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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, 2004
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 ý Form 40-F o
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 o No ý
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .
Enclosures:
Breakdown of Certain Financial Data for the Financial Year 2003 by Geographical Region
Consolidated Financial Statements of Legrand SAS as of and for the year ended December 31, 2003 (French GAAP)
Breakdown of Certain Financial Data for the Financial Year 2003 by Geographical Region
Unless otherwise indicated, all amounts are presented in accordance with US GAAP. You should read the following unaudited information together with note 29 to the consolidated financial statements of Legrand Holding SA filed on Form 20F with the SEC on April 30, 2004.
The table below presents a breakdown of net sales, cost of good sold, administrative and selling expenses, operating income and non-cash non-recurring purchase accounting charges related to the revaluation of inventories of Legrand Holding by geographical segment for the fiscal year ended December 31, 2003.
| Legrand Holding SA Year ended 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| France | Italy | Rest of Europe | US/Canada | Rest of the world | Total | |||||||
| in € millions | ||||||||||||
Net sales | 897.3 | 567.3 | 494.2 | 526.7 | 276.3 | 2,761.8 | |||||||
Cost of goods sold | (497.8 | ) | (315.2 | ) | (342.4 | ) | (320.1 | ) | (164.9 | ) | (1,640.4 | ) | |
Administrative and selling expenses | (266.5 | ) | (118.6 | ) | (137.4 | ) | (146.1 | ) | (64.9 | ) | (733.5 | ) | |
Operating income | (11.2 | ) | 72.8 | (10.1 | ) | 23.3 | 32.2 | 107.0 | |||||
of which non-cash non recurring purchase accounting charges in connection with the revaluation of inventories* | (64.4 | ) | (24.1 | ) | (14.5 | ) | (7.1 | ) | (15.7 | ) | (125.8 | ) |
- *
- These figures correspond to a non-recurring non-cash purchase accounting charge of €125.8 million incurred in 2003 arising in connection with the revaluation of inventories related to the acquisition of Legrand SA in 2002. We believe it is important to disclose these non-operational purchase accounting entries in order to reflect pure operational performance of Legrand Holding SA.
LEGRAND SAS
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
Consolidated statements of income | 2 | |
Consolidated balance sheet | 3 | |
Consolidated statements of cash flows | 5 | |
Consolidated statements of shareholders' equity | 7 | |
Notes to consolidated financial statements | 8 |
Consolidated statements of income FRENCH GAAP
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| € in millions | ||||||||||
Net sales (note 1 (j)) | 2,761.8 | 222.0 | 2,983.8 | 0.0 | 0.0 | ||||||
Operating expenses (note 20 (a)) | |||||||||||
Cost of goods sold | (1,640.4 | ) | (179.0 | ) | (1,819.4 | ) | 0.0 | 0.0 | |||
Administrative and selling expenses | (733.5 | ) | (64.0 | ) | (797.5 | ) | 0.0 | 0.0 | |||
Research and development expenses | (258.5 | ) | (113.0 | ) | (371.5 | ) | 0.0 | 0.0 | |||
Other operating income (expenses) | 17.3 | 6.0 | 23.3 | 0.0 | 0.0 | ||||||
Amortization of goodwill | (44.7 | ) | (3.0 | ) | (47.7 | ) | 0.0 | 0.0 | |||
Operating income (loss) | 102.0 | (131.0 | ) | (29.0 | ) | 0.0 | 0.0 | ||||
Interest income (expense) (note 21) | (194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | 0.0 | |||
Profits (losses) from disposal of fixed assets | (3.7 | ) | (5.0 | ) | (8.7 | ) | 0.0 | 0.0 | |||
Other income (expenses) (note 20 (b)) | (42.2 | ) | (6.0 | ) | (48.2 | ) | 0.0 | 0.0 | |||
Loss before taxes, minority interests and equity in earnings of investees | (138.2 | ) | (162.0 | ) | (300.2 | ) | 0.0 | 0.0 | |||
Income taxes (note 22) | (33.2 | ) | 29.0 | (4.2 | ) | 0.0 | 0.0 | ||||
Net loss before minority interests and equity in earnings of investees | (171.4 | ) | (133.0 | ) | (304.4 | ) | 0.0 | 0.0 | |||
Minority interests | (0.9 | ) | 2.0 | 1.1 | 0.0 | 0.0 | |||||
Equity in earnings of investees | 2.4 | 2.0 | 4.4 | 0.0 | 0.0 | ||||||
Net loss attributable to Legrand SAS | (169.9 | ) | (129.0 | ) | (298.9 | ) | 0.0 | 0.0 | |||
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
2
Consolidated balance sheets FRENCH GAAP
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 67.9 | 559.0 | 0.0 | 0.0 | ||||
Marketable securities (note 10) | 32.6 | 196.0 | 0.0 | 0.0 | ||||
Restricted cash (note 7) | 37.0 | 23.0 | 0.0 | 0.0 | ||||
Trade accounts receivable (note 9) | 509.9 | 598.0 | 0.0 | 0.0 | ||||
Deferred income taxes (notes 1 (i) and 22) | 34.7 | 48.0 | 0.0 | 0.0 | ||||
Other current assets | 112.1 | 85.0 | 0.0 | 0.0 | ||||
Inventories (notes 1 (h) and 8) | 385.5 | 530.0 | 0.0 | 0.0 | ||||
Total current assets | 1,179.7 | 2,039.0 | 0.0 | 0.0 | ||||
Property, plant and equipment, net (note 4) | 914.9 | 1,025.0 | 0.0 | 0.0 | ||||
Investments (note 5) | 21.8 | 26.0 | 0.0 | 0.0 | ||||
Goodwill, net (notes 1 (f) and 2) | 810.4 | 844.0 | 0.0 | 0.0 | ||||
Trademarks, net (note 3) | 1,591.1 | 1,643.0 | 0.0 | 0.0 | ||||
Developed Technology, net (note 3) | 449.9 | 586.0 | 0.0 | 0.0 | ||||
Restricted cash (note 7) | 90.5 | 127.0 | 0.0 | 0.0 | ||||
Deferred income taxes (notes 1 (i) and 22) | 32.3 | 124.0 | 0.0 | 0.0 | ||||
Other non-current assets (note 6) | 93.9 | 167.0 | 0.0 | 0.0 | ||||
4,004.8 | 4,542.0 | 0.0 | 0.0 | |||||
Total assets | 5,184.5 | 6,581.0 | 0.0 | 0.0 | ||||
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
3
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Short-term borrowings (note 18) | 130.8 | 734.0 | 0.0 | 0.0 | ||||
Accounts and notes payable | 252.7 | 269.0 | 0.0 | 0.0 | ||||
Deferred income taxes (notes 1 (i) and 22) | 3.0 | 48.0 | 0.0 | 0.0 | ||||
Other current liabilities (19) | 347.4 | 435.0 | 0.0 | 0.0 | ||||
Total current liabilities | 733.9 | 1 486.0 | 0.0 | 0.0 | ||||
Deferred income taxes (notes 1 (i) and 22) | 167.4 | 280.0 | 0.0 | 0.0 | ||||
Other non-current liabilities (note 17) | 227.3 | 205.0 | 0.0 | 0.0 | ||||
Long-term borrowings (note 16) | 1,707.7 | 2,606.0 | 0.0 | 0.0 | ||||
Subordinated securities (note 14) | 108.9 | 158.0 | 0.0 | 0.0 | ||||
Related party loan (note 15) | 1,839.6 | 1,156.0 | 0.0 | 0.0 | ||||
Minority interests | 18.2 | 64.0 | 0.0 | 0.0 | ||||
Shareholders' equity | ||||||||
Capital stock (note 11) | 759.4 | 759.4 | 0.0 | 0.0 | ||||
Accumulated deficits (note 13 (a)) | (298.8 | ) | (129.0 | ) | 0.0 | 0.0 | ||
Translation reserve (note 13 (b)) | (79.1 | ) | (4.4 | ) | 0.0 | 0.0 | ||
381.5 | 626.0 | 0.0 | 0.0 | |||||
Total liabilities and shareholders' equity | 5,184.5 | 6,581.0 | 0.0 | 0.0 | ||||
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
4
Consolidated statements of cash flows FRENCH GAAP
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Net income attributable to Legrand SAS | (169.9 | ) | (129.0 | ) | (298.9 | ) | 0.0 | 0.0 | ||
Reconciliation of net income to net cash provided from (used in) operating activities: | ||||||||||
-depreciation of tangible assets | 155.8 | 13.0 | 168.8 | 0.0 | 0.0 | |||||
-amortization of intangible assets | 191.2 | 108.0 | 299.2 | 0.0 | 0.0 | |||||
-changes in long-term deferred taxes | (50.4 | ) | (2.0 | ) | (52.4 | ) | 0.0 | 0.0 | ||
-changes in other long-term assets and liabilities | 4.6 | (2.0 | ) | 2.6 | 0.0 | 0.0 | ||||
-minority interests | 0.9 | (3.0 | ) | (2.1 | ) | 0.0 | 0.0 | |||
-equity in earnings of investees | (2.4 | ) | (2.0 | ) | (4.4 | ) | 0.0 | 0.0 | ||
-other items having impacted the cash | 138.1 | 63.0 | 201.1 | 0.0 | 0.0 | |||||
(Gains) losses on fixed asset disposals | (1.2 | ) | 14.0 | 12.8 | 0.0 | 0.0 | ||||
(Gains) losses on sales of securities | (0.6 | ) | 0.0 | (0.6 | ) | 0.0 | 0.0 | |||
Changes in operating assets and liabilities, net of effect of investments in consolidated entities: | ||||||||||
-inventories | (1.9 | ) | 54.0 | 52.1 | 0.0 | 0.0 | ||||
-accounts receivable | 61.1 | 17.0 | 78.1 | 0.0 | 0.0 | |||||
-accounts and notes payable | (7.5 | ) | (77.0 | ) | (84.5 | ) | 0.0 | 0.0 | ||
-other operating assets and liabilities | (62.7 | ) | (137.0 | ) | (199.7 | ) | 0.0 | 0.0 | ||
Net cash (used in) provided from operating activities | 255.1 | (83.0 | ) | 172.1 | 0.0 | 0.0 | ||||
Net proceeds from sales of fixed assets | 16.8 | 170.0 | 186.8 | 0.0 | 0.0 | |||||
Capital expenditures | (112.6 | ) | (16.0 | ) | (128.6 | ) | 0.0 | 0.0 | ||
Proceeds from sales of marketable securities | 312.3 | 213.0 | 525.3 | 0.0 | 0.0 | |||||
Investments in marketable securities | (29.0 | ) | (202.0 | ) | (231.0 | ) | 0.0 | 0.0 | ||
Investments in consolidated entities | (72.8 | ) | (3,067.0 | ) | (3,139.8 | ) | 0.0 | 0.0 | ||
Investments in non-consolidated entities | (0.2 | ) | 0.0 | (0.2 | ) | 0.0 | 0.0 | |||
Net cash (used in) provided from investing activities | 114.5 | (2,902.0 | ) | (2,787.5 | ) | 0.0 | 0.0 | |||
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
5
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Related to shareholders' equity: | ||||||||||
-capital increase | 0.0 | 760.0 | 760.0 | 0.0 | 0.0 | |||||
-dividends paid by Legrand SAS' subsidiaries | (1.1 | ) | (2.0 | ) | (3.1 | ) | 0.0 | 0.0 | ||
Other financing activities: | ||||||||||
-reduction of subordinated securities | (50.0 | ) | (4.0 | ) | (54.0 | ) | 0.0 | 0.0 | ||
-new borrowings | 604.0 | 3,063.0 | 3,667.0 | 0.0 | 0.0 | |||||
-repayment of borrowings | (820.3 | ) | (273.0 | ) | (1,093.3 | ) | 0.0 | 0.0 | ||
-debt issuance cost | (7.5 | ) | 0.0 | (7.5 | ) | 0.0 | 0.0 | |||
-increase (reduction) of commercial paper | (508.0 | ) | (30.0 | ) | (538.0 | ) | 0.0 | 0.0 | ||
