications which options could be granted at a price equal to the average opening market price of the shares on the Paris stock exchange for twenty trading days prior to November 21, 2000. The options may not be exercised for 5 years subsequent to the date of the grant and may be exercised for a period of 2 years subsequent to that date. On November 13, 2001, the company established a new stock subscription plan open to all French employees meeting certain limited employment qualifications which options could be granted at a price equal to the average opening market price of the shares on the Paris stock exchange for twenty trading days prior to November 21, 2000. The options may not be exercised for 4 years subsequent to the date of the grant and may be exercised for a period of 3 years subsequent to that date.
On December 10, 2002, Legrand SAS and Schneider entered into a call and put option agreement whereby Schneider has agreed that it will sell to Legrand SAS, if Legrand SAS so wishes, and Legrand SAS has agreed to purchase, if Schneider so wishes, all ordinary and preferred non-voting shares of Legrand SA held by Schneider as a result of the exercise of such stock options. The call options is exercisable by Legrand SAS for a period of six months from the date on which Schneider becomes the recorded owner of the relevant Legrand SA shares and the put option may be exercised by Schneider after six months and fifteen days from the date on which Schneider becomes the recorded owner of the relevant Legrand SA shares and in no event later than twelve months after such date.
Options subject to Schneider’s stock options undertaking have exercise periods that continue through and until November 2007. As of December 31, 2004, the total number of options subject to Schneider undertaking (and thus subject to the put and call agreement) was 552,582 with respect to Legrand SA’s ordinary shares.
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Nature of the plans | subscription | purchase | |||||||||
Dates of attribution of options | 1998 | 2000 | 2001 | 1999 | |||||||
Nature of shares offered | common | preferred | common | common | common | ||||||
Number of grantees | 6 | 8,999 | 9,122 | 8,814 | |||||||
Exercisable from | October-98 | Nov-05 | Nov-05 | Dec-04 | |||||||
Exercisable until | October-04 | Nov-07 | Nov-08 | Dec-06 | |||||||
Option price (in Euros) before retained earnings distribution | 165.56 | 100.01 | 191.50 | 143.00 | 222.00 | ||||||
Option price (in Euros) after retained earnings distribution | 121.20 | 61.77 | 140.19 | 104.68 | 162.51 | ||||||
Number of options granted | 7,500 | 2,500 | 124,240 | 178,766 | 85,708 | ||||||
Options cancelled | (2,000 | ) | (18 | ) | (4,508 | ) | |||||
Balance at the end of 2002 | 5,500 | 2,500 | 124,222 | 178,766 | 81,200 | ||||||
New options issued from retained earnings distribution as at Nov 15, 2003 | 513 | 489 | 16,218 | 21,353 | 11,998 | ||||||
Options exercised | |||||||||||
Options cancelled | (372 | ) | (372 | ) | (376 | ) | |||||
Balance at the end of 2003 | 6,013 | 2,989 | 140,068 | 199,747 | 92,822 | ||||||
New options issued from retained earnings distribution as at Mar 30, 2004 | 1,507 | 1,057 | 38,002 | 52,996 | 28,963 | ||||||
Options exercised | (7,520 | ) | (4,046 | ) | |||||||
Options cancelled | (9 | ) | (7 | ) | |||||||
Balance at the end of 2004 | — | — | 178,061 | 252,743 | 121,778 | ||||||
Nature of the plans | subscription | purchase | |||||||||
Dates of attribution of options | 1998 | 2000 | 2001 | 1999 | |||||||
Nature of shares offered | common | preferred | common | common | common | ||||||
Expected average life (years) | 4 years | 5 years | 4 years | 5 years | |||||||
Interest rate (5 years bonds) | 3.50% | 5.54% | 5.35% | 4.76% | |||||||
Implied volatility | 43.20% | 36.50% | 39.40% | 49.70% | 31.60% | ||||||
Dividend yield | 1.00% | 2.60% | 1.30% | 1.40% | 1.20% | ||||||
Fair value of the option (Euros) | 93 | 47 | 73 | 58 | 71 | ||||||
b) | Employee profit sharing |
13) | Accumulated deficits and foreign translation reserve |
a) | Accumulated deficits |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Legal reserve (not distributable) | — | — | — | ||||
Accumulated deficits | (413.7 | ) | (298.8 | ) | (129.0 | ) | |
Share earnings of consolidated companies | — | — | — | ||||
(413.7 | ) | (298.8 | ) | (129.0 | ) | ||
b) | Foreign currency translation reserve |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
US dollar | (137.7 | ) | (92.0 | ) | (1.0 | ) | |
Other currencies | (3.1 | ) | 12.9 | (3.4 | ) | ||
(140.8 | ) | (79.1 | ) | (4.4 | ) | ||
The line "other currencies" mainly refers to the area "rest of the world" (note 27).
14) | Subordinated perpetual notes (TSDIs) |
In December 1990 and March 1992, Legrand SA issued, at par, subordinated perpetual notes with nominal values of € 457 million and € 305 million, respectively.
The subordinated perpetual notes have no stated due date or maturity and Legrand SA has no obligation to redeem them unless Legrand SA enters into liquidation or voluntary dissolution, or if a final judgment is entered ordering the sale of the entire business of Legrand SA. In such case, redemption of the principal of the subordinated perpetual notes would be subordinated to the complete payment of all creditors, excluding any participating loans (prêts participatifs) or participating securities (titres participatifs) that might be outstanding.
At the time of issuance, agreements were entered into with third party companies who will repurchase the securities from the holders fifteen years after issuance. In accordance with these agreements, and in return for initial lump sum payments of €100 million and €77 million, these companies have agreed to relinquish any rights to interest on these securities after that time. Until the time of this repurchase, third party is obligated to make periodic interest payments on the nominal value, calculated at a rate indexed to the Paris inter-bank offered rate (EURIBOR). In accordance with French tax instructions, these payments are only tax deductible for the portion representing the net proceeds of the issue.
The payment of interest on the subordinated perpetual notes can be suspended if (i) Legrand SA's consolidated net equity falls below €412 million, (ii) Legrand SA has not paid an ordinary dividend (excluding dividends paid on preferred, non-voting shares and first statutory dividend) and (iii) no interim dividend has been declared. Deferred payments would bear interest, would not be subordinated in case of liquidation and would be paid before the payment of any ordinary dividend.
In order to manage its exposure to interest rate changes, semi-annual payments have been hedged using interest rate swaps. The payments, taking into account the effect of the swap agreements, represented on an annual basis, 10.3%, 10.7% and 9.6% of the average residual carrying value for each of the years 2004, 2003 and 2002, respectively.
The amortization of the residual carrying value, in the balance sheet is as follows:
Dec 31, 2004 | |||
€ in millions | |||
Payable within one year | 40.5 | ||
Payable in one to two years | 19.0 | ||
Payable in two to three years | 9.4 | ||
68.9 | |||
15) | Related party loan |
On February 12, 2003, the Group’s parent, Legrand Holding SA, issued (i) $350 million of senior notes due in 2013 and bearing interest at 10 ½% per annum and (ii) €277.5 million of senior notes due 2013 and bearing interest at 11% per annum (the “High Yield Notes”). The gross proceeds of the issuance of the High Yield Notes amounted to approximately €601 million. Simultaneously, Legrand Holding SA issued a subordinated shareholder PIK loan (the “Subordinated Shareholder PIK Loan”) in the amount of €1,156 million subscribed by a related party. The proceeds from the issuance of the High Yield Notes, together with the proceeds of the Subordinated Shareholder PIK Loan, were used to make an intercompany funding loan to the Group in the amount of € 1,756 million. The proceeds to the Group were used to repay the €600 million loan under the mezzanine credit agreement and to repay the related party loan in the amount of €1,156 million made to Legrand SAS by the related party in connection with the acquisition of Legrand on December 10, 2002.
