AnnualReport

Schneider Electric SA

2000

Get more with the world’s Power & Control specialist

Contents

148

10

12

131416182022

24

26303438

4346606693

97

100

106

133

44

ProfileChairman’s MessageFinancial HighlightsInvestor InformationCorporate Governance

Strategy GrowthStrong Growth, High MarginsPushing Back Our Geographic LimitsPushing Back Our Business LimitsPushing Back Our Technological LimitsPushing Back Our Cultural LimitsCaring For Our Community

A Market-Oriented Approach to Drive Faster GrowthThe Building MarketThe Industry MarketThe Infrastructure MarketThe Energy Market

Financial Report 2000General Presentation of Schneider Electric SABusiness ReviewConsolidated Financial StatementsSummary Financial Statements of Schneider Electric SAAuditor’s Report on the Consolidated Financial Statements Report of the Board of Directorsto the Annual and Extroardinary Shareholders’ MeetingResolutionsRapport des Commisaires aux comptesRésolutions

Cross references to COB regulations(COB regulation no. 98-01)The annual report has been registered as a Reference Document approved bythe Commission des Opérations de Bourse. The following table shows, for each section provided for in the COB regulations governing reference documents, the numbers of the pages on which the corresponding information is supplied.

1.1 Name and title of the person responsible for the Reference Document 99981.2 Certificate issued by the person responsible for the Reference Document 99981.3 Name and address of the auditors 581.4 Information policy 543.1 General information about the issuer 43, 58 and 593.2 General information about the issuer’s capital 47 to 4973.3 Current ownership structure 50 to 513.4 Market for the issuer’s shares 52 and 5323.5 Dividends 96, 102 and 1104.1 Presentation of the Company and the Group 68 à 46 and 474.3 Claims, litigation and other exceptional events 584.4 Number of employees 32 e47 and 854.5 Capital spending policy 61 to 635.1 Financial statements of the issuer and the Group 68 to 986.2 Directors’ interests 751, 54 to 577.1 Recent developments 60 to 637.2 Outlook 62 and 63

Corporate Governance

Schneider Electric

The World’s Power & Control Specialist

2000 Highlights ■ €9.7 billion in sales. ■ €1.3 billion in operating income. ■ €625 million in net income. ■ 72,200 employees.

Competitive Strengths■ The World’s Power & Control Specialist.■ Four leading brands:

Merlin Gerin, Modicon, Square D, Telemecanique.

A global presence in 130 countries,with a comprehensive product lineupto serve four markets Building, Industry, Infrastructure, Energy.

Find out more about Schneider Electric atwww.schneider-electric.com

1Chairman’s Message

Henri LachmannChairman and Chief Executive Officer

Together,better,faster,further

Chairman’sMessage

The year 2000 was outstanding for your Company in many ways.

Schneider Electric turned in an excellent sales and income performance.Sales growth outpaced our markets, and we reached the operatingmargin target set in the Schneider 2000+ program a year ahead of schedule*.

We also completed our refocusing on electrical distribution and industrial control and automation by transferring our high voltagebusiness to Austria’s VA Tech. The resulting joint venture, VA TechSchneider Electric High Voltage, will be managed by our partner and will rank number three in its industry.

Lastly, we strengthened our position in our two core businesses by pursuing our acquisitions strategy to broaden our product lineupand extend our geographic reach.

Thanks to these achievements, your Company was positioned to launch a transaction of exceptional scope: the friendly merger withLegrand to create the world leader in electrical distribution and industrial control and automation.

Strong growth in sales and incomeConsolidated sales rose 15.7% on a current basis to €9.7 billion. The increase was driven by robust organic growth in all our markets(8.3% excluding the high voltage businesses) and by targeted, highly complementary acquisitions. Operating income grew by 23%,resulting in an operating margin of 13.4% compared with 12.6% in 1999. Cost reductions of €140 million in 2000 (for a total of €220million over two years) contributed to this performance. Net incomeafter goodwill amortization came to €625 million, up 30% from 1999.

