UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended March 31, 2006 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
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Date of event requiring this shell company report For the
transition period
from to |
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Commission file number 1-15240 |
JAMES HARDIE INDUSTRIES N.V.
(Exact name of Registrant as specified in its charter)
N/ A
(Translation of Registrant’s name into English)
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The Netherlands
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Atrium, 8th floor |
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(Jurisdiction of incorporation or organization)
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Strawinskylaan 3077 |
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1077 ZX Amsterdam, The Netherlands |
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(Address of principal executive offices) |
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
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Name of each exchange on which registered: |
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Common stock, represented by CHESS Units of Foreign Securities
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New York Stock Exchange* |
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CHESS Units of Foreign Securities
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New York Stock Exchange* |
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American Depositary Shares, each representing five units of
CHESS Units of Foreign Securities
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New York Stock Exchange |
* Listed, not for trading, but only in connection with the
registered American Depositary Shares, pursuant to the
requirements of the Securities and Exchange Commission
Securities registered or to be registered pursuant to
Section 12(g) of the Act. None.
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act. None.
Indicate the number of outstanding shares of each of the
issuer’s classes of capital or common stock as of the close
of the period covered by the annual report:
463,306,511 shares of common stock at March 31, 2006.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes
o No
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. o
Yes þ No
Note — Checking the box will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes
o No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Indicate by check mark which financial statement item the
registrant has elected to follow.
o Item 17
þ Item 18
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2 of the
Exchange Act). o
Yes þ No
TABLE OF CONTENTS
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PART I
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| Item 1. |
Identity of Directors, Senior Management and
Advisers |
Not Required.
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| Item 2. |
Offer Statistics and Expected Timetable |
Not Applicable.
In this annual report, unless the context otherwise
indicates, James Hardie Industries N.V., a “naamloze
vennootschap,” or a Dutch public limited liability company
incorporated and existing under the laws of The Netherlands, is
referred to as JHI NV. JHI NV together with its direct and
indirect wholly owned subsidiaries as of the time relevant to
the applicable reference, are collectively referred to as the
James Hardie Group. JHI NV and its current direct and indirect
wholly owned subsidiaries are collectively referred to as
“we,” “us,” “our,” “JHI NV
and its wholly owned subsidiaries,” or the
“Company.”
The term “fiscal year” refers to our fiscal year
ended March 31 of such year; the term “dollars”
or “$” refers to U.S. dollars; the term
“A$” refers to Australian dollars; the term
“NZ$” refers to New Zealand dollars; the term
“PHP” refers to Philippine pesos; and the term
“CLP” refers to Chilean pesos. The term
“msf” or “thousand square feet” refers to
thousands of square feet, where a square foot is defined as a
standard square foot of 5/16” thickness and the term
“mmsf” or “million square feet” refers to
millions of square feet, where a square foot is defined as a
standard square foot of 5/16” thickness.
As a company incorporated under the laws of The Netherlands,
we have listed our securities for trading on the Australian
Stock Exchange, or ASX, through the use of the Clearing House
Electronic Subregister System, or CHESS, Units of Foreign
Securities, or CUFS. CUFS are a form of depositary security that
represents a beneficial ownership interest in the securities of
a non-Australian corporation. Each of our CUFS represents the
beneficial ownership of one share of common stock of JHI NV, the
legal ownership of which is held by CHESS Depositary Nominees
Pty Ltd. The CUFS are listed and traded on the ASX under the
symbol “JHX.”
We have also listed our securities for trading on the New
York Stock Exchange, or NYSE. We sponsor a program, whereby
beneficial ownership of five CUFS is represented by one American
Depositary Share, or ADS, which is issued by The Bank of New
York. These ADSs trade on the NYSE in the form of American
Depositary Receipts, or ADRs, under the symbol “JHX.”
Unless the context indicates otherwise, when we refer to ADRs,
we are referring to ADRs or ADSs and when we refer to our common
stock we are referring to the shares of our common stock that
are represented by CUFS.
Selected Financial Data
We have included in Item 18 of this annual report the
audited consolidated financial statements of JHI NV, consisting
of our consolidated balance sheets as of March 31, 2006 and
March 31, 2005, our consolidated statements of changes in
shareholders’ equity as of March 31, 2006,
March 31, 2005 and March 31, 2004, and our
consolidated statements of operations and cash flows for the
years ended March 31, 2006, 2005 and 2004, together with
the related notes thereto. For periods prior to October 19,
2001, the effective date of our corporate restructuring (see
Item 4, “Information on the Company —
History and Development of the Company — Corporate
Restructuring”), the consolidated financial statements
represent the financial position, results of operations and cash
flows of ABN 60 000 009 263 Pty Ltd, which we refer to as ABN
60, which was formerly known as James Hardie Industries Limited,
which we refer to as JHIL, and its wholly owned subsidiaries.
For periods after October 19, 2001, our consolidated
financial statements represent the financial position, results
of operations and cash flows of JHI NV and its wholly owned
subsidiaries.
The consolidated financial statements included in this annual
report have been prepared in accordance with accounting
principles generally accepted in the United States, or
“U.S. GAAP.”
1
The selected consolidated financial information summarized below
has been derived in part from JHI NV’s financial
statements. You should read the selected consolidated financial
information in conjunction with JHI NV’s financial
statements and related notes contained in Item 18 and with
the information provided in the section of this report entitled
“Operating and Financial Review and Prospects”
contained in Item 5. Historic financial data is not
necessarily indicative of our future results and you should not
unduly rely on it.
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Fiscal Years Ended March 31, | |
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2006 | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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(In millions, except sales price per unit and per share data) | |
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Consolidated Statements of Operations Data:
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Net Sales
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USA Fiber Cement
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$ |
1,218.4 |
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$ |
939.2 |
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$ |
738.6 |
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$ |
599.7 |
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$ |
444.8 |
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Asia Pacific Fiber Cement(1)
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241.8 |
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236.1 |
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219.8 |
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174.3 |
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141.7 |
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Other(2)
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28.3 |
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35.1 |
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23.5 |
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9.6 |
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5.2 |
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Total net sales
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$ |
1,488.5 |
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$ |
1,210.4 |
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$ |
981.9 |
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$ |
783.6 |
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$ |
591.7 |
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Operating (loss) income(3)
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$ |
(434.9 |
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$ |
196.2 |
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$ |
172.2 |
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$ |
128.8 |
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$ |
46.8 |
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Interest expense
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(7.2 |
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(7.3 |
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(11.2 |
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(23.8 |
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(18.4 |
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Interest income
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7.0 |
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2.2 |
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1.2 |
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3.9 |
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2.4 |
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Other (expense) income(4)
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— |
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(1.3 |
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3.5 |
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0.7 |
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(0.4 |
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(Loss) income from continuing operations before income taxes
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(435.1 |
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189.8 |
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165.7 |
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109.6 |
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30.4 |
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Income tax expense
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(71.6 |
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(61.9 |
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(40.4 |
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(26.1 |
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(3.1 |
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(Loss) income from continuing operations
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$ |
(506.7 |
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$ |
127.9 |
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$ |
125.3 |
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$ |
83.5 |
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$ |
27.3 |
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Net (loss) income
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$ |
(506.7 |
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$ |
126.9 |
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$ |
129.6 |
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$ |
170.5 |
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$ |
30.8 |
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(Loss) income from continuing operations per common
share — basic
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$ |
(1.10 |
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$ |
0.28 |
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$ |
0.27 |
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$ |
0.18 |
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$ |
0.06 |
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Net (loss) income per common share — basic
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$ |
(1.10 |
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$ |
0.28 |
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$ |
0.28 |
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$ |
0.37 |
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$ |
0.07 |
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(Loss) income from continuing operations per common
share — diluted
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$ |
(1.10 |
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$ |
0.28 |
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$ |
0.27 |
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$ |
0.18 |
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$ |
0.06 |
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Net (loss) income per common share — diluted
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$ |
(1.10 |
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$ |
0.28 |
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$ |
0.28 |
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$ |
0.37 |
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$ |
0.07 |
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Dividends paid per share
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$ |
0.10 |
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$ |
0.03 |
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$ |
0.05 |
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$ |
0.08 |
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$ |
0.05 |
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Return of capital per share
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$ |
— |
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$ |
— |
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$ |
0.15 |
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$ |
0.20 |
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$ |
0.05 |
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Weighted average number of common shares outstanding
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Basic
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461.7 |
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458.9 |
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458.1 |
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456.7 |
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438.4 |
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Diluted
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461.7 |
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461.0 |
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461.4 |
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459.4 |
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440.4 |
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Consolidated Cash Flow Information:
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Cash flows provided by operating activities
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$ |
240.6 |
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$ |
219.8 |
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$ |
162.6 |
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$ |
64.8 |
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$ |
76.6 |
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Cash flows (used in) provided by investing activities
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$ |
(154.0 |
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$ |
(149.2 |
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$ |
(58.0 |
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$ |
237.9 |
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$ |
(77.2 |
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Cash flows provided by (used in) financing activities
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$ |
116.5 |
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$ |
28.2 |
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$ |
(87.9 |
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$ |
(279.4 |
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$ |
(40.8 |
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Other Data:
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Depreciation and amortization(5)
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$ |
45.3 |
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$ |
36.3 |
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$ |
36.4 |
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$ |
27.4 |
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$ |
23.5 |
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Adjusted EBITDA(6)
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$ |
(389.6 |
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$ |
232.5 |
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$ |
208.6 |
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$ |
156.2 |
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$ |
70.3 |
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Capital expenditures(7)
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$ |
162.8 |
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$ |
153.0 |
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$ |
74.1 |
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$ |
90.2 |
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$ |
50.8 |
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Volume (million square feet)(8)
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USA Fiber Cement
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2,182.8 |
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1,855.1 |
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1,519.9 |
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1,273.6 |
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988.5 |
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Asia Pacific Fiber Cement(1)
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368.3 |
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376.9 |
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362.1 |
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349.9 |
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320.7 |
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Average sales price per unit (per thousand square feet)
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USA Fiber Cement
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$ |
558 |
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$ |
506 |
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$ |
486 |
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$ |
471 |
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$ |
450 |
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Asia Pacific Fiber Cement(1)
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A $ |
872 |
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A $ |
846 |
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A $ |
862 |
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A $ |
887 |
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A $ |
861 |
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Fiscal Years Ended March 31, | |
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2006 | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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(In millions, except sales price per unit and per share data) | |
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Consolidated Balance Sheet Data:
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Net current assets(9)
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$ |
150.8 |
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$ |
180.2 |
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$ |
195.9 |
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$ |
159.4 |
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$ |
115.1 |
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Total assets
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$ |
1,445.4 |
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$ |
1,088.9 |
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$ |
971.2 |
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$ |
851.8 |
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$ |
968.0 |
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Long-term debt(10)
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$ |
121.7 |
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$ |
147.4 |
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$ |
165.0 |
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$ |
165.0 |
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$ |
325.0 |
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Common stock
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$ |
253.2 |
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$ |
245.8 |
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$ |
245.2 |
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$ |
269.7 |
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$ |
205.4 |
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Shareholders’ equity
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$ |
94.9 |
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$ |
624.7 |
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$ |
504.7 |
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$ |
434.7 |
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$ |
370.7 |
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(1) |
Asia Pacific Fiber Cement includes all fiber cement manufactured
in Australia, New Zealand and the Philippines and sold in
Australia, New Zealand and Asia. |
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(2) |
Includes fiber cement manufactured and sold in Chile (for fiscal
year 2002 to July 2005 only), fiber reinforced concrete pipes
manufactured and sold in the United States, fiber cement
operations in Europe and a roofing pilot plant in the United
States. Also includes general corporate income in fiscal year
2002 comprised primarily of rental income from subleasing office
space in Sydney, Australia. Our Chilean business was sold in
July 2005. Our roofing pilot plant was closed and the business
ceased operations in April 2006. See Item 4,
“Information on the Company — Capital
Expenditures and Divestitures,” Item 4
“Information on the Company — Recent
Developments” and Note 14 to our consolidated
financial statements in Item 18. |
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(3) |
For fiscal years 2006 and 2005, operating (loss) income includes
Special Commission of Inquiry and other related expenses of
$17.4 million and $28.1 million, respectively. In
addition, operating loss in fiscal year 2006 includes
$715.6 million related to the establishment of the asbestos
provision and $13.4 million related to the impairment of
our former roofing plant. |
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Operating (loss) income also includes restructuring and other
operating income/expenses as follows: (i) for fiscal year
2006, an $0.8 million loss related to the disposal of our
Chilean fiber cement business; (ii) for fiscal year 2005,
$6.0 million consisting of a settlement loss of
$5.3 million related to an employee retirement plan and a
$0.7 million loss on the sale of land in Sacramento,
California; (iii) for fiscal year 2004, $2.1 million
expense primarily related to an increase in cost provisions for
our Australian and New Zealand business; (iv) for fiscal
year 2003, $1.0 million income related to the settlement of
a terminated derivative contract; and (v) for fiscal year
2002, $12.6 million expense related to the roofing
Class Action Settlement Agreement in the United States,
$7.4 million expense associated with the corporate
reorganization and $8.1 million expense related to the
decrease in fair value of derivative contracts. |
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(4) |
Consists primarily of the following: (i) for fiscal year
2005, the $1.3 million expense consisted of a
$2.1 million impairment charge that we recorded on an
investment in a company that filed a voluntary petition for
reorganization under Chapter 11 of the U.S. bankruptcy
code, partly offset by a $0.8 million gain on a separate
investment; (ii) for fiscal year 2004, the net gain
achieved after accounting for income items, including a
$4.5 million profit on the sale of our New Zealand
property, was partially offset by expense items, including
$3.2 million primarily due to a capital duty fee paid in
conjunction with our Dutch corporate structure; (iii) for
fiscal year 2003, investment income of $0.7 million; and
(iv) for fiscal year 2002, investment expenses of
$0.4 million. |
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(5) |
Information for depreciation and amortization is for continuing
businesses only. |
3
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(6) |
Adjusted EBITDA represents income from continuing operations
before interest income, interest expense, income taxes, other
nonoperating expenses, described in footnote four above, net,
and depreciation and amortization charges as follows: |
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Fiscal Years Ended March 31, | |
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2006 | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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| |
|
| |
| |
|
(In millions) | |
|
Net cash provided by operating activities
|
|
$ |
240.6 |
|
|
$ |
219.8 |
|
|
$ |
162.6 |
|
|
$ |
64.8 |
|
|
$ |
76.6 |
|
| |
Adjustments to reconcile net (loss) income to net cash provided
by operating activities, net
|
|
|
(791.3 |
) |
|
|
(61.2 |
) |
|
|
(51.1 |
) |
|
|
62.1 |
|
|
|
(41.1 |
) |
| |
Change in operating assets and liabilities, net
|
|
|
44.0 |
|
|
|
(31.7 |
) |
|
|
18.1 |
|
|
|
43.6 |
|
|
|
(4.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(506.7 |
) |
|
|
126.9 |
|
|
|
129.6 |
|
|
|
170.5 |
|
|
|
30.8 |
|
| |
Loss (income) from discontinued operations
|
|
|
— |
|
|
|
1.0 |
|
|
|
(4.3 |
) |
|
|
(87.0 |
) |
|
|
(3.5 |
) |
| |
Income tax expense
|
|
|
71.6 |
|
|
|
61.9 |
|
|
|
40.4 |
|
|
|
26.1 |
|
|
|
3.1 |
|
| |
Interest expense
|
|
|
7.2 |
|
|
|
7.3 |
|
|
|
11.2 |
|
|
|
23.8 |
|
|
|
18.4 |
|
| |
Interest income
|
|
|
(7.0 |
) |
|
|
(2.2 |
) |
|
|
(1.2 |
) |
|
|
(3.9 |
) |
|
|
(2.4 |
) |
| |
Other expense (income)
|
|
|
— |
|
|
|
1.3 |
|
|
|
(3.5 |
) |
|
|
(0.7 |
) |
|
|
0.4 |
|
| |
Depreciation and amortization
|
|
|
45.3 |
|
|
|
36.3 |
|
|
|
36.4 |
|
|
|
27.4 |
|
|
|
23.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$ |
(389.6 |
) |
|
$ |
232.5 |
|
|
$ |
208.6 |
|
|
$ |
156.2 |
|
|
$ |
70.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Adjusted EBITDA is not a measure of financial performance under
U.S. GAAP and should not be considered an alternative to,
or more meaningful than, income from operations, net income or
cash flows as defined by U.S. GAAP or as a measure of our
profitability or liquidity. Not all companies calculate Adjusted
EBITDA in the same manner as we have and, accordingly, Adjusted
EBITDA may not be comparable with other companies. We have
included information concerning Adjusted EBITDA because we
believe that this data is commonly used by investors to evaluate
the ability of a company’s earnings from its core business
operations to satisfy its debt, capital expenditure and working
capital requirements. To permit evaluation of this data on a
consistent basis from period to period, Adjusted EBITDA has been
adjusted for noncash charges such as goodwill and asset
impairment charges, as well as nonoperating income and expense
items. See our consolidated financial statements and our
discussion under “Operating and Financial Review and
Prospects” for further information to assist in identifying
and evaluating trends in Adjusted EBITDA. |
|
|
|
| |
(7) |
Information for capital expenditures includes both cash and
credit purchases, and is for continuing businesses only. |
| |
| |
(8) |
Fiber cement volume is measured in
5/16”
thick square feet, which are referred to as standard feet. |
| |
| |
(9) |
Total current assets less total current liabilities. |
|
|
| (10) |
Includes current portion of long-term debt. |
4
Risk Factors
If the conditions precedent to the Final Funding Agreement
are met, our wholly owned Australian subsidiary, James Hardie
117 Pty Ltd (formerly known as LGTDD Pty Ltd), will be required
to start making payments to a special purpose fund. Even if the
conditions precedent to the Final Funding Agreement are not met
and the Final Funding Agreement is terminated, we may negotiate
an alternative settlement requiring cash settlement. Such
payments will reduce funds available for capital expenditures on
existing and new business opportunities, repayments of debt,
payments of dividends or other distributions; may restrict our
ability to access equity or debt capital markets; and will
adversely affect our financial position, liquidity, results of
operations and cash flows.
On December 1, 2005, we, the Government of the State of New
South Wales, Australia, which we refer to as the NSW Government,
and our wholly owned Australian subsidiary, James Hardie 117 Pty
Ltd, which we refer to as the Performing Subsidiary, entered
into a Final Funding Agreement to provide long-term funding to a
special purpose fund, or SPF, that will provide compensation for
Australian asbestos-related personal injury claims against
certain former James Hardie companies, including ABN 60, Amaca
Pty Ltd (which we refer to as Amaca) and Amaba Pty Ltd (which we
refer to as Amaba), which we collectively refer to as the Former
James Hardie Companies.
Our obligations to provide funding to the SPF pursuant to the
Final Funding Agreement are subject to certain conditions
precedent, including obtaining tax exempt status for the SPF and
the approval of our lenders and shareholders. If these
conditions are met, under the Final Funding Agreement as
executed on December 1, 2005 we will be required to make an
initial payment to the SPF on the commencement date of
approximately A$154 million and to make annual payments to
the SPF, the first payment of which will also be required on the
commencement date. In addition, we have also agreed that for a
limited period (which currently remains subject to negotiation
as a result of delays in the conditions precedent to the Final
Funding Agreement being satisfied), we will provide or arrange
for the provision of interim funding to the Foundation if its
existing funding is exhausted prior to satisfaction of the
conditions precedent to the implementation of the Final Funding
Agreement. However, the amount and terms of such interim
funding, and the manner in which it will be provided remain to
be agreed with the Foundation. Moreover, even if the conditions
precedent to the Final Funding Agreement are not met and the
Final Funding Agreement is terminated, the Company has
determined that it is nevertheless likely that it will make
payments in respect of certain claimants who were injured by
asbestos products manufactured by the Former James Hardie
Companies. If we are required to make these payments or if we
make payments pursuant to any alternative settlement, the funds
available for capital expenditure (either with respect to our
existing business or new business opportunities), repayments of
debt principal, or distributions to our shareholders and for
other corporate purposes will be reduced by the funding paid to
the SPF or the amount of such other settlement payments, as
applicable, and as a result, our financial position, liquidity,
results of operations, and cash flows will be reduced or
materially adversely affected.
Our obligation to make these payments could also affect or
restrict our ability to access equity or debt capital markets.
For example, had we not prepaid in full the outstanding amount
of our US$ non-collateralized notes prior to making the decision
to record the asbestos provision, we would not have been in
compliance with certain restrictive covenants pertaining to
those notes. If our financial position deteriorates, we may not
be able to access the capital markets to replace those notes on
terms as advantageous as those that were applicable to those
notes and as a result our financial position and liquidity will
be materially adversely affected. See Item 4,
“Information on the Company — Legal
Proceedings” for additional information concerning the
Final Funding Agreement.
In addition, since unexpected developments late in a fiscal year
could result in material increases in the amount of the next
annual payment due, we will need to be prepared to fund any such
increased obligations with little or no advance notice. As a
result, our cash management processes will need to take into
account such contingencies and therefore may adversely affect
our ability to manage our cash resources as efficiently as would
be the case if the funding obligations were able to be known in
advance or ascertained further in advance than is the case under
the Final Funding Agreement.
5
Even if the Final Funding Agreement is implemented, we may
be subject to potential additional liabilities (including claims
for compensation or property remediation outside the
arrangements reflected in the Final Funding Agreement) because
certain current and former James Hardie subsidiaries previously
manufactured products that contained asbestos.
Up to 1987, two former subsidiaries of ABN 60, Amaca and Amaba,
which are now owned and controlled by the Medical Research and
Compensation Foundation, which we refer to as the Foundation,
manufactured products in Australia that contained asbestos. In
addition, prior to 1937, ABN 60, which is now owned by the ABN
60 Foundation Pty Ltd, which we refer to as the ABN 60
Foundation, manufactured products in Australia that contained
asbestos. ABN 60 also held shares in companies that manufactured
asbestos-containing products in Indonesia and Malaysia, and held
minority shareholdings in companies that conducted
asbestos-mining operations based in Canada and Southern Africa.
Former ABN 60 subsidiaries also exported asbestos-containing
products to various countries around the world. The SPF is
designed to provide compensation only for certain claims and to
meet certain related expenses and liabilities, and the
legislation introduced in New South Wales in connection with the
Final Funding Agreement seeks to defer all other claims against
the former James Hardie subsidiaries. The funds contributed to
the SPF will not be available to meet any asbestos-related
claims made outside Australia, or claims made arising from
exposure to asbestos occurring outside Australia, or any claim
for pure property loss or pure economic loss or remediation of
property. In these circumstances, it is possible that persons
with such excluded claims may seek to pursue those claims
directly against us. Defending any such litigation could be
costly and time consuming.
Prior to 1988, a New Zealand subsidiary in the James Hardie
Group manufactured products in New Zealand that contained
asbestos. In New Zealand, asbestos-related disease compensation
claims are managed by the state-run Accident Compensation
Commission or ACC. Our New Zealand subsidiary that manufactured
products that contained asbestos contributed financially to the
ACC fund as required by law via payment of an annual levy. All
decisions relating to the amount and allocation of payments to
claimants in New Zealand are made by the ACC in accordance with
New Zealand law. The Injury Prevention, Rehabilitation and
Compensation Act 2001 (NZ) bars compensatory damages for
claims that are covered by the legislation which may be made
against the ACC Fund. However, we may be subject to potential
liability if any of these claims are found not to be covered by
the legislation and are later brought against us.
Apart from the funding obligations arising out of the Final
Funding Agreement, it is possible that we could become subject
to suits for damages for personal injury or death in connection
with the former manufacture or sale of asbestos products that
have been or may be filed against the Former James Hardie
Companies. Although the ability of any claimants to initiate or
pursue such suits is restricted by the legislation enacted by
the NSW Government under the terms of the Final Funding
Agreement (see Item 4, “Information on the
Company — Legal Proceedings”), we cannot predict
with any certainty the outcome of any future claims or
allegations that may be made, how the laws of various
jurisdictions may be applied to the facts or how the laws may
change in the future. If a court of competent jurisdiction
relying on applicable law at the time were to find JHI NV, our
New Zealand subsidiary or another James Hardie Group subsidiary
liable for damages connected with existing or former
subsidiaries or their past manufacture of asbestos-containing
products, we may incur significant liabilities in connection
with any damages that may be awarded in the legal proceedings,
in addition to the costs associated with defending against such
claims.
We have agreed to indemnify the buyer of our former Gypsum
manufacturing facilities for certain asbestos-related
claims.
When we sold our former United States gypsum wallboard
manufacturing facilities in April 2002, we agreed to indemnify
the buyer from certain future liabilities, for a period of
30 years, arising from asbestos-related claims related to
injuries to persons or property arising from our former gypsum
business. See Item 10, “Additional
Information — Material Contracts.”
6
The Final Funding Agreement imposes certain non-monetary
obligations which could materially adversely affect our
financial position, results of operations, cash flows and
outlook.
If the Final Funding Agreement is implemented, we will become
subject to certain non-monetary obligations that could prove to
be onerous or to otherwise materially adversely affect our
ability to undertake proposed transactions or to pay dividends.
For example, the Final Funding Agreement contains certain
restrictions that would generally prohibit us from undertaking
transactions that would materially adversely affect the relative
priority of the SPF as a creditor, or that would materially
impair our legal or financial capacity and that of the
Performing Subsidiary, in each case such that we and the
Performing Subsidiary would cease to be likely to be able to
meet the funding obligations that would have arisen under the
Final Funding Agreement had the relevant transaction not
occurred. Those restrictions apply to dividends and other
distributions, reorganizations of or dealings in share capital
which create or vest rights in such capital in third parties, or
non-arm’s length transactions. While the Final Funding
Agreement contains certain exemptions from such restrictions
(including, for example, exemptions for arm’s length
dealings; transactions in the ordinary course of business;
certain issuances of equity securities or bonds; and certain
transactions provided certain financial ratios are met and
certain amounts of dividends), implementing such restrictions
could materially adversely affect our financial position,
results of operations, cash flows and outlook.
The Final Funding Agreement does not eliminate the risk of
adverse action being taken against us.
Even if our shareholders approve the implementation of the Final
Funding Agreement and the other conditions precedent are
satisfied and the Final Funding Agreement is implemented, there
is a possibility that, despite certain covenants agreed to by
the NSW Government in that agreement, adverse action could be
directed against us by one or more of the NSW Government, the
government of the Commonwealth of Australia, governments of the
states or territories of Australia or any other governments,
unions or union representative groups, or asbestos disease
groups with respect to the asbestos liabilities of Amaba, Amaca
and ABN 60. Any such adverse action could materially adversely
affect our financial position, results of operations, cash flows
and outlook.