16) | Long-term borrowings |
Long term borrowings can be analyzed as follows:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Senior credit agreement | — | 1,323.8 | 1,597.0 | |||
Facility agreement | 847.5 | — | — | |||
Mezzanine credit agreement | — | — | 600.0 | |||
8 ½% debentures | 285.2 | 306.7 | 371.0 | |||
Other long-term borrowings | 17.4 | 77.2 | 38.0 | |||
1,150.1 | 1,707.7 | 2,606.0 | ||||
Long-term borrowings are denominated in the following currencies:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Euro | 1,112.3 | 1,605.4 | 2,233.0 | |||
US Dollar | 36.9 | 96.1 | 371.0 | |||
Other currencies | 0.9 | 6.2 | 2.0 | |||
1,150.1 | 1,707.7 | 2,606.0 | ||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Payable in one to two years | 162.7 | 123.2 | 74.0 | |||
Payable in two to three years | 161.4 | 106.3 | 85.0 | |||
Payable in three to four years | 158.1 | 132.2 | 117.0 | |||
Payable in four to five years | 381.7 | 151.2 | 144.0 | |||
Payable beyond five years | 286.2 | 1,194.8 | 2,186.0 | |||
1,150.1 | 1,707.7 | 2,606.0 | ||||
Dec 31, 2004 | average interest rate after SWAP transaction | |||
€ in millions | ||||
Facility credit agreement | 847.5 | 2.80% | ||
8 1/2 % debentures | 285.2 | 4.24% | ||
Other borrowings | — | 0.00% | ||
Capital lease obligations | 17.4 | 3.30% | ||
1,150.1 | ||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
Assets mortgaged or pledged as collateral | 3.5 | 13.4 | 16.0 | |||
Guarantees given to banks | 17.9 | 18.0 | 18.0 | |||
Guarantees given under the senior credit agreement | — | 1,615.0 | 1,615.0 | |||
Legrand SA shares pledge given under facility agreement | 925.2 | — | — | |||
946.6 | 1,646.4 | 1,649.0 | ||||
a) | Facility agreement |
Dec 31, 2004 | ||
€ in millions | ||
Within one year | 77.7 | |
Payable in one to two years | 155.6 | |
Payable in two to three years | 155.6 | |
Payable in three to four years | 155.6 | |
Payable in four to five years | 380.7 | |
Payable beyond five years | — | |
925.2 | ||
The facility agreement can be analyzed as follows:
Dec 31, 2004 | Maturity | Interest rate | ||||
€ in millions | ||||||
Term facility | 700.0 | 2009 | Euribor + 0.60 | |||
Revolving facility | 225.2 | 2009 | Euribor + 0.60 | |||
b) | 81/2% Debentures (Yankee bonds) |
On February 14, 1995, Legrand SA issued on the United States public market $400 million of 8½% debentures due February 15, 2025. Interest on the debentures is payable semi-annually in arrears on February 15 and August 15 of each year, beginning August 15, 1995.
The debentures are not subject to any sinking fund and are not redeemable prior to maturity, except upon the occurrence of certain changes in the law requiring the payment of amounts in addition to the principal and interest. Should Legrand SA, by law, not be permitted to pay any such additional amounts, redemption generally would be mandatory or, if such amounts could be paid, Legrand SA may, at its option, redeem all—but not part—of the debentures. Each holder of the debentures may also require Legrand SA to repurchase its debentures upon the occurrence of a hostile change of control.
In connection with the issuance of the debentures, Legrand SA also entered into an interest rate swap agreement for 30 years. The settlement dates of the differential to be paid or received concur with the interest payment dates of the debentures, so as to provide an effective hedge for the payments. As a result of this swap agreement, the effective interest rate of the debentures after the swap agreement was executed is LIBOR plus a margin of 0.53 % (3.31 % as of December 31, 2004).
Legrand SA has used a portion of this borrowing for the acquisition of certain operations in the United States.
c) | Other long-term borrowings |
The other long-term borrowings, individually, are not significant, none of them exceeding €10 million.
d) | Further borrowings capacity |
As of December 31, 2004, a further €730.5 million were available for borrowing as part of the facilities granted under the facility agreement (€474.8 million under a Revolver facility and €255.7 million under other baskets).
17) | Other non-current liabilities |
Long-term liabilities are as follows:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Retirement indemnities in France * | 22.1 | 19.7 | 18.0 | ||||
End of contract indemnities in Italy * | 47.4 | 46.8 | 44.0 | ||||
Other retirement indemnities and benefits * | 57.5 | 51.9 | 47.0 | ||||
Employees profit sharing (long-term portion) | 25.2 | 35.0 | 29.0 | ||||
Cross currency swap | 65.3 | — | — | ||||
Other long-term liabilities | 73.2 | 73.9 | 67.0 | ||||
290.7 | 227.3 | 205.0 | |||||
* Those items represent long-term portion of pension and post-retirement benefits (€127 million). The short-term portion of €8.8 million is classified in other short-term liabilities. Thus total amount of those liabilities is €135.8 million and is detailed in note 17 (a), which shows a total liability of €245.7 million less a total asset of €109.9 million.
a) | Pension and post-retirement benefit |
The global obligation of the Group’s pension and post retirement plans, including short-term and long-term liabilities, and consisting primarily of the plans in France, Italy, the United States of America and the United Kingdom, is as follows:
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Dec 31, 2004 | Dec 31, 2003 | ||||
€ in millions | |||||
Projected benefits obligation (PBO) | |||||
Accumulated PBO beginning of period | 233.0 | 216.0 | |||
Goodwill allocation | — | 21.0 | |||
Service cost | 17.5 | 22.4 | |||
Interest cost | 10.4 | 8.3 | |||
Benefits paid | (25.2 | ) | (22.6 | ) | |
Employee contribution | 0.4 | — | |||
Plan amendment | 0.3 | — | |||
Actuarial loss (gain) | 6.9 | 4.8 | |||
Curtailments, settlements, special termination benefits | 1.7 | — | |||
Foreign currency translation | (5.3 | ) | (16.9 | ) | |
Reclassification P&S | 6.0 | — | |||
Accumulated PBO end of period (I) | 245.7 | 233.0 | |||
Plan assets at fair value | |||||
Fair value of plan assets, beginning of period | 110.8 | 108.0 | |||
Actual return on plan assets | 7.8 | 18.5 | |||
Employer contribution | 9.7 | 5.6 | |||
Plan participant contributions | 0.4 | — | |||
Benefits paid | (15.4 | ) | (9.5 | ) | |
Foreign currency translation | (3.4 | ) | (11.8 | ) | |
fair value of plan assets, end of period (II) | 109.9 | 110.8 | |||
Pension liability recognised in balance sheet (I) - (II) | 135.8 | 122.2 | |||
Short-term liability | 8.8 | 3.8 | |||
Long-term liability | 127.0 | 118.4 | |||
The impact on the consolidated income is as follows:
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Service cost – rights newly acquired | (17.5 | ) | (22.4 | ) | (2.0 | ) | |
Service cost – cancellation of previous rights | — | — | 1.0 | ||||
Payments of rights (net of cancellation of prior reserves) | — | — | — | ||||
Interest cost | (17.3 | ) | (13.1 | ) | — | ||
Other | (2.4 | ) | — | — | |||
Net revenue of fund | 7.8 | 18.5 | — | ||||
(29.4 | ) | (17.0 | ) | (1.0 | ) | ||
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The pension plan weighted-average asset allocation is as follows as at December 31, 2004:
United States and | |||||||
France | United Kingdom | Total | |||||
% | |||||||
Equity security | — | 55.0 | 43.0 | ||||
Debt security | — | 30.0 | 23.0 | ||||
Insurance company funds | 100.0 | 15.0 | 34.0 | ||||
100.0 | 100.0 | 100.0 | |||||
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b) | Provision for retirement indemnities in France |
Based on labor agreements or internal conventions, the employees of the Group may be entitled to retirement indemnities, as well as complementary pensions in addition to those acquired in compliance with legal obligations in force in each country.
