2007 reference document - Legrand

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RISK FACTORS
The Group’s results may be adversely affected by increases in
the cost of raw materials and components.
The cost of raw materials and components amounted to
approximately 61% of total cost of goods sold of €2,060.5 million
in 2007 and approximately 60% of total cost of goods sold of
€1,881.7 million in 2006. Raw materials mainly consist of plastics
(more than 50 references) and metals (steel, brass, copper, etc.),
which accounted for approximately 37% of all raw materials and
components in 2007 and approximately 39% of all raw materials
and components in 2006 (see sections 5.2.5 and 7.10.1.3 of this
reference document for a sensitivity calculation). Components
include other materials, such as parts, semi-finished and
fi nished products (which accounted for approximately 63% of
all raw materials and components in 2007 and 61% in 2006).
Legrand may not be able to pass on, immediately or in the long
term, increases in costs of raw materials and components to
the Group’s customers through price increases. Its costs could
therefore increase without an equivalent increase in sales, which
could in turn affect its profi tability and cash fl ows.
As of December 31, 2007, the Group has entered into “collars”
for a total nominal amount of around €18 million and with a term
of approximately six months, in order to hedge part of its risk
related to an unfavorable change in copper prices.
The Group could have unfunded liabilities with respect
to the pension plans and other comparable benefi t obligations
of its subsidiaries.
The Group’s subsidiaries have obligations to their employees
relating to retirement and severance pay in the majority of the
countries where the Group operates. These commitments may be
funded by payments to insurance companies or retirement plans
where funds are held in trust, as determined by periodic actuarial
calculations. Within the Group there are defi ned contribution
plans and defi ned benefi t plans.
Defined contribution plans are plans where the Group pays
defi ned contributions to a separate entity. Thus, the Group has
no legal or implied obligation to pay new contributions if the fund
does not have enough assets to pay benefi ts to all employees for
their years of service in the current period and prior periods.
Defined benefit plans specify the amount of benefits that
employees will receive upon retirement, which usually depends on
one or more factors such as age, number of years of contribution,
and salary. The liability on the balance sheet for defi ned benefi t
retirement plans is the present value of the commitments at the
balance sheet date less the fair value of the plan assets.
In France, retirement obligations arise pursuant to collective
bargaining agreements, enterprise agreements and legal
requirements. Pursuant to the relevant provisions of French
law, there is no legal requirement to maintain assets to fund
these liabilities. At December 31, 2007, the amount of retirement
benefi ts to be paid amounted to approximately €58.5 million.
At the same date, these benefi ts were funded at €15.1 million.
REFERENCE DOCUMENT 2007 - legrand
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Consequently, a provision was made in the Group’s 2007
fi nancial statements for the unfunded portion of these liabilities
(€43.4 million). Although Legrand believes that it maintains
suffi cient and customary insurance coverage, there can be no
assurance that the Group will continue to maintain this insurance
coverage in the future or that it will be suffi cient to cover the
Group’s future retirement and severance pay obligations.
In the United States and the United Kingdom, liabilities arise
pursuant to collective bargaining agreements, various pension
schemes and plans, and other employee benefit plans. At
December 31, 2007, the amount of liabilities due amounted to
€133.7 million. At December 31, 2007, these liabilities, including
those related to post-retirement benefi ts (other than pensions)
were underfunded by approximately €22.6 million. The unfunded
amount has been completely provisioned for in the Group’s
consolidated fi nancial statements at December 31, 2007. Although
the Group currently does not intend to terminate any of these
pension plans or schemes, the liabilities associated therewith
could, in the event of termination, be signifi cantly higher. With
respect to the pension plans or schemes which the Group is not
required by applicable law to fund, the Group intends to satisfy
such liabilities from its general assets and cash fl ows.
In Italy, pension plans and post-retirement benefi t liabilities
arise pursuant to national collective bargaining agreements.
With the changes brought about by Italian Law No. 296 on
December 27, 2006, contributions made for severance pay are
subject to the defi ned contribution system. Severance payments
prior to January 1, 2007 continue to be covered by the defi ned
benefi t system but were subject to a new actuarial evaluation that
excludes the component related to future salary increases. The
Group does not fund its retirement and severance pay obligations
in Italy. At December 31, 2007, the severance pay obligations
subject to the defi ned benefi t system amounted to €56.5 million.
A provision was made in this amount in the Group’s 2007 fi nancial
statements.
In countries other than France, the United States, the United
Kingdom and Italy, retirement and severance pay obligations arise
pursuant to applicable local law requirements and specifi c pension
arrangements and were in the aggregate equal to €15.2 million
at December 31, 2007. At December 31, 2007, these obligations
were underfunded by an aggregate amount of €10.0 million.
A provision was made in this amount in the Group’s 2007
fi nancial statements.
If the amounts with respect to the Group’s severance pay and
post-retirement benefi ts were to become due and payable, and
the insurance and annuity contracts and other investments that
the Group has entered into with respect to these liabilities were
not suffi cient to cover such liabilities, the Group could be required
to make signifi cant payments with respect to such severance
pay and retirement benefits. Any such payments could have
an adverse effect on the Group’s business, fi nancial condition,
results of operations or cash fl ows.
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