We have incurred substantial costs in connection with the
events leading up to, and the negotiation and settlement of, the
Final Funding Agreement and may in the future continue to incur
substantial costs or be subject to further legal
proceedings.
In February 2004, the NSW Government established a Special
Commission of Inquiry, which we refer to as the SCI, to
investigate, among other matters, the circumstances in which the
Foundation was established. The SCI issued its report on
September 21, 2004. The SCI found that there was a
significant funding shortfall. In part, this was based on
actuarial work commissioned by us. As of March 31, 2006, an
updated actuarial study completed by KPMG Actuaries Pty Ltd, or
KPMG Actuaries, estimated that the undiscounted value of the
central estimate of the asbestos-related liabilities of Amaba
and Amaca was approximately A$3.08 billion
($2.3 billion). See Note 12 to our consolidated
financial statements in Item 18 for additional information.
The SCI found that the net assets of the Foundation, Amaba,
Amaca and the ABN 60 Foundation were not sufficient to meet
these prospective liabilities and were likely to be exhausted in
the first half of 2007. The SCI’s findings are not binding
and if the same issues were presented to a court, the court
might come to different conclusions on one or more of the issues.
If the conditions precedent to the full implementation of the
Final Funding Agreement are not met or the Final Funding
Agreement is terminated, it is not possible to predict what
actions the NSW Government may take. In addition, in fiscal
years 2006 and 2005 we incurred $17.4 million and
$28.1 million, respectively, of expenses related to the
events and negotiations leading to the signing of the Final
Funding Agreement, including the SCI. We expect to continue to
incur material costs associated with the Final Funding Agreement
and other related matters, including costs related to:
discussions with the Commonwealth Treasury and Australian
Taxation Office, or ATO, on the tax exempt status of the SPF;
cooperating with an ongoing investigation by the Australian
Securities and Investments Commission, or ASIC, into the
circumstances surrounding and leading up to the establishment of
the Foundation, the corporate reorganizations in 2001 and 2003,
and associated matters; providing an updated actuarial
assessment of the total asbestos liabilities of the Former James
Hardie Companies; and associated legal and advisory costs.
7
If the conditions precedent to the full implementation of
the Final Funding Agreement are not satisfied or if the Final
Funding Agreement is terminated, the NSW Government may pass
legislation that would seek to impose liability on us for
asbestos claims.
The full implementation of the Final Funding Agreement is
subject to a number of conditions precedent, including obtaining
tax exempt status for the SPF and approval of our lenders and
shareholders. We are currently engaged in consultation and
negotiations with the NSW Government to determine whether the
outstanding conditions precedent, and in particular the
condition that the SPF is exempt from tax, can be satisfied,
amended or resolved in a manner satisfactory to the parties to
the Final Funding Agreement. If the Final Funding Agreement is
not implemented or if the Final Funding Agreement is terminated,
the NSW Government has indicated that it may pass or attempt to
pass legislation to impose liability on us for certain asbestos
claims of the former James Hardie subsidiaries. The Australian
Commonwealth Government and governments of other states and
territories in Australia could also seek to introduce
legislation seeking to have a similar effect. However, the
Company has no detailed information as to the content of any
such legislation. See Item 4, “Information on the
Company — Legal Proceedings.” Any such
legislation could materially adversely affect our financial
position, results of operations, cash flows and outlook.
In addition, if the Final Funding Agreement is not implemented
or if the Final Funding Agreement is terminated without a
suitable alternative having been reached, our share price and
access to capital markets may be adversely affected due to
uncertainties surrounding our potential exposure to the
asbestos-related liabilities of the Former James Hardie
Companies, and any related liability which may arise by
legislation which may be introduced by one or more of the
Australian Commonwealth Governments, the NSW Government and
other state and territory governments.
Since our revenues are primarily derived from sales in
U.S. dollars and payments pursuant to the Final Funding
Agreement are to be made in Australian dollars, unfavorable
fluctuations in the U.S. dollar (and other currencies from
which we derive our sales) compared to the Australian dollar,
will require us to pay more of our revenues to discharge our
obligations under the Final Funding Agreement. In addition,
since our results of operations are reported in
U.S. dollars, unfavorable fluctuations in the
U.S. dollar compared to the Australian dollar will require
us to expense the difference in the reported period in order to
increase the amount of our asbestos provision on our balance
sheet.
Approximately 11% and 13% of our net sales in fiscal years 2006
and 2005, respectively, were derived from sales in Australia. If
we are required to make payments pursuant to the Final Funding
Agreement, any such payments would be required to be made to the
SPF in Australian dollars. In addition, annual payments to the
SPF will be calculated based on various estimates that will be
denominated in Australian dollars. To the extent that our future
obligations exceed our Australian dollar cash flows, and we do
not hedge this foreign exchange exposure, we will need to
convert U.S. dollars or other foreign currency into
Australian dollars in order to meet our obligations pursuant to
the Final Funding Agreement. As a result, any unfavorable
fluctuations in the U.S. dollar (the majority of our
revenues is derived from sales in U.S. dollars) and other
currencies from which we derive our sales compared to the
Australian dollar will require us to convert more
U.S. dollars and other currencies from which we derive our
sales to pay the same amount of Australian denominated annual
payments to the SPF.
In addition, since our results of operations are reported in
U.S. dollars and the asbestos provision is based on
estimated payments denominated in Australian dollars,
unfavorable fluctuations in the U.S. dollar compared to the
Australia dollar will significantly affect our reported results
of operations since we will be required to expense any such
fluctuations in the reported period in order to increase the
reported value of the asbestos provision on our balance sheet.
For example, due to the strengthening of the Australian dollar
compared to the U.S. dollar, in the quarter ended
June 30, 2006, we had to increase our asbestos provision
from $715.6 million, as of March 31, 2006, to
$742.8 million, which resulted in an expense of
$27.2 million that was recorded in that quarter.
As of March 31, 2006, we had not entered into any forward
exchange contracts to mitigate this risk. Accordingly, due to
the size of the asbestos provision recorded on our balance
sheet, fluctuations in the exchange rate will cause
unpredictable volatility in our reported results for the
foreseeable future and any
8
unfavorable fluctuation in U.S. dollar and the other
currencies from which we derive our sales compared to the
Australian dollar would have a significant negative impact on
our business, earnings, results of operations and financial
condition.
Continued scrutiny resulting from ongoing investigations
may have an adverse effect on our business.
We are currently subject to an investigation by ASIC into the
circumstances surrounding the establishment of the Foundation
and associated matters. We cannot predict when this
investigation will be completed or what the results of this
investigation will be. It is possible that we or our current or
former directors and officers will be required to pay material
fines, suffer other penalties or become liable to provide
indemnification payments, any of which could have a material
adverse effect on our business. The results of this or other
investigations could materially and adversely affect our
business, financial condition, results of operations or
liquidity.
Our board of directors and senior management continue to
devote significant attention to seeking to implement the Final
Funding Agreement and associated issues.
Our board of directors, senior management and others within our
organization have devoted a significant amount of time and
resources to investigating the allegations raised in the report
of the SCI, producing documents to and complying with requests
from governmental and regulatory authorities and others,
preparing and negotiating the Final Funding Agreement, and
making submissions relating to the NSW Government’s review
of legal and administrative costs. To the extent our board of
directors and management are required to devote time and
resources to dealing with such issues rather than solely
focusing on conducting the business of the Company, this could
adversely affect our results of operations.
Negative publicity may continue to adversely affect our
business.
As a result of the events that were considered by the SCI, we
have been the subject of negative publicity, both in Australia
and elsewhere in the world which we believe has contributed to
declines in the price of our publicly traded securities in
recent years. While such negative publicity has been
significantly less frequent following our entry into the Final
Funding Agreement, the potential for such negative publicity to
increase in the future cannot be eliminated. Any uncertainty
created by future negative publicity or by the events underlying
such negative publicity could have a material adverse effect on
our results of operations, staff morale and the market price of
our publicly traded securities and create difficulties in
attracting or retaining high caliber staff.
We may have insufficient Australian taxable income to
utilize tax deductions.
We may not have sufficient Australian taxable income in future
years to utilize the tax deductions resulting from payments made
to the SPF. Further, if as a result of making such funding
payments we incur tax losses, we may not be able to fully
utilize such tax losses in future years of income. Any inability
to utilize such deductions or losses could adversely affect our
financial position or results of operations.
Potential escalation in proven claims made against, and
associated costs of, the SPF could increase our annual funding
payments required to be made under the Final Funding Agreement,
which may cause us to have to increase our asbestos provision in
the future.
In fiscal year 2006, we recorded a provision for estimated
future asbestos-related compensation payments of
$715.6 million. The amount of this asbestos provision was
based, in part, on actuarially determined, anticipated
(estimated), future annual funding payments to be made to the
SPF on an undiscounted and uninflated basis. Future annual
payments to the SPF will be based on updated actuarial
assessments that are to be performed as of March 31 of each
year to determine expected asbestos-related personal injury
liabilities to be funded under the Final Funding Agreement for
the financial year in which the payment is made and the next two
financial years. Estimates of actuarial liabilities are based on
many assumptions, which may not prove to be correct, and which
are subject to considerable uncertainty, since the ultimate
number and cost of claims are subject to the outcome of events
that have not yet occurred, including social, legal and medical
developments as well as future economic conditions. For
instance, it is possible that the categories of payable claims
could be extended to include claims that are not presently
compensable or legally recognized. Further,
9
estimating the future extent and pattern of asbestos-related
diseases that will arise from past exposure to asbestos and the
proportion of those claims that will be successful is inherently
difficult and therefore could materially differ from actual
results. If future proven claims are more numerous or the
liabilities arising from them are larger than that currently
estimated by KPMG Actuaries, it is possible that pursuant to the
terms of the Final Funding Agreement, we will be required to pay
higher annual funding payments to the SPF than currently
anticipated and on which our asbestos provision is based. If
this occurs, we may be required to increase our asbestos
provision which would be reflected as a charge in our
consolidated statements of operations at that date. Any such
changes to actuarial estimates which require us to increase our
asbestos provision could have a material adverse effect on our
business, results of operations and financial condition.
We have experienced product bans and boycotts and have
been subject to other measures taken in response to the events
investigated by the SCI and could continue to experience product
bans and boycotts in the future.
Following the release of the SCI report, the Australian Council
of Trade Unions (which we refer to as the ACTU), UnionsNSW
(formerly known as the Labour Council of New South Wales), and a
representative of the asbestos claimants, which we collectively
refer to as the Representatives, and others indicated that they
would encourage or continue to encourage consumers and union
members in Australia and elsewhere to ban or boycott the
Company’s products, to demonstrate or otherwise create
negative publicity toward the Company in order to influence the
Company’s approach to the discussions with the NSW
Government or to encourage governmental action if the
discussions are unsuccessful. As previously disclosed, our
financial position, results of operations and cash flows were
affected by such bans and boycotts.
Pursuant to the Final Funding Agreement, the Representatives
agreed to use their best endeavors to achieve forthwith the
lifting of all bans or boycotts on any products manufactured,
produced or sold by the Company, and the Company and the
Representatives signed a deed of release in December 2005 under
which the Company agreed to release the Representatives and the
members of the ACTU and UnionsNSW from civil liability arising
in relation to bans or boycotts instituted as a result of the
events described above. However, some bans and boycotts have
remained in effect. Such releases did not extend to any new bans
or boycotts, if applicable, implemented after the date of the
signing of the Final Funding Agreement, or to any bans or
boycotts which persisted beyond January 1, 2006. If the
conditions precedent to the Final Funding Agreement are not
satisfied or if for any reason that agreement is not
implemented, new bans or boycotts could be implemented against
the Company’s products. Additionally, any remaining bans or
boycotts that have remained in effect may not be lifted. Any
such measures, and the influences resulting from them, could
have a material adverse impact on the Company’s financial
position, results of operations and cash flows.
The complexity and long-term nature of the Final Funding
Agreement and related legislation and agreements may result in
litigation as to their interpretation or one or more of the
parties to the agreements may seek to renegotiate their
terms.
Certain legislation, the Final Funding Agreement and related
agreements which govern the implementation and performance of
the Final Funding Agreement are complex and have been negotiated
over the course of extended negotiation periods between various
parties. There is a risk that, over the term of the Final
Funding Agreement, some or all parties may become involved in
disputes as to the interpretation of such legislation, the Final
Funding Agreement or related agreements. We cannot guarantee
that no party will commence litigation seeking remedies with
respect to such a dispute, nor can we guarantee that a court
will not order other remedies which may adversely affect the
Company.
Due to the long-term nature of the Final Funding Agreement,
unforeseen events may result in one or more of the parties to
the Final Funding Agreement (including the Company) wishing to
renegotiate the terms and conditions of the Final Funding
Agreement or any of the related agreements. In addition, we are
currently engaged in consultation and negotiation with the NSW
Government to determine whether the outstanding conditions
precedent (and in particular the condition that the SPF is
exempt from tax) can be satisfied, amended or resolved in a
manner satisfactory to the parties to the Final Funding
Agreement. Any amendments to the Final Funding Agreement or
related agreements in the future would require the consent of
10
the Company, the NSW Government and the Asbestos Injuries
Compensation Fund, or AICF, and therefore may not be achieved.
In the future, we may be unable to renew our credit
facilities on their current terms or terms that are customary
for other companies in our industry or who have similar credit
ratings, or be able to obtain any credit facilities at
all.
Our credit facilities currently consist of
364-day facilities in
the amount of $110.0 million, which mature in June 2007 and
term facilities in the amount of $245.0 million, which
mature in December 2006. Upon satisfaction of the conditions
precedent to the full implementation of the Final Funding
Agreement, including lender approval, the maturity date of the
$245.0 million term facilities will be automatically
extended until June 2010. However, if the conditions precedent
to the full implementation of the Final Funding Agreement are
not satisfied, we may not be able to renew our credit facilities
on substantially similar terms, or at all; we may have to pay
additional fees and expenses that we might not have to pay under
normal circumstances; and we may have to agree to terms that
could increase the cost of our debt structure. If we are unable
to extend our credit facilities, or are unable to renew our
credit facilities on terms that are substantially similar to the
ones we presently have, we may experience liquidity issues and
will have to reduce our levels of planned capital expenditures
and/or take other measures to conserve cash in order to meet our
future cash flow requirements.
We may be liable for costs, penalties, fees or expenses
incurred by current or former directors, officers or employees
of the James Hardie Group to the extent that those costs are
covered by indemnity arrangements granted by the James Hardie
Group to those persons.
We may be liable for costs, penalties, fees or expenses incurred
by current or former directors, officers or employees of the
James Hardie Group to the extent that those costs are covered by
indemnity arrangements granted by the James Hardie Group to
those persons. To date, with respect to the application of our
indemnity obligations to proceedings of the SCI and other
regulatory bodies, we have paid all legal fees and costs
incurred on behalf of any current or past employee, officer or
director who has been involved in any such proceeding. In
addition, our indemnification obligations would generally cover
costs incurred by a director or officer in responding to an ASIC
investigation or any other investigation conducted by a
governmental agency or a liquidator. We or a relevant subsidiary
may be reimbursed under directors’ and officers’
insurance policies taken out by us or a relevant subsidiary.
However, there is no guarantee that such insurance will cover
the nature of such claims or will completely insure any claims
that are covered. If such costs are not insured or substantially
exceed the amount of the insurance that we maintain, our
business, financial condition, results of operations and
liquidity could be adversely affected.
Our subsidiary, RCI Pty Ltd, has been required to post a
substantial cash deposit and may incur substantial expenses in
order to pursue an appeal of an assessment by the Australian
Taxation Office and, if it is unsuccessful in its appeal, our
financial position, liquidity, and cash flow will be materially
and adversely affected.
In March 2006, RCI Pty Ltd, a wholly owned subsidiary of the
Company which we refer to as RCI, received an amended assessment
from the ATO. The amended assessment is based on the ATO’s
calculation of RCI’s net capital gains arising as a result
of an internal corporate restructuring carried out in 1998. The
amended assessment originally was for A$412.0 million
($310.0 million). After remission of general interest
charges by the ATO, the total assessment was changed to
A$378.0 million ($284.6 million), which includes:
A$172.0 million ($129.5 million) as the primary tax
after allowable credits; A$43.0 million
($32.4 million) in penalties (representing 25% of the
primary tax); and A$163.0 million ($122.7 million) in
general interest charges.
RCI is appealing the amended assessment and may incur
substantial legal and other expenses in pursuing this appeal. On
July 5, 2006, pursuant to an agreement negotiated with the
ATO and in accordance with the ATO Receivable Policy, the
Company made a payment of A$189.0 million
($140.4 million — converted using the assets and
liabilities rate at June 30, 2006) being 50% of the amended
assessment, and guaranteed the remaining unpaid 50% of the
amended assessment, pending the outcome of the appeal of the
amended assessment. The Company also agreed to pay general
interest charges accruing on the unpaid balance of the
11
amended assessment in arrears on a quarterly basis. The first
payment of accrued general interest charges will be due
October 15, 2006 in respect of the quarter ending
September 30, 2006.
Even if RCI is successful in appealing the amended assessment
and the amount paid to the ATO is ultimately refunded to it the
requirement to initially pay 50% of the amended assessment and
ongoing payments of accruing general interest charges pending
the outcome of the appeal could materially and adversely affect
our financial position and liquidity as the cash required to
make these payments is not available during the appeals process
for ordinary corporate purposes. If RCI is unsuccessful in
appealing the amended assessment, RCI will be required to pay
the remaining 50% of the unpaid amended assessment in which case
our financial position, liquidity and cash flow will be
materially and adversely affected. As of March 31, 2006 we
had not recorded any liability for the amended assessment. See
Item 4, “Information on the Company — Legal
Proceedings” and Notes 13 and 20 to the notes to our
consolidated financial statements included in Item 18 for
more information.
Under the
U.S.-Netherlands income
tax treaty and Dutch tax law, we derive tax benefits from the
group finance operations of our Netherlands-based finance
subsidiary, and changes in either the treaty or laws applicable
to the finance subsidiary, including the recent changes to the
tax treaty, could increase our effective tax rate and, as a
result, reduce our future profits and cash flows.
On December 28, 2004, the United States and The Netherlands
amended the
U.S.-Netherlands Income
Tax Treaty (prior to amendment, the “Original
U.S.-NL Treaty;”
post amendment, the “New
U.S.-NL Treaty”).
We believe that, based on the transitional rules set forth in
the New U.S.-NL Treaty,
the Original U.S.-NL
Treaty applied to us and to our Dutch and U.S. subsidiaries
until January 31, 2006. We believe that, under the Original
U.S.-NL Treaty, a 5%
U.S. withholding tax applied to dividends, and no U.S.
withholding tax applied to interest or royalties, that our
U.S. subsidiaries paid to JHI NV or our Dutch finance
subsidiary. The Original
U.S.-NL Treaty had
various conditions of eligibility for reduced
U.S. withholding tax rates (and other treaty benefits), all
of which we satisfied. If, however, we do not qualify for the
benefits under the New
U.S.-NL Treaty, such
dividend, interest and royalty payments would be subject to a
30% U.S. withholding tax.
Companies eligible for benefits under the New
U.S.-NL Treaty qualify
for a zero percent U.S. withholding tax rate on dividends.
However, the New
U.S.-NL Treaty has a
number of new, more restrictive eligibility requirements for
reduced U.S. withholding tax rates and other treaty
benefits. We have changed our organizational and operational
structure as of January 1, 2006 to satisfy the requirements
of the New U.S.-NL
Treaty and believe we are eligible for benefits under the New
U.S.-NL Treaty
commencing on February 1, 2006. We have requested a formal
ruling from the U.S. tax authorities regarding whether our
recent organizational and operational changes meet the
requirements of the New
U.S.-NL Treaty
provisions. We cannot assure you that we will receive a
favorable ruling from them. Furthermore, we may not receive a
formal ruling at all. As a result, we cannot guarantee that we
will continue to receive the treaty benefits. If, during a tax
audit or related process for a period beginning after the
effective date of the amended treaty provisions, the IRS
determines that these changes do not meet the new requirements,
we may not qualify for treaty benefits, and our effective income
tax rate could significantly increase beginning in the fiscal
year that such determination is made, and we could be liable for
taxes owed from the effective date of the amended treaty
provisions.
We have previously concentrated our finance and treasury
activities in our Dutch finance subsidiary located in The
Netherlands. In addition to providing financing to our various
subsidiaries, the finance subsidiary owns and develops
intellectual property that it licenses to our operating
subsidiaries. Under the Netherlands International Group Finance
Company rules, we have obtained a ruling from the Dutch Revenue
authority that allows the finance subsidiary to set aside, in a
Financial Risk Reserve, or FRR, a portion of its taxable profits
from financing and from licensing its intellectual property. The
amounts set aside in the FRR are free of current Dutch income
tax. Consequently, the finance subsidiary will generally incur a
tax rate of approximately 15% to 18% on its qualifying financing
and licensing income and a 29.6% statutory rate on all other
income (29.6% is the Dutch statutory rate for calendar year
2006), including any amounts involuntarily released from the FRR
to cover any risks (including currency, bad debt and foreign
branch losses) for which
12
the FRR was established. The tax rate on qualifying income may
be reduced to as low as approximately 7% to 10% depending on the
extent to which amounts from the FRR pay for capital
expenditures of our operating companies. The Dutch revenue
ruling became effective on July 1, 2001 and, when issued,
was to apply for 10 years so long as we satisfied the
requirements of the International Group Finance Company
provisions under Dutch tax law. As discussed below, the Dutch
revenue ruling is set to expire on December 31, 2010.
Under the European Union Code of Conduct on Direct Business
Taxation, member states of the European Union, or EU, have
agreed to eliminate harmful tax competition within the EU.
Accordingly, the EU Council of Economic and Finance Ministers, a
working group of EU member countries, reviewed the tax regimes
of all its member countries and identified certain tax
concessions the Council considered as harmfully competitive and
therefore in violation of the Code of Conduct. Among the
identified tax concessions is the Netherlands International
Group Finance Company regime. In December 2002, The Netherlands
agreed to end its International Group Finance Company regime for
new entrants.
In a separate but related development, the European Commission,
the executive arm of the EU, also reviewed the tax regimes of
its member countries to identify tax concessions that the
European Commission considered to be a form of “prohibited
state aid” and, therefore, contrary to the provisions of
the European Community Treaty. In February 2003, the Commission
concluded that the existence of special tax concessions in
certain countries, including the Netherlands International Group
Finance Company regime, cannot be reconciled with EU rules
regarding state aid. Accordingly, the European Commission banned
certain concessionary tax regimes, including the Netherlands
International Group Finance Company regime, but allowed
companies then operating under that regime, including our Dutch
finance subsidiary, to continue to operate under the regime
until December 31, 2010. Some uncertainty exists whether,
during this extended period of the International Group Finance
Company regime, qualifying companies can continue to set aside
profits in their FRR and defer any taxable recovery of profits
from their FRR until the expiration date. Until
December 31, 2010, and absent further legal developments,
we intend to maintain and continue to add to the FRR of our
Dutch finance subsidiary all allowable profits the subsidiary
earns, and to fund capital expenditures of our operating
companies with amounts from the FRR.
Although our Dutch finance subsidiary can continue to derive
benefits under the Netherlands International Group Finance
Company rules until December 31, 2010, we cannot guarantee
that either the EU, or another relevant authority or legislative
body, would not attempt to repeal the law earlier or that a
court of competent jurisdiction would not invalidate it,
possibly with retrospective effect.
Substantial and increasing competition in the building
products industry could adversely affect our business.
Competition in the building products industry is based largely
on price and, to a lesser extent, quality, performance and
service. Our fiber cement products compete with products
manufactured from natural and engineered wood, vinyl, stucco,
masonry, gypsum and other materials as well as fiber cement
products offered by other manufacturers. Some of our competitors
may have greater product diversity and greater financial and
other resources than we do and, among other factors, may be less
affected by reductions in margins resulting from price
competition.
Some of our competitors have lowered prices of their products to
compete for sales. In addition, we expect our competitors to
continue to expand their manufacturing capacities, to improve
the design and performance of their products and to introduce
new products with competitive price and performance
characteristics. Increased competition by existing or future
competitors could adversely impact fiber cement prices and could
require us to increase our investment in product development,
productivity improvements and customer service and support to
compete in our markets.
Fiber cement product prices in the United States, Australia and
New Zealand have fluctuated for a number of years due to the
entry into the market of new producers and competition from
alternative products, among other reasons, and these prices
could continue to fluctuate in the future. Because of the
maturity of the Australian and New Zealand markets, we believe
that prices in those markets may decline and that sales volumes
may not increase significantly or may decline in the future.
13
Historically, increased sales volumes of our U.S. fiber
cement products, the addition of proprietary products to our
product mix and improved operating efficiencies have more than
offset the decrease in pricing for such products in the United
States. However, there may be future price decreases that we may
not be able to offset with increased volume, new products or
improved operating efficiencies. For instance, unanticipated
technical problems could impair our efforts to commission new
equipment aimed at improving operating efficiencies. Any of
these factors could have a material adverse effect on our
business, results of operations and financial condition.
If damages resulting from product defects exceed our
insurance coverage, paying these damages could result in a
material adverse effect on our business, results of operations
and financial condition.
The actual or alleged existence of defects in any of our
products could subject us to significant product liability
claims. Although we do not have replacement insurance coverage
for damages to, or defects in, our products, we do have product
liability insurance coverage for consequential damages that may
arise from the use of our products. Although we believe this
coverage is adequate and currently intend to maintain this
coverage in the future, we cannot assure you that this coverage
will be sufficient to cover all future product liability claims
or that this coverage will be available at reasonable rates in
the future. The successful assertion of one or more claims
against us that exceed our insurance coverage could require us
to incur significant expenses to pay these damages. These
additional expenses could have a material adverse effect on our
business, results of operations and financial condition.
If one or more of our fiber cement products fail to
perform as expected or contain a design defect, such failure or
defect, and any resulting negative publicity, could result in
lower sales and may subject us to claims from purchasers or
users of our fiber cement products.
Because our fiber cement products have been used only since the
early-1980s, we cannot assure you that these products
will perform in accordance with our expectations over an
extended period of time or that there are no serious design
defects in such products. If our fiber cement technology fails
to perform as expected or a product is discovered to have design
defects, such failure or defects, and any resulting negative
publicity, could result in lower sales of our products and may
subject us to claims from purchasers or users of defective
products, either of which could have a material adverse effect
on our business, results of operations and financial condition.