“Dear fellow Shareholder,

*See page 61

2

A commitment to pushing back our limits in allaspects of our business

In all our businesses, we have enhanced our lineup of specialized solutions and broadened our positions in high-potential,future-oriented markets such as automationdevices, building control and voice-data-image technologies.

The acquisition of Crouzet Automatismes in France and Positec in Switzerland makesus the European leader in control devices,small automation systems and motioncontrol. In addition, we are now the worldleader in speed drives thanks to the 60%-owned subsidiary set up with Toshiba.

Our 50-50 joint venture with Thomson multimedia gives us a solid positionin Power Line Carrier communication technology, which uses the electrical wiringin homes and buildings to carry digital data.We are actively developing a complete rangeof products with our partner, who is alreadythe market leader in the United States. We have also raised our stake in MGE UPSSystems—the world leader in computer-equipment protection—to 33% and acquiredan interest in Infra +, the French leader in local-network cabling.

Geographically, we expanded by acquiringbusinesses specialized in low voltage in Indiaand Germany, medium voltage in Australia,power protection and cubing and weighing

systems in the United States and prepaidelectricity metering cards in South Africa.

We also set up a new market-oriented organization to get the most out of eachmarket’s potential and serve our customersbetter by developing end-to-end solutionsfor Buildings, Industry, Energy and Infrastructure.

At the same time, we are speeding the integration of the Internet into our applications to make ourselves and our customers more competitive, whilestrengthening our leadership in transparentdata access. Our comprehensive, continuouslyenhanced solutions help customers optimizeinvestments, measure and manage use moreefficiently, run machinery, diagnose andmaintain systems remotely, offer automaticpayment and manage plants, infrastructureand buildings intelligently. All in ways thatenable them to focus on their core businesses.

The acquisitions and new partnerships we made in 2000 give us added strengths in the area of networked, compatible productscapable of communicating with each other.

Schneider Electric operates in an industry ofthe future. Electricity will be the most widelyused source of energy in the world in thetwenty-first century. In all its related marketsand fields, we are the global leader and theonly world specialist in Power & Control.

Chairman’sMessage

3Chairman’s Message

”

The

creationof a

worldleader

Henri LachmannChairman and Chief Executive Officer

Schneider Legrand: a global leader with an exciting future

As announced on January 15, 2001, we havedecided, with Legrand’s Chairman FrançoisGrappotte, to combine our two enterprises.Our shared goal is to create the unchallengedworld leader in final low voltage distributionand to leverage the exceptional synergy in ourskills, businesses and geographic positions.

The new financial resources generated by our friendly merger will enhance growthopportunities for all our businesses and pavethe way for even more ambitious expansion.

For you, our shareholders, the alliance offers a unique opportunity to take part in the birthof a world leader and industry benchmarkwith sales of €12.5 billion.

In addition, the new Company enjoys excel-lent prospects for creating value, with netincome of approximately €860 million in 2000,cash flow of €1.4 billion and shareholders’equity of €6 billion. It will be ideally positionedto capitalize on the high growth potential of today’s electricity markets.

The merger’s friendly nature is the best guarantee of its success. Legrand shareholderswill be represented by three members on the new Company’s Supervisory Board, which Edouard de Royère will join as Chairman.I will serve as Chairman of the ExecutiveBoard and François Grappotte will be ViceChairman. In addition, three Legrand executiveswill join the new Company’s Executive Committee.

My thanks go to everyone who contributed to these good results: Schneider Electric’steam members, whose motivation and skillshave made this merger possible and who willnow carry it through; our partners, customersand suppliers, with whom we will be able to build even closer ties; and our shareholders,who have demonstrated their confidencein our corporate strategy.

I sincerely hope you will stay with us throughout this exciting project, which we willbe implementing in 2001. It marks a key step in our drive for growth.