-increase (reduction) of bank overdrafts | (87.2 | ) | 23.0 | (64.2 | ) | 0.0 | 0.0 | |||
Net cash (used in) provided from financing activities | (870.1 | ) | 3,537.0 | 2,666.9 | 0.0 | 0.0 | ||||
Net effect of currency translation on cash | (9.4 | ) | 7.0 | 16.4 | 0.0 | 0.0 | ||||
Increase (reduction) of cash and cash equivalents | (491.1 | ) | 559.0 | 67.9 | 0.0 | 0.0 | ||||
Cash and cash equivalents at the beginning of the period | 559.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
Cash and cash equivalents at the end of the period | 67.9 | 559.0 | 67.9 | 0.0 | 0.0 | |||||
Interest paid during the period | 172.1 | 0.0 | 172.1 | 0.0 | 0.0 | |||||
Income taxes paid during the period | 78.6 | 0.0 | 78.6 | 0.0 | 0.0 |
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
6
Consolidated statements of shareholder's equity FRENCH GAAP
| Capital stock, at par value | Additional paid-in capital | Retained earnings | Translation reserve | Total shareholders' equity | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| € in millions | ||||||||||
As of December 31, 2000 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Net income for the period | |||||||||||
Capital increase | |||||||||||
Changes in translation reserve | |||||||||||
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 | (129.0 | ) | (129.0 | ) | |||||||
Capital increase | 759.4 | 759.4 | |||||||||
Changes in translation reserve | 0.0 | (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 | 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 | ||||
The accompanying notes on pages 8 to 48 are an integral part of these financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
List of consolidated companies
The consolidated financial statements comprise the financial statements of Legrand SAS and its 112 controlled subsidiaries. Investments in six affiliated companies are accounted for by the equity method.
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 | 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 | |
MDS | India | |
Ortronics | United States | |
Pass & Seymour | United States | |
Pial | Brazil | |
The Watt Stopper | United States | |
The Wiremold Company | United States |
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.
8
a) Basis of presentation and acquisition of Legrand SA
Through December 31, 2001, the Group's fiscal year end was December 31. During 2002, the Group changed its fiscal year end from December 31 to July 31, resulting in a seven-month period ended July 31, 2002. In connection with the acquisition of Legrand SA (see below), the Group changed its fiscal year from July 31 to December 31, resulting in a seventeen-month fiscal period ended December 31, 2003 and a five-month reporting period ended December 31, 2002.
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.
On December 10, 2002, the Group acquired 98% of the outstanding share capital of Legrand SA for aggregate cash consideration of € 3.63 billion (corresponding to a value of € 3.7 billion for 100%). The remaining 2% of the outstanding share capital of Legrand SA was acquired as of October 2, 2003. The results of operations of Legrand SA have been included in the consolidated financial statements since December 2002.
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 | |||||
---|---|---|---|---|---|---|
| € in millions | |||||
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 |
- (a)
- Shareholders' equity of € 1,805 million excluding goodwill of € 1,011 million
- (b)
- Carrying value in excess of fair value
9
- (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;
- •
- Other assets and liabilities are translated using exchange rates in effect as of the balance sheet dates; and
- •
- Gains or losses arising from the translation of the financial statements of subsidiaries 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.
10
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 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.
Trademarks with definite lives and developed technology are amortized on an accelerated method over 10 years.
Costs incurred by Group companies in developing computer software for their own use and in research and development are expensed in the period they are incurred; acquisition costs of externally developed software are recorded in other assets and depreciated on a straight-line basis over their expected useful lives from 3 to 8 years.
Other intangible assets, included in "other non-current assets" in the balance sheet, are amortized on a straight-line basis over the estimated period of benefit, not in excess of 40 years, and limited to 20 years for patents and trademarks.
g) Property, plant and equipment
Land, buildings, machinery and equipment are carried at cost. In connection with the acquisition, an expert was retained in order to assess the fair value of plants and properties. Their conclusions led to a total revaluation of € 39 million, including an estimated €15.5 million for land. The revaluation on plants and properties (€39 million less the value attributable to land, which is not amortizable) is depreciated on a straight-line basis over 25 years.
Assets acquired under lease agreements that are regarded as financing their purchase are capitalized on the basis of the present value of minimum lease payments and depreciated as described below. French legal revaluations and foreign revaluations are not reflected in the consolidated financial statements.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets; the most commonly adopted useful lives are the following:
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
Inventories are recorded at the lower of cost or market, with cost determined principally on a first-in, first-out (FIFO) basis.
11
i) Deferred income taxes
In compliance with FASB statement No. 109, deferred income taxes are recorded based on the differences between the tax bases of assets and liabilities and their carrying value for financial reporting purposes. Currently enacted rates applicable for future periods are used to calculate year-end deferred income taxes.
A valuation allowance is recorded against deferred tax assets to reduce these deferred tax assets to the amount likely to be realized. The assessment of the valuation allowance is done by tax entity, based on the tax strategy developed for the near future for each entity.
Provisions are made for withholding and other taxes which would be payable in case of distribution of earnings of subsidiaries and affiliates, except for those considered as permanently reinvested.
If the assets of a subsidiary are revalued for tax purposes, the tax benefit is accounted for in compliance with the enacted tax rules at the revaluation.
j) Revenue recognition
Revenues are recognized when all of the following criteria have been met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the sales price is fixed or determinable and (iv) collectibility is reasonably assured. For the Group, this policy results in the recognition of revenue when title and risk of loss transfer to the customer, which is generally upon shipment.
In addition, the Group offers certain sales incentives to customers consisting primarily of volume rebates, and discounts for prompt payment. Volume rebates are typically based on three, six, and twelve-month arrangements with customers, and rarely extend beyond one year. Since the volume of customer's future purchases can be reasonably estimated based on historical evidence, the Group recognizes the rebates on a monthly basis as a reduction in revenue based on the estimated cost of honoring rebates earned and claimed to each of the underlying revenue transactions that reflect the progress by the customer toward earning the rebate. These volume rebates are generally accounted for as a reduction to customers' account receivable balance. Discounts for prompt payment are recognized in decrease of sales.
k) Fair value of financial instruments
The carrying value of cash, short-term deposits, accounts receivable, accounts payable, accrued liabilities and short-term borrowings approximates their fair value because of the short-term maturity of these instruments. For short-term investments, comprised of marketable securities, fair value is determined based on the market prices of these securities. The fair value of long-term debt is estimated on the basis of interest rates currently available for issuance of debt with similar terms and remaining maturities. The fair value of interest rate swap agreements is the estimated amount that the counterparty would receive or pay to terminate the agreements.
l) Derivative financial and commodity instruments
The Group's policy is to abstain from transactions of a speculative nature in the use of financial instruments; consequently all operations with these instruments are exclusively devoted to manage and cover exchange or interest rate risks, and the prices of raw materials. Therefore, the Group periodically enters into contracts such as swaps, options and futures, which relate to the nature of its exposure.
The interest rate swaps, which synthetically adjust interest rates on certain indebtedness, involve the exchange of fixed and floating rate interest payments over the life of the agreement without the exchange of the notional amount. The differential to be paid or received is accrued as adjustments to interest income or expense over the life of the agreement. Upon early termination of an interest rate
12
swap, gains or losses are deferred and amortized as adjustments to interest expense of the related debt over the remaining period covered by the terminated swap.