Warranty claims resulting from unforeseen defects in our
products and exceeding our warranty reserves could have a
material adverse effect on our business, results of operations
and financial condition.
We have offered, and continue to offer, various warranties on
our products, including a
50-year limited
warranty on certain of our fiber cement siding products in the
United States. Although we maintain reserves for
warranty-related claims and legal proceedings that we believe
are adequate, we cannot assure you that warranty expense levels
or the results of any warranty-related legal proceedings will
not exceed our reserves. If our warranty reserves are
significantly exceeded, the costs associated with such
warranties could have a material adverse effect on our business,
results of operations and financial condition.
We may incur significant costs in the future in complying
with applicable environmental and health and safety laws and
regulations. A failure to comply with or a change in these laws
and regulations could subject us to significant liabilities,
including, but not limited to, damages and penalties.
We are subject to U.S. federal, state, local and foreign
environmental, health and safety laws and regulations governing,
among other matters, our operations, including the air and water
quality of our plants, and the use, handling, disposal and
remediation of hazardous substances currently or formerly used
by us or any of our affiliates. Under these laws and
regulations, we may be held jointly and severally responsible
for the remediation of any hazardous substance contamination at
our or our predecessors’ past or present facilities and at
third-party waste disposal sites. We may also be held liable for
any claims arising out of human exposure to hazardous substances
or other environmental damage and our failure to comply with
air, water, waste, and other environmental regulations. We will
continue to be liable for any environmental problems that
occurred while we owned or operated any of the three gypsum
facilities that we sold in April 2002. See Item 10,
“Additional Information — Material
Contracts.”
14
In addition, many of our products contain crystalline silica,
which can be released in a respirable form in connection with
manufacturing practices and handling or use. The inhalation of
respirable crystalline silica at certain exposure levels is
known or suspected to be associated with silicosis, potentially
causing lung cancer and other adverse human health effects. We
may face future costs of engineering and compliance to meet new
standards relating to crystalline silica if standards are made
more stringent. In addition, there is a risk that claims for
silica-related health effects could be made against us. We
cannot assure you that we will have adequate resources,
including adequate insurance coverage, to satisfy any future
silica-related health effect claims. In addition, our sales
could decrease if silica-related health effect claims are made
against us and as a result potential users of our products
decide not to use our products. Any such claims may have a
material adverse effect on our financial condition. See also
Risk Factor above captioned “If damages resulting from
product defects exceed our insurance coverage, paying these
damages could result in a material adverse effect on our
business, results of operations and financial condition.”
The costs of complying with environmental and health and safety
laws relating to our operations or the liabilities arising from
past or future releases of, or exposure to, hazardous substances
or product liability matters, or our failure to comply with air,
water, waste, and other existing environmental regulations may
result in us making future expenditures that could have a
material adverse effect on our business, results of operations
or financial condition. In addition, we cannot make any
assurances that the laws currently in place will not change.
Also, if applicable laws or judicial interpretations related to
successor liability or “piercing the corporate veil”
were to change, it could have a material adverse effect on our
business, results of operations and financial condition. See
Item 4, “Information on the Company — Legal
Proceedings.”
Our business is dependent on the residential and
commercial construction markets and we expect a slow down in
housing construction in the markets we serve, including the
U.S., Australia and New Zealand, over the short to medium
term.
Demand for our products depends in large part on residential
construction markets and, to a lesser extent, on commercial
construction markets. The level of activity in residential
construction markets depends on new housing starts and
residential remodeling projects, which are a function of many
factors not within our control, including general economic
conditions, mortgage and other interest rates, inflation,
unemployment, demographic trends, gross domestic product growth
and consumer confidence in each of the countries and regions in
which we operate. While residential construction in the
U.S. remained relatively strong in fiscal year 2006, the
National Association of Home Builders, or NAHB, and other market
analysts expect the new construction single-family residential
segment to slow during the remainder of calendar year 2006. We
also expect the Australian and New Zealand housing markets to
slow over the short to medium term. Any slow down in the markets
we serve could result in decreased demand for our products and
cause us to experience decreased sales and operating income. In
addition, the level of activity in construction markets also
depends on our ability to grow primary demand for fiber cement
and convert sales of alternative materials to sales of fiber
cement. Historically, in periods of economic decline, both new
housing starts and residential remodeling also decline. The
level of activity in the commercial construction market depends
largely on vacancy rates and general economic conditions.
Because residential and commercial construction markets are
sensitive to cyclical changes in the economy, downturns in the
economy or a lack of substantial improvement in the economy of
any of our geographic markets could negatively affect operating
results. Because of these and other factors, our results of
operations may be subject to substantial fluctuations and the
results for any prior period may not be indicative of results
for any future period.
Because demand for our products in our major markets is
seasonal, our quarterly results of operations may vary
throughout the year.
In the United States, a large proportion of our fiber cement
products are sold in the Southeastern, Southcentral and Pacific
Northwest regions of the country. Demand for building products
in these regions is seasonal because construction activity
diminishes during the winter season. In addition, the September
2005 hurricanes that caused considerable damage along the Gulf
Coast in the United States had some impact on carrier
availability and transportation costs through the initial phases
of the hurricane relief efforts. In Australia, New Zealand and
the Philippines, demand for building products is also seasonal
because, in
15
Australia and New Zealand, construction activity diminishes
during the summer period of December to February, and in the
Philippines, construction activity diminishes during the wet
season from June to September and the last half of December due
to the slowdown in business activity over the holiday period.
Because of these and other factors, our quarterly results of
operations may vary throughout the year and the results for any
quarterly period may not be indicative of results for any future
period.
We may experience adverse fluctuations in the supply and
cost of raw materials necessary to our business. A significant
reduction or cessation of shipments from an important supplier
could adversely affect our business if we are unable to secure
alternative supplies within a short time or on reasonable
terms.
Our fiber cement business periodically experiences fluctuations
in the supply and costs of raw materials, and some of our supply
markets are concentrated. For example, during fiscal year 2006
in the United States, natural gas costs increased significantly,
and to a lesser extent, we also experienced increases in costs
associated with electric power and some of our major material
components including cement. Cellulose fiber, silica, cement and
water are the principal raw materials used in the production of
fiber cement. Cellulose fiber and cement have been subject to
significant price fluctuations in the past. Price fluctuations
or material delays may occur in the future due to lack of raw
materials or suppliers. The loss or deterioration of our
relationship with a major supplier, an increase in demand by
third parties for a particular supplier’s products or
materials or delays in obtaining materials could have a material
adverse effect on our business, results of operations and
financial condition.
If our research and development efforts fail to generate
new, innovative products or processes, our overall profit
margins may decrease and demand for our products may fall, which
would have an adverse effect on our results of operations and
financial condition. In addition we may incur substantial
expenses and write-off charges related to unsuccessful research
and development efforts.
We invest significantly in research and development because we
believe that such efforts are key to sustaining and growing our
existing market leadership position in fiber cement. Because
profit margins for fiber cement products and building products
generally erode the longer a product has been on the market,
innovation is particularly important. We rely on our research
and development efforts to generate new products and processes
to increase demand and to protect profit margins. If our
research and development efforts fail to generate new,
innovative products or processes, our overall profit margins may
decrease and demand for our products may fall, which would have
an adverse effect on our results of operations and financial
condition. In addition, we may incur substantial expenses and
write-offs related to unsuccessful research and development
efforts.
Demand for our products is subject to changes in consumer
preference.
The continued development of builder and consumer preference for
our fiber cement products over competitive products is critical
to sustaining and expanding demand for our products. Therefore,
the failure to maintain and increase builder and consumer
acceptance of our fiber cement products could have a material
adverse effect on our growth strategy as well as our business,
results of operations and financial condition.
We rely on only a few distributors to distribute our fiber
cement products and the loss of any distributor could adversely
affect our business.
Our top two distributors in the United States represented
approximately 46% of our total USA Fiber Cement gross sales in
fiscal year 2006. In addition, a large home center retailer
accounted for approximately 12% of our total USA Fiber Cement
gross sales in fiscal year 2006. Our top two distributors in
Australia and our top three distributors in New Zealand
accounted for approximately 28% and 65% of our total gross sales
of fiber cement in Australia and New Zealand, respectively, in
fiscal year 2006. We generally do not have long-term contracts
with our large distributors. Accordingly, if we were to lose one
or more of these distributors because our competitors were able
to offer distributors more favorable pricing terms or for any
other reasons, we may not be able to replace distributors in a
timely manner or on reasonable terms. The loss of one or more
distributors could have a material adverse effect on our
business, results of operations and financial condition.
16
Changes in, or failure to comply with, the laws,
regulations, policies or conditions of any jurisdiction in which
we conduct our business could result in, among other
consequences, the loss of our assets in such jurisdiction, the
elimination of certain rights that are critical to the operation
of our business in such jurisdiction, a decrease in revenues or
the imposition of additional taxes or other costs.
Because we own assets, manufacture and sell our products
internationally, our activities are subject to political,
economic, legal and other uncertainties, including:
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changing political and economic conditions; |
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changing laws and policies; |
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the general hazards associated with the assertion of sovereign
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laws limiting or conditioning the right and ability of
subsidiaries and joint ventures to pay dividends or remit
earnings to affiliated companies. |
Although we seek to take applicable laws, regulations and
conditions into account in structuring our business on a global
basis, changes in, or our failure to comply with, the laws,
regulations, policies or conditions of any jurisdiction in which
we conduct our business could result in, among other
consequences, the loss of our assets in such jurisdiction, the
elimination of certain rights that are critical to the operation
of our business in such jurisdiction, a decrease in revenues or
the imposition of additional taxes. Therefore, any change in
laws, regulations, policies or conditions of a jurisdiction
could have a material adverse effect on our business, results of
operations and financial condition.
Our reliance on publicly available intellectual property
and other proprietary information subjects us to the risk that
competitors could copy our products or processes.
Our success depends, in part, on the proprietary nature of our
technology, including non-patentable intellectual property such
as our process technology. To the extent that a competitor is
able to reproduce or otherwise capitalize on our technology, it
may be difficult, expensive or impossible for us to obtain
adequate legal or equitable relief. Also, the laws of some
foreign countries may not protect our intellectual property to
the same extent as do the laws of the United States. In addition
to patent protection of intellectual property rights, we
consider elements of our product designs and processes to be
proprietary and confidential. To safeguard our confidential
information, we rely on employee, consultant and vendor
non-disclosure agreements and contractual provisions and a
system of internal safeguards to protect our proprietary
information. However, any of our registered or unregistered
intellectual property rights may be challenged or exploited by
others in the industry, which could harm our results of
operations and competitive position.
We rely on a continuous power supply and availability of
utilities to conduct our operations, and any shortages or
interruptions could disrupt our operations and increase our
expenses.
In the manufacture of our products, we rely on a continuous and
uninterrupted supply of electric power, water and natural gas as
well as the availability of water, waste and emissions discharge
facilities. Any future shortages or discharge curtailments could
significantly disrupt our operations and increase our expenses.
We currently do not have backup generators to maintain power and
do not have alternate sources of power in the event of a
blackout. In addition, our current insurance does not provide
coverage for any damages that we or our customers may suffer as
a result of any interruption in our power supply. If blackouts
interrupt our power supply, we would be temporarily unable to
continue operations at the affected facilities. Any future
interruption in our ability to continue operations at our
facilities could damage our reputation, harm our ability to
retain existing customers or obtain new customers and could
result in lost revenue, any of which could have a material
adverse effect on our business, results of operations and
financial condition.
17
Because we have significant operations outside of the
United States and report our earnings in U.S. dollars,
unfavorable fluctuations in currency values and exchange rates
could have a significant negative impact on our earnings.
Because our reporting currency is the U.S. dollar, our
non-U.S. operations
face the additional risk of fluctuating currency values and
exchange rates. Such operations may also face hard currency
shortages and controls on currency exchange. Approximately 17%
and 21% of our net sales in fiscal years 2006 and 2005,
respectively, were derived from sales outside the United States.
Consequently, changes in the value of foreign currencies
(principally Australian dollars, New Zealand dollars, Philippine
pesos, Euros, U.K. pounds and Canadian dollars) could
significantly affect our business, results of operations and
financial condition. We generally attempt to mitigate foreign
exchange risk by entering, where possible, into contracts that
require payment in local currency, hedging transactional risk,
where appropriate, and having
non-U.S. operations
borrow in local currencies, particularly that of the
Philippines. Although we did not have any material interest rate
swaps or forward exchange contracts outstanding as of
March 31, 2006, we may enter into such financial
instruments from time to time to manage our market risks. There
can be no assurance that we will be successful in these
mitigation strategies, or that fluctuations in foreign
currencies and other foreign exchange risks will not have a
material adverse effect on our business, results of operations
and financial condition.
Information technology systems integration issues could
disrupt our internal operations, which could have significant
adverse effects on our profitability.
In fiscal year 2006, we commenced our implementation of a new
enterprise resource planning, or ERP, software system. Our
ongoing systems integration work could cause portions of our
information technology infrastructure to experience
interruptions, delays or cessations of service and produce
system errors. We may not be successful in timely implementing
these new systems, and transitioning data and other aspects of
the process could be expensive, time consuming and disruptive.
Any disruptions that may occur in the implementation of this new
system could adversely affect our ability to accurately and
timely report the financial results of our operations and
otherwise efficiently operate our business, which could have a
significant adverse effect on our profitability.
Our Articles of Association and Dutch law contain
provisions that could delay or prevent a change of control that
may otherwise be beneficial to you.
Our Articles of Association contain several provisions that
could have the effect of delaying or preventing a change of
control of our ownership. Our Articles of Association generally
prohibit the holding of shares of our common stock if, because
of an acquisition of a relevant interest (including interests
held in the form of shares of our common stock, CUFS or ADRs) in
such shares, the number of shares in which a person holds
relevant interests increases from 20% or below to over 20% or
from a starting point that is above 20% and below 90%. However,
this prohibition is subject to exceptions, including
acquisitions that result from acceptance under a takeover bid as
described in our Articles of Association. Although these
provisions in our Articles of Association may help to ensure
that no person acquires voting control of us without making an
offer to all shareholders, these provisions may also have the
effect of delaying or preventing a change of control that may
otherwise be beneficial to you. See Item 10,
“Additional Information — Key Provisions of our
Articles of Association — Limitations on Right to Hold
Common Stock.”
Because we are incorporated under Dutch laws, you may not
be able to effectively seek legal recourse against us or our
management and you may have difficulty enforcing any
U.S. judgments or rulings in a foreign jurisdiction.
We are incorporated under the laws of The Netherlands. In
addition, many of our directors and executive officers are
residents of jurisdictions outside the United States and a
substantial portion of our assets are located outside the United
States. As a result, it may be difficult to effect service of
process within the United States upon such persons, or to
enforce outside the United States judgments obtained against
such persons in U.S. courts, or to enforce in
U.S. courts any judgments obtained against such persons in
courts located in jurisdictions outside the United States,
including actions predicated upon the civil liability provisions
of the
18
U.S. securities laws. In addition, it may be difficult for
you to enforce, in original actions brought in courts located in
jurisdictions outside the United States, rights predicated upon
the U.S. securities laws.
The rights of shareholders and the responsibilities of directors
under the laws of The Netherlands may not be as clearly
established as under statutes or judicial precedent in existence
in certain U.S. jurisdictions, and such rights under the
laws of The Netherlands may differ substantially from what those
rights would be under the laws of various jurisdictions in the
United States. Therefore, our shareholders may have more
difficulty in challenging the actions by our directors than they
would otherwise as shareholders of a corporation incorporated in
the United States.
The issuance of shares of common stock or the grant of
options to acquire shares of common stock could dilute the value
of your shares and adversely affect the price of our common
stock.
Because the authority to issue shares, and to grant rights to
subscribe for shares, such as options, up to the amount of our
authorized share capital, has been delegated to our Supervisory
Board, the issuance of such shares or rights could dilute the
value of your shares and adversely affect the price of our
common stock.
In addition, if we issue a large number of our equity
securities, the trading price of our equity securities could
decrease. We may pursue acquisitions of businesses and may issue
equity securities in connection with these acquisitions,
although we do not currently have specific acquisitions planned.
We may also issue equity securities to satisfy other liabilities
of the Company. We cannot predict the effect, if any, that
future sales or issuances of our equity securities or the
availability of such securities for future sale will have on our
securities market price from time to time.
If we experience labor disputes or interruptions, as we
have from time to time in the past, our operations may be
disrupted and our business, financial condition and results of
operations may be adversely affected.
As of August 31, 2006, approximately 41%, or 185, of our
employees in Australia and approximately 46%, or 81, of our
employees in New Zealand were represented by labor unions. Our
unionized employees are covered by a range of federal and
state-based agreements in Australia and other agreements in New
Zealand. Two Australian labor agreements applying to our NSW
operation expired in June 2006. Of these, one has been renewed
for two years, expiring in June 2008. The other is still in
negotiation. Negotiations over labor agreements to cover each of
our two Queensland plants are continuing. Our New Zealand labor
agreement expires in September 2007. We cannot assure you that
any of these agreements will be renewed on reasonable terms, or
at all. During the past three years, we experienced occasional
strikes and work interruptions lasting up to 5 days in
Australia. In the event we experience a prolonged labor dispute
at any of our facilities, any strikes or work interruptions
associated with such dispute could have a material adverse
effect on our business, financial condition and results of
operations.
Our effective income tax rate could increase and adversely
affect our operating results.
We operate in multiple jurisdictions and pay tax on our income
according to the tax laws of these jurisdictions. Various
factors, some of which are beyond our control, determine our
effective tax rate, including changes in or interpretations of
tax laws in any given jurisdiction, our ability to use net
operating losses and tax credit carry forwards and other tax
attributes, changes in geographical allocation of income and
expense, and our judgment about the realizability of deferred
tax assets.
If we are classified as a “controlled foreign
corporation” or a “passive foreign investment
company,” our shareholders could be subject to increased
tax liability as a consequence of their investment in our
securities.
Our U.S. citizen and resident shareholders could incur
adverse U.S. federal income tax consequences if, for
federal income tax purposes, we are classified as a
“controlled foreign corporation” or a “passive
foreign investment company.” For information regarding
these consequences, see Item 10, “Additional
Information — Taxation — United States
Taxation.” In addition, shareholders could be adversely
affected by changes in the current tax laws, regulations and
interpretations thereof in the United States and The
Netherlands, including changes that could have retroactive
effect.
19
We may acquire or divest businesses from time to time, and
this may adversely affect our results of operations and
financial condition and may significantly change the nature of
the company in which you have invested.
In the past, we have divested business segments. In the future,
we may acquire other businesses or sell some or all of our
assets or business segments. Any significant acquisition or sale
may adversely affect our results of operations and financial
condition and could change the overall profile of our business.
As a result, the value of our shares may decrease in response to
any such acquisition or sale and, upon any such acquisition or
sale, our shares may represent an investment in a company with
significantly different assets and prospects from the Company
when you made your initial investment in us.
We expect to incur substantial accounting and legal costs
in order to comply with the internal control over financial
reporting requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, as codified by Item 308 of
Regulation S-K,
and we may experience a loss in investor confidence, and a
decrease in the market price of our ADRs, if we are unable to so
comply.
Commencing with our annual report for the fiscal year ending
March 31, 2007, we will be required to comply with the
internal control over financial reporting requirements of
Item 308 of
Regulation S-K. As
part of these new rules, we will be required to include in our
annual report on
Form 20-F, a
report containing management’s assessment of the
effectiveness of our internal control over financial reporting.
In addition, our independent registered public accounting firm
will be required to attest to and report on management’s
assessment of the effectiveness of our internal controls over
financial reporting.
We expect to incur substantial legal and accounting costs in
order to initially comply and continue to comply with the
internal control over financial reporting requirements of
Item 308 of
Regulation S-K. In
addition, if we fail to achieve and maintain the adequacy of our
internal controls over financial reporting, or otherwise fail to
comply with the requirements of Item 308 of
Regulation S-K, we
could experience a loss in investor confidence in the
reliability of our financial statements, which could lead to a
decrease in the market price for our ADRs and harm our business.
Forward-Looking Statements
This annual report contains forward-looking statements. We may
from time to time make forward-looking statements in our
periodic reports filed with or furnished to the United States
Securities and Exchange Commission on Forms 20-F and
6-K, in our annual
reports to shareholders, in offering circulars and prospectuses,
in media releases and other written materials and in oral
statements made by our officers, directors or employees to
analysts, institutional investors, representatives of the media
and others. Examples of forward-looking statements include:
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expectations that the conditions precedent to the Final Funding
Agreement will be satisfied; |
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expectations about payments to a special purpose fund for the
compensation of proven asbestos-related personal injury and
death claims; |
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expectations concerning the Australian Tax Office amended
assessment; |
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expectations that our credit facilities will be extended or
renewed; |
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projections of our results of operations or financial condition; |
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statements regarding our plans, objectives or goals, including
those relating to competition, acquisitions, dispositions and
our products; |
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statements about our future performance; and |
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statements about product or environmental liabilities. |
Words such as “believe,” “anticipate,”
“plan,” “expect,” “intend,”
“target,” “estimate,” “project,”
“predict,” “forecast,”
“guideline,” “should,” “aim” and
similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements.
20
Forward-looking statements involve inherent risks and
uncertainties. We caution that a number of important factors
could cause actual results to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in
such forward-looking statements. These factors include, but are
not limited to, the risk factors discussed under “Key
Information — Risk Factors” beginning on
page 5, and: all matters relating to or arising out of the
prior manufacture of products that contained asbestos by current
and former James Hardie subsidiaries; compliance with and
changes in tax laws and treatments; competition and product
pricing in the markets in which we operate; the consequences of
product failures or defects; exposure to environmental, asbestos
or other legal proceedings; general economic and market
conditions; the supply and cost of raw materials; the success of
research and development efforts; reliance on a small number of
product distributors; compliance with and changes in
environmental and health and safety laws; risks of conducting
business internationally; compliance with and changes in laws
and regulations; foreign exchange risks; the successful
implementation of new software systems; and our successful
implementation of the internal control over financial reporting
requirements of Section 404 of the Sarbanes-Oxley Act of
2002, as codified by Item 308 of
Regulation S-K. We
caution that the foregoing list of factors is not exclusive and
that other risks and uncertainties may cause actual results to
differ materially from those in forward-looking statements.
Forward-looking statements speak only as of the date they are
made.
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| Item 4. |
Information on the Company |
History and Development of the Company
Our legal name was changed to James Hardie Industries N.V. from
RCI Netherlands Holdings B.V. in July 2001 when our legal form
was converted from a “besloten vennootschap met beperkte
aansprakelijkheid” (a “B.V.”), or private
limited liability company, to a “naamloze
vennootschap” (a “N.V.”), or a public limited
liability company whose stock, unlike a private limited
liability company, may be transferred without executing a
notarial deed if such company is listed on a recognized stock
exchange. We operate under Dutch law. Our corporate seat is
located in Amsterdam, The Netherlands. The address of our
registered office in The Netherlands is Atrium, 8th floor,
Strawinskylaan 3077, 1077 ZX Amsterdam. The telephone number
there is 011 31 20 301 2980. Our Company Secretary is
Mr. Benjamin Butterfield who is based in The Netherlands.
Corporate Restructuring
On July 2, 1998, James Hardie Industries Limited, or JHIL,
now called ABN 60, which was then a public company organized
under the laws of Australia and listed on the Australian Stock
Exchange, announced a plan of reorganization and capital
restructuring, which we refer to as the 1998 Reorganization.
James Hardie N.V., or JHNV, was incorporated in August 1998 as
an intermediary holding company, with all of its common stock
owned by indirect subsidiaries of ABN 60. On October 16,
1998, the shareholders of ABN 60 approved the 1998
Reorganization. We began our restructuring in November 1998,
primarily to address the structural imbalance and resulting
operational, financial and commercial issues associated with the
increasing significance and growth opportunities of our
U.S. operations and the location of corporate management
and our shareholder base in Australia. At that time, we
successfully completed:
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the formation of JHNV; |
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the transfer to subsidiaries of JHNV of all of our fiber cement
businesses, our U.S. gypsum wallboard business, our
Australian and New Zealand building systems business and our
Australian windows business, all of which, except for fiber
cement, were subsequently sold; |
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a debt financing, consisting of an issuance of notes to
U.S. purchasers, and the arrangement of an Australian
credit facility; and |
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the relocation of most of our senior executives and managers to
our operational headquarters in the United States. |
In February 2001, ABN 60, formerly known as James Hardie
Industries Limited, or JHIL, established the Medical Research
and Compensation Foundation, which we refer to as the
Foundation, by gifting
21
A$3.0 million ($1.7 million) in cash and transferring
ownership of Amaca and Amaba to the Foundation. See “Legal
Proceedings — Separation of Amaca Pty Ltd, Amaba Pty
Ltd and ABN 60” for more information.
On July 24, 2001, ABN 60 announced a further plan of
reorganization and capital restructuring, which we refer to as
the 2001 Reorganization. On October 19, 2001, we completed
our 2001 Reorganization. This restructuring was done to provide
us with a more efficient financial structure in light of
potential global expansion, to allow us to use our stock for
acquisitions if necessary and to increase overall returns to our
shareholders. The 2001 Reorganization consisted of the following:
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the issuance of shares of JHI NV common stock represented by
CUFS to substantially all ABN 60 shareholders in
exchange for their shares of ABN 60 common stock pursuant
to an approved Australian scheme of arrangement; |
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the transfer by ABN 60 of all of the outstanding shares of JHNV
(which directly or indirectly held substantially all of the
assets of the James Hardie Group at that time) to JHI NV; |
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a capital reduction and payment of a dividend by ABN 60 to its
then sole shareholder, JHI NV; |
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the issuance by ABN 60 of 100,000 partly-paid ordinary shares to
JHI NV for a total issue price approximately equal to the market
value of the James Hardie Group immediately prior to the
scheme’s implementation (which equaled approximately
A$1.9 billion). There was an initial subscription price
paid of A$50 per partly-paid ordinary share (that is, for a
total subscription price for such shares of A$5 million),
and the remainder was left uncalled. A partly-paid share is a
share that is issued with only part of its value paid by the
owner of the share. The partly-paid shares were issued by ABN 60
to enable it to call on JHI NV for funds in the future if ABN 60
needed such funds to maintain its solvency; |
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the listing of the shares of JHI NV represented by CUFS on the
Australian Stock Exchange and the listing of ADRs, representing
CUFS, which in turn represent shares of JHI NV, on the New York
Stock Exchange; and |
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the establishment of a Dutch financing subsidiary, James Hardie
International Finance B.V., or JHIF BV. |
As a result of the share exchange, ABN 60 shareholders
ceased to hold any direct interest in ABN 60 and instead became
the holders of interests in JHI NV common shares, receiving
substantially their same proportional ownership interests in the
Company as they had in ABN 60 before exchanging their shares.