Didier Pineau-Valencienne, 70 Honorary Chairman

Henri Lachmann, 62 Chairman and Chief Executive Officer

Jean-Paul Jacamon, 53 Vice-Chairman and Chief Operating Officer

Claude Bébéar, 65 Chairman of the Supervisory Board of AXA

Daniel Bouton, 51 Chairman and Chief Executive Officer of Société Générale

Thierry Breton, 46 Independent non-executive director*Chairman and Chief Executive Officer of Thomson S.A. and of Thomson multimedia

Alain Burq, 47 Chairman of the Supervisory Board of the “Schneider Actionnariat” corporate mutual fund

Jean-René Fourtou, 61 Independent non-executive director*Vice-Chairman of the Aventis Board of Management

Michel François-Poncet, 66 Vice-Chairman of the Board of BNP-Paribas

Hans Friderichs, 69 Independent non-executive director*Corporate Director

James F. Hardymon, 66 Independent non-executive director*Director of Air Products & Chemicals, Inc.

Gérard de La Martinière, 57 Executive Vice-President, Finance, Budget Control and Strategy of Groupe AXA

James Ross, 62 Independent non-executive director*Chairman of The National Grid Group

Piero Sierra, 66 Independent non-executive director*Special Advisor for the administration of Pirelli’s international companies

Board Secretary Philippe Bougon

Auditors

Statutory AuditorsBarbier Frinault & Autres / Arthur AndersenBefec-Price Waterhouse

Substitute AuditorsJean de GaulleDominique Paul

Boardof Directors

*Independent non-executive director, as defined in the Viénot report on corporate governance.

Henri LachmannChairman and Chief Executive Officer

Jean-Paul JacamonVice-Chairman and Chief Operating Officer

Jean-Louis AndreuExecutive Vice-President, International Division

Antoine Giscard d’EstaingExecutive Vice-President, Finance and Control

Jean-Claude PerrinVice-President, Subsidiaries

Eric PilaudExecutive Vice-President,eBusiness@Schneider Electric

ExecutiveCommittee*

1 ■

2 ■

3 ■

4 ■

5 ■

6 ■

<

Jean-François PilliardExecutive Vice-President,Human Resources and Corporate Communication

Chris RichardsonExecutive Vice-President, North American Division

Jean-Paul SaasExecutive Vice-President,Markets, Activities and Technologies

Marcel TorrentsExecutive Vice-President,French Division

Christian WiestExecutive Vice-President,European Division

7 ■

8 ■

9 ■

10 ■

11 ■

CorporateGovernance

1 2

3

54

6

10

78911

*At December 31, 2000

CorporateFunctions

Bernard LancianCorporate BusinessDevelopment

Guy de PlaceStrategy and Planning

Jean-Pascal TricoireSchneider Global BusinessDevelopment

Pedro SalazarLegal Affairs

Olivier BlainCommunication

Olivier BlumSchneider 2000+

Daniel VictoirQuality and InformationSystems

SchneiderElectricmanagement*

GeographicDivisions

Michel BartenieffSoutheast Asia

Dominique BellotGermany

Jacques BilliardAfrica, Middle East,South Korea and Japan

Rune JohanssonCentral and Eastern Europe,CIS

Gaël de La RochèreUnited Kingdom

Guy LemarchandNordic CountriesBenelux, Ireland, Switzerland

René Orlandi

South AmericaBrazil, Northern Region and Caribbean

Luc OurselItaly

Xavier Robineau-BourgneufSouth AmericaSouthern Region

Ramon RoyoSpain and Portugal

Russell StockerGreater China

Pierre TabaryPacific

Markets, Activities

Claude RicaudResearch and Development

SubsidiariesMorten AhlströmLexel

Jean-Marie BastinSarel - Himel

Jean-Claude LeblondSchneider Electric High Voltage

Jean NetterSchneider Electric Ventures

<and TechnologiesMarketsJean-Pierre ChardonBuilding

Michel CrochonIndustry

Jean KiefferEnergy and Infrastructure

ActivitiesNoël GirardLow Voltage

Joël KareckiIndustrial Control

Alain MarbachAutomation and Motion

Adrien ScoléMedium VoltageJean-Marie TrolléPurchasing * At May 1, 2001

4

Consolidated sales(€ billion)

* Pro forma restated for Spie Batignolles.