The Group periodically enters into foreign currency contracts to hedge commitments, transactions or foreign income. For foreign currency contracts acquired for the purpose of hedging identified commitments, the gain or loss is generally deferred and included in the basis of the transaction underlying the commitment. If the underlying transaction is not completed, the contract is marked to market with any realized or unrealized gains or losses reflected in income. Gains or losses on transaction hedges are recognized in income and offset the gains or losses on the related transaction. Foreign currency contracts acquired for the purpose of hedging foreign income, generally for periods not exceeding twelve months, are marked to market with any realized or unrealized gains or losses reflected in income.
The Group also enters into raw material contracts to totally or partially hedge its purchases. Gains or losses related to transactions that qualify for hedge accounting are deferred on the balance sheet in other current liabilities or assets and reflected in cost of goods sold when the underlying transaction takes place. If future purchased raw material needs are revised lower than initially anticipated, the futures contracts associated with the reductions no longer qualify for deferral and are marked to market. Gains or losses are then recorded in other income. The effectiveness of the hedge is measured by a historical and probable future high correlation of changes in the fair value of the hedging instruments with changes in the value of the hedged item. If correlation ceases to exist, hedge accounting will be terminated and gains or losses recorded in other income.
Cash flows from financial instruments are recognized in the statement of cash flows in a manner consistent with the underlying transactions.
m) Environmental and product liabilities
In application of FASB statement No. 5 the Group recognizes losses and accrues liabilities relating to environmental and product liability matters. Accordingly, the Group recognizes a loss if available information indicates that it is probable and reasonably estimable. In the event a loss is neither probable nor reasonably estimable but remains possible, the Group discloses this contingency in the notes to its consolidated financial statements.
With respect to environmental liabilities, the Group estimates losses on a case-by-case basis and makes the best estimate it can, based on available information. With respect to product liabilities, the Group estimates losses on the basis of current facts and circumstances, prior experience with similar matters, the number of claims and the anticipated cost of administering, defending and, in some cases, settling such cases.
n) Stock option plans
In accordance with FASB statement No. 123, the Group has chosen to continue to account for stock-based compensation using the intrinsic value method as prescribed by APB No. 25. Accordingly, for most plans, compensation cost is measured as the excess of the market price of the underlying shares as of the date of the grant over the exercise price an employee is required to pay to acquire this stock.
o) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that are reflected in the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial
13
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
p) Transfers and servicing of financial assets
FASB statement No. 140 provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. According to this statement, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished.
2) Goodwill (note 1 (f))
Goodwill is considered as an integral part of the assets of acquired companies. As of December 31, 2003, goodwill relates only to the excess of cost over the fair value of net assets as of the date of the acquisition of Legrand SA (on December 10, 2002). It is being amortized on a straight-line basis over 20 years.
Goodwill can be analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|
| € in millions | ||||||||
Gross value | 856.2 | 847.0 | 0.0 | 0.0 | |||||
Accumulated amortization | 45.8 | 3.0 | 0.0 | 0.0 | |||||
810.4 | 844.0 | 0.0 | 0.0 | ||||||
of which: | |||||||||
- France | 287.5 | 288.0 | 0.0 | 0.0 | |||||
- Italy | 211.4 | 212.0 | 0.0 | 0.0 | |||||
- Other European countries | 67.6 | 68.0 | 0.0 | 0.0 | |||||
- United States of America | 134.0 | 169.0 | 0.0 | 0.0 | |||||
- Other countries | 109.9 | 107.0 | 0.0 | 0.0 | |||||
810.4 | 844.0 | 0.0 | 0.0 | ||||||
14
The geographic allocation of goodwill is based on the acquired company's value, determined as of the date of its acquisition.
Changes in goodwill are analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Gross value: | ||||||||
At the beginning of the period | 847.0 | 0.0 | 0.0 | 0.0 | ||||
-new acquisitions | 0.0 | 847.0 | 0.0 | 0.0 | ||||
-other changes in gross value | 46.2 | 0.0 | 0.0 | 0.0 | ||||
-translation effect | (37.0 | ) | 0.0 | 0.0 | 0.0 | |||
At the end of the period | 856.2 | 847.0 | 0.0 | 0.0 | ||||
Amortization: | ||||||||
At the beginning of the period | (3.0 | ) | 0.0 | 0.0 | 0.0 | |||
-amortization expense | (44.7 | ) | (3.0 | ) | 0.0 | 0.0 | ||
-other changes in amortization | 0.0 | 0.0 | 0.0 | 0.0 | ||||
-translation effect | 1.9 | 0.0 | 0.0 | 0.0 | ||||
At the end of the period | (45.8 | ) | (3.0 | ) | 0.0 | 0.0 | ||
3) Trademarks and developed technology
The intangible assets are mainly composed of trademarks and patents valued in connection with the acquisition of Legrand SA.
Trademarks can be analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
At the beginning of the period | 1,644.0 | 0.0 | 0.0 | 0.0 | ||||
-capital expenditures | 0.0 | 1,644.0 | 0.0 | 0.0 | ||||
-disposals | 0.0 | 0.0 | 0.0 | 0.0 | ||||
-new consolidated entities | 0.0 | 0.0 | 0.0 | 0.0 | ||||
-translation effect | (47.1 | ) | 0.0 | 0.0 | 0.0 | |||
1,596.9 | 1,644.0 | 0.0 | 0.0 | |||||
Less amortization | (5.8 | ) | (1.0 | ) | 0.0 | 0.0 | ||
1,591.1 | 1,643.0 | 0.0 | 0.0 | |||||
Developed technology can be analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
At the beginning of the period | 593.0 | 0.0 | 0.0 | 0.0 | ||||
-capital expenditures | 0.0 | 593.0 | 0.0 | 0.0 | ||||
-disposals | 0.0 | 0.0 | 0.0 | 0.0 | ||||
-new consolidated entities | 0.0 | 0.0 | 0.0 | 0.0 | ||||
-translation effect | (14.7 | ) | 0.0 | 0.0 | 0.0 | |||
578.3 | 593.0 | 0.0 | 0.0 | |||||
Less amortization | (128.4 | ) | (7.0 | ) | 0.0 | 0.0 | ||
449.9 | 586.0 | 0.0 | 0.0 | |||||
15
4) Property, plant and equipment (note 1 (g))
a) Analysis of net tangible assets by geographic area
Net tangible fixed assets, including capitalized leases, were as follows as of December 31, 2002:
| Dec 31, 2002 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| France | Italy | Rest of Europe | USA / Canada | Rest of the world | Total | ||||||
| € in millions | |||||||||||
Land | 24.5 | 5.4 | 22.4 | 4.4 | 19.5 | 76.2 | ||||||
Buildings | 162.5 | 67.5 | 75.4 | 36.0 | 26.1 | 367.5 | ||||||
Machinery and equipment | 200.1 | 100.1 | 57.9 | 69.5 | 28.5 | 456.1 | ||||||
In progress and other | 38.9 | 7.6 | 26.3 | 34.2 | 18.2 | 125.2 | ||||||
426.0 | 180.6 | 182.0 | 144.1 | 92.3 | 1,025.0 | |||||||
Net tangible fixed assets, including capitalized leases, are as follows as of December 31, 2003:
| 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 | |||||||
b) Analysis of changes in tangible assets
Changes in property, plant and equipment, can be analyzed as follows:
| Dec 31, 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| France | Italy | Rest of Europe | USA / Canada | Rest of the world | Total | |||||||
| € in millions | ||||||||||||
Capital expenditures | 42.8 | 20.0 | 16.0 | 10.8 | 15.2 | 104.8 | |||||||
Disposals at NBV | (2.7 | ) | (4.1 | ) | (3.8 | ) | (2.8 | ) | (1.1 | ) | (14.5 | ) | |
Amortization expense | (64.4 | ) | (27.5 | ) | (24.4 | ) | (25.6 | ) | (13.9 | ) | (155.8 | ) | |
Translation effect | 0.0 | 0.0 | (5.9 | ) | (22.2 | ) | (16.5 | ) | (44.6 | ) | |||
(24.3 | ) | (11.6 | ) | (18.1 | ) | (39.8 | ) | (16.3 | ) | (110.1 | ) | ||
| Dec 31, 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital expenditures | In progress transfer | Disposals at NBV | Amortization expense | Translation effect | Total | |||||||
| € in millions | ||||||||||||
Land | 0.0 | 0.0 | (0.4 | ) | 0.0 | (4.3 | ) | (4.7 | ) | ||||
Buildings | 6.3 | 9.0 | (1.3 | ) | (22.2 | ) | (13.9 | ) | (22.1 | ) | |||
Machinery and equipment | 48.4 | 40.2 | (7.0 | ) | (118.6 | ) | (16.4 | ) | (53.4 | ) | |||
In progress and other | 50.1 | (49.2 | ) | (5.8 | ) | (15.0 | ) | (10.0 | ) | (29.9 | ) | ||
104.8 | 0.0 | (14.5 | ) | (155.8 | ) | (44.6 | ) | (110.1 | ) | ||||
16
c) Property, plant and equipment include the following assets held under capital leases:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Land | 3.9 | 4.0 | 0.0 | 0.0 | ||||
Buildings | 55.2 | 40.0 | 0.0 | 0.0 | ||||
Machinery and equipment | 7.6 | 6.0 | 0.0 | 0.0 | ||||
66.7 | 50.0 | 0.0 | 0.0 | |||||
Less depreciation | (14.2 | ) | 0.0 | 0.0 | 0.0 | |||
52.5 | 50.0 | 0.0 | 0.0 | |||||
d) Capital lease obligations are presented in the balance sheets as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Long-term borrowings | 22.0 | 25.0 | 0.0 | 0.0 | ||||
Short-term borrowings | 5.8 | 9.0 | 0.0 | 0.0 | ||||
27.8 | 34.0 | 0.0 | 0.0 | |||||
e) Future minimum lease payments related to capital leases are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Payable within one year | 7.3 | 9.0 | 0.0 | 0.0 | ||||
Payable in one to two years | 6.8 | 10.0 | 0.0 | 0.0 | ||||
Payable in two to three years | 6.1 | 6.0 | 0.0 | 0.0 | ||||
Payable in three to four years | 5.2 | 5.0 | 0.0 | 0.0 | ||||
Payable in four to five years | 2.2 | 5.0 | 0.0 | 0.0 | ||||
Payable beyond five years | 2.3 | 2.0 | 0.0 | 0.0 | ||||
29.9 | 37.0 | 0.0 | 0.0 | |||||
Less interest portion | (2.1 | ) | (3.0 | ) | 0.0 | 0.0 | ||
Present value of future minimum lease payments | 27.8 | 34.0 | 0.0 | 0.0 | ||||
5) Investments
Investments which do not relate to consolidated companies are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Equity method investees | 11.7 | 15.0 | 0.0 | 0.0 | ||||
Other investments | 10.1 | 11.0 | 0.0 | 0.0 | ||||
21.8 | 26.0 | 0.0 | 0.0 | |||||
17
The key figures, which relate to equity method investees, are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Net sales | 27.8 | 31.0 | 0.0 | 0.0 | ||||
Net income | 3.5 | 4.0 | 0.0 | 0.0 | ||||
Total assets | 22.9 | 28.0 | 0.0 | 0.0 |
6) Other non-current assets
The other non-current assets are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Deferred charges | 11.6 | 71.0 | 0.0 | 0.0 | ||||
Softwares | 13.5 | 18.0 | 0.0 | 0.0 | ||||
Miscellaneous | 68.8 | 78.0 | 0.0 | 0.0 | ||||
93.9 | 167.0 | 0.0 | 0.0 | |||||
The line Miscellaneous principally reflects debt issuance costs.