In addition, as a result of the exchange, ABN 60 and JHNV became
direct subsidiaries of JHI NV.
22
The 2001 Reorganization is generally depicted in the following
simplified diagrams:
Following the 2001 Reorganization, JHI NV controlled the same
assets and liabilities as ABN 60 controlled immediately prior to
the 2001 Reorganization.
During fiscal year 2003:
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JHI NV and ABN 60 cancelled the partly-paid shares. The decision
to cancel the partly-paid shares was taken by the directors of
ABN 60 who did so based on a determination that the reduction in
capital would not materially prejudice ABN 60’s ability to
pay its creditors, including Amaba and Amaca, which, under the
terms of the Deed of Covenant and Indemnity, were creditors of
ABN 60 only to the extent of the limited financial obligations
under that Deed. The directors of ABN 60, after due
consideration of ABN 60’s financial position, determined
that the reduction in capital would not materially prejudice ABN
60’s ability to pay its creditors; |
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ABN 60 transferred control of all of its non-operating
subsidiaries to RCI Holdings Pty Ltd, a wholly owned subsidiary
of JHI NV, to distinguish between the operating group of
companies and non-operating subsidiaries; and |
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Following the consolidation of the operating assets of the James
Hardie Group under JHI NV and JHNV in fiscal year 2003, the
principal activity of ABN 60 was paying amounts in accordance
with the Deed of Covenant and Indemnity. At that time, the cash
position of the Company had improved significantly as a result
of the sale of the Company’s Gypsum business in the United
States and the impending sale of a gypsum mine in Nevada. On
March 31, 2003, following a review of all available options
to address this issue and after a thorough review had been
conducted to determine that the funds available to ABN 60 would
be sufficient to meet the claims of all creditors, the shares in
ABN 60 were transferred to a newly established company named the
ABN 60 Foundation. ABN 60 Foundation was established to be the
sole shareholder of ABN 60. ABN 60 is managed by independent
directors and operates entirely independently of the Company. |
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During fiscal year 2006, we completed a further restructuring
which we believe will maximize our ability to continue paying
dividends and continue realizing benefits available under the
Dutch Financial Risk Reserve regime, in the event that the
conditions precedent to the full implementation of the Final
Funding Agreement are met. See Item 3, “Key
Information — Risk Factors.”
The 2006 reorganization consisted of the following: The
subsidiary that owns our United States operations issued a
second series of shares to a new subsidiary of JHIF BV. Our
United States operations are now partly owned by JHI NV and the
new subsidiary of JHIF BV. In the event that the conditions
precedent to the full implementation of the Final Funding
Agreement are met, we expect that dividends paid to the new
subsidiary of JHIF BV will be used to fund our ongoing
obligations pursuant to the Final Funding Agreement to the SPF
through James Hardie 117 Pty Ltd, which we refer to as the
Performing Subsidiary, while dividends paid to JHI NV will be
available for other corporate purposes.
The following is a simplified diagram of our current corporate
structure:
Recent Developments
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Australian Taxation Office Assessment |
In March 2006, RCI, a wholly owned subsidiary of the Company,
received an amended assessment from the ATO. The amended
assessment is based on the ATO’s calculation of RCI’s
net capital gains arising as a result of an internal corporate
restructuring carried out in 1998. The amended assessment
originally was for A$412.0 million ($310.0 million).
After remission of general interest charges by the ATO the total
assessment was changed to A$378.0 million
($284.6 million), which includes: A$172.0 million
($129.5 million) as the primary tax after allowable
credits; A$43.0 million ($32.4 million) in penalties
(representing 25% of the primary tax); and A$163.0 million
($122.7 million) in general interest charges.
24
RCI is appealing the amended assessment and may incur
substantial legal and other expenses in pursuing this appeal.
See Item 3, “Key Information — Risk
Factors.” On July 5, 2006, pursuant to an agreement
negotiated with the ATO and in accordance with the ATO
Receivable Policy, the Company made a payment of
A$189.0 million ($140.4 million — converted using
the assets and liabilities rate at June 30, 2006) being 50%
of the amended assessment, and guaranteed the remaining unpaid
50% of the amended assessment, pending the outcome of the appeal
of the amended assessment. The Company also agreed to pay
general interest charges accruing on the unpaid balance of the
amended assessment in arrears on a quarterly basis. The first
payment of accrued general interest charges will be due
October 15, 2006 in respect of the quarter ending
September 30, 2006.
We believe RCI’s view of its tax position will ultimately
prevail in the matter. Accordingly, as of March 31, 2006 we
had not recorded a liability for the amended assessment. For
more information, see Notes 13 and 20 to our consolidated
financial statements included in Item 18 below.
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ATO Decision on Tax Deductibility of SPF and Related
Matters |
On June 23, 2006, the ATO advised us that it has refused to
endorse the SPF as a tax concession charity, arguing that, in
its opinion, the scope of its activities under the
Trust Deed and the Final Funding Agreement does not meet
current legislative requirements for such an endorsement. At the
time of filing this report, the Company is in further
discussions with the ATO and other stakeholders, including the
NSW Government, seeking to resolve this unsatisfied condition
precedent to the Final Funding Agreement.
On June 29, 2006, the ATO issued a ruling to us to the
effect that our contributions to the SPF would be tax deductible
over the anticipated life of the arrangements in accordance with
the recent “blackhole expenditure” Federal Legislation
which was enacted in April 2006. The ruling issued by the ATO
provides deductibility over a five-year period from the date of
contribution, whereas the condition precedent in the Final
Funding Agreement provides for deductibility of contributions in
the year incurred.
In June 2006, our lenders agreed to extend the maturity date of
our 364-day facilities
in the amount of $110.0 million from December 2006 to June
2007, and to extend the maturity date of our term facilities in
the amount of $245.0 million from June 2006 to December
2006.
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Closure of Roofing Pilot Plant |
We had a small-scale roofing manufacturing plant constructed in
Fontana, California in 2003. Since that time, we had been
undertaking production and market trials of our new roofing
product in Southern California to quantify the market potential
of the new product. In April 2006, we ceased our market
development initiatives for
Artisan®
roofing and closed our roofing pilot plant. Our decision not to
proceed with the roofing product was made after a review of
market testing results which concluded that greater shareholder
value would be created by focusing on other fiber cement growth
initiatives. The closure of the roofing pilot plant resulted in
an impairment charge of $13.4 million in fiscal year 2006
and closure costs of $1.1 million in the first quarter of
fiscal year 2007.
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Special Commission of Inquiry and Related
Developments |
On December 1, 2005, we announced that we, the NSW
Government, and a wholly owned subsidiary of the Company had
entered into the Final Funding Agreement to provide long-term
funding to a special purpose fund that will provide compensation
for Australian asbestos-related personal injury claims against
the Former James Hardie Companies. Additional information about
the Final Funding Agreement, the Special Commission of Inquiry,
or SCI, and other related matters can be found below under the
heading “Legal Proceedings,” under Item 3,
“Key Information — Risk Factors,” and in
Notes 12 and 20 to our consolidated financial statements
included below in Item 18.
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Disposal of Chile Business |
In June 2005, we approved a plan to dispose of our Chile Fiber
Cement business to Compañía Industrial El Volcan S.A.,
which we refer to as Volcan. The sale closed in July 2005. We
received net proceeds of $3.9 million and recorded a loss
on disposal of $0.8 million, which is included in other
operating expense in our consolidated statements of operations.
As part of the terms of the sale of the Chile Fiber Cement
business to Volcan, we entered into a two-year take or pay
purchase contract for fiber cement product manufactured by
Volcan. The first and second years of the contract amount to
purchase commitments of approximately $2.8 million and
$2.1 million, respectively. As this contract qualifies as
continuing involvement per Statement of Financial Accounting
Standards, or SFAS, No. 144, “Accounting for the
Impairment or Disposal of Long Lived Assets,” the results
of operations and loss on disposal of the Chile Fiber Cement
business are included in our income from continuing operations.
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Board and Management Changes |
On June 30, 2005, Mr. W. (Pim) Vlot, an interim member
of our Managing Board since October 22, 2004, resigned from
the Managing Board and as Company Secretary.
On July 1, 2005, Mr. Benjamin Butterfield was
appointed our Company Secretary and an interim member of the
Managing Board, and on August 22, 2005 he was appointed to
the Managing Board by our shareholders.
On August 22, 2005, Mr. Russell Chenu was appointed to
the Managing Board by our shareholders.
On August 22, 2005, Mr. Louis Gries, an interim member
of the Managing Board since October 22, 2004, was appointed
to the Managing Board by our shareholders.
On September 1, 2005, Ms. Cathy Wallace joined the
Company as Vice President, Human Resources.
On December 19, 2005, Mr. Donald Merkley resigned from
his position as Executive Vice President Research &
Development and from the Company. Mr. Mark Fisher replaced
Mr. Merkley in the research & development role.
On January 19, 2006, Mr. Peter Cameron, a
non-executive director, resigned from our Joint and Supervisory
Boards and from our Nominating and Governance Committee for
health reasons. Mr. Cameron died in February 2006.
On April 10, 2006, Mr. Grant Gustafson joined the
Company as Vice President, Interiors & Business
Development.
On May 9, 2006, Dr. Gregory Clark, a non-executive
director, resigned from our Joint and Supervisory Boards, and
from our Audit Committee and Nominating and Governance Committee.
On September 1, 2006, Mr. David Merkley resigned from
his position as our Executive Vice President, Engineering and
Process Development.
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2006 Annual General Meeting |
At the 2006 Annual General Meeting held on September 25,
2006, the following matters (in addition to certain routine
matters) were approved by our shareholders. Due to the recent
nature of these developments, except as set forth in this
section, the disclosure in this
Form 20-F
generally does not reflect these recent developments.
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Election of Members of the Supervisory and Joint
Boards |
At our Annual General Meeting on September 25, 2006, our
shareholders voted to approve the re-appointment of
Ms. Meredith Hellicar, Mr. Michael Gillfillan and
Mr. Donald McGauchie as members of our Supervisory and
Joint Boards.
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Supervisory Board Remuneration |
At our Annual General Meeting on September 25, 2006, our
shareholders approved an increase in the aggregate amount of
remuneration payable to members of our Supervisory Board from
$650,000 per annum to a sum not to exceed the aggregate
maxium amount of $1.5 million per annum, to be divided in
accordance with our Articles of Association.
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Supervisory Board Share Plan |
At our Annual General Meeting on September 25, 2006, our
shareholders approved the replacement of our Supervisory Board
Share Plan, or SBSP, with a new plan called the Supervisory
Board Share Plan 2006, or SBSP 2006. The following is a brief
summary of the SBSP 2006 and is qualified in its entirety by
reference to the full plan which is attached as Exhibit 4.4
to this Annual Report on
Form 20-F and is
hereby incorporated by reference in its entirety:
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Participation by members of the Supervisory Board in the SBSP
2006 is not mandatory, and no holding lock applies to any shares
acquired under the SBSP 2006; |
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The SBSP 2006 allows us to issue new shares or acquire shares on
the market on behalf of the participant; |
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We will not provide any loans in relation to the issue or
purchase of shares under the SBSP 2006; |
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The number of shares issued or transferred to a member of the
Supervisory Board will be determined by dividing the amount
which the member elects to apply under the SBSP 2006 (net of any
applicable taxes) by the market price (defined below); |
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The total remuneration of a Supervisory Board member will take
into account any participation in the SBSP 2006. Accordingly,
the maximum amount of his or her participation will be
determined by the maximum remuneration payable to them.
Therefore, the maximum number of shares that may be issued under
the SBSP 2006 to all participants in any single year is equal to
the aggregate remuneration payable to members of the Supervisory
Board pursuant to Article 25 of our Articles of
Association, divided by the market price (defined below); |
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Where new shares are issued under the SBSP 2006, the market
price is the average of the closing prices for CUFS on the ASX
during the period of five business days preceding the day of
issue of the shares. Where shares are purchased on the market,
the market price is the price at which the relevant CUFS are
acquired; |
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The SBSP 2006 is administered by the Managing Board and is
governed by the laws of The Netherlands. The Managing Board may
at any time vary or terminate the SBSP 2006 by resolution
(subject to any applicable ASX listing rule requirements); |
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Shares under the SBSP 2006 will be issued no later than three
years after the passing of the resolution approving the SBSP
2006; and |
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Any new member of the Supervisory Board will not be issued new
shares under the SBSP 2006 until further shareholder approval is
obtained pursuant to relevant ASX listing rules. However, any
new member of the Supervisory Board appointed prior to the next
Annual General Meeting may participate in the SBSP 2006 by the
Company acquiring shares on the market (which does not require
shareholder approval under ASX listing rules). |
In connection with those 2006 changes to the SBSP, the
Supervisory Board has resolved to introduce certain minimum
shareholding requirements (which will not form part of the SBSP
2006), as follows:
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• |
Within the six-year period up to August 2012, members of the
Supervisory Board must accumulate a minimum of 1.5 times their
annual remuneration (excluding fees for Committee or Deputy
Chairmanship) in share ownership (either personally or through a
personal superannuation or pension plan); |
27
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• |
Within the six-year period up to August 2012, the Chairman must
accumulate a minimum of twice her or his annual remuneration in
share ownership (either personally or through a personal
superannuation or pension plan); |
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• |
Newly-appointed members of the Supervisory Board will have six
years from the date of joining the Supervisory Board to satisfy
the minimum share ownership requirements mentioned above; |
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• |
No director will be required to apply more than 50% of their
fees, on a post-tax basis, over a six-year period toward
satisfying the minimum share ownership requirements mentioned
above; |
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• |
Failure to comply (as determined by the Supervisory Board) with
the minimum share ownership requirements mentioned above will
not automatically result in a director being obliged to resign
as a member of the Supervisory Board or Joint Board, but levels
of director shareholding will be disclosed in our annual reports
and thus our shareholders will be able to monitor such
compliance; and |
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• |
The minimum share ownership requirements mentioned above will
not form part of the rules of the SBSP 2006 and are subject to
change by the Supervisory Board from time to time. |
In connection with the SBSP 2006, at our Annual General Meeting
on September 25, 2006 our shareholders also approved the
issue of ordinary fully-paid shares in the Company to members of
our Supervisory Board (under the SBSP 2006) in accordance with
the SBSP 2006 initialed by our Chairman; and approved the
participation in the SBSP 2006 by Ms. Meredith Hellicar,
and Messrs. John Barr, Michael Brown, Michael Gillfillan,
James Loudon, and Donald McGauchie.
At our Annual General Meeting on September 25, 2006, our
shareholders voted to approve:
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• |
the establishment of a plan, to be called the James Hardie
Industries N.V. Long Term Incentive Plan 2006, which we refer to
as the LTIP, to provide incentives to members of our Managing
Board and to certain members of our management, which we refer
to as Executives; and |
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• |
in accordance with certain LTIP rules, the issue of certain
options or other rights over, or interests in, ordinary
fully-paid shares in the Company, which we refer to as Shares,
the issue and/or transfer of Shares under them, and the grant of
cash awards to members of our Managing Board and to Executives. |
At the same meeting, our shareholders approved the following in
accordance with the terms of the LTIP:
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• |
participation in the LTIP to a maximum of 1,000,000 options by
Mr. Louis Gries; |
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• |
acquisition accordingly by Mr. Gries of Shares up to the
stated maximum; |
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• |
participation in the LTIP to a maximum of 155,000 options by
Mr. Russell Chenu; |
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• |
acquisition accordingly by Mr. Chenu of Shares up to the
stated maximum; |
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• |
participation in the LTIP to a maximum of 263,000 options by
Mr. Benjamin Butterfield; and |
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• |
acquisition accordingly by Mr. Butterfield of Shares up to
the stated maximum. |
This description of the LTIP is qualified in its entirety by
reference to the full plan which is attached as Exhibit 4.5
to this Annual Report on
Form 20-F and
which is hereby incorporated by reference in its entirety.
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Renewal of Authority for the Company to Acquire its Own
Shares |
At our Annual General Meeting on September 25, 2006, our
shareholders voted to allow our Managing Board to be irrevocably
authorized to cause the Company to acquire shares in the capital
of the Company for valuable consideration within a defined price
range for an 18-month
period, whether as an on- or off-financial market purchase, and
up to the maximum number of shares permitted by Dutch law.
28
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Renewal of Rights Relating to Takeover Provisions |
At our Annual General Meeting on September 25, 2006, our
shareholders approved the extension of the application of
Articles 49.9 and 49.10 of our Articles of Association for
a period of five years commencing on the passing of the
resolution, subject to the confirmation of this extension by the
Managing Board on the recommendation of the Joint Board, in
accordance with Article 51 of our Articles of Association.
These Article 49 provisions are intended, in the event of a
potential change in control of the Company, to provide our
shareholders with takeover protections similar to those afforded
to shareholders in Australian-listed companies under the
Australian Corporations Act. The purposes of Article 49 are
to ensure that:
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• |
the acquisition of control over CUFS or Shares takes place in an
efficient, competitive and informed market; |
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• |
each holder of any Shares or CUFS and also the members of the
Managing Board, Joint Board, and Supervisory Board know the
identity of any person who proposes to acquire a substantial
interest in the Company, and are given reasonable time and
enough information to consider and assess the merits of a
proposal to acquire a substantial interest in the
Company; and |
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• |
as far as practicable, the holders of Shares or CUFS all have a
reasonable and equal opportunity to participate in benefits
accruing through a proposal to acquire a substantial interest in
the Company. |
General Overview of Our Business
Based on net sales, we believe we are the largest manufacturer
of fiber cement products and systems for internal and external
building construction applications in the United States,
Australia, New Zealand and the Philippines. Fiber cement is
currently one of the fastest growing segments of the
U.S. residential exteriors industry. Based on our
knowledge, experience and third-party data regarding our
industry, we estimate that total U.S. industry shipments of
fiber cement siding, trim, soffit and fascia were approximately
2.0 billion square feet during fiscal year 2006, an
increase of approximately 17% from fiscal year 2005. Based on
our knowledge, experience and third-party data, we estimate that
we have 30% to 40% of the USA Interior Cement Board Market. We
market our fiber cement products and systems under various
Hardie brand names and other brand names such as
Cemplank®
siding (we also formerly marketed siding under the brand name
Sentry®).
We believe that, in certain applications, our fiber cement
products and systems provide a combination of distinctive
performance, design and cost advantages when compared to other
fiber cement products and alternative products and systems that
use solid wood, engineered wood, vinyl, brick, stucco or gypsum
wallboard.
The sale of fiber cement products in the United States accounted
for 82%, 78% and 75% of our total net sales from continuing
operations in fiscal years 2006, 2005 and 2004, respectively.
Our fiber cement products are used in a number of markets,
including new residential construction (single and multi-family
housing), manufactured housing (mobile and pre-fabricated
homes), repair and remodeling and a variety of commercial and
industrial applications (stores, warehouses, offices, hotels,
motels, schools, libraries, museums, dormitories, hospitals,
detention facilities, religious buildings and gymnasiums). We
manufacture numerous types of fiber cement products with a
variety of patterned profiles and surface finishes for a range
of applications, including external siding and soffit lining,
internal linings, facades, fencing, pipes and floor and tile
underlayments. In contrast to some other building materials,
fiber cement provides durability attributes, such as strong
resistance to moisture, fire, impact and termites, requires
relatively little maintenance and can be used as a substrate to
create a wide variety of architectural effects with textured and
colored finishes. Based on our knowledge, experience and
third-party data regarding our industry, we estimate that, in
fiscal year 2006, we sold approximately 13% of the estimated
total 11.3 billion square foot U.S. exterior siding
market (includes all cladding materials as summarized by the
NAHB’s Siding and Exterior Wall Finish in New Construction
and Repair and Remodel Reports for 2004).
29
The breakdown of our net sales by operating segment for each of
our last three fiscal years is as follows:
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Fiscal Year Ended March 31, | |
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2006 | |
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2005 | |
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2004 | |
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(In millions) | |
|
Continuing Operations
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USA Fiber Cement
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$ |
1,218.4 |
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$ |
939.2 |
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$ |
738.6 |
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Asia Pacific Fiber Cement
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241.8 |
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236.1 |
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219.8 |
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Other
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28.3 |
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35.1 |
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23.5 |
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Total Continuing Operations
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$ |
1,488.5 |
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$ |
1,210.4 |
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$ |
981.9 |
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Discontinued Operations
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Building Systems (New Zealand)
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$ |
— |
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$ |
— |
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$ |
2.9 |
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Total Discontinued Operations
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$ |
— |
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$ |
— |
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$ |
2.9 |
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Total (Continuing and Discontinued Operations)
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$ |
1,488.5 |
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$ |
1,210.4 |
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$ |
984.8 |
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Industry Overview
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U.S. Housing Industry, Fiber Cement Industry and Pipe
Industry |
In the United States, fiber cement is principally used in the
residential building industry. Such usage fluctuates based on
the level of new home construction and the repair and remodeling
of existing homes. The level of activity is generally a function
of interest rates, inflation, unemployment levels, demographic
trends, gross domestic product growth and consumer confidence.
Demand for building products is also affected by residential
housing starts and existing home sales, the age and size of the
housing stock and overall home improvement expenditures.
According to the U.S. Census Bureau, annual domestic
housing starts increased from approximately 1.85 million in
calendar year 2003 to approximately 2.07 million in
calendar year 2005 and residential remodeling expenditures
increased from approximately $176.9 billion in calendar
year 2003 to approximately $215.0 billion in calendar year
2005.
Based on our knowledge, experience and third-party data
regarding our industry, we estimate that total
U.S. industry shipments of fiber cement siding, trim,
soffit and fascia were approximately 2.0 billion square
feet during fiscal year 2006, up approximately 17% from fiscal
year 2005. The future growth of fiber cement products will
depend on overall demand for building products and on the rate
of penetration of fiber cement products against competing
materials such as wood, engineered wood (hardboard and oriented
strand board), vinyl, masonry and stucco. See Item 3,
“Key Information — Risk Factors.”
In the United States, the largest application for fiber cement
products is in the external siding industry. Fiber cement is one
of the fastest growing segments of the siding industry. Based on
our knowledge, experience and third-party data regarding our
industry, we estimate that, in fiscal year 2006, we sold
approximately 13% of the NAHB-estimated total 11.3 billion
square foot U.S. exterior siding market (includes all
cladding materials as summarized by the NAHB’s Siding and
Exterior Wall Finish in New Construction and Repair and Remodel
Reports for 2004). Siding is a component of every building and
it usually occupies more square footage than any other building
component, such as windows and doors. Selection of siding
material is based on installed cost, durability, aesthetic
appeal, strength, weather resistance, maintenance requirements
and cost, insulating properties and other features. Different
regions of the United States show a decided preference among
siding materials according to economic conditions, weather,
materials availability and local taste. The principal siding
materials are solid wood, engineered wood, fiber cement, vinyl,
masonry and stucco. Vinyl has the largest share of the siding
market. In recent years, fiber cement has been gaining market
share against vinyl and wood, and this is believed to be due to
durability concerns and higher maintenance requirements of those
products.
30
In the U.S. civil construction market, large diameter pipes
are used for major public infrastructure projects such as storm
water, sewer, water distribution and other non-pressurized
drainage applications. According to the most recent Freedonia
Report on Large Diameter Pipes, in 2004 there was demand for
approximately 184 million linear feet of large diameter
pipes in the United States. Of this amount, approximately 46%
was used for storm water and sewer applications, approximately
19% was used in drainage and irrigation applications and
approximately 35% was used for a variety of other applications.
According to the report, demand for large diameter pipes is
expected to grow at a rate of approximately 2.4% annually.
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International Fiber Cement Industry |
In Australia and New Zealand, fiber cement building products are
used in both the residential and commercial building industries
with applications in external siding, internal walls, ceilings,
floors, soffits and fences. The residential building industry
represents the principal market for fiber cement products. We
believe the level of activity in this industry is generally a
function of interest rates, inflation, unemployment levels,
demographic trends, gross domestic product growth and consumer
confidence. Demand for fiber cement building products is also
affected by the level of new housing starts and renovation
activity. According to the Australian Bureau of Statistics, or
ABS, total dwelling commencements in Australia declined from
approximately 174,025 in calendar year 2002 to approximately
152,716 in calendar year 2005. Renovation activity, as measured
in local currency expenditures by the ABS has increased from
calendar year 2002 to calendar year 2005 for a total increase
over this period of approximately 16%. According to Statistics
New Zealand, new dwellings authorized in New Zealand declined
from approximately 28,320 in fiscal year 2003 to 25,406 in
fiscal year 2006. Residential renovation activity in New Zealand
has increased from fiscal year 2003 to fiscal year 2006 for a
total increase over this period of approximately 12%. The
Housing Industry Association of Australia & InfoMetrics
New Zealand believe new housing construction and renovation
activity is expected to soften over the short to medium term in
Australia and New Zealand respectively.
Fiber cement products have, across a range of product
applications, gained broader acceptance in Australia and New
Zealand than in the United States primarily due to earlier
introduction in Australia and New Zealand. Former subsidiaries
of ABN 60 developed fiber cement in Australia as a replacement
for asbestos cement in the early 1980s. Asbestos sheet
production ceased in the early 1980s and asbestos pipe-based
production ceased in early 1987. Competition has intensified
over the past decade in Australia. In addition to competition
from solid wood, engineered wood, wallboard, masonry and brick,
two Australian competitors have established fiber cement
manufacturing facilities in Australia and fiber cement imports
are also available. Competition has also intensified in New
Zealand as fiber cement imports have increased with the
strengthening New Zealand dollar, resulting in increasingly
competitive market pricing. See Item 3, “Key
Information — Risk Factors.”
Management believes that fiber cement has good long-term growth
potential in some Asian markets because of the benefits of
framed construction over traditional masonry construction. In
addition, we believe the opportunity to replace wood-based
products, such as plywood, with more durable fiber cement will
be attractive to consumers in these markets.