The provisions recorded in the consolidated balance sheet concern only rights which are not definitively acquired and the Group has no obligation with respect to rights definitively acquired by former employees, such rights having been duly paid at the time of their retirement, either directly or through insurance companies.
The computation of these future obligations was based on turnover, mortality, and assumptions of increase of salaries and discount rates. In France, the calculation was based on an assumption of an increase of salaries of 3.00 % and a discount rate of 4.50 %.
Accordingly, the provision recorded in the consolidated balance sheet corresponds to the portion of the global obligation remaining payable by Legrand SA; this amount is equal to the difference between the global obligation recalculated at each closing, based on assumptions described above, and the net residual value of the fund at this same date.
c) | Provision for end-of-contract indemnities in Italy |
In accordance with employment legislation in force in Italy, provisions for end-of-contract indemnities have been established in the accounts of the Italian companies (€52 million as of December 31, 2004). The annual contribution is defined by law and amounts to approximately one month of remuneration per year of service. Amounts attributed to an employee are revalued each year in accordance with a specific index published by the government. Such amounts are fully vested and are paid at the time an employee leaves. The companies have no further liability to the employee once such payment is made.
The computation of the obligations was based on turnover, mortality, and assumptions of increase in salaries and discount rates. In Italy, the calculation was based on an assumption of an increase in salaries of 2.50 %, a discount rate of 4.37 %.
d) | Provision for retirement indemnities and other postretirement benefits in the United Sates and the United Kingdom |
In the United States and the United Kingdom, the Group provides pension benefits for employees and health care and life insurance for certain retired employees.
The pension benefits above amount to € 132 million as of December 31, 2004. This amount is compensated by pension fund assets and provisions estimated at € 86 million as of December 31, 2004.
The computation of the future obligations was based on turnover, mortality, and assumptions of increase in salaries and discount rates. In the United Sates of America, the calculation was based on an assumption of an increase in salaries of 4.25 %, a discount rate of 5.84 % and an expected return on plan assets of 7 %. In the United Kingdom, the calculation was based on an assumption of an increase in salaries of 2.96 %, a discount rate of 5.3 % and an expected return on plan assets of 7.00 %.
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18) | Short-term borrowings |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Current portion of long-term debt | 81.0 | 54.2 | 25.0 | ||||
Current portion of capital leases | 7.3 | 5.8 | 9.0 | ||||
Commercial paper | — | — | 508.0 | ||||
Bank overdrafts | 80.9 | 39.4 | 113.0 | ||||
Other short-term borrowings | 63.0 | 31.4 | 79.0 | ||||
232.2 | 130.8 | 734.0 | |||||
19) | Other current liabilities |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Tax liabilities | 97.9 | 105.9 | 121.0 | ||||
Accrued salaries and payroll taxes | 139.9 | 132.6 | 134.0 | ||||
Short-term portion of employee profit sharing | 3.0 | 6.0 | 7.0 | ||||
Payables related to fixed asset acquisitions | 16.0 | 11.2 | 14.0 | ||||
Amount due for services | 58.1 | 58.6 | 59.0 | ||||
Customer advance payments | 1.8 | 1.6 | 3.0 | ||||
Others | 12.0 | 31.5 | 97.0 | ||||
328.7 | 347.4 | 435.0 | |||||
20) | Analysis of certain expenses |
a) | Operating expenses include, in particular, the following categories of costs: |
Statutory period from | Period from | Period from | Statutory period from | Statutory period from | |||||||
Jan 01, 2004 to | Jan 01, 2003 to | Aug 01, 2002 to | Aug 01, 2002 to | Jan 01, 2002 to | |||||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | Dec 31, 2003 | Jul 31, 2002 | |||||||
€ in millions | |||||||||||
Consumption of raw-materials and parts | (855.7 | ) | (762.0 | ) | (125.0 | ) | (887.0 | ) | 0.0 | ||
Salaries and related payroll taxes | (832.9 | ) | (836.5 | ) | (71.0 | ) | (907.5 | ) | 0.0 | ||
Employees profit sharing | (27.7 | ) | (21.8 | ) | 0.0 | (21.8 | ) | 0.0 | |||
Total cost of personnel | (860.6 | ) | (858.3 | ) | (71.0 | ) | (929.3 | ) | 0.0 | ||
The headcount of the Group on a consolidated basis as of December 31, 2004 amounts to 24,775.
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b) | Other income (expenses) include: |
Statutory period from Jan 01, 2004 to Dec 31, 2004 | Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Aug 01, 2002 to Dec 31, 2003 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | ||||||
€ in millions | ||||||||||
Exchange and translation gains (losses) | (5.1 | ) | 1.4 | 2.0 | 3.4 | 0.0 | ||||
Others | (71.4 | ) | (43.6 | ) | (8.0 | ) | (51.6 | ) | 0.0 | |
(76.5 | ) | (42.2 | ) | (6.0 | ) | (48.2 | ) | 0.0 | ||
The caption "Others" relates principally to restructuring charges.