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.
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
2003 | 0.0 | 23.0 | 0.0 | |||||
2004 | 37.0 | 37.0 | 0.0 | 0.0 | ||||
2005 | 43.0 | 43.0 | 0.0 | 0.0 | ||||
2006 | 31.5 | 31.0 | 0.0 | 0.0 | ||||
2007 | 16.0 | 16.0 | 0.0 | 0.0 | ||||
127.5 | 150.0 | 0.0 | 0.0 | |||||
8) Inventories (note 1 (h))
Inventories were revalued by € 175.2 million as of the date of the acquisition of Legrand SA by the Group.
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Purchased raw-materials and parts | 129.5 | 133.0 | 0.0 | 0.0 | ||||
Sub-assemblies, work in process | 89.1 | 118.0 | 0.0 | 0.0 | ||||
Finished goods | 227.7 | 340.0 | 0.0 | 0.0 | ||||
446.3 | 591.0 | 0.0 | 0.0 | |||||
Less allowances | (60.8 | ) | (61.0 | ) | 0.0 | 0.0 | ||
385.5 | 530.0 | 0.0 | 0.0 | |||||
18
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, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Trade accounts receivable | 428.0 | 432.0 | 0.0 | 0.0 | ||||
Notes receivables | 115.1 | 191.0 | 0.0 | 0.0 | ||||
543.1 | 623.0 | 0.0 | 0.0 | |||||
Less allowances | (33.2 | ) | (25.0 | ) | 0.0 | 0.0 | ||
509.9 | 598.0 | 0.0 | 0.0 | |||||
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. Unrealized gains related to these marketable securities, are analyzed below:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Unrealized gains at the beginning of the period | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Increase (reduction) in fair value | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Realized gains during the year | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Unrealized gains at the end of the period | 0.0 | 0.0 | 0.0 | 0.0 | ||||
19
Capital stock consists of the following:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
Common shares | 75,933,590 | 75,933,590 | 2,500 | 2,500 | ||||
Issued and outstanding | 0 | 0 | 0 | 0 | ||||
Held by the Group | 0 | 0 | 0 | 0 | ||||
75,933,590 | 75,933,590 | 0 | 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.
Holders of stock options granted by Legrand SA (other than holders of stocks options granted in 2001) have the right to exchange the ordinary and preferred non-voting shares resulting from the exercise of such stock options for Schneider shares' pursuant to an undertaking provided by Schneider to the holders of such stock options during its public tender offer for Legrand SA.
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, 2003, the total number of options subject to
20
Schneider undertaking (and thus subject to the put and call agreement) was 438,650 and 2,989 with respect to Legrand SA's ordinary and referred non-voting shares, respectively.
Nature of the plans | subscription | purchase | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
dates of attribution of options | | | | | | | | | ||||||||
1997 | 1998 | 2000 | 2001 | 1999 | | |||||||||||
nature of shares offered | Total of outstanding plans | |||||||||||||||
common | preferred | common | preferred | common | common | common | ||||||||||
Number of grantees | 6 | 6 | 8 999 | 9 122 | 8 814 | |||||||||||
Exercisable from | 12-1997 | 10-1998 | 11-2005 | 11-2005 | 12-2004 | |||||||||||
Exercisable until | 12-2003 | 10-2004 | 11-2007 | 11-2008 | 12-2006 | |||||||||||
Option price (in Euros) | 132.45 | 89.84 | 165.56 | 100.01 | 191.50 | 143.00 | 222.00 | |||||||||
Number of options granted | 11,750 | 2,500 | 7,500 | 2,500 | 124,240 | 178,766 | 85,708 | |||||||||
Options exercised | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Options cancelled | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Balance at the end of 1997 | 11,750 | 2,500 | 0 | 0 | 0 | 0 | 0 | |||||||||
Options exercised | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Options cancelled | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Balance at the end of 1998 | 11,750 | 2,500 | 7,500 | 2,500 | 0 | 0 | 0 | |||||||||
Options exercised | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Options cancelled | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Balance at the end of 1999 | 11,750 | 2,500 | 7,500 | 2,500 | 0 | 0 | 85,708 | |||||||||
Options exercised | (3,000 | ) | 0 | (2,000 | ) | 0 | 0 | 0 | 0 | |||||||
Options cancelled | 0 | 0 | 0 | 0 | 0 | 0 | (4,508 | ) | ||||||||
Balance at the end of 2000 | 8,750 | 2,500 | 5,500 | 2,500 | 124,240 | 0 | 81,200 | |||||||||
Options exercised | (18 | ) | ||||||||||||||
Options cancelled | 0 | |||||||||||||||
Balance at the end of 2001 | 8,750 | 2,500 | 5,500 | 2,500 | 124,222 | 178,766 | 81,200 | |||||||||
Options exercised | ||||||||||||||||
Options cancelled | ||||||||||||||||
Balance at the end of 2002 | 8,750 | 2,500 | 5,500 | 2,500 | 124,222 | 178,766 | 81,200 | 403,438 | ||||||||
New options issued from retained | 98 | 513 | 489 | 16,218 | 21,353 | 11,998 | 50,669 | |||||||||
Earnings ditribution as at Nov 15, 2003 | 0 | |||||||||||||||
Options exercised | (8,750 | ) | (2,000 | ) | - -10,750 | |||||||||||
Options cancelled | (598 | ) | (372 | ) | (372 | ) | (376 | ) | - -1,718 | |||||||
Balance at the end of 2003 | 0 | 0 | 6,013 | 2,989 | 140,068 | 199,747 | 92,822 | 441,639 | ||||||||
21
The fair value of options at the date of grant is calculated in compliance with FASB Statement No 123, using the «Black-Scholes» model, with the following assumptions:
Nature of the plans | subscription | purchase | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
dates of attribution of options | | | | | | | | | |||||||||
1997 | 1998 | 2000 | 2001 | 1999 | | ||||||||||||
nature of shares offered | Total of outstanding plans | ||||||||||||||||
common | preferred | common | preferred | common | common | common | |||||||||||
Expected average life (years) | NA | 4 years | 5 years | 4 years | 5 years | ||||||||||||
Interest rate (5 years bonds) | NA | 3.50 | % | 5.54 | % | 5.35 | % | 4.76 | % | ||||||||
Implied volatility | 43.2 | % | 36.5 | % | 39.4 | % | 49.7 | % | 31.6 | % | |||||||
Dividend yield | 1.0 | % | 2.6 | % | 1.3 | % | 1.4 | % | 1.2 | % | |||||||
Fair value of the option (Euros) | 93 | 47 | 73 | 58 | 71 |
Had compensation cost been determined on the fair value at the grant date for awards since 1995 (non retroactively), the effect on the company's net income and earnings per share would have not been material.
b) Employee profit sharing
French law provides for employees to share in the profit of the French group companies to the extent that the profit after tax of such entities exceeds a certain level. Amounts accrued are generally payable to employees after a period of 5 years and bear interest at varying, negotiated rates (from 5 to 9%).
In addition to this obligation, French group companies and certain foreign subsidiaries pay their employees a portion of their income calculated on the basis of predetermined formulas negotiated by each entity.
22
Employee profit sharing expense amounted to € 21.8 million for the year December 31, 2003.
13) Accumulated deficits and foreign translation reserve
a) Accumulated deficits
Accumulated deficits of Legrand SAS and its consolidated subsidiaries can be analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Legal reserve (not distributable) | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Accumulated deficits | (298.8 | ) | (129.0 | ) | 0.0 | 0.0 | ||
Share of earnings of consolidated companies | 0.0 | 0.0 | 0.0 | 0.0 | ||||
(298.8 | ) | (129.0 | ) | 0.0 | 0.0 | |||
b) Foreign currency translation reserve
As specified in note 1 (c) the foreign currency translation reserve reflects the effects of currency fluctuations on financial statements of subsidiaries when they are translated into euros.