Products
We manufacture fiber cement products in the United States,
Australia, New Zealand and the Philippines. In July 2005, we
sold our Chilean fiber cement business. In fiscal year 2004, we
commenced our European fiber cement business by distributing our
fiber cement products in the U.K. and France. Our total product
offering is aimed at the building and construction markets,
including new residential construction, manufactured housing,
repair and remodeling and a variety of commercial and industrial
building applications.
We offer a wide range of fiber cement products for both exterior
and interior applications, some of which have not yet been
introduced into the United States. In the United States and
elsewhere, our products are typically sold as planks or flat
sheets with a variety of patterned profiles and finishes. Planks
are used for external siding while flat sheets are used for
internal and external wall linings and floor and tile
underlayments. At our Plant City, Florida facility, we
manufacture fiber reinforced concrete pipes for use as large
diameter
31
storm water and non-pressurized drainage applications. Outside
the United States, we also manufacture fiber cement products for
use in other applications such as building facades, lattice,
trim, fencing, decorative columns and ceiling applications. We
also manufacture products used in soffit lining.
We have developed a proprietary technology platform that enables
us to produce thicker yet lighter-weight fiber cement products
that are generally lighter and easier to handle than traditional
building products. The first application of this technology has
been our
Harditrim®
plank. Harditrim plank is a fiber cement trim product that is
used on the exterior of residential and commercial construction
to replace traditional wood and engineered wood trim. Harditrim
plank was launched in fiscal year 1999, with the introduction of
Harditrim®
HLD®
plank, from our Cleburne, Texas plant and demand has been strong
since that time. A new production process for manufacturing
Harditrim plank was completed at the Cleburne plant and
production commenced in fiscal year 2002. Additional trim
capacity was added in the Peru plant in fiscal years 2004 and
2005.
We believe that our products provide certain performance, design
and cost advantages. The principal fiber cement attribute in
exterior applications is durability, particularly when compared
to competing wood and wood-based products, while offering
comparable aesthetics. Our fiber cement products exhibit
superior resistance to the damaging effects of moisture, fire,
impact and termites compared to wood and wood-based products,
which has enabled us to gain a competitive advantage over
competing products. Vinyl siding products generally have better
durability characteristics than wood-based products, but
typically cannot duplicate the superior aesthetics of fiber
cement and lack the characteristics necessary for effectively
accepting paint applications.
Our fiber cement products provide strength and the ability to
imprint simulated patterns that closely resemble patterns and
profiles of traditional materials such as wood and stucco. The
surface properties provide a superior paint-holding finish to
wood and engineered wood products such that the periods between
necessary maintenance and repainting are longer. Compared to
masonry construction, fiber cement is lightweight, physically
flexible and can be cut using readily available tools. This
makes fiber cement suitable for lightweight construction across
a range of architectural styles. Fiber cement is well suited to
both timber and steel framed construction.
In our interior product range, our ceramic tile underlayment
products provide superior handling and installation
characteristics compared to fiberglass mesh cement boards.
Compared to wood and wood-based products, our products provide
the same general advantages that apply to external applications.
In addition, our fiber cement products exhibit less movement in
response to exposure to moisture than many alternative competing
products, providing a more consistent and durable substrate on
which to install tiles. In internal lining applications where
exposure to moisture and impact damage are significant concerns,
our products provide superior moisture resistance and impact
resistance to traditional gypsum wet area wallboard and other
competing products.
Our USA Hardie Pipe business manufactures fiber-reinforced
concrete pipes at a custom-built facility in Plant City,
Florida. The pipes are used for below-ground stormwater drainage
in civil and commercial construction projects and in the
development of residential subdivisions. Our strategy in our USA
Hardie Pipe business is to establish
Hardietm
pipe as the preferred solution for stormwater applications that
use pipes with diameters ranging from 12” to 36”. We
believe that
Hardietm
pipe offers this market significant installation and performance
benefits because our product features span those offered by
traditional concrete pipes and newer flexible pipes. We provide
the initial crush strength of rigid pipes, combined with the
lighter-weight, longer-lengths and ease of installation of
flexible pipes.
We seek to emphasize the performance attributes of our products
and continue to develop new products that, due to the materials
used and the process technology employed in their manufacture,
may be difficult for competitors to emulate. While no assurances
can be given, we believe that the proprietary nature of these
products, our ability to competitively source raw materials for
these products and the economies of scale that are derived from
their manufacture should assist our efforts to maintain our
leadership and low cost competitive position. See “Research
and Development.” Also see Item 3, “Key
Information — Risk Factors.”
32
During fiscal year 2002, we introduced James
Hardie®
building products with
ColorPlus®
technology, a new finished product available in specific lap
siding, shingles, trim, and soffit products. In the years since,
we have added pre-finished trim accessories, several new colors
and more board profiles. With
ColorPlus®
pre-finished products, customers are saved the trouble or
expense of finding tradesmen to finish their siding. We added a
further enhancement to
ColorPlus®
products by fitting a laminate to all
ColorPlus®
pre-painted siding so it can be delivered and installed in the
best possible condition.
During fiscal year 2003, we expanded our new
ColorPlus®
line of pre-finished exterior products with the addition of
several new colors, and successfully launched a new all-weather
low density trim product utilizing our new proprietary
XLD®
trim low density fiber cement technology. In that same year we
also launched our new improved proprietary grid quarter-inch
backer product
EzGrid®
underlayment.
During fiscal year 2004, we introduced pre-finished trim
accessories to further expand our
ColorPlus®
collection line.
During fiscal years 2005 and 2006, after considerable market
research, we re-launched the
ColorPlus®
collection of products with additional colors, board profiles,
and pallet sizes. In addition, we expanded our manufacturing
capacity and capabilities to meet increasing demand for our
siding, trim and soffit products with
ColorPlus®
Technology.
During fiscal year 2006, we added
Moldblocktm
Protection to our
EZGrid®
underlay and
Hardibacker®
sheets. Additionally, in the past five years, we launched many
new textures, styles and coatings in fiber cement siding
products in the United States to capitalize on demand for a
variety of styles among homebuilders and homeowners. In
Australia and New Zealand, new products released over the past
five years include
EziGrid®
tile underlay,
Eclipsatm
eaves lining,
Linea®
weatherboards,
ExoTec®
facade panel,
Hardirock®
board (in Australia only) and
Monotek®
facade panel and ShingleSide panel (in New Zealand only).
During fiscal year 2006 in the Philippines, our
HardiFlex®
board (developed since 1999) competed against plywood
applications in ceilings, walls and eaves; HardiFlex
Senepa®
boards countered timber fascia board applications; and
HardiPlank®
siding competed with exterior rendered systems.
More generally, during the past five years we have introduced
many new textures, styles and coatings to our fiber cement
siding products in North America to capitalize on
homeowners’ and homebuilders’ demands for a variety of
cladding styles. At the same time, research and development has
allowed us to find the optimum balance between low maintenance
and appearance.
Seasonality
Our earnings are seasonal and typically follow activity levels
in the building and construction industry. In the United States,
the calendar quarters ending in December and March generally
reflect reduced levels of building activity depending on weather
conditions. In Australia and New Zealand, the calendar quarter
ending in March is usually affected by a slowdown due to summer
holidays. In the Philippines, construction activity diminishes
during the wet season from June through September and during the
last half of December due to the slowdown in business activity
over the holiday period. Also, general industry patterns can be
affected by weather, economic conditions, industrial disputes
and other factors. See Item 3, “Key
Information — Risk Factors.”
Raw Materials
All of the raw materials required in the manufacture of our
fiber cement products are available from a number of sources and
we have not experienced any shortages that have materially
affected our operations. The principal raw materials used in the
manufacture of fiber cement are cellulose fiber (wood-based
pulp), silica (sand), portland cement and water.
Cellulose Fiber. Reliable access to specialized,
consistent quality, low cost pulp is critical to the production
of fiber cement building materials. Cellulose fiber is sourced
from New Zealand, the United States, Canada, and South America
(Chile) and is processed to our specifications. It is further
processed
33
using our proprietary technology to provide the reinforcing
material in the cement matrix of fiber cement. We have developed
a high level of internal expertise in the production and use of
wood-based pulps. This expertise is shared with pulp producers,
which have access to appropriate raw wood stocks, in order to
formulate superior reinforcing pulps. The resulting pulp
formulas are typically proprietary and are the subject of
confidentiality agreements between the pulp producers and us.
Although we have entered into contracts to hedge pulp prices in
the past, we currently have none in effect. However, we continue
to evaluate options on agreements with suppliers for the
purchase of pulp that could fix our pulp prices over the
longer-term.
Silica. High purity silica is sourced locally by the
various production plants. In the majority of locations, we use
silica sand as a silica source. In certain other locations,
however, we process quartz rock and beneficiate silica sand to
ensure the quality and consistency of this key raw material.
Cement. Cement is acquired in bulk from local suppliers
and is supplied on a
just-in-time basis to
our manufacturing facilities. The silos at each fiber cement
plant hold between one and three days of our cement
requirements. During fiscal year 2006 we experienced cost
increases related to increases in the price of cement. We
continue to evaluate options on agreements with suppliers for
the purchase of cement that could fix our cement prices over
longer periods of time.
Water. We use local water supplies and seek to process
all wastewater to comply with environmental requirements.
Sales, Marketing and Distribution
The principal markets for our fiber cement products are the
United States, Australia, New Zealand, the Philippines, the
United Kingdom, and France. In addition, we sell fiber cement
products in Canada, South Korea, China, Hong Kong, Macau,
Taiwan, Japan, Malaysia, Indonesia, Malta, Guam, Sri Lanka,
Vietnam, Turkey, the Middle East (Iran, Israel, United Arab
Emirates, Kuwait, and Saudi Arabia), Papua New Guinea and the
Pacific Islands (including, for example, Fiji, New Caledonia,
and Western and American Samoa), Ireland, Spain, Italy,
Switzerland, Belgium, The Netherlands, Denmark, Greece, Cyprus,
Norway, Finland, and Sweden. Our brand name, customer education
in comparative product advantages, differentiated product range
and customer service, including technical advice and assistance,
provide the basis for our marketing strategy. We offer our
customers support through a specialized fiber cement sales force
and customer service infrastructure in the United States,
Australia, New Zealand, the Philippines, Europe, and Canada. The
customer service infrastructure includes inbound customer
service support coordinated nationally in each country, and is
complemented by outbound telemarketing capability. Within each
regional market, we provide sales and marketing support to
building products dealers and lumber yards and also provide
support directly to the customers of these distribution
channels, principally homebuilders and building contractors.
In the United States, we sell fiber cement products for new
residential construction predominantly to distributors, which
then sell these products to dealers or lumber yards. This
two-step distribution process is supplemented with direct sales
to customers as a means of accelerating product penetration and
sales. Our top two U.S. distributors accounted for
approximately 46% of our total USA Fiber Cement gross sales in
fiscal year 2006. In addition, a large home center retailer
accounted for approximately 12% of our total USA Fiber Cement
gross sales in fiscal year 2006. Repair and remodel products in
the United States are typically sold through the large home
center retailers and specialist distributors. In Australia and
New Zealand, both new construction and repair and remodel
products are generally sold directly to distributor/hardware
stores and lumber yards rather than through the two-step
distribution process used in the United States. In the
Philippines, a network of thousands of small to medium size
dealer outlets sells our fiber cement products to consumers,
builders and real estate developers. Physical distribution of
product in each country is primarily by road or sea transport,
except for in the United States where transportation is
primarily by road and a small use of rail.
We maintain dedicated regional sales management teams in our
major sales territories. As of August 31, 2006, the sales
teams (including telemarketing staff) consisted of approximately
359 people in the United States and Canada, 71 people in
Australia, 27 people in New Zealand, 28 people in the
Philippines, and 28 people in Europe. We also employ one person
based in Taiwan who functions as a regional export salesperson,
34
and who covers markets such as South Korea, Hong Kong, Macau,
China and the Middle East. Our national sales managers and
national account managers, together with the regional sales
managers and sales representatives, maintain relationships with
national and other major accounts. Our sales force includes
skilled trades people who provide
on-site technical
advice and assistance. In some cases, sales forces manage
specific product categories. For example, in the United States,
there are separate sales forces for siding products, interior
products, and pipes. The interior products sales force provides
in-store merchandising support for home center retailers.
We also use trade and consumer advertising and public relations
campaigns to generate demand for our products. These campaigns
usually explain the differentiating attributes of our fiber
cement products and the suitability of our fiber cement products
and systems for specific applications.
Despite the fact that distributors are generally our direct
customers, we also aim to increase primary demand for our
products by marketing our products directly to homeowners,
architects and builders. We encourage them to specify and
install James
Hardie®
products because of the quality and craftsmanship of our
products. This “pull through” strategy, in turn,
assists us in expanding sales for our distribution network as
distributors benefit from the increasing demand for our products.
Geographic expansion of our fiber cement business has occurred
in markets where framed construction is prevalent for
residential applications or where there are opportunities to
change building practices from masonry to framed construction.
Expansion is also possible where there are direct substitution
opportunities irrespective of the methods of construction. Our
entry into the Philippines is an example of the ability to
substitute fiber cement for an alternative product (in this case
plywood). With the exception of our current major markets, as
well as Japan and certain rural areas in Asia, Scandinavia, and
Eastern Europe, most markets in the world principally utilize
masonry construction for external walls in residential
construction. Accordingly, further geographic expansion depends
on our ability to provide alternative construction solutions and
for those solutions to be accepted by the markets.
Because fiber cement products were relatively new to the
Philippines, the launch of our fiber cement products in the
Philippines in fiscal year 1999 was accompanied by strategies to
address the particular needs of local customers and the building
trade. For example, we established a carpenter training and
accreditation program whereby Filipino carpenters who are
unfamiliar with our products are taught installation techniques.
We have also put greater emphasis on building our relationships
with new home developers and builders in order to educate the
market on the benefits of our products in this particular sector.
Fiber cement products manufactured in Australia, New Zealand and
the Philippines are exported to a number of markets in Asia, the
Pacific, and the Middle East by sea transport. A regional sales
management team based in the Philippines is responsible for
coordinating export sales into Asia and the Middle East. A
regional sales coordinator based in New Zealand is responsible
for export sales to the Pacific and Papua New Guinea.
Research and Development
We pioneered the successful development of cellulose reinforced
fiber cement and, during the 1980s, progressively introduced
products resulting from our proprietary product formulation and
process technology. We have capitalized on our strong market
positions to maintain leadership in product research and
development and process technology enhancements. Our product
differentiation strategy, and our quest to maintain our position
as one of the low cost manufacturers of fiber cement, is
supported by our significant investment in research and
development activities. In fiscal year 2006, we spent
$32.1 million, or approximately 2.2% of total net sales, in
research and development activities. This amount included
$3.4 million of amounts classified as selling, general and
administrative expenses for U.S. GAAP purposes. In fiscal
year 2005, we spent $27.1 million, or approximately 2.2% of
total net sales, in research and development activities. This
amount included $5.5 million of amounts classified as
selling, general and administrative expenses for U.S. GAAP
purposes. In fiscal year 2004, we spent $26.1 million, or
approximately 2.7% of total net sales, in research and
development activities. This amount included $3.5 million
of amounts classified as selling, general and administrative
expenses for U.S. GAAP purposes.
35
We have research and development centers in Sydney, Australia
and Fontana, California, where as of August 31, 2006 we
employed over 110 scientists, engineers and technicians in core
research and in product and process development. As of
August 31, 2006, over 50% of our scientists have advanced
degrees, and 45% have worked for the Company for over five years.
Our operating strength allows us to continuously re-invest in
products and processes. This type of investment increased 18% to
$32.1 million in fiscal year 2006 as we looked for ways to:
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|
| |
• |
enhance our current products; |
| |
| |
• |
develop new products for specific markets or
applications; and |
| |
| |
• |
create or improve manufacturing platforms and processes. |
Over the last five years we have applied our research and
development capabilities to multiple levels surrounding our
products or processes. For more information on our products, see
“Products” above.
Our skill in developing production processes also enables us to
investigate new products and processes with relatively low-risk
operations, as we did with our roofing product. In the case of
roofing, which we closed in April 2006, it became clear that the
costs of manufacture and potential market for the roofing
product made it a less attractive investment for us than other
fiber cement growth opportunities. See “Recent
Developments — Closure of Roofing Pilot Plant”
above for more information.
By investing in production technology, we aim to keep reducing
our capital and operating costs. Over the past ten years,
advances in process technology have allowed us to reduce the
incremental cost of additional capacity at existing sites.
In addition, our goals are to:
|
|
|
| |
• |
continue to lower the capital cost of each unit of production at
new plants by learning from past projects and through continuing
innovation in engineering; |
| |
| |
• |
reduce operating costs at each plant by improving manufacturing
processes, raw materials yields and machine
productivity; and |
| |
| |
• |
use our proprietary product formulations and process
technologies to create lightweight and durable products for all
climates. |
Dependence on Trade Secrets and Research and Development
Our current patent portfolio is based mainly on fiber cement
compositions, associated manufacturing processes and the
resulting products. Our non-patent technical intellectual
property consists primarily of our operating and manufacturing
know-how, which is maintained as trade secret information. We
have increased our abilities to effectively create, manage and
utilize our intellectual property and have implemented a
strategy that increasingly uses patenting, licensing, trade
secret protection and joint development to protect and increase
our market share. However, we cannot assure you that our
intellectual property and other proprietary information will be
protected in all cases. In addition, if our research and
development efforts fail to generate new, innovative products or
processes, our overall profit margins may decrease and demand
for our products may fall. We do not materially rely on
intellectual property licensed from any outside third parties.
See Item 3, “Key Information — Risk
Factors.”
Governmental Regulation
Our operations and properties are subject to extensive federal,
state and local and foreign environmental protection and health
and safety laws, regulations and ordinances. These environmental
laws, among other matters, govern activities and operations that
may have adverse environmental effects, such as discharges to
air, soil and water, and establish standards for the handling of
hazardous and toxic substances and the handling
36
and disposal of solid and hazardous wastes. In the United
States, these environmental laws include, but are not limited to:
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• |
the Resource Conservation and Recovery Act; |
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| |
• |
the Comprehensive Environmental Response, Compensation and
Liability Act; |
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| |
• |
the Clean Air Act; |
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| |
• |
the Occupational Safety and Health Act; |
| |
| |
• |
the Emergency Planning and Community Right to Know Act; |
| |
| |
• |
the Clean Water Act; |
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| |
• |
the Safe Drinking Water Act; |
| |
| |
• |
the Surface Mining Control and Reclamation Act; |
| |
| |
• |
the Toxic Substances Control Act; |
| |
| |
• |
the National Environmental Policy Act; and |
| |
| |
• |
the Endangered Species Act, |
as well as analogous state statutes and regulations.
Additionally, local government agencies may impose environmental
restrictions and requirements relating to air and water quality
with which we must comply. Other countries also have statutory
schemes relating to the protection of the environment. Some
environmental laws provide that a current or previous owner or
operator of real property may be liable for the costs of removal
or remediation of environmental contamination on, under, or in
that property. In addition, persons who arrange, or are deemed
to have arranged, for the disposal or treatment of hazardous
substances may also be liable for the costs of removal or
remediation of environmental contamination at the disposal or
treatment site, regardless of whether the affected site is owned
or operated by such person. Environmental laws often impose
liability whether or not the owner, operator or arranger knew
of, or was responsible for, the presence of such environmental
contamination. Also, third parties may make claims against
owners or operators of properties for personal injuries and
property damage associated with releases of hazardous or toxic
substances pursuant to applicable environmental laws as well as
common law tort theories, including strict liability.
Environmental compliance costs in the future will depend, in
part, on regulatory developments and future requirements that
cannot be predicted. See Item 3, “Key
Information — Risk Factors.” Also see “Legal
Proceedings” below.
37
Organizational Structure
JHI NV is incorporated in The Netherlands, with its corporate
seat in Amsterdam.
The table below sets forth our significant subsidiaries, all of
which are 100% owned by JHI NV, either directly or indirectly,
as of June 30, 2006.
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Jurisdiction of | |
| Name of Company |
|
Establishment | |
| |
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| |
|
James Hardie Aust Holdings Pty Ltd.
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Australia |
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James Hardie Austgroup Pty Ltd.
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Australia |
|
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James Hardie Australia Management Pty Ltd.
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Australia |
|
|
James Hardie Australia Pty Ltd.
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Australia |
|
|
James Hardie Building Products Inc.
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|
United States |
|
|
James Hardie Europe B.V
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|
Netherlands |
|
|
James Hardie Fibre Cement Pty Ltd.
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Australia |
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James Hardie International Finance B.V
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Netherlands |
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James Hardie International Finance Holdings Sub I B.V
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Netherlands |
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James Hardie International Finance Holdings Sub II B.V
|
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|
Netherlands |
|
|
James Hardie International Holdings B.V
|
|
|
Netherlands |
|
|
James Hardie N.V.
|
|
|
Netherlands |
|
|
James Hardie New Zealand Limited
|
|
|
New Zealand |
|
|
James Hardie Philippines Inc.
|
|
|
Philippines |
|
|
James Hardie Research (Holdings) Pty Ltd.
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Australia |
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James Hardie U.S. Investments Sierra Inc.
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United States |
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N.V. Technology Holdings A Limited Partnership
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Australia |
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RCI Pty Ltd.
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|
Australia |
|
Capital Expenditures and Divestitures
The following table sets forth our capital expenditures,
calculated on an accrual basis, for each year in the three-year
period ended March 31, 2006.
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| |
|
Fiscal Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
USA Fiber Cement
|
|
$ |
154.5 |
|
|
$ |
144.8 |
|
|
$ |
56.2 |
|
|
Asia Pacific Fiber Cement
|
|
|
6.6 |
|
|
|
4.1 |
|
|
|
8.4 |
|
|
Chile, U.S. Pipes, U.S. Roofing and Europe(1)
|
|
|
1.7 |
|
|
|
4.1 |
|
|
|
9.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total Capital Expenditures
|
|
$ |
162.8 |
|
|
$ |
153.0 |
|
|
$ |
74.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
In July 2005, we sold our fiber cement business located in
Chile. See Note 14 to our consolidated financial statements
in Item 18. In April 2006, we closed our roofing pilot
plant located in Fontana, California. For more information on
these two discontinued operations in Chile and California, see
Item 4, “Information on the Company — Recent
Developments.” |
The significant capital expenditure projects over the past three
fiscal years in our USA Fiber Cement business include:
|
|
|
| |
• |
the commencement of construction of a new fiber cement
manufacturing plant in Pulaski, Virginia at a total estimated
cost of $98.0 million. Construction of the plant began in
March 2005. The plant will |
38
|
|
|
| |
|
include two manufacturing lines, each with an annual design
capacity of 300 million square feet. At the end of fiscal
year 2006, we completed construction on the first manufacturing
line and, in April 2006, we commenced commercial production on
this line. The plant produces external siding and interior
backerboard products for new residential construction, repair
and remodel and manufactured housing markets. As of
March 31, 2006, we have incurred $89.3 million related
to the construction of our Pulaski, Virginia plant; |
| |
| |
• |
the continued implementation of our
ColorPlus®
strategy. This strategy includes constructing additional
ColorPlus®
coating capacity inside our existing plants. In fiscal year
2006, we completed construction of, and commenced production on,
a new
ColorPlus®
line at our Blandon, Pennsylvania plant. In addition, we began
construction on new
ColorPlus®
coating lines at our Reno, Nevada and Pulaski, Virginia plants.
As of March 31, 2006, we have incurred $44.7 million
related to our
ColorPlus®
strategy; |
| |
| |
• |
the addition of a new fiber cement plant in Reno, Nevada at a
cost of $58.0 million, which occurred during fiscal years
2006, 2005 and 2004; |
| |
| |
• |
the addition of a new trim line at our Peru, Illinois plant. As
of March 31, 2005, we were in pre-production and in fiscal
year 2006 we commenced the
ramp-up of this new
trim line. As of March 31, 2006, we incurred a total cost
of $58.5 million related to the construction of this new
trim line. These expenditures occurred during fiscal years 2006,
2005 and 2004; |
| |
| |
• |
upgrades to our Blandon, Pennsylvania plant at a cost of
approximately $17.1 million, which occurred during fiscal
years 2005, 2004 and 2003; and |
| |
| |
• |
the addition of a panel production line at our Waxahachie, Texas
plant at a cost of $26.5 million, which occurred during
fiscal years 2004 and 2003. |
In addition, in fiscal year 2006 we commenced our implementation
of a new enterprise resource planning software system. As of
March 31, 2006, we have incurred $4.3 million related
to this project.
In our roofing operations, we spent $12.4 million in fiscal
years 2006, 2004 and 2003 on our pilot plant in Fontana,
California. This pilot plant was built to test our proprietary
manufacturing technology and to provide product market testing
in Southern California for a new generation of fiber cement
roofing product. In April 2006, we ceased market development
initiatives for our roofing product and announced the closure of
our roofing plant resulting in an impairment charge of
$13.4 million in fiscal year 2006 and closure costs of
$1.1 million in the first quarter of fiscal year 2007.
In fiscal years 2006 and 2004, we spent $3.5 million and
$2.2 million, respectively, to upgrade our fiber cement
manufacturing plant at Rosehill in Sydney. In addition, in
fiscal year 2004, $1.8 million was spent at our Brisbane
plant to install a coating facility.
We currently expect to spend up to approximately
$150 million for capital expenditures in fiscal year 2007.
Amounts expended will include facility upgrades on capital to
complete new facility construction and on capital to implement
new fiber cement technologies. The expected amount of spending
in fiscal year 2007 includes additional capital expenditures
expected to be made on projects that were in progress during
fiscal year 2006, including:
|
|
|
| |
• |
the second manufacturing line at our Pulaski, Virginia plant,
discussed above, at an estimated cost of
$12.0 million; and |
| |
| |
• |
the continued implementation of our
ColorPlus®
strategy, discussed above, at an estimated cost of
$12.5 million. |
In addition, the expected capital expenditure amount for fiscal
year 2007 above includes approximately $9.8 million related
to the implementation of the new enterprise resource planning
software system discussed above.
All of the above planned capital expenditures are in our USA
Fiber Cement segment.
39
We currently expect the level of our capital expenditures to
continue to be substantial. Competitive pressures and market
developments could require further increases in capital
expenditures. Our financing for these capital expenditures is
expected to come from our cash from our future operations and
from external debt to the extent that cash from operations does
not cover our capital expenditures. However, if we are unable to
extend our credit facilities, or are unable to renew our credit
facilities on terms that are substantially similar to the ones
we presently have, we may experience liquidity issues and may
have to reduce our levels of planned capital expenditures to
conserve cash for future cash flow requirements. See
Item 3, “Key Information — Risk
Factors.”