21) | Interest income (expense) |
Statutory period from Jan 01, 2004 to Dec 31, 2004 | Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Aug 01, 2002 to Dec 31, 2003 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | ||||||
€ in millions | ||||||||||
Interest income | 4.3 | 65.3 | 6.0 | 71.3 | 0.0 | |||||
Interest expense | (200.1 | ) | (223.3 | ) | (24.0 | ) | (247.3 | ) | 0.0 | |
(195.8 | ) | (158.0 | ) | (18.0 | ) | (176.0 | ) | 0.0 | ||
Interest on subordinated securities (note 13) | (47.1 | ) | (36.3 | ) | (2.0 | ) | (38.3 | ) | 0.0 | |
(242.9 | ) | (194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | ||
Less capitalized interest | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
(242.9 | ) | (194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | ||
22) | Income taxes (current and deferred) |
Income before taxes, minority interests and equity in earnings of investees is as follows:
Statutory period from Jan 01, 2004 to Dec 31, 2004 | Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Aug 01, 2002 to Dec 31, 2003 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | ||||||
€ in millions | ||||||||||
France | (181.8 | ) | (129.3 | ) | (179.0 | ) | (308.3 | ) | 0.0 | |
Outside France | 127.6 | (8.9 | ) | 17.0 | 8.1 | 0.0 | ||||
(54.2 | ) | (138.2 | ) | (162.0 | ) | (300.2 | ) | 0.0 | ||
Statutory period from Jan 01, 2004 to Dec 31, 2004 | Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Aug 01, 2002 to Dec 31, 2003 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | ||||||
€ in millions | ||||||||||
Current income taxes : | ||||||||||
France | (38.9 | ) | (42.1 | ) | 0.0 | (42.1 | ) | 0.0 | ||
Outside France | (68.0 | ) | (60.3 | ) | (8.0 | ) | (68.3 | ) | 0.0 | |
(106.9 | ) | (102.4 | ) | (8.0 | ) | (110.4 | ) | 0.0 | ||
Deferred income taxes : | ||||||||||
France | 39.8 | 18.1 | 36.0 | 54.1 | 0.0 | |||||
Outside France | 5.0 | 51.1 | 1.0 | 52.1 | 0.0 | |||||
44.8 | 69.2 | 37.0 | 106.2 | 0.0 | ||||||
Total income taxes : | ||||||||||
France | 0.9 | (24.0 | ) | 36.0 | 12.0 | 0.0 | ||||
Outside France | (63.0 | ) | (9.2 | ) | (7.0 | ) | (16.2 | ) | 0.0 | |
(62.1 | ) | (33.2 | ) | 29.0 | (4.2 | ) | 0.0 | |||
Statutory period from Jan 01, 2004 to Dec 31, 2004 | Period from Jan 01, 2003 to Dec 31, 2003 | |||||||
€ in millions | Tax rate | € in millions | Tax rate | |||||
Normal French income tax | 18.9 | 34.93% | 49.0 | 35.43% | ||||
Increases (reductions) : | ||||||||
– effect of foreign income tax rates | 1.1 | 2.03% | 0.3 | 0.23% | ||||
– non taxable items | (25.8 | ) | (47.62% | ) | (13.5 | ) | (9.80% | ) |
– income taxable at specific rates | (2.2 | ) | (4.06% | ) | 0.1 | 0.06% | ||
– others | (16.7 | ) | (30.83% | ) | 12.8 | 9.24% | ||
Impact on deferred income taxes : | ||||||||
– effect of tax rate modifications on opening balance | 2.7 | 1.95% | ||||||
– valuation allowances on deferred income tax assets | (37.4 | ) | (69.02% | ) | (84.6 | ) | (61.13% | ) |
(62.1 | ) | (114.57% | ) | (33.2 | ) | (24.02% | ) | |
Dec 31, 2004 | Dec 31, 2003 | Dec 31,2002 | ||||
€ in millions | ||||||
Deferred income taxes recorded by French companies | (182.0 | ) | (188.6 | ) | (160.0 | ) |
Deferred income taxes recorded by foreign companies | 52.4 | 85.2 | 4.0 | |||
(129.6 | ) | (103.4 | ) | (156.0 | ) | |
Origin of deferred income taxes | ||||||
– depreciation of fixed assets | (85.6 | ) | (83.6 | ) | (90.0 | ) |
– tax losses to be carried forward | (3.1 | ) | 47.4 | 16.0 | ||
– employee profit sharing | 2.8 | 2.4 | 6.0 | |||
– retirement indemnities and benefits | 22.2 | 15.3 | 17.0 | |||
– subordinated securities | 19.8 | 30.1 | 39.0 | |||
– patent | (159.0 | ) | (166.4 | ) | (206.0 | ) |
– trademarks | (18.0 | ) | (21.8 | ) | (24.0 | ) |
– allowances for inventory and bad debt | 12.8 | 14.9 | 18.0 | |||
– revaluation Italy | 42.5 | 51.5 | 61.0 | |||
– translation effect | 16.7 | 0.0 | 0.0 | |||
– non deductible provision | 8.4 | 0.0 | 0.0 | |||
– margin inventory | 7.6 | 6.2 | 0.0 | |||
– others | 3.3 | 0.6 | 7.0 | |||
(129.6 | ) | (103.4 | ) | (156.0 | ) | |
Deferred tax assets amounting to € 255.2 million whose realization is not more likely than not were not recognized as of December 31, 2004. These unrecognised deferred tax assets principally relate to net operating loss carry forwards amounting to € 746.4 million that expire in various amounts from 2008 through 2023.
As disclosed in note 1 (i), the Group does not recognize the deferred tax consequences of undistributed earnings of foreign subsidiaries that are considered to be permanently re-invested. It is not practicable to estimate the amount of the deferred tax liability associated with these undistributed earnings as of December 31, 2004.
23) | Contingencies and commitments |
The Group is involved in a number of legal proceedings and litigations arising in the normal course of business. In the opinion of management, all such matters have been adequately provided for or are without merit, and are of such kind that if disposed of unfavorably, would not have a material adverse effect on the Group's consolidated financial position or results of operations.
Future rental commitments
The Group uses certain facilities under lease agreements and lease certain equipment. Minimum future rental commitments under non-cancellable leases are detailed below:
Legrand SAS | ||
Dec 31, 2004 | ||
€ in millions | ||
Payable within one year | 18.3 | |
Payable in one to two years | 16.1 | |
Payable in two to three years | 13.1 | |
Payable in three to four years | 6.5 | |
Payable in four to five years | 4.1 | |
Subsequent years | 11.7 | |
69.8 | ||
BTicino SpA litigation
In the second half of 2001, approximately 180 current and former employees of BTicino SpA, (BTicino), our primary Italian subsidiary, commenced two class actions and three individual suits against the Italian social security agency for early retirement payments citing alleged exposure to asbestos during the manufacture of products at our Torre del Greco facility. BTicino, as the employer, is a party to the suit, as is customary under Italian law. Pursuant to Italian law, if the employees prove long-term (at least 10 years) exposure to asbestos, they may be entitled to retire early and, as a result, could receive higher retirement payments over the course of their retirement, which the social security agency could seek to recover from the Group. Management believes the risk of loss to the Group is remote.
Legal proceeding
In October 2003 an action was brought against us and two other major suppliers of back-wires in the United States alleging that one of our products, quick connect receptacle, is not suitable for consumption and should be withdrawn from the United States markets and all production should be discontinued.
We have responded to these allegations and fixed a counterclaim, as we believe that this claim is unsubstantiated. The quick connect receptacle has been sold in the United States over the past years and during such period no accidents have been reported in connection with the use of such receptacles. In addition we do not believe that the claimant has evidence of damages nor has the claimant alleged any damages or accidents from the receptacle use in this claim. This litigation is currently being considered by the Superior Court of the State of California and the United States District Court of South Carolina Charleston Division as to certain procedural matters. At this time and although the Company believes the claims are unsubstantiated, it is too early to assess the eventual outcome of this situation.
24) | Financial instruments |
The Group does not hold or issue financial instruments for trading purposes.
a) | Interest rate swaps |
In order to manage and cover interest rate risks, the Group entered into interest rates swap agreements with selected major financial institutions. The fair value of each of the swap agreements is determined at each closing, based on rates implied in the yield curve at the reporting date; those may change significantly, thus having an impact on future cash flows.
Interest rate swaps hedging the subordinated securities (note 14)
The notional amount of these swaps increases over time to a maximum of € 760 million and matures at the same date, as periodic payments are due so as to provide an effective hedge of the payments. The net cost of the subordinated securities, including the fair value of the related swaps in effect and committed, is lower than the conditions normally offered by the financial markets.