The foreign currency translation reserve records the impact of fluctuations in the following currencies:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
US dollar | (92.0 | ) | (1.0 | ) | 0.0 | 0.0 | ||
Other currencies | 12.9 | (3.4 | ) | 0.0 | 0.0 | |||
(79.1 | ) | (4.4 | ) | 0.0 | 0.0 | |||
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.
23
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, 10,7%, 9.6% and 9.3% of the average residual carrying value for each of the years 2003, 2002 and 2001, respectively.
The fair value of the subordinated perpetual notes in the Group's balance sheet as of the date of the acquisition of Legrand SA was € 158 million.
The amortization of the residual carrying value, in the balance sheet is as follows:
| Dec 31, 2003 | |
---|---|---|
| € in millions | |
2004 | 40.5 | |
2005 | 40.5 | |
2006 | 19.0 | |
2007 | 8.9 | |
108.9 | ||
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 101/2% 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.
The Subordinated Shareholder PIK Loan bears interest ay 5% per annum and is payable in full, together with accrued interest, in 2026. The Subordinated Shareholder PIK Loan was subscribed by a subsidiary of the Group's ultimate parent, Lumina Parent Sarl.
24
16) Long-term borrowings
Long term borrowings can be analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Senior credit agreement | 1,323.8 | 1,597.0 | 0.0 | 0.0 | ||||
Mezzanine Credit Agreement | 0.0 | 600.0 | 0.0 | 0.0 | ||||
81/2% debentures | 306.7 | 371.0 | 0.0 | 0.0 | ||||
Other long-term borrowings | 77.2 | 38.0 | 0.0 | 0.0 | ||||
1,707.7 | 2,606.0 | 0.0 | 0.0 | |||||
Long-term borrowings are denominated in the following currencies:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Euro | 1,605.4 | 2,233.0 | 0.0 | 0.0 | ||||
US Dollar | 96.1 | 371.0 | 0.0 | 0.0 | ||||
Other currencies | 6.2 | 2.0 | 0.0 | 0.0 | ||||
1,707.7 | 2,606.0 | 0.0 | 0.0 | |||||
Maturity dates are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Payable in one to two years | 123.2 | 74.0 | 0.0 | 0.0 | ||||
Payable in two to three years | 106.3 | 85.0 | 0.0 | 0.0 | ||||
Payable in three to four years | 132.2 | 117.0 | 0.0 | 0.0 | ||||
Payable in four to five years | 151.2 | 144.0 | 0.0 | 0.0 | ||||
Payable beyond five years | 1 194.8 | 2 186.0 | 0.0 | 0.0 | ||||
1,707.7 | 2,606.0 | 0.0 | 0.0 | |||||
Interest rates on long-term borrowings are as follows:
| Dec 31, 2003 | average interest rate after SWAP transaction | |||
---|---|---|---|---|---|
| € in millions | | |||
Senior Credit Agreement | 1,323.8 | 5.11 | % | ||
81/2% debentures | 306.7 | 3.70 | % | ||
Other borrowings | 55.2 | 1.75 | % | ||
Capital lease obligations | 22.0 | 3.74 | % | ||
1,707.7 | |||||
25
These borrowings are collateralized as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Assets mortgaged or pledged as collateral | 13.4 | 16.0 | 0.0 | 0.0 | ||||
Guarantees given to banks | 18.0 | 18.0 | 0.0 | 0.0 | ||||
Guarantees given under the senior credit agreement | 1,615.0 | 1,615.0 | 0.0 | 0.0 | ||||
1,646.4 | 1,649.0 | 0.0 | 0.0 | |||||
a) Senior credit agreement and mezzanine credit agreement
The acquisition of Legrand SA by the consortium occurred on December 10, 2002 for an amount of €3,630 million corresponding to a value of €3,700 million for 100% of the share capital of Legrand SA. The investment was partially funded through a contribution by the consortium. The balance of the purchase price was funded with external debt. The external debt used to finance the acquisition comprised of loans granted under a senior credit agreement and a mezzanine credit agreement. The mezzanine credit agreement was repaid on February 12, 2003 with the net proceeds of the offering of high yield bonds in Europe and in the United States.
26
The senior credit agreement, dated July 26, 2002 as amended and restated on December 5, 2002, was entered into by and among Legrand SAS, Lumina Financing, certain subsidiaries of Legrand SAS listed therein as initial borrowers, certain subsidiaries of Legrand SAS listed therein as the initial guarantors, Credit Suisse First Boston (Europe) Limited, Lehman Brothers International (Europe) and The Royal Bank of Scotland plc as mandated joint lead arrangers, Credit Suisse First Boston International, Lehman Brothers Bankhaus AG London Branch and The Royal Bank of Scotland plc and the other financial institutions listed therein as lenders.
As of December 31, 2003, the following schedule summarizes the future principal payments required by the Group under the senior credit agreement:
| Dec 31, 2003 | |
---|---|---|
| € in millions | |
Within one year | 52.7 | |
Payable in one to two years | 71.3 | |
Payable in two to three years | 100.8 | |
Payable in three to four years | 127.1 | |
Payable in four to five years | 148.8 | |
Payable beyond five years | 875.8 | |
1,376.5 | ||
The senior credit agreement comprises the following:
| Dec 31, 2003 | Maturity | Interest rates | ||||
---|---|---|---|---|---|---|---|
| € in millions | | | ||||
-Tranche A | 604.7 | 12/09 | 4.70 | % | |||
-Tranche B | 385.9 | 12/10 | 5.20 | % | |||
-Tranche C | 385.9 | 12/11 | 5.70 | % |
Dividends and other distributions (including payment of interest and principal on intercompany loans) from certain of our subsidiaries, are restricted under certain agreements, including the senior credit facility. Pursuant to the senior credit facility, our subsidiaries are restricted from making distribution, loans or other payments to Legrand SAS except for purposes of paying interest on the high yield bonds when no event of default has occurred under the senior credit agreement.
- b)
- 81/2% Debentures (Yankee bonds)
On February 14, 1995, Legrand SA issued on the United States public market $400 million of 81/2% 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
27
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% (2,71% as of December 31, 2003).
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.
17) Other non-current liabilities
Long-term liabilities are as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Retirement indemnities in France | 19.7 | 18.0 | 0.0 | 0.0 | ||||
Other retirement indemnities and benefits | 51.9 | 47.0 | 0.0 | 0.0 | ||||
End of contract indemnities (Italy) | 46.8 | 44.0 | 0.0 | 0.0 | ||||
Employees profit sharing (long-term portion) | 35.0 | 29.0 | 0.0 | 0.0 | ||||
Other long-term liabilities | 73.9 | 67.0 | 0.0 | 0.0 | ||||
227.3 | 205.0 | 0.0 | 0.0 | |||||
- 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:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Projected benefit obligation at the beginning of the period | 216.0 | 0.0 | 0.0 | 0.0 | ||||
New consolidated entities | 0.0 | 217.0 | 0.0 | 0.0 | ||||
Foreign currency exchange rate | (16.9 | ) | (1.0 | ) | 0.0 | 0.0 | ||
Goodwill allocation | 21.0 | 0.0 | 0.0 | 0.0 | ||||
Rights newly acquired | 22.4 | 0.0 | 0.0 | 0.0 | ||||
Actuarial (gain) loss | 4.8 | 0.0 | 0.0 | 0.0 | ||||
Rights used | (22.6 | ) | 0.0 | 0.0 | 0.0 | |||
Interest cost | 8.3 | 0.0 | 0.0 | 0.0 | ||||
Projected benefit obligation at the end of the period | 233.0 | 216.0 | 0.0 | 0.0 | ||||
28
The evolution of the total net assets of the funds is shown below:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Fair-value at the beginning of the period | 108.0 | 0.0 | 0.0 | 0.0 | ||||
New consolidated entities | 0.0 | 111.0 | 0.0 | 0.0 | ||||
Foreign currency exchange rate | (11.8 | ) | (3.0 | ) | 0.0 | 0.0 | ||
Increase: | ||||||||
-interest revenues | 18.5 | 1.0 | 0.0 | 0.0 | ||||
-employer contribution | 5.6 | 0.0 | 0.0 | 0.0 | ||||
Decrease: | ||||||||
-Benefits paid | (9.5 | ) | 0.0 | 0.0 | 0.0 | |||
-return on assets | 0.0 | (1.0 | ) | 0.0 | 0.0 | |||
Fair-value at the end of the period | 110.8 | 108.0 | 0.0 | 0.0 | ||||
The net global obligation is fully recognized in the balance sheet ("Other non-current liabilities") as of December 31, 2003.
29
The net impact on the consolidated income is summarized as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Service cost—rights newly acquired | (22.4 | ) | (2.0 | ) | 0.0 | 0.0 | ||
Service cost—cancellation of previous rights | 0.0 | 1.0 | 0.0 | 0.0 | ||||
Payments of rights (net of cancellation of prior reserves) | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Interest cost | (13.1 | ) | 0.0 | 0.0 | 0.0 | |||
Net revenue of fund | 18.5 | 1.0 | 0.0 | 0.0 | ||||
(17.0 | ) | 0.0 | 0.0 | 0.0 |
- 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 a specialized insurance company.
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 5.00%.
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. 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 futures obligations was based on turnover, mortality, and assumptions of increase in salaries and discount rates. In Italy, the calculation was based on a assumption of an increase in salaries of 2.50%, a discount rate of 5.20%.
- d)
- Provision for retirement indemnities and other postretirement benefits
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 € 118 million as of December 31, 2003. This amount is compensated by pension fund assets and provisions estimated at € 82 million as of December 31, 2003. The difference is spread over the residual employment period of the staff through the pension contribution. There were no significant changes in the projected benefits obligations or plan assets related to these plans for the period ended December 31, 2003.