On May 30, 2003, we sold our New Zealand Building Systems
business to a third party. We recorded a gain of
$1.9 million representing the excess of net proceeds from
the sale of $6.7 million over the net book value of assets
sold of $4.8 million. The proceeds from the sale comprised
cash of $5.0 million and a note receivable in the amount of
$1.7 million. As of March 2005, the $1.7 million note
receivable had been collected in full.
|
|
|
Disposal of Chile Business |
In June 2005, the Company approved a plan to dispose of its
Chile Fiber Cement business to Volcan. The sale closed on
July 8, 2005. The Company received net proceeds of
$3.9 million and recorded a loss on disposal of
$0.8 million. This loss on disposal is included in other
operating expense in the Company’s consolidated statements
of operations. The net proceeds from the sale were comprised of
cash of $3.1 million and a receivable of $0.8 million.
The cash proceeds were offset by cash divested of
$0.2 million. Short-term debt of $11.9 million was
repaid in full out of the gross proceeds of $15.8 million.
As part of the terms of the sale of the Chile Fiber Cement
business to Volcan, the Company entered into a two-year take or
pay purchase contract for fiber cement product manufactured by
Volcan. The first and second year of the contract amounts to a
purchase commitment of approximately $2.8 million and
$2.1 million, respectively. As this contract qualifies as
continuing involvement, the results of operations and loss on
disposal of the Chile Fiber Cement business are included in the
Company’s income from continuing operations.
Following the establishment of the ABN 60 Foundation and
transfer of shares in ABN 60 to the ABN 60 Foundation, we no
longer own any shares of ABN 60. ABN 60 Foundation is
managed by independent directors and operates entirely
independently of us. Since that date, we have not and currently
we do not control the activities of ABN 60 or ABN 60 Foundation
in any way. Other than as described in Note 12 to our
consolidated financial statements in Item 18, we have no
economic interest in ABN 60 or ABN 60 Foundation and we have no
right to dividends or capital distributions made by the ABN 60
Foundation. Apart from the express indemnity for non-asbestos
matters provided to ABN 60 and a possible arrangement to fund
some or all future claimants for asbestos-related injuries
caused by former James Hardie Group subsidiary companies and to
the potential liabilities more fully described in Notes 12
and 20 to our consolidated financial statements in Item 18,
we do not believe we will have any liability under current
Australian law should future liabilities of ABN 60 or ABN 60
Foundation exceed the funds available to those entities. As a
result of the change in ownership of ABN 60 on March 31,
2003, we recorded a loss on disposal of $0.4 million,
representing the liabilities of ABN 60 (to the Foundation) of
A$94.6 million ($57.2 million), the
A$94.5 million ($57.1 million) in cash held on the
balance sheet, and costs associated with the establishment and
funding of the ABN 60 Foundation. Also see “Legal
Proceedings” and Notes 12 and 14 to our consolidated
financial statements included below in Item 18.
Under the terms of a Deed of Covenant, Indemnity and Access
entered into by JHI NV and ABN 60 at or around this time, the
ABN 60 Foundation was established, JHI NV agreed to indemnify
ABN 60 for any
40
non asbestos-related legal claims made on ABN 60 in relation to
any acts or omissions of ABN 60 or its directors and officers,
which occurred prior to the transfer of ABN 60 to the ABN 60
Foundation. The indemnity is uncapped and the term of the
indemnity is in perpetuity. We believe that the likelihood of
any material non asbestos-related claims occurring which would
result in a call on this indemnity is remote. As such, we have
not recorded a liability for the indemnity. We have not pledged
any assets as collateral for such indemnity.
Also under the terms of that Deed of Covenant, Indemnity and
Access, Amaca, Amaba and ABN 60 agreed to indemnify JHI NV and
its related corporate entities for past and future
asbestos-related liabilities incurred by them as a result of the
acts or omissions of ABN 60 prior to establishing the ABN 60
Foundation. Amaca and Amaba provided similar indemnities under
the Deed of Covenant and Indemnity entered into with ABN 60,
which included indemnities in favor of JHI NV and its related
entities. Amaca, Amaba and ABN 60’s obligation to indemnify
JHI NV and its related entities includes asbestos-related claims
that may arise associated with the manufacturing activities of
those companies.
Our liability under or in connection with the indemnities
described above may potentially be mitigated or otherwise
affected by the releases from civil liability described below
under the heading “Releases from Civil Liability.”
However, we have taken the view to date that such legislation
does not ameliorate our liability with respect to those
indemnities.
Property, Plant and Equipment
Over the past several years, we have built significant
production capacity in the United States in an effort to ensure
that we will be able to meet expected increases in demand for
our products and improve our operating efficiencies. As part of
our facilities investment strategy, we have constructed a plant
for flat sheet and trim products in Illinois and upgraded and
expanded our existing plants in Illinois, Texas, California and
Pennsylvania. In addition, we entered into a long-term lease
arrangement in fiscal year 2001 for our Waxahachie, Texas plant
and upgraded the existing first line, replaced the existing
second line and completed construction on a new panel production
line at this fiber cement plant in fiscal years 2001, 2002 and
2004, respectively. In fiscal year 2002, we also acquired the
operating assets of Cemplank, Inc., which included a fiber
cement plant at Blandon, Pennsylvania and a fiber cement plant
at Summerville, South Carolina, and, in fiscal year 2003, we
purchased the property on which these plants are located. In
fiscal year 2004, we completed upgrades to our Blandon,
Pennsylvania plant. In addition, we started construction on our
new green-field plant in Reno, Nevada in fiscal year 2004 and
our new trim line at our Peru, Illinois plant. In fiscal year
2005, we completed our ninth plant in Reno, Nevada and began
pre-production at our new trim line in Peru, Illinois. In
addition, in March 2005 we began building our tenth USA Fiber
Cement manufacturing plant, located in Pulaski, Virginia. The
Pulaski plant will feature two manufacturing lines, each with an
annual design capacity of 300 million square feet. At the
end of fiscal year 2006, we completed construction of one of the
two planned production lines at the Pulaski plant, and in April
2006 this line commenced commercial production. At the end of
fiscal year 2006, we also completed construction of, and
commenced production on, a new
ColorPlus®
product line at our Blandon, Pennsylvania plant.
Our management estimates that our ten manufacturing plants are
among the largest and lowest cost fiber cement manufacturing
plants in the United States. Once our manufacturing plant in
Pulaski, Virginia is completely constructed, it will be our
largest fiber cement manufacturing plant in the world. Our
management believes that the location of our plants in
California, Texas, Florida, Illinois, Washington, Pennsylvania,
South Carolina, Nevada and Virginia positions us near high
growth markets in the United States while minimizing our
transportation costs for product distribution and raw material
sourcing.
In fiscal year 2002, we closed our fiber cement plant in Western
Australia and have been meeting demand from our remaining
facilities. The remaining plants in Australia have also been
upgraded over recent years to improve output and productivity.
In fiscal years 2006 and 2004, A$4.6 million ($3.5
million) and A$3.2 million ($2.2 million),
respectively, was spent to upgrade the fiber cement
manufacturing plant at Rosehill in Sydney. The purpose of the
upgrade at our Rosehill plant in fiscal year 2006 was to improve
production line efficiencies in order to increase productivity
and cost savings. In addition, we spent
41
A$2.6 ($1.8 million) in fiscal year 2004 at our
Brisbane plant to install a coating facility. We believe that
the facility has added value to our basic product range.
In New Zealand, our fiber cement production line was upgraded in
fiscal year 2001 at a cost of NZ$1 million
($1 million). The upgrades have enabled this plant to
produce new siding and internal lining fiber cement products.
Also during fiscal year 2006, we undertook an initiative to
locally manufacture low density products (currently all of our
manufacturing in this area is conducted in New Zealand) and, in
doing so, we incurred costs of A$0.7 million
($0.5 million) during fiscal year 2006 and an additional
A$0.7 million ($0.5 million) during the first quarter
of fiscal year 2007. We undertook this project to reduce
associated freighting costs and better service the local growing
market for our products in Queensland. This project was
completed in June 2006 and its first commercial run of product
occurred in July 2006.
In March 2001, our fiber reinforced concrete pipe plant at Plant
City, Florida commenced operations. Built at a total cost of
$33.7 million, the plant produces drainage pipes and has an
annual production capacity of 100,000 tons.
Our manufacturing plants use significant amounts of water which,
after internal recycling and reuse, are eventually discharged to
publicly owned treatment works (with the exception of our
Blandon, Pennsylvania and Summerville, South Carolina
facilities, which maintain a closed loop system). The discharge
of process water is monitored by us, as well as by regulators.
In addition, we are subject to regulations that govern the air
quality and emissions from our plants. In the past, from time to
time, we have received reports of discharges in excess of our
water and air permit limits. In each case, we have addressed the
concerns raised in those notices.
42
We manufacture fiber cement products in the United States,
Australia, New Zealand and the Philippines. The location of each
of our fiber cement plants and the annual design capacity for
such plants are set forth below:
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Committed | |
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|
Existing | |
|
Additional | |
|
Total | |
| |
|
Annual Design | |
|
Design | |
|
Planned Design | |
| Location |
|
Capacity(1) | |
|
Capacity(1) | |
|
Capacity(1) | |
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|
Fiber Cement Flat Sheet (in million square feet)
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United States
|
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| |
|
Fontana, California
|
|
|
180 |
|
|
|
— |
|
|
|
180 |
|
| |
|
Plant City, Florida
|
|
|
300 |
|
|
|
— |
|
|
|
300 |
|
| |
|
Cleburne, Texas
|
|
|
500 |
|
|
|
— |
|
|
|
500 |
|
| |
|
Tacoma, Washington
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
| |
|
Peru, Illinois
|
|
|
560 |
|
|
|
— |
|
|
|
560 |
|
| |
|
Waxahachie, Texas
|
|
|
360 |
|
|
|
— |
|
|
|
360 |
|
| |
|
Blandon, Pennsylvania
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
| |
|
Summerville, South Carolina
|
|
|
190 |
|
|
|
— |
|
|
|
190 |
|
| |
|
Reno, Nevada
|
|
|
300 |
|
|
|
— |
|
|
|
300 |
|
| |
|
Pulaski, Virginia(2)
|
|
|
300 |
|
|
|
300 |
|
|
|
600 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total United States
|
|
|
3,090 |
|
|
|
|
|
|
|
3,390 |
|
| |
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Sydney, New South Wales(3)
|
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
| |
|
Brisbane, Queensland (Carole Park)(3)(4)
|
|
|
160 |
|
|
|
— |
|
|
|
160 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Australia
|
|
|
360 |
|
|
|
|
|
|
|
360 |
|
| |
New Zealand
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Auckland(3)
|
|
|
75 |
|
|
|
— |
|
|
|
75 |
|
| |
The Philippines
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Manila
|
|
|
145 |
|
|
|
— |
|
|
|
145 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Fiber Cement Flat Sheet
|
|
|
3,670 |
|
|
|
|
|
|
|
3,970 |
|
|
Fiber Reinforced Concrete Pipes (in tons)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plant City, Florida (pipes)
|
|
|
100,000 |
|
|
|
— |
|
|
|
100,000 |
|
| |
Brisbane, Queensland (Meeandah)(3)(4)
|
|
|
50,000 |
|
|
|
— |
|
|
|
50,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Fiber Reinforced Concrete Pipes
|
|
|
150,000 |
|
|
|
|
|
|
|
150,000 |
|
|
|
| (1) |
Annual design capacity is based on management’s historical
experience with our production process and is calculated
assuming continuous operation, 24 hours per day, seven days
per week, producing 5/16” thickness siding at a target
operating speed. Plants outside the United States produce a
range of thicker products, which negatively affect their
outputs. Actual production is affected by factors such as
product mix, batch size, plant availability and production
speeds and is usually less than annual design capacity. |
| |
| (2) |
Our plant in Pulaski, Virginia will feature two manufacturing
lines with a total annual design capacity of 600 million
square feet (300 million per line). Currently only one line
is complete. |
| |
| (3) |
Prior to March 2004, the land and buildings on which these
facilities are located were leased on a long-term basis from
Amaca Pty Limited. In March 2004, various subsidiaries of
Multiplex Property Trust (which we collectively refer to as
Multiplex) an unrelated third party, acquired the land and
buildings related to these four fiber cement manufacturing
facilities from Amaca. Prior to July 2005, the land and |
43
|
|
|
buildings on which these facilities are located was leased on a
long-term basis from Multiplex. In July 2005, unrelated third
parties, Penrose Land Trustee No. 1 Limited and Penrose
Land Trustee No. 2 Limited (which we collectively refer to
as the Penrose Land Trust) acquired from Multiplex the land and
buildings related to our fiber cement manufacturing facilities
in Auckland. |
| |
| (4) |
There are two manufacturing plants in Brisbane. Carole Park
produces only flat sheets and Meeandah produces only pipes and
columns. |
| |
| (5) |
Pipe and column capacity is measured in tons rather than million
square feet. |
While the same basic process is used to manufacture fiber cement
products at each facility, plants are designed to produce the
appropriate mix of products to meet each market’s specific,
projected needs. Many of our manufacturing facilities have been
either newly constructed or substantially modernized and
upgraded in the past five years. The facilities were constructed
so production can be efficiently adjusted in response to
increased consumer demand by increasing production capacity
utilization, enhancing the economies of scale or adding
additional lines to existing facilities, or making corresponding
reductions in production capacity in response to weaker demand.
Except for the Waxahachie, Texas plant, we own all of our fiber
cement sites and plants located in the United States. The lease
for the Waxahachie, Texas site and plant expires on
March 31, 2020, at which time we have an option to purchase
the plant. Pursuant to the lease, we make quarterly base rental
payments of $850,000. In 1998, we entered into lease agreements
with a former subsidiary, now owned by the Foundation, for all
of our fiber cement sites located in Australia. In March 2004,
Multiplex acquired the land and buildings related to the four
fiber cement manufacturing facilities from the Foundation. Prior
to that acquisition, we renegotiated the four leases with
Multiplex. Upon completion of the acquisition and subsequent
transfer of title to Multiplex, Multiplex assumed the
responsibility of landlord under each of the amended leases. In
addition, in March 2004, we entered into a lease agreement with
Multiplex for our fiber cement site located in New Zealand. In
July 2005, the Penrose Land Trust acquired the land and
buildings related to the fiber cement manufacturing facilities
in New Zealand from Multiplex and we now make lease payments
related to this site to the Penrose Land Trust, as landlord
under the lease. We own our pipe plant in the United States. In
addition, we own 40% of the land on which our Philippines fiber
cement plant is located, and 100% of the Philippines plant
itself.
For fiscal year 2006, average capacity utilization for our fiber
cement plants by country was approximately as follows:
| |
|
|
|
|
| |
|
Capacity | |
| Country |
|
Utilization(1) | |
| |
|
| |
|
United States
|
|
|
84 |
% |
|
Australia
|
|
|
56 |
% |
|
New Zealand
|
|
|
75 |
% |
|
Philippines
|
|
|
82 |
% |
|
|
| (1) |
Capacity utilization is based on design capacity. Design
capacity is based on management’s estimates, as described
above. No accepted industry standard exists for the calculation
of fiber cement manufacturing facility capacities. |
The capital cost per unit of production for new plants has
significantly declined since we opened our first U.S. plant
in Fontana, California in 1989. This improvement is largely
attributable to our utilization of proprietary technology.
Management believes that our capital cost per unit of capacity
is substantially lower than that of many of our
competitors’ plants. In addition, we can now build and
commission new manufacturing plants significantly faster than
when we built our first production line in the United States.
Management believes that the speed and cost at which we can
construct new plants relative to our competitors enable us to
respond rapidly to emerging regional demand for fiber cement
products and to gain the advantage accorded to the first local
producer in a market.
44
We own a quartz mine in Fontana, California and lease a quartz
mine in Tacoma, Washington. Our five-year lease for the mine in
Tacoma, Washington expired on February 28, 2006, at which
time we exercised our option to renew the lease for an
additional four years. We pay production royalties to the owner
based on silica tonnage removed from the mine. Because other
cost effective sources of sand are not available at these
locations, we operate these quartz mines and process the rock to
obtain silica for our fiber cement products.
Legal Proceedings
Our operations, like those of other companies engaged in similar
businesses, are subject to a number of federal, state and local
laws and regulations on air and water quality, waste handling
and disposal. Our policy is to accrue for environmental costs
when it is determined that it is probable that an obligation
exists and the amount can be reasonably estimated. In the
opinion of management, based on information presently known,
except as set forth below, the ultimate liability for such
matters should not have a material adverse effect on either the
Company’s consolidated financial position, results of
operations or cash flows.
The Company is involved from time to time in various legal
proceedings and administrative actions incidental or related to
the normal conduct of business. Although it is impossible to
predict the outcome of any pending legal proceeding, our
management believes that such proceedings and actions should
not, except as it relates to asbestos as described below,
individually or in the aggregate, have a material adverse effect
on either our consolidated financial position, results of
operations or cash flows. See also Item 3, “Key
Information — Risk Factors.”
|
|
|
Commitment to Provide Funding on a Long-Term Basis in
Respect of Asbestos-Related Liabilities of Former
Subsidiaries |
On December 1, 2005, the Company announced that it, the NSW
Government and a wholly owned Australian subsidiary of the
Company, James Hardie 117 Pty Ltd, which we refer to as the
Performing Subsidiary, had entered into a conditional agreement,
called the Final Funding Agreement, to provide long-term funding
to a special purpose fund, or SPF, that will provide
compensation for Australian asbestos-related personal injury
claims against certain former James Hardie companies (being
Amaca Pty Ltd (which we refer to as Amaca), Amaba Pty Ltd (which
we refer to as Amaba), and ABN 60 000 009 263 Pty Ltd, (which we
refer to as ABN 60), which we collectively refer to as the
Former James Hardie Companies).
Key events occurring since 2001 that led to the signing of the
Final Funding Agreement are summarized further below.
The Final Funding Agreement remains subject to a number of
conditions precedent, including the receipt of an independent
expert’s report confirming that the funding proposal is in
the best interests of the Company and its enterprise as a whole,
approval of the Company’s shareholders and lenders and
confirmation satisfactory to the Company’s Board of
Directors, acting reasonably, that the contributions to be made
by JHI NV and the Performing Subsidiary under the Final
Funding Agreement will be tax deductible and the SPF will be
exempt from Australian federal income tax on its income (or that
alternative arrangements will exist which are satisfactory to
the Company’s Board of Directors).
In summary, the Final Funding Agreement provides for the
following key steps to occur if the conditions precedent to that
agreement are satisfied or waived in writing by the parties:
|
|
|
| |
• |
the establishment of the SPF to provide compensation to
Australian asbestos-related personal injury claimants with
proven claims against the Former James Hardie Companies; |
| |
| |
• |
initial funding of approximately A$154 million provided by
the Performing Subsidiary to the SPF, calculated on the basis of
an actuarial report prepared by KPMG Actuaries Pty Ltd, or KPMG
Actuaries, as of March 31, 2006. That report provided an
estimate of the discounted net present value of all present and
future Australian asbestos-related personal injury claims
against the Former James |
45
|
|
|
| |
|
Hardie Companies of A$1.52 billion ($1.14 billion). |
| |
| |
• |
subject to the cap described below, an annual contribution in
advance to top up the funds in the SPF to equal the actuarially
calculated estimate of expected Australian asbestos-related
personal injury claims against the Former James Hardie Companies
for the following three years, to be revised annually (so as to
create a rolling cash “buffer” in the SPF); |
| |
| |
• |
a cap on the annual payments made by the Performing Subsidiary
to the SPF, initially set at 35% of the Company’s free cash
flow (defined as cash from operations in accordance with
U.S. GAAP in force at the date of the Final Funding
Agreement) for the immediately preceding financial year, with
provisions for the percentage to decline over time depending
upon the Company’s financial performance (and therefore the
contributions already made to the SPF) and the claims outlook; |
| |
| |
• |
an initial term of approximately 40 years, at the end of
which time the parties may either agree upon a final payment to
be made by the Company in satisfaction of any further funding
obligations, or have the term automatically extended for further
periods of 10 years until such agreement is reached or the
relevant asbestos-related liabilities cease to arise; |
| |
| |
• |
the entry by the parties and/or others into agreements ancillary
to or connected with the Final Funding Agreement, which we
collectively refer to as the Related Agreements; |
| |
| |
• |
no cap on individual payments to asbestos claimants; |
| |
| |
• |
the Performing Subsidiary’s payment obligations are
guaranteed by JHI NV; |
| |
| |
• |
the SPF’s claims to the funding payments required under the
Final Funding Agreement will be subordinated to the claims of
the Company’s lenders; and |
| |
| |
• |
the compensation arrangements will extend to members of the
Baryulgil community for asbestos-related claims arising from the
activities of a former subsidiary of ABN 60, as described below. |
The parties to the Final Funding Agreement are in discussions
and negotiations as to how the remaining conditions precedent
(and most notably, the condition precedent that the SPF must be
tax exempt) may be satisfied, amended or otherwise dealt with in
a manner satisfactory to those parties. As part of those
discussions, it is likely that the agreed amount set out in the
Final Funding Agreement as the initial funding payment will be
recalculated, so as to take into account updated claims data and
the effect of delays in implementing the Final Funding Agreement.
In addition to entering into the Final Funding Agreement, one or
more of the Company, the Performing Subsidiary, the SPF and the
NSW Government have entered into a number of agreements
ancillary to or connected with the Final Funding Agreement,
which we collectively refer to as the Related Agreements,
including a trust deed (for a trust known as the Asbestos
Injuries Compensation Fund), which we refer to as the
Trust Deed, for the establishment of the SPF; a deed of
guarantee under which JHI NV provides the guarantee described
above; intercreditor deeds to achieve the subordination
arrangements described above; and deeds of release in connection
with the releases from civil liability described below.
The Company considers that the principal outstanding conditions
to be fulfilled before the Final Funding Agreement becomes
effective are those relating to the tax exempt status of the SPF
and approval of the Final Funding Agreement by the
Company’s shareholders.
In relation to the approval of the Final Funding Agreement by
the Company’s shareholders, we have undertaken significant
work towards preparing the necessary documentation to be sent to
shareholders, but at present we are unable to specify a date for
holding the relevant meeting. The Company considers that it can
only properly put the proposal to shareholders once the tax
issues described above have been resolved, since, as further
described below, such issues materially affect the affordability
of the proposal which shareholders will be asked to approve.
46
The Company’s ability to obtain a tax deduction has been
confirmed by the ATO in a form binding on the Commissioner for
the term of the Final Funding Agreement. The private ruling
issued by the ATO provides deductibility over a five-year period
from the date of contribution, whereas the condition precedent
in the Final Funding Agreement provides for deductibility of
contributions in the year incurred. The Company has indicated to
the NSW Government that it is prepared to accept this basis of
deductibility of the funding payments, if the tax condition
relating to the tax exempt status of the SPF can be
satisfactorily resolved. However, the ruling in relation to
deductibility of contributions does not affect the status of the
second tax condition applicable under the Final Funding
Agreement (namely that the SPF is tax exempt), which remains
unfulfilled. The ATO has in fact issued a notice to the SPF of
refusal to endorse the SPF as being tax exempt on the basis that
it is a charity. The SPF and the Company have received strong
legal advice, including from some of Australia’s leading
counsel, that the SPF satisfies the requirements applicable
under income tax legislation such that the ATO should endorse
the SPF as a charity. At present the SPF and the Company are in
further discussions with the ATO seeking to resolve the
unsatisfied tax exemption condition precedent. The Company is
also in discussions and negotiations with the NSW Government in
relation to this condition and the means by which it could be
fulfilled, amended or otherwise dealt with in a manner
satisfactory to the parties to the Final Funding Agreement. The
result of those discussions may be that the tax exemption
condition is confirmed, or that it is amended in a manner which
is agreed by the parties to the Final Funding Agreement to
achieve the objectives set out in the Heads of Agreement
described below.
The recording of the asbestos provision is in accordance with
U.S. accounting standards because it is probable that we
will make payments to fund asbestos-related claims on a
long-term basis. The amount of the asbestos provision of
$742.8 million (A$1.0 billion) at June 30, 2006
is our best estimate of the probable outcome. This estimate is
based on the terms of the Final Funding Agreement, which
includes an actuarial estimate prepared by KPMG Actuaries as of
March 31, 2006 of the projected future cash outflows,
undiscounted and uninflated.
If the conditions precedent to the Final Funding Agreement, such
as the tax exempt status for the SPF, are not met, we may seek
to enter into an alternative arrangement under which we would
make payments for the benefit of asbestos claimants. Under
alternative arrangements, the estimate may change.
Even if conditions to our funding obligations under the Final
Funding Agreement, including the achievement of tax exempt
status of the SPF, are not fulfilled, we have determined that it
is nevertheless likely that we will make payments in respect of
certain claimants who were injured by asbestos products
manufactured by certain former Australian subsidiary companies.
Our Joint Board has made it clear that, in a manner consistent
with its obligations to shareholders and other stakeholders in
the Company, it intends to proceed with fair and equitable
actions to provide funding which can be applied towards
compensating the injured parties. Any such alternative
settlement may be subject to conditions precedent and would
require lender and shareholder approval. However, if we proceed
with an alternative settlement without the assurance of tax
exempt status for the SPF, it is likely, as a function of
economic reality, that we will have less funds to support
payments in respect of asbestos claims. While we continue to
hope that the conditions precedent to the Final Funding
Agreement will be fulfilled, we have determined that our
intention to continue to proceed responsibly in either event
makes it appropriate for us to record the asbestos provision in
the amounts set forth in the consolidated financial statements.
|
|
|
Key Events During and Since 2001 Leading to the Signing of
the Final Funding Agreement |
|
|
|
Separation of Amaca Pty Ltd, Amaba Pty Ltd and ABN
60 |
In February 2001, ABN 60, formerly known as James Hardie
Industries Limited, or JHIL, established the Medical Research
and Compensation Foundation, which we refer to as the
Foundation, by gifting A$3.0 million ($1.7 million) in
cash and transferring ownership of Amaca and Amaba to the
Foundation. The Foundation is a special purpose charitable
foundation established to fund medical and scientific research
into asbestos-related diseases. Amaca and Amaba were Australian
companies which had manufactured and marketed asbestos-related
products up to 1987.