Interest rate swap hedging the 8½% debentures (Yankee bonds) (note 16)
The purpose of this swap is to convert the fixed remuneration paid to the holders of the debentures into a variable remuneration indexed on LIBOR until the maturity of the issue. The fair value of this swap is exactly symmetrical to the fair value of the debentures.
In connection with the issuance of the debentures, Legrand SA also entered into an interest swap agreement for 30 years. As a result of this swap agreement, the effective interest rate of the debentures after the swap agreement was executed is LIBOR plus a margin of 0.53% (3.31% as of December 31, 2004).
At the beginning of February 2003, we entered into cross currency interest rate swap with respect to the Yankee bond pursuant to which the interest rate payable on $ 350 million principal amount was fixed at 4.6 % per year. The remainder $50 million still bear a floating coupon (LIBOR + 0.53 %).
On April 2003, we entered into a swap novation agreement where we sold the 2008-2025 maturity bracket of the “Yankee bond swap” (original maturity 30 years). As a result, from February 2008 onwards, our Yankee Bond will pay a fixed 8.5 % coupon again. We may enter into additional interest rate swap arrangements with respect to our floating rate debt.
Interest rate swaps (note 16)
During the year, the Group entered into hedging arrangements for a notional amount of € 800 million pursuant to which the applicable variable interest rate payable on the facility agreement was capped.
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
Interest rate swaps hedging subordinated securities | ||||||
notional amount (€, in millions) | 730.0 | 671.7 | 626.1 | |||
fair value (€, in millions) | 79.9 | 121.8 | 153.0 | |||
Interest rate swap hedging the 8½% debentures | ||||||
notional amount ($, in millions) | 400.0 | 400.0 | 400.0 | |||
fair value (€, in millions) | 40.5 | 60.1 | 161.0 | |||
b) | Foreign exchange contracts |
The Group entered into forward exchange contracts for an amount of $ 130 million to hedge certain foreign currency transactions and investments for periods consistent with the terms of the underlying transactions.
c) | Forward price contracts on raw material |
The Group also enters into forward raw material contracts covering all or part of its future purchases and for periods of time not in excess of twelve months. As of December 31, 2004 there were no contracts in effect.
d) | Other financial instruments |
The excess of fair value over carrying value of the marketable securities is disclosed in note 10 to the financial statements. For all other financial instruments the fair value approximates the carrying value.
e) | Concentration of credit risk |
The Group's interest rate swap agreements and exchange contracts are with major financial institutions which are expected to comply with the terms of the agreements thereby mitigating the credit risk from the transactions.
As indicated in note 9, a substantial portion of our sales is with two major distributors. Other sales are also essentially with distributors of electrical products but are diversified due to the large number of customers and their geographical dispersion. The Group mitigates its credit risk by establishing and performing periodic evaluations of individual credit limits for each customer, and constantly monitoring collection of its outstanding receivables.
Other financial instruments, which potentially subject the Group to concentration of credit risk, are principally cash and cash equivalents and short-term investments. These instruments are maintained with high credit quality financial institutions and the Group closely monitors the amount of credit exposure with any one financial institution.
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25) | Information relating to the officers of the Group |
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | |||||
€ in millions | |||||||
Advances and loans | — | — | — | ||||
Remuneration paid to the officers (*) | 1.2 | 1.7 | 1.0 | ||||
(*) | Remuneration paid to the executive officers and the members of the board of directors who hold operating responsibilities within Legrand. |
26) | Information relating to the consolidated company |
The Group is consolidated by Lumina Parent, société à responsabilité limitée headquartered at 5 boulevard de la Foire, L1528 Luxembourg.
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27) | Information by geographic segments |
The activity of the Group is exclusively devoted to the manufacturing and marketing of products and systems for electrical installations and information networks. The following figures comply with the level of analysis used to manage the Group.
Period from Jan 01, 2004 to | Geographic segments | ||||||||||||||
Dec 31, 2004 | |||||||||||||||
Europe | Items globally | ||||||||||||||
United States | Rest of the | ||||||||||||||
France | Italy | Others | of America | World | analyzed | Total | |||||||||
€ in millions | |||||||||||||||
Total sales | 1,790.8 | 764.9 | 702.6 | 558.9 | 349.3 | 4,166.5 | |||||||||
Less intra-group transfers | (855.4 | ) | (168.4 | ) | (138.5 | ) | (19.6 | ) | (58.3 | ) | (1,240.2 | ) | |||
Net consolidated sales | 935.4 | 596.5 | 564.1 | 539.3 | 291.0 | 2,926.3 | |||||||||
Operating income | 85.5 | 113.1 | 24.8 | 36.5 | 50.7 | 310.6 | |||||||||
– of which depreciation of fixed assets | (62.3 | ) | (25.9 | ) | (21.2 | ) | (21.7 | ) | (10.4 | ) | (141.5 | ) | |||
– of which amortization of intangibles | (87.4 | ) | (45.2 | ) | (12.7 | ) | (22.9 | ) | (9.6 | ) | (177.8 | ) | |||
Other revenues (expenses) | (71.2 | ) | (71.2 | ) | |||||||||||
Interest income | 4.3 | 4.3 | |||||||||||||
Interest expense | (247.2 | ) | (247.2 | ) | |||||||||||
Income taxes | (62.1 | ) | (62.1 | ) | |||||||||||
Minority interest and equity investees | 1.4 | 1.4 | |||||||||||||
Capital expenditures | 32.6 | 23.8 | 15.6 | 13.0 | 10.7 | 95.7 | |||||||||
Total identifiable assets | 3,652.3 | 1,203.6 | 37.9 | (318.6 | ) | 173.7 | 4,748.9 | ||||||||
Period from Jan 01, 2003 to | Geographic segments | ||||||||||||||
Dec 31, 2003 | |||||||||||||||
Europe | Items globally | ||||||||||||||
United States | Rest of the | ||||||||||||||
France | Italy | Others | of America | World | analyzed | Total | |||||||||
€ in millions | |||||||||||||||
Total sales | 1,632.4 | 714.5 | 620.7 | 540.0 | 323.7 | 3,831.3 | |||||||||
Less intra-group transfers | (735.1 | ) | (147.2 | ) | (126.5 | ) | (13.3 | ) | (47.4 | ) | (1,069.5 | ) | |||
Net consolidated sales | 897.3 | 567.3 | 494.2 | 526.7 | 276.3 | 2,761.8 | |||||||||
Operating income | (3.4 | ) | 61.3 | (3.6 | ) | 18.5 | 29.2 | 102.0 | |||||||
– of which depreciation of fixed assets | (64.4 | ) | (27.5 | ) | (24.4 | ) | (25.6 | ) | (13.9 | ) | (155.8 | ) | |||
– of which amortization of intangibles | (92.4 | ) | (48.4 | ) | (13.8 | ) | (25.6 | ) | (11.0 | ) | (191.2 | ) | |||
Other revenues (expenses) | (45.9 | ) | (45.9 | ) | |||||||||||
Interest income | 65.3 | 65.3 | |||||||||||||
Interest expense | (259.6 | ) | (259.6 | ) | |||||||||||
Income taxes | (33.2 | ) | (33.2 | ) | |||||||||||
Minority interest and equity investees | 1.5 | 1.5 | |||||||||||||
Capital expenditures | 44.1 | 24.7 | 16.7 | 11.7 | 15.4 | 112.6 | |||||||||
Total identifiable assets | 4,417.8 | 1,256.8 | (371.5 | ) | (288.9 | ) | 170.3 | 5,184.5 | |||||||
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Sales by French companies, excluding sales to Group companies located in France, include the following export sales:
Statutory period from | Period from | Period from | Statutory period from | ||||||
Jan 01, 2004 to | Jan 01, 2003 to | Aug 01, 2002 to | Aug 01, 2002 to | ||||||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | Dec 31, 2003 | ||||||
€ in millions | |||||||||
Total sales | 935.4 | 897.3 | 83.0 | 980.3 | |||||
of which sales exported to : | |||||||||
– Europe | 43.8 | 49.3 | 17.0 | 66.3 | |||||
– Other countries | 77.4 | 72.8 | 11.0 | 83.8 | |||||
121.2 | 122.1 | 28.0 | 150.1 | ||||||
28) | Subsequent events |
On November 29, 2004, Legrand announced the acquisition of the business of Van Geel, with the exception of its German subsidiary. The acquisition was completed March 11, 2005. Van Geel is one of the leading European specialists of metal cable management systems (among which trunkings, cable trays, floor boxes). With €60 million of consolidated sales, Van Geel is the leader in its field in the Netherlands and Austria and holds significant positions on a number of European markets (among which Belgium, Portugal, Sweden).Based in Boxtel, Netherlands, Van Geel has two manufacturing units in the Netherlands and a total work force of 300 persons.