Faster growthand improved earnings

Sales up 15.7%Operating income up 22.9%Net income up 30.0%

Financial Highlights

Schneider Electric’s strategy is clearly focused on growth. With sales up 15.7%, we enjoyed a year of strong expansion in 2000,led by successful deployment of the Schneider 2000+ program*. At constant scope of consolidation and exchange rates,sales outpaced the rest of the global industry, gaining 7.2% during the period and 8.3% excluding the high voltage business. Since 1996,sales have risen by an average 9.6% a year.

96* 97 98 99 2000

Low voltage 51% up 9.2%

Medium voltage 19% up 7.5%

Industrial control and automation 30% up 7.3%

........................................................................

........................................................................

.................................................................

.......................................

A powerful growth dynamic

A balanced business portfolio

2000 sales by businessGrowth in 2000 at constant scope of consolidation and exchange rates, excluding the high-voltage business

All our businesses advanced in 2000, led by robust demandand our sustained commitmentto enhancing and renewingthe product lineup

6.737.23 7.63

8.38

9.70

*See page 61

5Financial Highlights

North America 33% up 26%

Europe outside France 33% up 10%

International 18% up 31%

.......................................................

.............................................

.........................................................

............................................

Schneider Electric has successfully created an enterprise that is both globaland local. Sales rose sharplyin every geographic divisionexcept France in 2000, thanksto the large number of localgrowth initiatives implementedby our operating units worldwide.

A balanced geographic spread

2000 sales by geographic divisionGrowth in 2000 at current scope of consolidation and exchange rates,excluding the high-voltage business

Four promising markets

Schneider Electric’s presence in four promisingmarkets offers a major competitive advantage. The balanced distribution of business across marketsand regions helps to drivesteady growth in sales and earnings, by limiting the impact of economic and business cycles.

Industry 34% ................................................

............................................

Infrastructure 5%........................................................

Building 52% .......................................

2000 sales by marketExcluding the high-voltage business

France 16% up 3%

Energy 9%

6

Financial Highlights

Operating income(€ billion)* Pro forma restated for Spie Batignolles.

96* 97 98 99 2000

Operating income rose by 22.9% in 2000,representing 13.4% of sales. Improvementwas led by successful implementation of the Schneider 2000+ program*,which resulted in sustained sales growth,new productivity gains in our manufacturingoperations and a continuous reduction in base costs.

Strong improvement in margins

Operating margin by geographic division (%)

Operating margin by business(%)

11.813.1 13.2

10.011.5

All our operating regions made a strong contribution to operating income.

Operating margin improved in our two core businesses,thanks to significant productivity gains and renewalof our lineup of electrical distribution and industrialcontrol and automation products.

.......................................

13.8

98 99 2000 98 99 2000.........................................................

Electricaldistribution

Industrial controland automation

Europe France North America International

■ Operating margin

0.59

0.760.85

1.06

1.30

8.7%

10.5%11.2%

12.6%

13.4%

11.612.8 13.1

6.07.7

11.9

13.7 14.514.913.2 13.8 14.0

................................................................................................................98 99 2000 98 99 2000 98 99 2000 98 99 2000

*See page 61

7Financial Highlights

Net income(€ billion)* Pro forma restated for Spie Batignolles.

96* 97 98 99 2000

0.21

0.340.41

0.48

0.63

Growth in net income in 2000maintained the strong, steadytrend of recent years. Since 1996, net income hasrisen by an average 32% a year.

Net income up 30%

.......................................

Workforce by geographic divisionAverage full-time employees. Total: 72,200 people

North America 28%

Europe 26%

International 13%

France 33%

.............................................

.....................................................

.......................................

..............................................

The average number ofSchneider Electric employeesincreased by 7% in 2000.