30
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 6.25% and an expected return on plan assets of 8.75%. In the United Kingdom, the calculation was based on an assumption of an increase in salaries of 3.50 %, a discount rate of 5.75% and an expected return on plan assets of 7.00%.
18) Short-term borrowings
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Current portion of long-term debt | 54.2 | 25.0 | 0.0 | 0.0 | ||||
Current portion of capital leases | 5.8 | 9.0 | 0.0 | 0.0 | ||||
Commercial paper | 0.0 | 508.0 | 0.0 | 0.0 | ||||
Bank overdrafts | 39.4 | 113.0 | 0.0 | 0.0 | ||||
Other short-term borrowings | 31.4 | 79.0 | 0.0 | 0.0 | ||||
130.8 | 734.0 | 0.0 | 0.0 | |||||
19) Other current liabilities
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Tax liabilities | 105.9 | 121.0 | 0.0 | 0.0 | ||||
Accrued salaries and payroll taxes | 132.6 | 134.0 | 0.0 | 0.0 | ||||
Short-term portion of employee profit sharing | 6.0 | 7.0 | 0.0 | 0.0 | ||||
Payables related to fixed asset acquisitions | 11.2 | 14.0 | 0.0 | 0.0 | ||||
Amounts due for services | 58.6 | 59.0 | 0.0 | 0.0 | ||||
Customer advance payments | 1.6 | 3.0 | 0.0 | 0.0 | ||||
Others | 31.5 | 97.0 | 0.0 | 0.0 | ||||
347.4 | 435.0 | 0.0 | 0.0 | |||||
20) Analysis of certain expenses
- a)
- Operating expenses include, in particular, the following categories of costs:
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Consumption of raw-materials and parts | (762.0 | ) | (125.0 | ) | (887.0 | ) | 0.0 | 0.0 | ||
Salaries and related payroll taxes | (836.5 | ) | (71.0 | ) | (907.5 | ) | 0.0 | 0.0 | ||
Employees profit sharing | (21.8 | ) | 0.0 | (21.8 | ) | 0.0 | 0.0 | |||
Total cost of personnel | (858.3 | ) | (71.0 | ) | (929.3 | ) | 0.0 | 0.0 | ||
The headcount of the Group on a consolidated basis as of December 31, 2003 amounts to 25,258.
31
- b)
- Other income (expenses) include:
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Exchange and translation gains (losses) | 1.4 | 2.0 | 3.4 | 0.0 | 0.0 | |||||
Others | (43.6 | ) | (8.0 | ) | (51.6 | ) | 0.0 | 0.0 | ||
(42.2 | ) | (6.0 | ) | (48.2 | ) | 0.0 | 0.0 | |||
The caption "Others" relates principally to restructuring charges.
21) Interest income (expense)
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Interest income | 65.3 | 6.0 | 71.3 | 0.0 | 0.0 | |||||
Interest expense | (223.3 | ) | (24.0 | ) | (247.3 | ) | 0.0 | 0.0 | ||
(158.0 | ) | (18.0 | ) | (176.0 | ) | 0.0 | 0.0 | |||
Interest on subordinated securities (note 13) | (36.3 | ) | (2.0 | ) | (38.3 | ) | 0.0 | 0.0 | ||
(194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | 0.0 | |||
Less capitalized interest (note 1 (g)) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
(194.3 | ) | (20.0 | ) | (214.3 | ) | 0.0 | 0.0 | |||
22) Income taxes (current and deferred)
Income before taxes, minority interests and equity in earnings of investees is as follows:
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
France | (129.3 | ) | (179.0 | ) | (308.3 | ) | 0.0 | 0.0 | ||
Outside France | (8.9 | ) | 17.0 | 8.1 | 0.0 | 0.0 | ||||
(138.2 | ) | (162.0 | ) | (300.2 | ) | 0.0 | 0.0 | |||
32
Income tax expense consists of the following:
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Current income taxes: | ||||||||||
France | (42.1 | ) | 0.0 | (42.1 | ) | 0.0 | 0.0 | |||
Outside France | (60.3 | ) | (8.0 | ) | (68.3 | ) | 0.0 | 0.0 | ||
(102.4 | ) | (8.0 | ) | (110.4 | ) | 0.0 | 0.0 | |||
Deferred income taxes: | ||||||||||
France | 18.1 | 36.0 | 54.1 | 0.0 | 0.0 | |||||
Outside France | 51.1 | 1.0 | 52.1 | 0.0 | 0.0 | |||||
69.2 | 37.0 | 106.2 | 0.0 | 0.0 | ||||||
Total income taxes: | ||||||||||
France | (24.0 | ) | 36.0 | 12.0 | 0.0 | 0.0 | ||||
Outside France | (9.2 | ) | (7.0 | ) | (16.2 | ) | 0.0 | 0.0 | ||
(33.2 | ) | 29.0 | (4.2 | ) | 0.0 | 0.0 | ||||
The reconciliation of total income tax expense during the period to the normal income tax rate applicable in France is analyzed below:
| Period from Jan 01, 2003 to Dec 31, 2003 | ||
---|---|---|---|
Normal French income tax rate | 35.43 | % | |
Increases (reductions): | |||
-effect of foreign income tax rates | 0.23 | % | |
-non taxable items | (9.80 | %) | |
-income taxable at specific rates | 0.06 | % | |
-others | 9.24 | % | |
35.16 | % | ||
Impact on deferred income taxes: | |||
-effect of tax rate modifications on opening balance | 1.95 | % | |
-valuation allowances on deferred income tax assets | (61.13 | %) | |
Effective income tax rate | -24.02 | % | |
33
Deferred income taxes recorded in the balance sheets result from temporary differences in the recognition of revenues and expenses or tax and financial statement purposes and are analyzed as follows:
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Deferred income taxes recorded by French companies | (188.6 | ) | (160.0 | ) | 0.0 | 0.0 | ||
Deferred income taxes recorded by foreign companies | 85.2 | 4.0 | 0.0 | 0.0 | ||||
(103.4 | ) | (156.0 | ) | 0.0 | 0.0 | |||
Origin of deferred income taxes: | ||||||||
-depreciation of fixed assets | (83.6 | ) | (90.0 | ) | 0.0 | 0.0 | ||
-tax losses to be carried forward | 47.4 | 16.0 | 0.0 | 0.0 | ||||
-employee profit sharing | 2.4 | 6.0 | 0.0 | 0.0 | ||||
-retirement indemnities and benefits | 15.3 | 17.0 | 0.0 | 0.0 | ||||
-subordinated securities | 30.1 | 39.0 | 0.0 | 0.0 | ||||
Purchase accounting adjustements: | ||||||||
-patents | (166.4 | ) | (206.0 | ) | 0.0 | 0.0 | ||
-trademarks | (21.8 | ) | (24.0 | ) | 0.0 | 0.0 | ||
-allowances for inventory and bad debt | 14.9 | 18.0 | 0.0 | 0.0 | ||||
-revaluation Italy | 51.5 | 61.0 | 0.0 | 0.0 | ||||
-others | 6.8 | 7.0 | 0.0 | 0.0 | ||||
(103.4 | ) | (156.0 | ) | 0.0 | 0.0 | |||
As of December 31, 2003, the Group had net operating loss carryforwards of € 681.3 million for which a deferred tax asset was recognized (associated deffered tax asset of € 233.4 million) and which expire in various amounts from 2008 through 2023 (2008: € 330.7 million; thereafter: € 350.6 million).
Deferred tax assets amounting to € 187.4 million whose realization is not more likely than not were not recognized as of December 31, 2003. These unrecognised deferred tax assets principally relate to net operating loss carryforwards amounting to € 545.9 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, 2003.
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.
34
Future rental commitments
The Group uses certain facilities under lease agreements and lease certain equipment. Minimum future rental commitments under noncancellable leases are detailed below:
| Dec 31, 2003 | |
---|---|---|
| € in millions | |
Payable in 2004 | 19.0 | |
Payable in 2005 | 16.6 | |
Payable in 2006 | 13.8 | |
Payable in 2007 | 10.9 | |
Payable in 2008 | 5.7 | |
Subsequent years | 13.7 | |
79.7 | ||
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.
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 81/2% 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.
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%).
35
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 hedging the senior credit (note 16)
During the year, the Group entered into hedging arrangements for a notional amount of € 1,200 million pursuant to which the applicable variable interest rate payable on the Senior Credit Facility was capped.
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
Interest rate swaps hedging subordinated securities notional amount (Euros, in millions) | 671.7 | 626.1 | 0.0 | 0.0 | ||||
fair value (Euros, in millions) | 121.8 | 153.0 | 0.0 | 0.0 | ||||
Interest rate swap hedging the 81/2% debentures notional amount (USD, in millions) | 400.0 | 400.0 | 0.0 | 0.0 | ||||
fair value (Euros, in millions) | 60.1 | 161.0 | 0.0 | 0.0 |
- 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, 2003 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.
In addition, Legrand SAS deposited € 127 million in favor to certain financial institutions who entered into swap agreements with the Group (note 7). This deposit is included in long and short term restricted cash in the consolidated balance sheets.
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
36
with high credit quality financial institutions and the Group closely monitors the amount of credit exposure with any one financial institution.
25) Information relating to the officers of the Group
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Advances and loans | 0.0 | 0.0 | 0.0 | 0.0 | ||||
Remuneration paid to the officers(*) | 1.7 | 1.0 | 0.0 | 0.0 |
- (*)
- 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.