In February 2005, we announced the execution of an agreement for the acquisition of the entire business of OnQ, the US leader in structured wiring for residential applications. Based in Harrisburg, Pennsylvania, OnQ generated net sales of approximately $22 million with a workforce of close to 100 in 2004. OnQ's catalog of nearly 1,000 items enables it to offer complete solutions for Voice, Data and Image network for residential buildings, including VDI entertainment, integrated lighting and sound management systems. We believe this acquisition will complement the Pass & Seymour/Legrand range of fittings.
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29) | Reconciliation of French GAAP to US GAAP |
The tables below show the US GAAP net income, balance sheets, cash-flow statements and shareholders equity.
Consolidated statements of income US GAAP
Legrand SAS | |||||||||
Statutory period from | Period from | Period from | Statutory period from | ||||||
Jan 01, 2004 to | Jan 01, 2003 to | Aug 01, 2002 to | Jan 01, 2002 to | ||||||
Dec 31 2004 | Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | ||||||
€ in millions | |||||||||
Net sales | 2,926.3 | 2,761.8 | 219.0 | 0.0 | |||||
Operating expenses | |||||||||
Cost of goods sold | (1,575.3 | ) | (1,640.4 | ) | (179.0 | ) | 0.0 | ||
Administrative and selling expenses | (758.5 | ) | (733.5 | ) | (64.0 | ) | 0.0 | ||
Research and development expenses | (251.0 | ) | (258.5 | ) | (113.0 | ) | 0.0 | ||
Other operating income (expenses) | (9.9 | ) | (22.4 | ) | (1.0 | ) | 0.0 | ||
Operating income (loss) | 331.6 | 107.0 | (138.0 | ) | 0.0 | ||||
Interest income (expense) | (233.3 | ) | (293.9 | ) | (22.0 | ) | 0.0 | ||
Loss on extinguishment of debt | (50.7 | ) | 0.0 | 0.0 | 0.0 | ||||
Other income (expenses) | (10.6 | ) | (44.3 | ) | 1.0 | 0.0 | |||
Income (loss) before taxes, minority interests and equity in earnings of investees | 37.0 | (231.2 | ) | (159.0 | ) | 0.0 | |||
Income taxes | (79.8 | ) | (3.0 | ) | 26.0 | 0.0 | |||
Net income (loss) before minority interests and equity in earnings of investees | (42.8 | ) | (234.2 | ) | (133.0 | ) | 0.0 | ||
Minority interests | (1.2 | ) | (0.9 | ) | 2.0 | 0.0 | |||
Equity in earnings of investees | 2.6 | 2.4 | 2.0 | 0.0 | |||||
Net income (loss) | (41.4 | ) | (232.7 | ) | (129.0 | ) | 0.0 | ||
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Consolidated balance sheets US GAAP
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalent | 68.3 | 67.9 | 559.0 | |||
Marketable securities | 13.1 | 32.6 | 195.6 | |||
Restricted cash | 27.0 | 37.0 | 22.5 | |||
Trade accounts receivable | 495.7 | 509.9 | 598.2 | |||
Deferred income taxes | 30.3 | 34.7 | 48.4 | |||
Other current assets | 132.2 | 120.1 | 93.4 | |||
Inventories | 422.0 | 385.5 | 530.7 | |||
Total current assets | 1,188.6 | 1,187.7 | 2,047.8 | |||
Property, plant and equipment, net | 816.0 | 914.9 | 1,024.8 | |||
Investments | 18.4 | 21.8 | 26.3 | |||
Goodwill, net | 1,331.1 | 1,343.5 | 1,354.0 | |||
Trademarks, net | 1,526.3 | 1,591.1 | 1,642.4 | |||
Developed Technology, net | 337.7 | 449.9 | 586.0 | |||
Mirror swaps | 24.8 | 35.2 | 42.0 | |||
Swaps associated with TSDI 3 | 0.9 | 1.3 | 2.0 | |||
Swap associated with other borrowings | 40.5 | 60.1 | 161.0 | |||
Restricted cash | 0.0 | 90.5 | 127.5 | |||
Deferred income taxes | 27.4 | 34.1 | 149.9 | |||
Other non-current assets | 38.9 | 96.5 | 166.5 | |||
Total non-current assets | 4,162.0 | 4,638.9 | 5,282.4 | |||
Total assets | 5,350.6 | 5,826.6 | 7,330.2 | |||
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | ||||
€ in millions | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities | ||||||
Short-term borrowings | 203.6 | 103.2 | 723.0 | |||
Accounts and notes payable | 311.3 | 252.7 | 268.4 | |||
Deferred income taxes | 3.8 | 3.0 | 48.0 | |||
Other current liabilities | 354.3 | 374.2 | 443.0 | |||
Total current liabilities | 873.0 | 733.1 | 1,482.4 | |||
Swap fair value associated with TSDI 1&2 | 80.8 | 121.8 | 153.0 | |||
Deferred income taxes | 706.6 | 727.1 | 893.9 | |||
Other non-current liabilities | 294.6 | 229.3 | 207.1 | |||
Long-term borrowings | 1,085.8 | 1,708.0 | 2,607.0 | |||
Swap fair value associated with other borrowings | 78.2 | 52.5 | 0.0 | |||
Subordinated securities | 68.9 | 108.9 | 150.2 | |||
Related party | 1,943.5 | 1,842.6 | 1,159.0 | |||
Minority interests | 7.5 | 6.2 | 51.8 | |||
Shareholders' equity | ||||||
Capital stock | 759.4 | 759.4 | 759.4 | |||
Accumulated deficits | (403.0 | ) | (361.6 | ) | (129.2 | ) |
Translation reserve | (144.7 | ) | (100.7 | ) | (4.4 | ) |
211.7 | 297.1 | 625.8 | ||||
Total liabilities and shareholders' equity | 5,350.6 | 5,826.6 | 7,330.2 | |||
Consolidated statements of cash flows US GAAP
Statutory | Statutory | |||||||
period from | Period from | Period from | period from | |||||
Jan 01, 2004 | Jan 01, 2003 | Aug 01, 2002 | Jan 01, 2002 | |||||
to Dec 31, | to Dec 31, | to Dec 31, | to Jul 31, | |||||
2004 | 2003 | 2002 | 2002 | |||||
€ in millions | ||||||||
Net income (loss) | (41.4 | ) | (232.7 | ) | (129.0 | ) | 0.0 | |
Reconciliation of net income to net cash : | ||||||||
– depreciation of tangible assets | 141.5 | 155.8 | 13.0 | 0.0 | ||||
– amortization of intangible assets | 133.9 | 146.5 | 108.0 | 0.0 | ||||
– allowance for tangible and intangible assets | 0.6 | |||||||
– loss on extinguishment of debt | 50.7 | |||||||
– changes in long-term deferred taxes | 0.6 | (80.5 | ) | (2.0 | ) | 0.0 | ||
– changes in other long-term assets and liabilities | 28.3 | 4.6 | (2.0 | ) | 0.0 | |||