18,800 employees

23,400 employees

20,300 employees

9,700 employees

8

Financial Highlights

Investor InformationCreating value overthe long-term

In euros 1996 1997 1998 1999 2000

High 41.22 59.15 80.65 78.00 85.80Low 25.34 35.67 39.10 44.40 57.35Closing 36.57 49.82 51.68 77.95 77.70Average daily trading volume (in thousands of shares) 515.82 472.89 517.23 590.42 528.64Shares outstanding at December 31 (in thousands of shares) 136,922 152,168 153,417 161,424 155,788Market value at December 31 (in millions of euros) 5,006 7,581 7,928 12,581 12,104

Earnings per sharein euros

96 97 98 99 2000

1.48

2.312.71

3.23

4.18

Dividend per sharein euros, before tax credit

96 97 98 99 2000

0.76

0.991.15

1.34

1.60

Share price performance and trading volumesEuronext data

■ Traded on the Paris Bourse First Market; eligiblefor the deferred settlement system

■ Euroclear code: 12197■ Ranks 28th among the CAC 40 stocks

and accounts for 1.03% of the index’s total value■ Market value: €12.1 billion

(Euronext data, undiluted)

Stock Profile at December 31, 2000

Dec. 29, 1995 Dec. 29, 1996 Dec. 29, 1997 Dec. 29, 1998 Dec. 29, 1999 Dec. 29, 2000

90

80

70

60

50

40

30

2025.52

36.57

49.82 51.68

77.95 77.70

Price (in euros)

■ Share price in euros ■ Schneider Electric share ■ CAC 40 index (base: Schneider Electric share price on December 29, 1995)

....................................... .......................................

up 30% up 19%

9Financial Highlights

The Schneider Electric share in 2000In a challenging year for the markets, Schneider Electric was one of the best performing stocks in its industry. The share pricehas tripled over the past five years, corresponding to an average gainof 25% a year.

Dividend increased by 19%At the Annual Meeting on June 11, 2001, the Board of Directors will ask shareholders to approve a dividend per share of €1.60.Including the associated 50% tax credit, the total dividend wouldcome to €2.40, a 19% increase from the previous year. It corresponds to a payout of 38% of 2000 net income, a proportionsimilar to prior years. The dividend has increased by an average 20%a year over the past five years.

Share cancellationsTo reduce the dilutive impact of bond conversions and employeeshare issues in 1999, shareholders at the Annual Meeting on May 5,2000 approved the cancellation of six million shares and authorizedthe Board of Directors to cancel up to 6.3% of the remaining shares in issue.

Investor informationSchneider Electric is committed to nurturing a relationship of trust and understanding with its shareholders, by keeping them quickly and fully informed of Company performance, news and events.The Shareholders’ Guide is available on request from the InvestorRelations department, while the Shareholders’ Letter is published four times a year and the Investors’ Corneron the www.schneider-electric.com site is updated daily.Shareholders may also follow their company through financial noticesregularly published in the press.

Schneider Electric participates in a number of investor fairs. In France, for example, it was present in 2000 for the third straightyear at Actionaria, where its booth attracted nearly 1,000 visitors.In addition, a Shareholder Relations Committee is being created in the first half of 2001.

Investor ContactInvestors may contact Schneider Electric

via e-mail on the corporate website at

www.schneider-electric.com

Investor Calendar

May 2001: EPG (Electrical Power Group)

conference in Florida

May 7, 2001: Payment of a single interim dividend*

June 11, 2001: Annual and Extraordinary Meeting

of Shareholders

October 19-20, 2001: Actionaria investor fair in Lyon

November 16-17, 2001: Actionaria investor fair in Paris

* No other dividend will be paid in respect to 2000

Sales and Earnings Reports

January 24, 2001: 2000 sales

March 1, 2001: 2000 earnings

April 25, 2001: First-quarter 2001 sales

July 24, 2001: Interim 2001 sales

September 12, 2001: Interim 2001 earnings

October 23, 2001: Nine-month 2001 sales

Shares outstanding at December 31, 1999 161,423,578Shares issued in 2000 364,065Shares cancelled in 2000 (6,000,000)

Shares outstanding at December 31, 2000 155,787,643Potential shares at December 31, 2000 3,452,561(Square D convertible bonds and stock options)Fully diluted shares outstanding at December 31, 2000 159,240,204Average shares outstanding in 2000 149,354,081(used to calculate earnings per share)

Changes in the share base in 2000

Shareholders’ pact* 7.4%Employees 4.5%Treasury stock – Intragroup cross shareholdings 6.4%Foreign institutional investors 33.8%French institutional investors 35.9%Individual shareholders 12.0%

Ownership structure at December 31, 2000

*Axa 4.6% - BNP-Paribas 2.1% - AGF 0.7%

10

CorporateGovernance

Transparencyin action

Organizational and operating procedures of the Board of Directors

In 2000, the Board of Directors comprised 15 members until the death of David de Puryon December 27. Seven were independentnon-executive directors, as defined in the 1995Viénot report on corporate governance. In 2000, The Board met seven times, with anattendance rate of 88%.