47
The Foundation is managed by independent trustees and operates
entirely independently of the Company and its current
subsidiaries. The Company does not control (directly or
indirectly) the activities of the Foundation in any way and,
effective from February 16, 2001, has not owned or
controlled (directly or indirectly) the activities of Amaca or
Amaba. In particular, the trustees of the Foundation are
responsible for the effective management of claims against Amaca
and Amaba, and for the investment of Amaca’s and
Amaba’s assets. Other than the offers to provide interim
funding to the Foundation and the indemnity to the directors of
ABN 60 as described below, the Company has no direct legally
binding commitment to or interest in the Foundation, Amaca or
Amaba, and it has no right to dividends or capital distributions
made by the Foundation. None of the Foundation, Amaca, Amaba or
ABN 60 are parties to the Final Funding Agreement described
above, and none of those entities have obtained any directly
enforceable rights under that agreement or the related
agreements contemplated under that agreement.
On or about February 15, 2001, ABN 60, Amaca and Amaba
entered into a Deed of Covenant and Indemnity which provided
that, apart from ABN 60’s limited financial obligations to
Amaba and Amaca under the deed, ABN 60 had no further
obligations to Amaca or Amaba in connection with their
asbestos-related liabilities, and that ABN 60 was indemnified by
those entities in the event that ABN 60 incurred or suffered any
such liabilities. At all times, including at the time of the
establishment of the ABN 60 Foundation, ABN 60 had assets
available or was provided with funds to invest so as to be able
to meet those obligations.
On March 31, 2003, the Company transferred control of ABN
60 to a newly established company named ABN 60 Foundation Pty
Ltd, which we refer to as the ABN 60 Foundation. ABN 60
Foundation was established to be the sole shareholder of ABN 60.
Following the establishment of the ABN 60 Foundation and
transfer of shares in ABN 60 to the ABN 60 Foundation, the
Company no longer owned any shares in ABN 60. ABN 60 Foundation
is managed by independent directors and operates entirely
independently of the Company. Since that date, the Company has
not and currently does not control the activities of ABN 60 or
ABN 60 Foundation in any way, it has no economic interest in ABN
60 or ABN 60 Foundation, and it has no right to dividends or
capital distributions made by the ABN 60 Foundation.
Under the Final Funding Agreement and under legislation
associated with that agreement described below, it is
contemplated that following the establishment of the SPF and as
part of the satisfaction of the conditions precedent to the
Final Funding Agreement, the Company will, subject to limited
exceptions, be entitled to appoint a majority of directors on
the board of directors of the SPF, which will in turn be
empowered under that legislation to issue certain specified
directions to the boards of directors of the Former James Hardie
Companies. That legislation also imposes statutory obligations
upon the Former James Hardie Companies to comply with such
directions, and the NSW Government may require the directors of
the trustees of the Foundation and of the ABN 60 Foundation to
resign pursuant to powers granted under the James Hardie
Former Subsidiaries (Special Provisions) Act 2005.
|
|
|
Potential for Claims Against the Former James Hardie
Companies to be Made Against the Company |
Up to the date of the establishment of the Foundation, Amaca and
Amaba incurred costs of asbestos-related litigation and
settlements. From time to time, ABN 60 was joined as a party to
asbestos suits which were primarily directed at Amaca and Amaba.
Because Amaca, Amaba and ABN 60 were not or have not been a part
of the Company since the time of establishment of the Foundation
and the ABN 60 Foundation, no provision for asbestos-related
claims was established in the Company’s consolidated
condensed financial statements prior to March 31, 2006.
The Final Funding Agreement does not confer upon the Former
James Hardie Companies any directly enforceable rights against
the Company in respect of the funding obligations. Similarly,
the Final Funding Agreement does not create any directly
enforceable rights in favor of any persons who may have personal
injury claims against the Former James Hardie Companies and that
agreement does not seek to make the Company or any current
member of the James Hardie Group directly liable for damages for
personal injury or death in connection with the former
manufacture or sale of asbestos products by Amaca, Amaba or ABN
60.
48
The funding obligations of the Performing Subsidiary and the
Company to the SPF will be enforceable by the SPF and, in
certain circumstances, directly by the NSW Government.
Apart from the funding obligations arising under the Final
Funding Agreement, it is possible that the Company could become
subject to suits for damages for personal injury or death in
connection with the former manufacture or sale of asbestos
products that have been or may be filed against Amaca, Amaba or
ABN 60. However, as described further below, the ability of any
claimants to initiate or pursue such suits is restricted by
legislation enacted by the NSW Government pursuant to the Final
Funding Agreement. Although it is difficult to predict the
incidence or outcome of future litigation, and thus no
assurances as to such incidence or outcome can be given, the
Company believes that, in the absence of new legislation or a
change in jurisprudence as adopted in prior case law before the
NSW Supreme Court and Federal High Court, as more fully
described below, the Company’s liability with respect to
such suits if such suits could be successfully asserted directly
against the Company is not probable and estimable at this time.
This belief is based on the following factors: following the
transfers of Amaca and Amaba to the Foundation and of ABN 60 to
the ABN 60 Foundation, none of those companies has been
part of the Company and while those companies are proposed to
become subsidiaries of the SPF as part of the steps to implement
the Final Funding Agreement, neither the SPF nor the Company
will thereby assume the liabilities of the Former James Hardie
Companies under Australian law; the separateness of corporate
entities under Australian law; the limited circumstances in
which “piercing the corporate veil” might occur under
Australian and Dutch law; the absence of an equivalent under
Australian common law of the U.S. legal doctrine of
“successor liability;” the effect of the James
Hardie (Civil Liability) Act 2005 and the James Hardie
(Civil Penalty Compensation Release) Act 2005 as described
further below; and the belief that the principle applicable
under Dutch law, to the effect that transferees of assets may be
held liable for the transferor’s liabilities when they
acquire assets at a price that leaves the transferor with
insufficient assets to meet claims, is not triggered by the
transfers of Amaca, Amaba and ABN 60, the restructure of the
Company in 2001, or previous group transactions. The courts in
Australia have generally refused to hold parent entities
responsible for the liabilities of their subsidiaries absent any
finding of fraud, agency, direct operational responsibility or
the like. However, if suits are made possible and/or
successfully brought, they could have a material adverse effect
on the Company’s business, results of operations or
financial condition.
In New Zealand, where RCI Holdings Pty Ltd owns a subsidiary
that formerly manufactured asbestos-containing products, claims
have been made against the statutory fund established under New
Zealand’s accident compensation regime (rather than against
the subsidiary). The relevant legislation at present is the
Injury Prevention, Rehabilitation and Compensation Act 2001
(NZ). Where there is cover under this legislation, claims
for compensatory damages are barred. Although claims not barred
by the legislation could still be brought in some circumstances,
any such claims are not currently estimable.
During the period ended March 31, 2006, the Company has not
been a party to any material asbestos litigation and has not
made any settlement payments in relation to any such litigation.
Under U.S. laws, the doctrine of “successor
liability” provides that an acquirer of the assets of a
business can, in certain jurisdictions and under certain
circumstances, be held responsible for liabilities arising from
the conduct of that business prior to the acquisition,
notwithstanding the absence of a contractual arrangement between
the acquirer and the seller pursuant to which the acquirer
agreed to assume such liabilities.
The general principle under Australian law is that, in the
absence of a contractual agreement to transfer specified
liabilities of a business, and where there is no fraudulent
conduct, the liabilities remain with the corporation that
previously carried on the business and are not passed on to the
acquirer of assets. Prior to March 2004, the Company leased
manufacturing sites from Amaca, a former subsidiary that is now
owned and controlled by the Foundation. In addition, the Company
purchased certain plant and equipment and inventory from Amaca
at fair value in connection with the first phase of the
Company’s restructuring. Each of these transactions
involved only Australian companies and, accordingly, the Company
believes the transactions are governed by Australian laws and
not the laws of any other jurisdiction. The Company does not
believe these transactions should give rise to the assumption by
the Company of any asbestos-related liabilities
49
(tortious or otherwise) under Australian law that may have been
incurred during the period prior to the transfer of the assets.
Under Dutch law, a Dutch transferee of assets may be held
responsible for the liabilities of the transferor following a
transfer of assets if the transfer results in the transferor
having insufficient assets to meet the claims of its creditors
or if the transfer otherwise jeopardizes the position of the
creditors of the transferor. The Company believes the transfer
by ABN 60 of all of the shares of James Hardie N.V., or JH NV,
to JHI NV in the 2001 Restructuring will not result in the
Company being held responsible as transferee under this rule
because, upon the transfer and the implementation of the other
aspects of the 2001 Restructuring, ABN 60 had the same financial
resources to meet the claims of its creditors as it had prior to
the transfer.
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|
Special Commission of Inquiry |
On October 29, 2003, the Foundation issued a press release
stating that its “most recent actuarial analysis estimates
that the compensation bill for the organization could reach one
billion Australian dollars in addition to those funds already
paid out to claimants since the Foundation was formed and that
existing funding could be exhausted within five years.” In
February 2004, the NSW Government established a Special
Commission of Inquiry, or SCI, to investigate, among other
matters described below, the circumstances in which the
Foundation was established. The SCI was instructed to determine
the current financial position of the Foundation and whether it
would be likely to meet its future asbestos-related claims in
the medium to long-term. It was also instructed to report on the
circumstances in which the Foundation was separated from ABN 60
and whether this may have resulted in or contributed to a
possible insufficiency of assets to meet future asbestos-related
liabilities, and the circumstances in which any corporate
restructure or asset transfers occurred within or in relation to
the James Hardie Group prior to the funding of the Foundation to
the extent that this may have affected the Foundation’s
ability to meet its current and future liabilities. The SCI was
also instructed to report on the adequacy of current
arrangements available to the Foundation under the Corporations
Act of Australia to assist the Foundation in managing its
liabilities and whether reform was desirable in order to assist
the Foundation in managing its obligations to current and future
claimants.
On July 14, 2004, following the receipt of a new actuarial
estimate of asbestos liabilities of the Foundation by KPMG
Actuaries, the Company lodged a submission with the SCI stating
that the Company would recommend to its shareholders that they
approve the provision of an unspecified amount of additional
funding to enable an effective statute-based scheme to
compensate all future claimants for asbestos-related injuries
for which Amaca and Amaba may become liable. The Company
proposed that the statutory scheme include the following
elements:
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• |
speedy, fair and equitable compensation for all existing and
future claimants, including objective criteria to reduce
superimposed inflation. Superimposed inflation is inflation in
claim awards above the underlying rate of inflation and is
sometimes called judicial inflation; |
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| |
• |
contributions to be made in a manner which provide certainty to
claimants as to their entitlement, the scheme administrator as
to the amount available for distribution, and the proposed
contributors (including the Company) as to the ultimate amount
of their contributions; |
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• |
significant reductions in legal costs through reduced and more
abbreviated litigation; and |
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• |
limitation of legal avenues outside of the scheme. |
The submission stated that the proposal was made without any
admission of liability or prejudice to the Company’s rights
or defenses.
The SCI issued its report on September 21, 2004. The
following is a summary of the principal findings of the SCI
relating to the Company based on the SCI’s report and other
information available to the Company. This summary does not
contain all of the findings contained or observations made in
the SCI report. It should be noted that the SCI is not a court
and, therefore, its findings have no legal force.
50
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Principal Findings in Favor of the Company |
The principal findings in favor of the Company were that:
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• |
the establishment of the Foundation was legally effective and
causes of action which the Foundation, Amaba or Amaca might have
against the James Hardie Group, its officers and advisers would
be unlikely to result in any significant increase in the funds
of Amaba, Amaca or the Foundation (putting this finding
conversely, the Company is unlikely to face any significant
liability to the Foundation, Amaba or Amaba as a result of the
then current causes of action of such entities against the
current members of the James Hardie Group); |
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• |
there was no finding that JHI NV had committed any material
breach of any law as a result of the separation and
reorganization transactions which took place in 2001; |
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• |
many of the allegations and causes of action put forward by
lawyers for the Foundation, Amaba and Amaca were
“speculative;” and |
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• |
the SCI rejected the suggestion that JHI NV had engaged in
misleading or deceptive conduct or attempted to pervert the
course of justice or obtained court orders by fraud in relation
to the 2001 Reorganization due to the fact that neither the
reorganization scheme documents prepared in 2001 nor the
submissions or materials presented to the court for the 2001
Reorganization referred to the possibility of the partly-paid
shares being cancelled (the shares were cancelled in 2003). |
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Other Principal Findings Relevant to the Company |
The other principal findings relevant to the Company were that:
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• |
as a practical (but not legal) matter, if the “right”
amount (and not merely the minimum amount) of funding was not
provided to the Foundation, the Company would face potential
legislative, customer, union and public action to apply
legislative and boycott measures and public pressure to ensure
that the Company met any significant funding shortfall; and |
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• |
the directors of ABN 60 at the time of the cancellation of the
partly-paid shares (Messrs. Morley and Salter) effectively
followed the instructions of JHI NV in relation to the
cancellation. As a result, it might be concluded that JHI NV was
a shadow director of ABN 60 at that time. However, while
expressing some reservations about what occurred, the SCI did
not find that the ABN 60 directors (including JHI NV as a
shadow director) breached their duties in undertaking the
cancellation. |
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Principal Findings Against ABN 60 (formerly called
JHIL) |
A number of further findings (positive and adverse) were also
made in relation to ABN 60, which is not a current member of the
James Hardie Group. Such findings were not directed against the
Company. For the reasons provided above in this section
“Legal Proceedings,” the Company does not believe that
it will have any liability under current Australian law if
future liabilities of ABN 60 or ABN 60 Foundation exceed the
funds available to those entities. This includes liabilities
that may attach to ABN 60 or ABN 60 Foundation as a result of
claims made, if successful, in connection with the transactions
involved in the establishment of the ABN 60 Foundation and the
separation of ABN 60 from the Company.
The SCI found that, given ABN 60’s limited financial
resources, ABN 60 would need to be able to succeed in making a
claim against JHI NV in respect of the cancellation of the
partly-paid shares before claims by Amaba or Amaca against ABN
60 had any practical value. Although expressing reservations
about what occurred, the SCI did not find that the directors of
ABN 60 had breached their duty in canceling the partly-paid
shares.
The SCI did not make any finding that any cause of action by ABN
60 with respect to the partly-paid shares was likely to succeed.
51
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Principal Findings Against Mr. Macdonald and
Mr. Shafron |
The principal (but non-determinative) findings against
Messrs. Macdonald and Shafron pertained to their conduct
while officers of ABN 60 in relation to:
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• |
alleged false and misleading conduct associated with a
February 16, 2001 press release, particularly regarding a
statement that the Foundation was “fully funded” in
contravention of New South Wales and Commonwealth legislation
prohibiting false or misleading conduct; |
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• |
allegedly breaching their duties as officers of ABN 60 by
encouraging the board of directors of ABN 60 to act on the
Trowbridge report, dated February 13, 2001 (which we refer
to as the Trowbridge Report), in forming a view that the
Foundation would be “fully funded”; and |
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• |
criticisms, falling short of findings of contraventions of law,
based on their respective roles in the separation and
reorganization transactions. These included criticisms relating
to their development, control over, reliance on and use of the
Trowbridge Report, despite (in the SCI’s view) their
knowledge of its limitations. |
The Commissioner noted that he had not carried out an exhaustive
investigation and concluded that it was a matter for
Commonwealth authorities (notably the Australian Securities and
Investments Commission, or ASIC) to determine whether any
further action should be taken in relation to matters which the
Commissioner considered, comprised or might be likely to have
comprised, contraventions of Australian corporations law. The
Commissioner acknowledged that in relation to various of his
findings, there was an issue as to whether Amaba or Amaca
suffered any loss or damage from the actions reviewed by him but
in this regard he did not find it necessary to reach any
definitive conclusion.
The SCI’s findings are not binding and if the same issues
were presented to a court, the court might come to different
conclusions on one or more of the issues.
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Findings Relating to Funding Shortfall |
In relation to the question of the funding of the Foundation,
the SCI found that there was a significant funding shortfall. In
part, this was based on actuarial work commissioned by the
Company indicating that the discounted value of the central
estimate of the asbestos liabilities of Amaca and Amaba was
approximately A$1.573 billion as of June 30, 2003. The
central estimate was calculated in accordance with Australian
Actuarial Standards, which differ from generally accepted
accounting principles in the United States. As of June 30,
2003, the undiscounted value of the central estimate of the
asbestos liabilities of Amaca and Amaba, as determined by KPMG
Actuaries, was approximately A$3.403 billion
($2.272 billion). The SCI found that the net assets of the
Foundation and the ABN 60 Foundation were not sufficient to meet
these prospective liabilities and were likely to be exhausted in
the first half of 2007.
In relation to the Company’s statutory scheme proposal, the
SCI reported that there were several issues that needed to be
refined quite significantly but that it would be an appropriate
starting point for devising a compensation scheme.
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Events Following the SCI Findings |
The NSW Government stated that it would not consider assisting
the implementation of any proposal advanced by the Company
unless it was the result of an agreement reached with the unions
acting through the Australian Council of Trade Unions (which we
refer to as the ACTU), UnionsNSW (formerly known as the Labour
Council of New South Wales), and a representative of the
asbestos claimants, which we collectively refer to as the
Representatives. The statutory scheme that the Company proposed
on July 14, 2004 was not accepted by the Representatives.
The Company continues to believe that, apart from the
obligations it voluntarily assumed under the Final Funding
Agreement described herein and as discussed below under the
subheading “Interim Funding and
52
ABN 60 Indemnity,” under current Australian law, it is not
legally liable for any shortfall in the assets of Amaca, Amaba,
the Foundation, the ABN 60 Foundation or ABN 60.
Following the release of the SCI report, the Representatives and
others indicated that they would encourage or continue to
encourage consumers and union members in Australia and elsewhere
to ban or boycott the Company’s products, to demonstrate or
otherwise create negative publicity toward the Company in order
to influence the Company’s approach to the discussions with
the NSW Government or to encourage governmental action if the
discussions were unsuccessful. The Company’s financial
position, results of operations and cash flows were affected by
such bans and boycotts, although the impact was not material.
The Representatives and others also indicated that they might
take actions in an effort to influence the Company’s
shareholders, a significant number of which are located in
Australia, to approve any proposed arrangement. Pursuant to the
Final Funding Agreement, the Representatives agreed to use their
best endeavors to achieve forthwith the lifting of all bans or
boycotts on any products manufactured, produced or sold by the
Company, and the Company and the Representatives signed a deed
of release in December 2005 under which the Company agreed to
release the Representatives and the members of the ACTU and
UnionsNSW from civil liability arising in relation to bans or
boycotts instituted as a result of the events described above.
Such releases did not extend to any new bans or boycotts, if
applicable, implemented after the date of signing of the Final
Funding Agreement, or to any bans or boycotts which persisted
beyond January 1, 2006. The Company is aware of a number of
bans or boycotts having been lifted, and is monitoring the
progress towards the lifting of a number of remaining bans or
boycotts. However, if the conditions precedent to the Final
Funding Agreement are not satisfied or if for any other reason
that agreement is not implemented, it remains the case that
fresh bans or boycotts could be implemented against the
Company’s products. Any such measures, and the influences
resulting from them, could have a material adverse impact on the
Company’s financial position, results of operations and
cash flows.
On October 28, 2004, the NSW Premier announced that the NSW
Government would seek the agreement of the Ministerial Council,
comprising Ministers of the Commonwealth and the Australian
States and Territories, to allow the NSW Government to pass
legislation which he announced would “wind back James
Hardie’s corporate restructure and rescind the cancellation
of A$1.9 billion in partly-paid shares.” The
announcement said that “the laws will effectively enforce
the liability (for asbestos-related claims) against the Dutch
parent company.”
On November 5, 2004, the Australian Attorney-General and
the Parliamentary Secretary to the Treasurer (the two relevant
ministers of the Australian Federal Government) issued a news
release stating that the Ministerial Council for Corporations
(the relevant body of Federal, State and Territory Ministers),
or MINCO, had unanimously agreed “to support a negotiated
settlement that will ensure that victims of asbestos-related
diseases receive full and timely compensation from James
Hardie” and if “the current negotiations between James
Hardie, the ACTU and asbestos victims do not reach an acceptable
conclusion, MINCO also agreed in principle to consider options
for legislative reform.” The news release of
November 5, 2004 indicated that treaties to enforce
Australian judgments in Dutch and U.S. courts are not
required, but that the Australian Government has been involved
in communications with Dutch and U.S. authorities regarding
arrangements to ensure that Australian judgments are able to be
enforced where necessary. If the conditions precedent to the
full implementation of the Final Funding Agreement are not
satisfied or if the otherwise the Final Funding Agreement is
terminated by James Hardie, the Company is aware that
legislative intervention may ensue, but has no detailed
information as to the content of any such legislation.
On December 21, 2004, the Company announced that it had
entered into a non-binding Heads of Agreement with the NSW
Government and the Representatives which was expected to form
the basis of a proposed binding agreement under which a
subsidiary of the Company would agree to provide, and the
Company would guarantee, funding payments to a special purpose
fund established to provide funding on a long-term basis to be
applied towards meeting proven asbestos-related personal injury
and death claims arising from exposure to asbestos occurring in
Australia and made in proceedings in an Australian court or
tribunal,
53
which we refer to as the Claims, against the Former James Hardie
Companies. The Heads of Agreement set out the key principles in
a more detailed legally binding agreement.
Negotiations between the NSW Government and the Company as to
the terms of such legally binding agreement continued throughout
2005 and resulted in the execution of the Final Funding
Agreement as described herein.
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|
Extension of Heads of Agreement to Cover Baryulgil
Claims |
On April 15, 2005, the Company announced that it had
extended the coverage of the funding arrangements agreed under
the Heads of Agreement to enable the SPF to settle or meet
proven Claims by members of the Baryulgil community in Australia
against Asbestos Mines Pty Ltd, which we refer to as Asbestos
Mines, which conducted asbestos-related mining activities in
Baryulgil, NSW. Asbestos Mines began mining in Baryulgil in 1944
as a joint venture between Wunderlich Ltd (now Seltsam Ltd, an
entity of CSR Ltd) and a former James Hardie subsidiary (now
Amaca Pty Ltd). From 1954 until 1976, Asbestos Mines was a
wholly owned subsidiary of James Hardie Industries Limited (now
ABN 60). Asbestos Mines, which has subsequently been renamed
Marlew Mining Pty Ltd, has not been part of the James Hardie
Group since 1976, when it was sold to Woodsreef Mines Ltd
(subsequently renamed Mineral Commodities Ltd). The Company has
no current right to access any Claims information in relation to
Claims against Asbestos Mines, and has no current involvement in
the management or settlement of such Claims.
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Interim Funding and ABN 60 Indemnity |
The Company has previously announced a number of measures in
relation to the funding position of the Foundation prior to the
Company’s entry into the Final Funding Agreement. On
December 3, 2004, and in part as a result of initiatives
undertaken by the Company, the Foundation received a payment of
A$88.5 million from ABN 60 for use in processing and
meeting asbestos-related claims pursuant to the terms of a deed
of covenant and indemnity which ABN 60, Amaca and Amaba had
entered into in February 2001.
The Company facilitated the payment of such funds by granting an
indemnity (under a separate deed of indemnity) to the directors
of ABN 60, which it announced on November 16, 2004. Under
the terms of that indemnity, the Company agreed to meet any
liability incurred by the ABN 60 directors resulting from
the release of the A$88.5 million by ABN 60 to the
Foundation. The Company believes that the release of funding by
ABN 60 is in accordance with law and effective contracts and
therefore the Company should not incur liability under this
indemnity. The Company has neither received any claim nor made
any payments in relation to this indemnity.
Additionally, on November 16, 2004, the Company offered to
provide funding to the Foundation on an interim basis for a
period of up to six months from that date. Such funding would
only be provided once existing Foundation funds (in particular,
funding available to Amaca and Amaba) had been exhausted. On the
basis of updated information provided to KPMG Actuaries by
representatives of the Foundation as to the incidence of claims
and the current net assets of the Amaca and Amaba, and assuming
such incidence of claims continues, the Company considers that
it is unlikely that the Foundation funds will be exhausted
before the commencement of calendar year 2007.
On March 31, 2005, the Company announced that it would
extend the timing of its commitment to assist the Foundation to
obtain interim funding, if necessary, prior to the Final Funding
Agreement being finalized in accordance with the updated
timetable announced on that date.
Under the Final Funding Agreement entered into on
December 1, 2005, the Company and James Hardie 117 Pty
Limited (a subsidiary of the Company) agreed to assist in
ensuring that funding is available to Amaca, Amaba and ABN 60,
for the purposes of meeting their liabilities in respect of
Australian personal injury and death claims arising from
exposure to asbestos in Australia. Such funding was agreed to be
provided subject to the existing sources of funding of Amaca,
Amaba and ABN 60 being exhausted (which, to the Company’s
knowledge, has not yet occurred).
54
This interim funding commitment was provided for the period from
the date of the agreement until the earlier of the date of full
implementation of that agreement, or the “condition
precedent date,” being June 30, 2006 or such later
date as the parties may agree in writing. On several occasions,
the Company and the NSW Government have agreed to extend the
condition precedent date. Currently the condition precedent date
has been set to September 30, 2006 and discussions are
currently taking place between the Company and the NSW
Government regarding a further extension. The extent and manner
of assistance to be provided and the terms and conditions
thereof remain to be agreed between the Company and those
entities.
The Company has not recorded a provision for either the
indemnity or the potential payments under the interim funding
proposal. The Company has not been required to make any payments
pursuant to this commitment.
With regard to the ABN 60 indemnity, there is no maximum value
or limit on the amount of payments that may be required. As
such, the Company is unable to disclose a maximum amount that
could be required to be paid. The Company believes, however,
that the expected value of any potential future payments
resulting from the ABN 60 indemnity is zero and that the
likelihood of any payment being required under this indemnity is
remote.
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Releases From Civil Liability |
The Final Funding Agreement was supplemented by legislation
passed by the NSW Government to provide releases to the James
Hardie Group and to current and former directors, officers,
employees, agents and advisers of James Hardie group members
from all civil liabilities in connection with (among other
matters) the establishment and funding (or underfunding) of the
Foundation as described above, the corporate reorganizations of
the James Hardie Group in 2001 and other matters examined by the
SCI.