37
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.
| Geographic segments | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe | | | | | ||||||||||
Period from Jan 01, 2003 to Dec 31, 2003 | United States of America | Other countries | Items globally analyzed | | |||||||||||
France | Italy | Others | 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 | 4,465.6 | 1,256.8 | (371.5 | ) | (288.9 | ) | 122.5 | 5,184.5 |
| Geographic segments | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe | | | | | ||||||||||
Period from Aug 01, 2002 to Dec 31, 2002 | United States of America | Other countries | Items globally analyzed | | |||||||||||
France | Italy | Others | Total | ||||||||||||
| € in millions | ||||||||||||||
Total sales | 105.0 | 45.0 | 46.0 | 58.0 | 29.0 | 283.0 | |||||||||
Less intra-group transfers | (42.0 | ) | (10.0 | ) | (7.0 | ) | (1.0 | ) | (1.0 | ) | (61.0 | ) | |||
Net consolidated sales | 63.0 | 35.0 | 39.0 | 57.0 | 28.0 | 222.0 | |||||||||
Operating income | (71.0 | ) | (32.0 | ) | (12.0 | ) | (12.0 | ) | (4.0 | ) | (131.0 | ) | |||
-of which depreciation of fixed assets | (5.0 | ) | (2.0 | ) | (2.0 | ) | (2.0 | ) | (2.0 | ) | (13.0 | ) | |||
-of which amortization of intangibles | (55.0 | ) | (28.0 | ) | (8.0 | ) | (13.0 | ) | (4.0 | ) | (108.0 | ) | |||
Other revenues (expenses) | (11.0 | ) | (11.0 | ) | |||||||||||
Interest income | 6.0 | 6.0 | |||||||||||||
Interest expense | (26.0 | ) | (26.0 | ) | |||||||||||
Income taxes | 29.0 | 29.0 | |||||||||||||
Minority interest and equity investees | 4.0 | 4.0 | |||||||||||||
Capital expenditures | 5.0 | 2.0 | 5.0 | 2.0 | 4.0 | 18.0 | |||||||||
Total identifiable assets | 2,161.0 | 870.0 | 1,294.0 | 1,681.0 | 552.0 | 6,558.0 |
| Geographic segments | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Europe | | | | | ||||||||||
Period from Aug 01, 2002 to Dec 31, 2003 | United States of America | Other countries | Items globally analyzed | | |||||||||||
France | Italy | Others | Total | ||||||||||||
| € in millions | ||||||||||||||
Total sales | 1,737.4 | 759.5 | 666.7 | 598.0 | 352.7 | 4,114.3 | |||||||||
Less intra-group transfers | (777.1 | ) | (157.2 | ) | (133.5 | ) | (14.3 | ) | (48.4 | ) | (1,130.5 | ) | |||
Net consolidated sales | 960.3 | 602.3 | 533.2 | 583.7 | 304.3 | 2,983.8 | |||||||||
Operating income | (74.4 | ) | 29.3 | (15.6 | ) | 6.5 | 25.2 | (29.0 | ) | ||||||
-of which depreciation of fixed assets | (69.4 | ) | (29.5 | ) | (26.4 | ) | (27.6 | ) | (15.9 | ) | (168.8 | ) | |||
-of which amortization of intangibles | (147.4 | ) | (76.4 | ) | (21.8 | ) | (38.6 | ) | (15.0 | ) | (299.2 | ) | |||
Other revenues (expenses) | (56.9 | ) | (56.9 | ) | |||||||||||
Interest income | 71.3 | 71.3 | |||||||||||||
Interest expense | (285.6 | ) | (285.6 | ) | |||||||||||
Income taxes | (4.2 | ) | (4.2 | ) | |||||||||||
Minority interest and equity investees | 5.5 | 5.5 | |||||||||||||
Capital expenditures | 49.1 | 26.7 | 21.7 | 13.7 | 19.4 | 130.6 | |||||||||
Total identifiable assets | 4,465.6 | 1,256.8 | (371.5 | ) | (288.9 | ) | 122.5 | 5,184.5 |
38
Sales by French companies, excluding sales to Group companies located in France, include the following export sales:
| 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 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|---|
| € in millions | |||||||||
Total sales | 897.3 | 83.0 | 980.3 | 0.0 | 0.0 | |||||
of which sales exported to: | ||||||||||
-Europe | 49.3 | 17.0 | 66.3 | 0.0 | 0.0 | |||||
-other countries | 72.8 | 11.0 | 83.8 | 0.0 | 0.0 | |||||
122.1 | 28.0 | 150.1 | 0.0 | 0.0 | ||||||
28) Subsequent events
We have no knowledge of any material subsequent event.
39
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
| Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | |||||
---|---|---|---|---|---|---|---|---|---|
| € in millions | ||||||||
Net sales | 2,761.8 | 219.0 | 0.0 | 0.0 | |||||
Operating expenses | |||||||||
Cost of goods sold | (1,640.4 | ) | (179.0 | ) | 0.0 | 0.0 | |||
Administrative and selling expenses | (733.5 | ) | (64.0 | ) | 0.0 | 0.0 | |||
Research and development expenses | (258.5 | ) | (113.0 | ) | 0.0 | 0.0 | |||
Other operating income (expenses) | (22.4 | ) | (1.0 | ) | 0.0 | 0.0 | |||
Amortization of goodwill | 0.0 | 0.0 | 0.0 | 0.0 | |||||
Operating income (loss) | 107.0 | (138.0 | ) | 0.0 | 0.0 | ||||
Interest income (expense) | (293.9 | ) | (22.0 | ) | 0 | 0 | |||
Other income (expenses) | (44.3 | ) | 1.0 | 0 | 0 | ||||
Loss before taxes, minority interests and equity in earnings of investees | (231.2 | ) | (159.0 | ) | 0 | 0 | |||
Income taxes | (3.0 | ) | 26.0 | 0 | 0 | ||||
Net loss before minority interests and equity in earnings of investees | (234.2 | ) | (133.0 | ) | 0 | 0 | |||
Minority interests | (0.9 | ) | 2.0 | 0 | 0 | ||||
Equity in earnings of investees | 2.4 | 2.0 | 0 | 0 | |||||
Net loss | (232.7 | ) | (129.0 | ) | 0 | 0 | |||
40
Consolidated balance sheets US GAAP
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 67.9 | 559.0 | 0.0 | 0.0 | ||||
Marketable securities | 32.6 | 195.6 | 0.0 | 0.0 | ||||
Restricted cash | 37.0 | 22.5 | 0.0 | 0.0 | ||||
Trade accounts receivable | 509.9 | 598.2 | 0.0 | 0.0 | ||||
Deferred income taxes | 34.7 | 48.4 | 0.0 | 0.0 | ||||
Other current assets | 120.1 | 93.4 | 0.0 | 0.0 | ||||
Inventories | 385.5 | 530.7 | 0.0 | 0.0 | ||||
Total current assets | 1,187.7 | 2,047.8 | 0.0 | 0.0 | ||||
Property, plant and equipment, net | 914.9 | 1,024.8 | 0.0 | 0.0 | ||||
Investments | 21.8 | 26.3 | 0.0 | 0.0 | ||||
Goodwill | 1,343.5 | 1,354.0 | 0.0 | 0.0 | ||||
Trademarks, net | 1,591.1 | 1,642.4 | 0.0 | 0.0 | ||||
Developed Technology, net | 449.9 | 586.0 | 0.0 | 0.0 | ||||
Mirror swaps | 35.2 | 42.0 | 0.0 | 0.0 | ||||
Swap associated with TSDI 3 | 1.3 | 2.0 | 0.0 | 0.0 | ||||
Swaps associated with other borrowings | 60.1 | 161.0 | 0.0 | 0.0 | ||||
Restricted cash | 90.5 | 127.5 | 0.0 | 0.0 | ||||
Deferred income taxes | 34.1 | 149.9 | 0.0 | 0.0 | ||||
Other non-current assets | 96.5 | 166.5 | 0.0 | 0.0 | ||||
4,638.9 | 5,282.4 | 0.0 | 0.0 | |||||
Total assets | 5,826.6 | 7,330.2 | 0.0 | 0.0 | ||||
41
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Short-term borrowings | 103.2 | 723.0 | 0.0 | 0.0 | ||||
Accounts and notes payable | 252.7 | 268.4 | 0.0 | 0.0 | ||||
Deferred income taxes | 3.0 | 48.0 | 0.0 | 0.0 | ||||
Other current liabilities | 374.2 | 443.0 | 0.0 | 0.0 | ||||
Total current liabilities | 733.1 | 1,482.4 | 0.0 | 0.0 | ||||
Swap fair value associated with TSDI 1&2 | 121.8 | 153.0 | 0.0 | 0.0 | ||||
Deferred income taxes | 727.1 | 893.9 | 0.0 | 0.0 | ||||
Other non-current liabilities | 229.3 | 207.1 | 0.0 | 0.0 | ||||
Borrowings | 1,708.0 | 2,607.0 | 0.0 | 0.0 | ||||
Swap fair value associated with other borrowings | 52.5 | 0.0 | 0.0 | 0.0 | ||||
Subordinated securities | 108.9 | 150.2 | 0.0 | 0.0 | ||||
Related party loan | 1,842.6 | 1,159.0 | 0.0 | 0.0 | ||||
Minority interests | 6.2 | 51.8 | 0.0 | 0.0 | ||||
Shareholders' equity | ||||||||
Capital stock | 759.4 | 759.4 | 0.0 | 0.0 | ||||
Accumulated deficits | (361.6 | ) | (129.2 | ) | 0.0 | 0.0 | ||
Translation reserve | (100.7 | ) | (4.4 | ) | 0.0 | 0.0 | ||
297.1 | 625.8 | 0.0 | 0.0 | |||||
Total liabilities and shareholders' equity | 5,826.6 | 7,330.2 | 0.0 | 0.0 | ||||
42
Consolidated statements of cash flows US GAAP
| Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Net income attributable to Legrand SAS | (232.7 | ) | (129.0 | ) | 0 | 0 | ||
Reconciliation of net income to net cash provided from (used in) operating activities: | ||||||||
-depreciation of tangible assets | 155.8 | 13.0 | 0 | 0 | ||||
-amortization of intangible assets | 146.5 | 108.0 | 0 | 0 | ||||
-changes in long-term deferred taxes | (80.5 | ) | (2.0 | ) | 0 | 0 | ||
-changes in other long-term assets and liabilities | 4.6 | (2.0 | ) | 0 | 0 | |||
-minority interests | 0.9 | (3.0 | ) | 0 | 0 | |||
-equity in earnings of investees | (2.4 | ) | (2.0 | ) | 0 | 0 | ||
-other items having impacted the cash | 266.7 | 63.0 | 0 | 0 | ||||
(Gains) losses on fixed asset disposals | (1.2 | ) | 14.0 | 0 | 0 | |||
(Gains) losses on sales of securities | (0.6 | ) | 0.0 | 0 | 0 | |||
Changes in operating assets and liabilities, net of effect of investments in consolidated entities: | ||||||||