– minority interests | 1.2 | 0.9 | (3.0 | ) | 0.0 | |||
– equity in earnings of investees | (2.6 | ) | (2.4 | ) | (2.0 | ) | 0.0 | |
– other items having impacted the cash | 38.9 | 266.7 | 63.0 | 0.0 | ||||
(Gains) losses on fixed asset disposals | (5.6 | ) | (1.2 | ) | 14.0 | 0.0 | ||
(Gains) losses on sales of securities | 0.3 | (0.6 | ) | 0.0 | 0.0 | |||
Changes in operating assets and liabilities, net of effect | ||||||||
of investments in consolidated entities : | ||||||||
– inventories | (40.8 | ) | (1.9 | ) | 54.0 | 0.0 | ||
– accounts receivable | 9.8 | 61.1 | 17.0 | 0.0 | ||||
– accounts and notes payable | 60.9 | (7.5 | ) | (77.0 | ) | 0.0 | ||
– other operating assets and liabilities | (5.7 | ) | (62.7 | ) | (137.0 | ) | 0.0 | |
Net cash (used in) provided from operating activities | 370.6 | 246.1 | (83.0 | ) | 0.0 | |||
Net proceeds from sales of fixed assets | 45.4 | 16.8 | 170.0 | 0.0 | ||||
Capital expenditures | (95.7 | ) | (112.6 | ) | (16.0 | ) | 0.0 | |
Proceeds from sales of marketable securities | 138.4 | 312.3 | 213.0 | 0.0 | ||||
Investments in marketable securities | (18.5 | ) | (29.0 | ) | (202.0 | ) | 0.0 | |
Investments in consolidated entities | 0.0 | (72.8 | ) | (3,067.0 | ) | 0.0 | ||
Investments in non-consolidated entities | (0.1 | ) | (0.2 | ) | 0.0 | 0.0 | ||
Net cash (used in) provided from investing activities | 69.5 | 114.5 | (2,902.0 | ) | 0.0 | |||
Related to shareholders' equity : | ||||||||
– capital increase | 0.0 | 0.0 | 760.0 | 0.0 | ||||
– dividends paid by Legrand SAS's subsidiaries | (0.8 | ) | (1.1 | ) | (2.0 | ) | 0.0 | |
Other financing activities : | ||||||||
– reduction of subordinated securities | (39.9 | ) | (41.0 | ) | (4.0 | ) | 0.0 | |
– new borrowings | 929.7 | 604.0 | 3,063.0 | 0.0 | ||||
– repayments of borrowings | (1,282.4 | ) | (820.3 | ) | (273.0 | ) | 0.0 | |
– debt issuance costs | (6.3 | ) | (7.5 | ) | 0.0 | 0.0 | ||
– increase (reduction) of commercial paper | 0.0 | (508.0 | ) | (30.0 | ) | 0.0 | ||
– increase (reduction) of bank overdrafts | (40.2 | ) | (87.2 | ) | 23.0 | 0.0 | ||
Net cash (used in) provided from financing activities | (439.9 | ) | (861.1 | ) | 3,537.0 | 0.0 | ||
Net effect of currency translation on cash | 0.2 | (9.4 | ) | 7.0 | 0.0 | |||
Increase (reduction) of cash and cash equivalents | 0.4 | (491.1 | ) | 559.0 | 0.0 | |||
Cash and cash equivalents at the beginning of the period | 67.9 | 559.0 | 0.0 | 0.0 | ||||
Cash and cash equivalents at the end of the period | 68.3 | 67.9 | 559.0 | 0.0 | ||||
Interest paid during the period | 184.8 | 172.1 | 0.0 | 0.0 | ||||
Income taxes paid during the period | 45.2 | 78.6 | 0.0 | 0.0 | ||||
Consolidated statements of shareholder’s equity US GAAP
Total | |||||||||||
Capital stock, | Additional | Retained | Translation | shareholder's | |||||||
at par value | paid-in capital | earnings | reserve | equity | |||||||
Euros, in millions | |||||||||||
As of December 31, 2001 | — | — | — | — | — | ||||||
Net income for the period | |||||||||||
Capital increase | |||||||||||
Changes in translation reserve | |||||||||||
As of July 31, 2002 | — | — | — | — | — | ||||||
Net income for the period | (129.2 | ) | (129.2 | ) | |||||||
Capital increase | 759.4 | 759.4 | |||||||||
Changes in translation reserve | (4.4 | ) | (4.4 | ) | |||||||
As of December 31, 2002 | 759.4 | — | (129.2 | ) | (4.4 | ) | 625.8 | ||||
Net income for the period | (232.7 | ) | (232.7 | ) | |||||||
Capital increase | — | ||||||||||
Changes in translation reserve | 0.3 | (96.3 | ) | (96.0 | ) | ||||||
As of December 31, 2003 | 759.4 | — | (361.6 | ) | (100.7 | ) | 297.1 | ||||
Net income for the period | (41.4 | ) | (41.4 | ) | |||||||
Capital increase | — | ||||||||||
Changes in translation reserve | (44.0 | ) | (44.0 | ) | |||||||
As of December 31, 2004 | 759.4 | — | (403.0 | ) | (144.7 | ) | 211.7 | ||||
The tables below show the US GAAP reconciliations of net income and net equity.
RECONCILIATION OF NET INCOME
Period from Jan | Period from Jan | Period from Aug | Statutory period | |||||
01, 2004 to Dec | 01, 2003 to Dec | 01, 2002 to Dec | from Jan 01, 2002 | |||||
31, 2004 | 31, 2003 | 31, 2002 | to Jul 31, 2002 | |||||
€ in millions | ||||||||
Net income compliant with French GAAP | (114.9 | ) | (169.9 | ) | (129.0 | ) | 0.0 | |
FAS 142 | 48.0 | (97.6 | ) | (1.0 | ) | 0.0 | ||
EITF 93-16 | (9.0 | ) | (9.9 | ) | (2.0 | ) | 0.0 | |
FAS 133 | 34.5 | 44.7 | 3.0 | 0.0 | ||||
Net income compliant with US GAAP | (41.4 | ) | (232.7 | ) | (129.0 | ) | 0.0 | |
SUMMARY RECONCILIATION OF NET EQUITY
Dec 31, 2004 | Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | |||||
€ in millions | ||||||||
Net equity compliant with French GAAP | 204.9 | 381.5 | 626.0 | 0.0 | ||||
FAS 142 | 88.8 | 23.1 | 3.0 | 0.0 | ||||
EITF 93-16 | (18.9 | ) | (9.9 | ) | (2.0 | ) | 0.0 | |
FAS 133 | (63.1 | ) | (97.6 | ) | (1.0 | ) | 0.0 | |
Net equity compliant with US GAAP | 211.7 | 297.1 | 626.0 | 0.0 | ||||
COMPREHENSIVE INCOME
Items having modified the net equity | Comprehensive income | |||||
Euros in millions | with impact on net income | without impact on net income | ||||
For the year ended December 31, 2003 | (232.7 | ) | (96.3 | ) | (329.0 | ) |
For the year ended December 31, 2004 | (41.4 | ) | (44.0 | ) | (85.4 | ) |
a) | Presentation of the statement of income |
Other expenses such as restructuring costs which are classified as non-operating expenses under French GAAP, are required to be included in the operating income under US GAAP.