Internal rules govern the organizational andoperating procedures of the Audit Committeeand the Remunerations and AppointmentsCommittee. This latter Committee reviewsexecutive compensation policy, stock optionplans and employee stock ownership plansand makes recommendations to the Boardconcerning the appointment of Directors andmembers of Board Committees.

The maximum attendance fees payable todirectors is set at an aggregate €411,612.The Board decides how attendance fees areallocated among directors. The total atten-dance fees paid in 2000 to the members ofthe Board amounted to €387,025.

Changes in corporate governance in 2001The Board of Directors would like to expressits deep appreciation of the work accomplished by David de Pury, Chairman ofthe Audit Committee, who died prematurelyin December 2000.

On the recommendation of the Remunerationsand Appointments Committee, the Board willask shareholders at the next Annual Meetingto re-elect Didier Pineau-Valencienne, Jean-René Fourtou and Dr. Hans Friderichsas directors.

However, the Board has also decided toimplement, as soon as possible, the changesin corporate governance arising from thefriendly merger with Legrand. Subject to suc-cessful completion of the transaction (accep-tance of the offer and approval by anti-trustauthorities), shareholders will be asked to amend the Company bylaws to:- Change the name of the Company toSchneider-Legrand.- Change the Company’s corporate governance from a Board of Directors to anExecutive Board and a Supervisory Board.

If shareholders approve the relevant resolutions, and once all other conditionshave been met, the Company will be governed by an Executive Board comprisingHenri Lachmann, Chairman, and François Grappotte, Vice-Chairman, and a Supervisory Board, chaired byEdouard de Royère and comprising Didier Pineau-Valencienne, Honorary Chairman,Jean-René Fourtou, Vice-Chairman, Daniel Bouton, Thierry Breton, Alain Burq,

11Corporate Governance

Bernard Decoster, Michel François-Poncet,Dr. Hans Friderichs, James F. Hardymon,Gérard de la Martinière, James Ross, Piero Sierra, Jean-Pierre Verspieren and Raphaël Verspieren.

Executive Committee remunerationThe 11 members of the Executive Committeeserve as the Group’s senior management.Their compensation comprises a fixed salaryand a variable bonus related to Group financial performance objectives and individual performance objectives set at the beginning of the year. The total gross remuneration paid to the members of the Executive Committeeby Group companies in 2000 amounted to €8.4 million, of which €4.7 million in bonuses.

Stock options*

The 9,149,930 stock options awarded between1992 and 2000 and not exercised atDecember 31, 2000 are divided among 1,300recipients. Of the total, 1,408,490 optionshave been awarded to the 11 members ofthe current Executive Committee. All optionsare exercisable after five years and withineight years of the date of grant. The subscription price ranges from €20.35for the 1992 plan to €65.88 for the latest2000 plan.

Since 1997, options are exercisable only if earnings or value creation targets are met.Since 1998, options are not exercisable at a discount to the average Schneider ElectricSA share price prior to the date of grant.

Employee stock ownershipThe Company is committed to raising theproportion of outstanding shares owned byemployees to 10% within the next five years.At December 31, 2000, employees owned4.5% of the capital and 7.6% of the votingrights through the Employee StockOwnership Plan’s corporate mutual funds. A new Worldwide Employee StockOwnership Plan is scheduled to be introducedin 2001.

Double voting rightsDouble voting rights are attributed to fullypaid-up shares registered in the name of the same holder for at least two yearsprior to the end of the calendar year preceding the one in which the Annual Shareholders’ Meeting takes place.The same is true for registered shares issuedto replace previously existing shares thatenjoyed double voting rights.

* See page 51