-inventories | (1.9 | ) | 54.0 | 0 | 0 | |||
-accounts receivable | 61.1 | 17.0 | 0 | 0 | ||||
-accounts and notes payable | (7.5 | ) | (77.0 | ) | 0 | 0 | ||
-other operating assets and liabilities | (62.7 | ) | (137.0 | ) | 0 | 0 | ||
Net cash (used in) provided from operating activities | 246.1 | (83.0 | ) | 0 | 0 | |||
Net proceeds from sales of fixed assets | 16.8 | 170.0 | 0 | 0 | ||||
Capital expenditures | (112.6 | ) | (16.0 | ) | 0 | 0 | ||
Proceeds from sales of marketable securities | 312.3 | 213.0 | 0 | 0 | ||||
Investments in marketable securities | (29.0 | ) | (202.0 | ) | 0 | 0 | ||
Investments in consolidated entities | (72.8 | ) | (3 067.0 | ) | 0 | 0 | ||
Investments in non-consolidated entities | (0.2 | ) | 0.0 | 0 | 0 | |||
Net cash (used in) provided from investing activities | 114.5 | (2,902.0 | ) | 0 | 0 | |||
Related to shareholders' equity: | ||||||||
-capital increase | 0.0 | 760.0 | 0 | 0 | ||||
-dividends paid by Legrand SAS's subsidiaries | (1.1 | ) | (2.0 | ) | 0 | 0 | ||
Other financing activities: | ||||||||
-reduction of subordinated securities | (41.0 | ) | (4.0 | ) | 0 | 0 | ||
-new borrowings | 604.0 | 3,063.0 | 0 | 0 | ||||
-repayment of borrowings | (820.3 | ) | (273.0 | ) | 0 | 0 | ||
-debt issuance cost | (7.5 | ) | 0.0 | 0 | 0 | |||
-increase (reduction) of commercial paper | (508.0 | ) | (30.0 | ) | 0 | 0 | ||
-increase (reduction) of bank overdrafts | (87.2 | ) | 23.0 | 0 | 0 | |||
Net cash (used in) provided from financing activities | (861.1 | ) | 3,537.0 | 0 | 0 | |||
Net effect of currency translation on cash | (9.4 | ) | 7.0 | 0 | 0 | |||
Increase (reduction) of cash and cash equivalents | (491.1 | ) | 559.0 | 0 | 0 | |||
Cash and cash equivalents at the beginning of the period | 559.0 | 0.0 | 0 | 0 | ||||
Cash and cash equivalents at the end of the period | 67.9 | 559.0 | 0 | 0 | ||||
Interest paid during the period | 172.1 | 0.0 | 0 | 0 | ||||
Income taxes paid during the period | 78.6 | 0.0 | 0 | 0 |
43
Consolidated statements of shareholder's equity US GAAP
| Capital stock, at par value | Additional paid-in capital | Retained earnings | Translation reserve | Total shareholders' equity | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| € in millions | ||||||||||
As of December 31, 2000 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
Net income for the period | |||||||||||
Capital increase | |||||||||||
Changes in translation reserve | |||||||||||
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 | (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 | 0.0 | (129.2 | ) | (4.4 | ) | 625.8 | ||||
Net income for the period | (232.7 | ) | (232.7 | ) | |||||||
Capital increase | 0.0 | ||||||||||
Changes in translation reserve | 0.3 | (96.3 | ) | (96.0 | ) | ||||||
As of December 31, 2003 | 759.4 | 0.0 | (361.6 | ) | (100.7 | ) | 297.1 | ||||
44
The tables below show the US GAAP reconciliations of net income and net equity.
| Period from Jan 01, 2003 to Dec 31, 2003 | Period from Aug 01, 2002 to Dec 31, 2002 | Statutory period from Jan 01, 2002 to Jul 31, 2002 | Statutory period from Jan 01, 2001 to Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Net income compliant with French GAAP | (169.9 | ) | (129.0 | ) | 0.0 | 0.0 | ||
TSDI and FAS 133 | (97.6 | ) | (1.0 | ) | 0.0 | 0.0 | ||
EITF 93-16 | (9.9 | ) | (2.0 | ) | 0.0 | 0.0 | ||
FAS 142 | 44.7 | 3.0 | 0.0 | 0.0 | ||||
Net income compliant with US GAAP | (232.7 | ) | (129.0 | ) | 0.0 | 0.0 | ||
SUMMARY RECONCILIATION OF NET EQUITY
| Dec 31, 2003 | Dec 31, 2002 | Jul 31, 2002 | Dec 31, 2001 | ||||
---|---|---|---|---|---|---|---|---|
| € in millions | |||||||
Net equity compliant with French GAAP | 381.5 | 626.0 | 0.0 | 0.0 | ||||
TSDI and FAS 133 | (97.6 | ) | (1.0 | ) | 0.0 | 0.0 | ||
EITF 93-16 | (9.9 | ) | (2.0 | ) | 0.0 | 0.0 | ||
FAS 142 | 44.7 | 3.0 | 0.0 | 0.0 | ||||
Translation reserve | (21.6 | ) | 0.0 | 0.0 | 0.0 | |||
Net equity compliant with US GAAP | 297.1 | 626.0 | 0.0 | 0.0 | ||||
| Items having modified the net equity | | |||||
---|---|---|---|---|---|---|---|
| with impact on net income | without impact on net income | Comprehensive income | ||||
| € in millions | ||||||
For the year ended December 31, 2001 | 0.0 | 0.0 | 0.0 | ||||
For the 7 months period ended July 31, 2002 | 0.0 | 0.0 | 0.0 | ||||
For the 5 months period ended July 31, 2002 | (129.0 | ) | (4.4 | ) | (133.4 | ) | |
For the year ended December 31, 2003 | (232.7 | ) | (96.3 | ) | (329.0 | ) |
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.
45
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 (€ 108.9 million as of December 31, 2003)
- —
- 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 decrease the net result by € 1.5 million for the period ended December 31, 2003.
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
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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, 2003.
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 € 568.4 million.
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, 2003 | |||
---|---|---|---|---|---|
| (years) | € in millions | |||
Intangible assets not subject to amortization | |||||
Goodwill | NA | 1,343.5 | |||
Indefinite-lived trademarks | NA | 1,533.7 | |||
2,877.2 | |||||
Intangible assets subject to amortization | |||||
Developed technology | 10 | 578.3 | |||
Other trademarks | 10-20 | 63.2 | |||
Other | 75.6 | ||||
717.1 | |||||
Less: accumulated amortization | (205.1 | ) | |||
512.0 | |||||
3,389.2 | |||||
As of December 31, 2003, € 475.7 million, € 350.5 million, € 111.7 million, € 223.6 million and € 182.0 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.
For the period ended December 31, 2003, we recognized aggregate amortization expense of € 146.5 million related to intangible assets. Amortization expense for each of the five succeeding years is expected to be as follows:
| Developed technology | Trademarks | Total | |||
---|---|---|---|---|---|---|
| € in millions | |||||
Year 2004 | 112.7 | 5.3 | 118.0 | |||
Year 2005 | 99.6 | 5.2 | 104.8 | |||
Year 2006 | 83.0 | 4.8 | 87.8 | |||
Year 2007 | 59.3 | 4.5 | 63.8 | |||
Year 2008 | 47.4 | 4.3 | 51.7 |
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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 € 204 million whose realization is not more likely than not were not recognized as of December 31, 2003 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) New Pronouncements
In January 2003, the FASB issued FASB Interpretation ("FIN ") No. 46, Consolidation of Variable Interest Entities, which is an interpretation of Accounting Research Bulletin ("ARB") No. 51 Consolidation of Financial Statements. In December 2003, the FASB issued FIN No. 46 R, which amended the provisions of FIN 46. FIN No. 46 R provides additional guidance regarding how to identify variable interest entities and how an enterprise assesses its interest in the variable interest entity to determine whether an entity is required to be consolidated. The interpretation establishes that an enterprise consolidate a variable interest entity if the enterprise is the primary beneficiary of the variable interest entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. For interests in variable interest entities which are also considered to be special purpose entities that existed as of January 31, 2003, the guidance of FIN No. 46 R applies as of December 31, 2003. For interests in variable interest entities which are not considered to be special purpose entities that existed as of January 31, 2003, the guidance of FIN No. 46 R will apply as at March 31, 2004. The adoption of FIN No. 46 R has not and is not expected to have a significant impact on the Group's consolidated results of operations, financial position, or cash flows.
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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 30, 2004 | By: | /s/ PATRICE SOUDAN | |
Name: Title: | Patrice Soudan Chief Financial Officer |
Breakdown of Certain Financial Data for the Financial Year 2003 by Geographical Region
- Consolidated statements of cash flows FRENCH GAAP
Consolidated statements of shareholder's equity FRENCH GAAP
- Consolidated statements of cash flows US GAAP
Consolidated statements of shareholder's equity US GAAP