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b) | Comprehensive income |
Comprehensive income includes all changes in equity that result from recognized transactions or other economic events. Amounts received from shareholders (capital increase) or paid to shareholders (reduction of capital, dividend) and changes in treasury stocks are excluded from the determination of comprehensive income.
For the periods presented in the consolidated financial statements, only the translation reserve (note 1 (c)) has been added to net income to compute comprehensive income.
c) | Derivative financial instruments |
As indicated in note 14, Legrand SA entered into three subordinated perpetual notes (TSDIs) contracts in 1990 and 1992. In addition, these subordinated perpetual notes (TSDIs) are hedged by three interest rate swaps. Under French GAAP, these instruments are accounted for as hedges of debt and, accordingly, are not recorded in the balance sheet. Payments receivable or payable under the swaps are accrued over the period to which the payment relates, resulting in accounting for the swap and the underlying debt as a single, synthetic instrument. Under US GAAP, these instruments are recorded at fair value with the changes in fair value recorded to profit and loss.
In addition, certain other derivative financial instruments, including swaps associated with the Yankee bonds, were initially recorded at fair value in purchase accounting under US GAAP. Subsequent changes in fair value are recognized in profit and loss. Under French GAAP, these instruments are treated as off balance sheet in purchase accounting and subsequently. Payments receivable or payable under the swaps are accrued over the period to which the payment relates, resulting in accounting for the swap and the underlying debt as a single, synthetic instrument.
d) | Application of EITF 93-16 |
In 2001, the Italian subsidiaries revalued their assets, in compliance with the Italian law No. 342 and the decree No. 162 (April 13, 2001), retroactively applicable from January 1, 2000. According to EITF 93-16, the tax to be paid in case of distribution of the revalued amount has to be provided for.
e) | Consolidation of special purposes entities |
The existing special purpose entities are related to the subordinated securities issued by Legrand SA. Under US GAAP, the SPVs are required to be consolidated based on the guidance and SEC views provided in EITF Topic D-14. The application of US GAAP to the subordinated perpetual notes (the TSDIs) and related loans has the following impacts:
– | Recognition of the debts due by the special purpose entities (€ 68.9 million as of December 31, 2004) | |
– | Recognition of certain derivative financial instruments at fair value in the Group's balance sheet with changes in fair value being recognized in the statement of income. |
Considering the effects outlined above and other effects relating to the subordinated perpetual notes (the TSDIs), the principal impact of this difference on the income statement is to adjust interest income and increase the net result by €21.5 million for the period ended December 31, 2004.
f) | Application of FAS 142 |
In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (FAS) No. 141 and 142. These statements establish new accounting and reporting standards for goodwill and other non amortized intangible assets and in particular, supersede their amortization by an impairment test. These statements are effective for the Group from July 1, 2001 for the new acquisitions and from January 1, 2002 for the former ones.
The impairment tests have to be applied at the reporting entity level on an annual basis and were performed as of December 31, 2004.
In addition, under French GAAP, deferred taxes are not recognized on intangible assets with an indefinite useful life (trademarks). Under US GAAP, deferred taxes are required to be recognized on intangibles with an indefinite useful life (trademarks). Accordingly, the Group has recognized an additional deferred tax liability under US GAAP amounting to €551.7 million.
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All of the Group’s intangible assets, including goodwill, were recognized in connection with the acquisition of Legrand SA on December 10, 2002. Intangible assets, as determined under US GAAP, consist of the following :
Estimate | |||||||
useful lives | Dec 31, 2004 | Dec 31, 2003 | |||||
(years) | € in millions | ||||||
Intangible assets not subject to amortization | |||||||
Goodwill | NA | 1,331.1 | 1,343.5 | ||||
Indefinite-lived trademarks | NA | 1,477.4 | 1,533.7 | ||||
2,808.5 | 2,877.2 | ||||||
Intangible assets subject to amortization | |||||||
Developed technology | 10 | 574.4 | 578.3 | ||||
Other trademarks | 10 - 20 | 59.2 | 63.2 | ||||
Other | 90.7 | 75.6 | |||||
724.3 | 717.1 | ||||||
Less : accumulated amortization | (328.7 | ) | (205.1 | ) | |||
395.6 | 512.0 | ||||||
3,204.1 | 3,389.2 | ||||||
As of December 31, 2004, € 475.7 million, € 350.5 million, € 111.7 million, € 239.1 million and € 154.1 million of our goodwill has been allocated to the France, Italy, Rest of Europe, North America and the Rest of the World segments, respectively. There were no changes in the carrying amount of goodwill during any of the periods presented other than recognition of the foregoing amounts in connection with the acquisition.
g) | Deferred income tax assets |
Under French GAAP, deferred tax assets whose realization is not more likely than not are not recognized. Under US GAAP, deferred tax assets whose realization is not more likely than not are recognized and are reduced to the amount whose realization is more likely than not through the application of a valuation allowance. Under US GAAP, all deferred tax assets would be recognized and then reduced, if necessary, by a valuation allowance equal to the amount of any tax benefit that, based on available evidence, are not more likely than not to be realized. Deferred tax assets amounting to € 218.3 million whose realization is not more likely than not were not recognized as of December 31, 2004 under French GAAP. Under US GAAP, such deferred tax assets would have been recognized and reduced by a valuation allowance for the same amount. This difference does not impact the measurement of deferred taxes but does have un impact on the disclosure of deferred tax assets.
h) | Principal shareholder transactions |
In connection with the acquisition of Legrand in 2002, certain senior executives and management of Legrand were granted warrants (by the Group's parent company) to acquire common shares in the Group's parent company. Under French GAAP, transactions entered into by principal shareholders that benefit the company are not required to be reflected in the accounts of the Group. Under US GAAP, for transactions that are established by principal shareholders that have characteristics similar to compensatory plans adopted by corporations, AIN-APB 25, #1 requires companies to account for such plans as if they are their own. Accordingly, upon the occurrence of certain specified future events and the achievement of certain specified performance conditions, the Group may be required to recognize expense in an amount that will be based on the future share price of Legrand.
i) | New Accounting Pronouncements |
SFAS 151 - Inventory Costs an amendment of ARB No. 43, Chapter 4
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SFAS 123R – Share-Based Payment
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, Legrand Holding S.A. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Legrand Holding S.A. Date: April 29, 2005 |
By: | //s/ PATRICE SOUDAN | ||
Name: | Patrice Soudan | ||
Title: | Chief Financial Officer |