The full form of the statutory releases is set out in
legislation passed by the NSW Parliament and contained in the
James Hardie (Civil Liability) Act 2005 and the James
Hardie (Civil Penalty Compensation Release) Act 2005. The
term “civil liabilities” is not defined in that
legislation and therefore bears its ordinary meaning under
Australian law. When introducing that legislation into the NSW
Parliament, the Attorney General of New South Wales stated that
the legislation was intended to extinguish liabilities for civil
penalties for which a compensation order may be imposed under
the Corporations Act 2001(Cth), but it was not intended
to release the released persons from any other kind of civil
penalty orders that may be imposed (including any liabilities
for fines, orders banning individuals from being directors, or
court declaration that a contravention of a civil penalty
provision has occurred). Australian courts may have regard to
those statements in determining the scope of civil liabilities
released under this legislation, where they consider that the
natural and ordinary meaning of “civil liabilities” is
ambiguous or obscure.
That legislation also released certain persons in relation to
the entry by JHI NV and the Performing Subsidiary into the Heads
of Agreement, the Final Funding Agreement and the Related
Agreements and their implementation by the James Hardie Group,
and the circumstances giving rise to the same. However, such
releases did not affect the obligations of JHI NV and the
Performing Subsidiary of their obligation set out in the Final
Funding Agreement or Related Agreements.
The NSW Government has also undertaken to refrain from taking
any action inconsistent with such releases and extinguishments.
The releases and extinguishments contained in the legislation
described above are permanent in relation to all released
persons who are natural persons. In relation to companies and
other non-natural persons who were released under that
legislation, the releases and extinguishments may be suspended
by the NSW Government if the Performing Subsidiary is and
remains in breach of any obligation to make a funding payment
under the Final Funding Agreement or of its obligations not to
undertake certain prejudicial specified dealings, and the
Performing Subsidiary or the Company has not remedied the breach
within three months of the Company having received a notice
under the Final Funding Agreement.
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Actuarial Study; Claims Estimate |
The Company commissioned an updated actuarial study of potential
asbestos-related liabilities as of March 31, 2006. Based on
the results of these studies, it is estimated that the
discounted value of the central
55
estimate for claims against the Former James Hardie Companies
was approximately A$1.52 billion ($1.14 billion). The
undiscounted value of the central estimate of the
asbestos-related liabilities of Amaca and Amaba as determined by
KPMG Actuaries was approximately A$3.08 billion
($2.3 billion). Actual liabilities of those companies for
such claims could vary, perhaps materially, from the central
estimate described above. This central estimate is calculated in
accordance with Australian Actuarial Standards, which differ
from accounting principles generally accepted in the United
States.
In estimating the potential financial exposure, KPMG Actuaries
made assumptions related to the total number of claims which
were reasonably estimated to be asserted through 2071, the
typical cost of settlement (which is sensitive to, among other
factors, the industry in which the plaintiff claims exposure,
the alleged disease type and the jurisdiction in which the
action is being brought), the legal costs incurred in the
litigation of such claims, the rate of receipt of claims, the
settlement strategy in dealing with outstanding claims and the
timing of settlements.
Further, KPMG Actuaries have relied on the data and information
provided by the Foundation and Amaca Claim Services, Amaca Pty
Ltd (under NSW External Administration), which we refer to as
ACS, and assumed that it is accurate and complete in all
material respects. The actuaries have not verified the
information independently nor established the accuracy or
completeness of the data and information provided or used for
the preparation of the report.
Due to inherent uncertainties in the legal and medical
environment, the number and timing of future claim notifications
and settlements, the recoverability of claims against insurance
contracts, and estimates of future trends in average claim
awards, as well as the extent to which the above-named entities
will contribute to the overall settlements, the actual amount of
liability could differ materially from that which is currently
projected.
A sensitivity analysis has been performed to determine how the
actuarial estimates would change if certain assumptions (i.e.,
the rate of inflation and superimposed inflation, the average
costs of claims and legal fees, and the projected numbers of
claims) were different from the assumptions used to determine
the central estimates. This analysis shows that the discounted
central estimates could be in a range of A$1.0 billion
($0.7 billion) to A$2.5 billion ($1.8 billion)
(undiscounted estimates of A$1.8 billion
($1.4 billion) to A$5.3 billion ($3.9 billion) as
of March 31, 2006). It should be noted that the actual cost
of the liabilities could be outside of that range depending on
the results of actual experience relative to the assumptions
made.
The potential range of costs as estimated by KPMG Actuaries is
affected by a number of variables such as nil settlement rates
(where no settlement is payable by the Former James Hardie
Companies because the claim settlement is borne by other
asbestos defendants (other than the Former James Hardie
subsidiaries) which are held liable), peak year of claims, past
history of claims numbers, average settlement rates, past
history of Australian asbestos-related medical injuries, current
number of claims, average defense and plaintiff legal costs,
base wage inflation and superimposed inflation. The potential
range of losses disclosed includes both asserted and unasserted
claims. While no assurances can be provided, if the Final
Funding Agreement is approved by all of the necessary parties,
including our Board of Directors, shareholders and lenders, the
Company expects to be able to partially recover losses from
various insurance carriers. As of March 31, 2006, KPMG
Actuaries’ undiscounted central estimate of
asbestos-related liabilities was A$3.1 billion
($2.2 billion). This undiscounted central estimate is net
of expected insurance recoveries of A$504.8 million
($379.9 million) after making a general credit risk
allowance for bad debt insurance carriers and an allowance for
A$65.5 million ($49.3 million) of “by claim”
or subrogation recoveries from other third parties.
Currently, the timing of any potential payments is uncertain
because the conditions precedent to the Final Funding Agreement
have not been satisfied. In addition, the Company has not yet
incurred any settlement costs pursuant to its offer to provide
the Foundation with interim funding, which is described above
under the subheading “Interim Funding and ABN 60
Indemnity” because the Foundation continues to meet all
claims of Amaca and Amaba.
56
The following table, provided by KPMG Actuaries, shows the
number of claims pending as of March 31, 2006 and 2005.
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|
| |
|
Years Ended | |
| |
|
March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
|
Australia
|
|
|
556 |
|
|
|
712 |
|
|
New Zealand
|
|
|
— |
|
|
|
— |
|
|
Unknown-Court Not Identified(1)
|
|
|
20 |
|
|
|
36 |
|
|
USA
|
|
|
1 |
|
|
|
1 |
|
|
|
| (1) |
The “Unknown — Court Not Identified”
designation reflects that the information for such claims had
not been, as of the date of publication, entered into the
database which the Foundation maintains. Over time, as the
details of “unknown” claims are provided to the
Foundation, the Company believes the database is updated to
reflect where such claims originate. Accordingly, the Company
understands the number of unknown claims pending fluctuates due
to the resolution of claims as well as the reclassification of
such claims. |
For the years ended March 31, 2006, 2005 and 2004, the
following tables, provided by KPMG Actuaries, show the claims
filed, the number of claims dismissed, settled or otherwise
resolved for each period, and the average settlement amount per
claim.
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|
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|
|
|
|
|
|
| |
|
Australia | |
| |
|
Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
346 |
|
|
|
489 |
|
|
|
379 |
|
|
Number of claims dismissed
|
|
|
97 |
|
|
|
62 |
|
|
|
119 |
|
|
Number of claims settled or otherwise resolved
|
|
|
405 |
|
|
|
402 |
|
|
|
316 |
|
|
Average settlement amount per claim
|
|
A$ |
151,883 |
|
|
A$ |
157,594 |
|
|
A$ |
167,450 |
|
|
Average settlement amount per claim
|
|
$ |
114,322 |
|
|
$ |
116,572 |
|
|
$ |
116,127 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unknown — Court Not Identified | |
| |
|
Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
6 |
|
|
|
7 |
|
|
|
1 |
|
|
Number of claims dismissed
|
|
|
10 |
|
|
|
20 |
|
|
|
15 |
|
|
Number of claims settled or otherwise resolved
|
|
|
12 |
|
|
|
2 |
|
|
|
— |
|
|
Average settlement amount per claim
|
|
A$ |
198,892 |
|
|
A$ |
47,000 |
|
|
A$ |
— |
|
|
Average settlement amount per claim
|
|
$ |
149,706 |
|
|
$ |
34,766 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
USA | |
| |
|
Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Number of claims dismissed
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
Number of claims settled or otherwise resolved
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
Average settlement amount per claim
|
|
A$ |
— |
|
|
A |
$228,293 |
|
|
A$ |
— |
|
|
Average settlement amount per claim
|
|
$ |
— |
|
|
|
$168,868 |
|
|
$ |
— |
|
57
The following table, provided by KPMG Actuaries, shows the
activity related to the numbers of open claims, new claims, and
closed claims during each of the past five years and the average
settlement per settled claim and case closed.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Number of open claims at beginning of year
|
|
|
749 |
|
|
|
743 |
|
|
|
814 |
|
|
|
671 |
|
|
|
569 |
|
|
Number of new claims
|
|
|
352 |
|
|
|
496 |
|
|
|
380 |
|
|
|
409 |
|
|
|
375 |
|
|
Number of closed claims
|
|
|
524 |
|
|
|
490 |
|
|
|
451 |
|
|
|
266 |
|
|
|
273 |
|
|
Number of open claims at year-end
|
|
|
577 |
|
|
|
749 |
|
|
|
743 |
|
|
|
814 |
|
|
|
671 |
|
|
Average settlement amount per settled claim
|
|
A |
$153,236 |
|
|
A |
$157,223 |
|
|
A |
$167,450 |
|
|
A |
$201,200 |
|
|
A |
$197,941 |
|
|
Average settlement amount per settled claim
|
|
|
$115,341 |
|
|
|
$116,298 |
|
|
|
$116,127 |
|
|
|
$112,974 |
|
|
|
$101,603 |
|
|
Average settlement amount per case closed
|
|
A |
$121,945 |
|
|
A |
$129,949 |
|
|
A |
$117,327 |
|
|
A |
$177,752 |
|
|
A |
$125,435 |
|
|
Average settlement amount per case closed
|
|
|
$ 91,788 |
|
|
|
$ 96,123 |
|
|
|
$ 81,366 |
|
|
|
$ 99,808 |
|
|
|
$ 64,386 |
|
The Company has not had any responsibility or involvement in the
management of claims against ABN 60 since the time ABN 60
left the James Hardie Group in 2003. Since February 2001, when
Amaca and Amaba were separated from the James Hardie Group,
neither the Company nor any of its current subsidiaries has had
any responsibility or involvement in the management of claims
against those entities. Prior to that date, the principal entity
potentially involved in relation to such claims was ABN 60,
which has not been a member of the James Hardie Group since
March 2003. However, the Final Funding Agreement and associated
New South Wales legislation contemplates that the SPF will have
both the responsibility for and arrangement of claims against
the Former James Hardie Companies, and that the Company will
have the right to appoint a majority of the directors of the SPF
unless a special default or insolvency event arises, as
explained further above.
On October 26, 2004, the Company, the Foundation and KPMG
Actuaries entered into an agreement under which the Company
would be entitled to obtain a copy of the actuarial report
prepared by KPMG Actuaries in relation to the claims liabilities
of the Foundation and Amaba and Amaca, and would be entitled to
publicly release the final version of such reports. Under the
terms of the Final Funding Agreement, but subject to it being
implemented, the Company has obtained similar rights of access
to actuarial information produced for the SPF by the actuary to
be appointed by the SPF (which we refer to as the Approved
Actuary). The Company’s future disclosures with respect to
claims statistics is subject to it obtaining such information
from the Approved Actuary. The Company has had no general right
(and has not obtained any right under the Final Funding
Agreement) to audit or otherwise require independent
verification of such information or the methodologies to be
adopted by the Approved Actuary. As a result, the Company cannot
make any representations or warranties as to the accuracy or
completeness of the actuarial information disclosed herein or
that may be disclosed in the future.
58
|
|
|
SCI and Other Related Expenses |
The Company has incurred substantial costs associated with the
Special Commission of Inquiry, or SCI, and may incur material
costs in the future related to the SCI or subsequent legal
proceedings. The following are the components of SCI and other
related expenses:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
SCI
|
|
$ |
— |
|
|
$ |
6.8 |
|
|
Internal investigation
|
|
|
— |
|
|
|
4.9 |
|
|
ASIC investigation
|
|
|
0.8 |
|
|
|
1.2 |
|
|
Severance and consulting
|
|
|
0.1 |
|
|
|
6.0 |
|
|
Resolution advisory fees
|
|
|
9.8 |
|
|
|
6.4 |
|
|
Funding advice
|
|
|
2.9 |
|
|
|
0.6 |
|
|
Other
|
|
|
3.8 |
|
|
|
2.2 |
|
| |
|
|
|
|
|
|
|
Total SCI and other related expenses
|
|
$ |
17.4 |
|
|
$ |
28.1 |
|
| |
|
|
|
|
|
|
Internal investigation costs reflect costs incurred by the
Company in connection with an internal investigation conducted
by independent legal advisors to investigate allegations raised
during the SCI and the preparation and filing of the
Company’s annual financial statements in the United States.
|
|
|
Australian Securities and Investments Commission
Investigation |
ASIC has announced that it is conducting an investigation into
the events examined by the SCI, without limiting itself to the
evidence compiled by the SCI. ASIC has served notices to produce
relevant documents upon the Company and various directors and
officers of the Company and upon certain of the Company’s
advisers and auditors at the time of the separation and
restructure transactions described above. ASIC has also served
notices requiring the Company and ABN 60 to produce certain
computerized information and requiring certain current and
former directors and officers of ABN 60 or the Company to
present themselves for examination by ASIC delegates. So far as
the Company is aware, individuals who have been required to
attend such examinations have done so. To date, ASIC has
announced that it is investigating various matters, but it has
not specified the particulars of alleged contraventions under
investigation, nor has it announced that it has reached any
conclusion that any person or entity has contravened any
relevant law.
To assist ASIC’s investigation, the Australian Federal
Government enacted legislation to abrogate the legal
professional privilege which would otherwise have attached to
certain documents relevant to matters under investigation or to
any future civil proceedings to be taken. The legislation is set
out in the James Hardie (Investigations and Proceedings) Act
2004.
The Company may incur liability to meet the costs of current or
former directors, officers or employees of the James Hardie
Group to the extent that those costs are covered by indemnity
arrangements granted by the Company to those persons. To date,
claims have been received from certain current or former
officers in relation to the ASIC investigation, and in relation
to the examination of these officers by ASIC delegates, the
amount of which cannot be assessed at present. In relation to
these claims and any others that may arise, the Company may be
reimbursed in whole or in part under directors’ and
officers’ insurance policies maintained by the Company.
|
|
|
Financial Position of the Foundation |
On the basis of the current cash and financial position of the
Foundation’s subsidiaries (Amaca and Amaba) and following
the Company’s entry into the Heads of Agreement, the
applications previously made to the Supreme Court of NSW by the
Foundation for the appointment of a provisional liquidator to the
59
Foundation’s subsidiaries were dismissed with the
Foundations consent. Such applications have now been rendered
unnecessary by the passage of the civil liability release
legislation described above.
The potential for Amaba, Amaca or ABN 60 to be placed into
insolvency has been further reduced by legislation passed in NSW
(the James Hardie Former Subsidiaries (Winding Up and
Administration) Act 2005), parts of which came into force on
December 2, 2005 and which will, when fully effective,
replace the James Hardie Former Subsidiaries (Special
Provisions) Act 2005. That legislation maintains the
status quo of Amaca, Amaba and ABN 60, including by
providing for a statutory form of administration for those
entities so as to prevent them being placed into administration
or liquidation under the provisions of the Australian
Corporations Act which would usually apply to an insolvent
Australian company. The legislation also sought to ensure that
the directors of those entities would not seek to remove the
assets or the register of shares in those entities outside New
South Wales.
The Company believes it is possible that future costs related to
the Company’s implementation of the Final Funding Agreement
may be material. The Company does not expect any material
additional costs to be incurred in connection with the Special
Commission of Inquiry.
Due to our size and the nature of our business, we are subject
to ongoing reviews by the Internal Revenue Service, or IRS, the
ATO and other taxing jurisdictions on various tax matters,
including challenges to various positions we assert on our
income tax returns. We accrue for tax contingencies based upon
our best estimate of the taxes ultimately expected to be paid,
which we update over time as more information becomes available.
Such amounts are included in taxes payable or other non-current
liabilities, as appropriate. If we ultimately determine that
payment of these amounts is unnecessary, we will reverse the
liability and recognize a tax benefit during the period in which
we determine that the liability is no longer necessary. We
record an additional charge in the period in which we determine
that the recorded tax liability is less than we expect the
ultimate assessment to be.
In fiscal year 2006, we settled certain tax audits and paid all
additional amounts due for the applicable fiscal years and
recorded a $20.7 million tax benefit to reduce amounts
accrued in excess of all amounts paid.
In fiscal year 2005, we settled certain tax audits and filed
amended income tax returns and paid additional tax for the
applicable fiscal years. We recorded a $2.5 million tax
benefit to reduce amounts accrued in excess of all amounts paid.
Relevant tax authorities from various jurisdictions in which we
operate are in the process of auditing our respective
jurisdictional income tax returns for various ranges of years.
Of the audits currently being conducted, none have progressed
sufficiently to predict their ultimate outcome. We have accrued
income tax liabilities for these audits based upon knowledge of
all relevant facts and circumstances, taking into account
existing tax laws, our experience with previous audits and
settlements, the status of current tax examinations, and how the
tax authorities view certain issues.
|
|
|
Australian Taxation Office Assessment |
In March 2006, RCI Pty Ltd, a wholly owned subsidiary of ours,
which we refer to as RCI, received an amended assessment from
the ATO in respect of RCI’s income tax return for the year
ended March 31, 1999. The amended assessment relates to the
amount of net capital gains arising as a result of an internal
corporate restructure carried out in 1998 and has been issued
pursuant to the discretion granted to the Commissioner of
Taxation under Part IVA of the Income Tax Assessment Act
1936. The original amended assessment issued
60
to RCI was for a total of A$412.0 million. However, after a
subsequent remission of general interest charges by the ATO, the
total is now A$378.0 million, and comprised the following
at March 31, 2006:
| |
|
|
|
|
|
|
|
|
| |
|
$ | |
|
A$ | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Primary tax after allowable credits
|
|
$ |
129.5 |
|
|
A |
$172.0 |
|
|
Penalties(1)
|
|
|
32.4 |
|
|
|
43.0 |
|
|
General interest charges
|
|
|
122.7 |
|
|
|
163.0 |
|
| |
|
|
|
|
|
|
|
Total amended assessment
|
|
$ |
284.6 |
|
|
A |
$378.0 |
|
| |
|
|
|
|
|
|
(1) Represents 25% of primary tax.
In late 2005, the Tax Laws Amendment (Improvements to Self
Assessment Act (No. 2)) 2005 of Australia, or the ROSA Act, went
into effect. Prior to the ROSA Act becoming law, the ATO had the
power to amend earlier tax assessments to give effect to a
determination under the general anti-avoidance provisions of the
tax legislation, Part IVA, within six years after the date
on which tax became due and payable under the earlier
assessment. The ROSA Act changed this period from six to four
years. Unlike the other changes made by the ROSA Act to the
ATO’s powers to amend earlier assessments (which apply only
to the 2005 and later tax years), the changes to Part IVA
operated immediately from royal assent on December 15,
2005. The amended assessment was issued to RCI to give effect to
a Part IVA determination after the ROSA Act became law, but
was issued after the four year period had expired (although just
before the old six year period had expired).
On June 23, 2006, following negotiation with the ATO
regarding payment options for the amended assessment, we were
advised by the ATO that, in accordance with the ATO Receivable
Policy, the Company is able to make a payment of 50% of the
A$378.0 million ($284.6 million), being
A$189.0 million ($140.4 million — converted
using the assets and liabilities rate at June 30, 2006),
and provide a guarantee from James Hardie Industries N.V. in
favor of the ATO for the remaining 50% unpaid pending outcome of
an appeal against amended assessment. Following enactment of Tax
Laws Amendment (2006 Measures No. 3) 2006 of Australia,
which we refer to as TLA No. 3, payment of this 50% became
due and was paid on July 5, 2006.
On June 30, 2006, TLA No. 3 was enacted. TLA
No. 3 retrospectively ensures that the relevant
Part IVA changes only take effect from the 2006 and later
tax years. The consequence of TLA No. 3 is that the amended
assessment is not invalid.
We believe RCI’s view of its tax position will ultimately
prevail in this matter. Accordingly, it is expected that any
amount paid on July 5, 2006 (or any later date) would be
recovered by RCI (with interest) at the time RCI is successful
in its appeal against the amended assessment. It is our
intention to treat this payment as a receivable.
RCI strongly disputes the amended assessment and is pursuing all
avenues of objection and appeal to contest the ATO’s
position in this matter. The ATO has confirmed that RCI has a
reasonably arguable position that the amount of net capital
gains arising as a result of the corporate restructure carried
out in 1998 has been reported correctly in the fiscal year 1999
tax return and that Part IVA does not apply. As a result,
the ATO reduced the amount of penalty from an automatic 50% of
primary tax that would otherwise apply in these circumstances,
to 25% of primary tax. In Australia, a reasonably arguable
position means that the tax position is about as likely to be
correct as it is not correct. We and RCI received legal and tax
advice at the time of the transaction, during the ATO inquiries
and following receipt of the amended assessment. We believe that
the tax position reported in RCI’s tax return for the 1999
fiscal year will be upheld on appeal. Accordingly, at this time,
we are unable to determine with any certainty whether any amount
will ultimately become payable by RCI. Therefore, we believe
that the probable requirements under SFAS No. 5,
“Accounting for Contingencies,” for recording a
liability have not been met and therefore we have not recorded a
liability as of June 30, 2006 for the remainder of the
amended assessment.
61
As a result of the amended assessment described above imposed on
RCI, it is expected that the free cash flow of the Company and
its subsidiaries for the year ended March 31, 2007 will be
negative. As a result, no annual payment will be required under
the Final Funding Agreement for the financial year ended
March 31, 2007, even if the conditions to that agreement
are satisfied in full or otherwise dealt with to the
satisfaction of the parties thereto before that date. This
result arises since each annual payment due under the Final
Funding Agreement on July 1 each year is calculated by
reference to the free cash flow of the previous full financial
year, and is subject to there being positive free cash flow
during that financial year and to the operation of a free cash
flow cap. However, this cap does not affect the amount of the
initial funding to be made under the Final Funding Agreement.
For further information on the amended ATO assessment, see
Item 3, “Key Information — Risk
Factors.”
|
|
| Item 4A. |
Unresolved Staff Comments |
None.
|
|
| Item 5. |
Operating and Financial Review and Prospects |
The following discussion of our financial condition and results
of operations should be read in conjunction with the
consolidated financial statements and the related notes thereto,
included under Item 18.
Overview
We intend this discussion to provide information that will
assist in understanding our March 31, 2006 consolidated
financial statements, the changes in significant items in those
consolidated financial statements from year to year, and the
primary reasons for those changes. This discussion includes
information about our critical accounting policies and how these
policies affect our consolidated financial statements, and
information about the consolidated financial results of each
business segment to provide a better understanding of how each
segment and its results affect our financial condition and
results of operations as a whole.
Our results for fiscal year 2006 were substantially affected by
a provision of $715.6 million which we recorded, as of
March 31, 2006, for estimated future asbestos-related
compensation payments. We also incurred significant costs
associated with the Special Commission of Inquiry, or SCI, and
other related matters during fiscal years 2006 and 2005.
Information regarding our asbestos-related matters and the SCI
and other related matters can be found in this discussion,
Item 3, “Key Information — Risk
Factors,” Item 4, “Information on the
Company — Legal Proceedings” and Notes 12
and 20 to our consolidated financial statements in Item 18.
As we disclosed in our results announcement for the quarter
ended June 30, 2006, which we furnished to the SEC on a
Form 6-K dated
August 25, 2006, we had to increase our asbestos provision
by $27.2 million to $742.8 million as of June 30,
2006 as a result of exchange rate movements between the
Australian and the U.S. dollars, which significantly
affected reported earnings due to the asbestos provision’s
denomination in Australian dollars and the fact that our
financial results are reported in U.S. dollars. See also,
Item 3, “Key Information — Risk
Factors.” Because the financial information in this Annual
Report on
Form 20-F is as of
the year ended March 31, 2006, it does not reflect this
subsequent event.
|
|
|
The Company and the Building Product Markets |
Based on net sales, we believe we are the largest manufacturer
of fiber cement products and systems for internal and external
building construction applications in the United States,
Australia, New Zealand and the Philippines. Our current primary
geographic markets include the United States, Australia, New
Zealand, the Philippines and Europe. Through significant
research and development expenditure, we develop key product and
production process technologies that we patent or hold as trade
secrets. We believe that these technologies give us a
competitive advantage.
62
We manufacture numerous types of fiber cement products with a
variety of patterned profiles and surface finishes for a range
of applications including external siding and soffit lining,
trim, fencing, internal linings, facades, floor and tile
underlayments, drainage pipes and decorative columns. Our
products are used in various market segments, including new
residential construction, manufactured housing, repair and
remodel and a variety of commercial and industrial construction
applications. We believe that in certain construction
applications, our fiber cement products and systems provide a
combination of distinctive performance, design and cost
advantages over competing building products and systems.
Our products are primarily sold in the residential housing
markets. Residential construction levels fluctuate based on new
home construction activity and the repair and renovation of
existing homes. These levels of activity are affected by many
factors, including home mortgage interest rates, inflation
rates, unemployment levels, existing home sales, the average age
and the size of housing inventory, consumer home repair and
renovation spending, gross domestic product growth and consumer
confidence levels. These factors were generally favorable during
fiscal year 2006, resulting in healthy levels of residential
construction and home repair and renovation activity.
Fiscal Year 2006 Key Results
As of March 31, 2006, we recorded a provision of
$715.6 million for estimated future asbestos-related
compensation payments (asbestos provision).
Total net sales increased 23% to $1,488.5 million in fiscal
year 2006. However, the asbestos provision resulted in an
operating loss of $434.9 million compared to an operating
profit of $196.2 million in fiscal year 2005. We reported a
loss from continuing operations of $506.7 million because
of the asbestos provision.
Our largest market is North America, where fiber cement is one
of the fastest growing segments of the external siding market.
During fiscal year 2006, USA Fiber Cement net sales contributed
approximately 82% of total net sales, and its operating income
was the primary contributor of total Company operating income
(before the asbestos provision). Net sales increased due to
increased sales volume and a higher average net sales price.
Operating (loss) income increased from fiscal year 2005
primarily due to increased sales, which were partially offset by
higher unit costs, freight costs and selling, general and
administrative expense.
Asia Pacific net sales contributed approximately 16% of total
net sales, and its operating income was the second largest
contributor of total Company operating income (before the
asbestos provision) in 2006. Net sales increased in fiscal year
2006 in our Australia and New Zealand business, but fell in our
Philippines Fiber Cement business. The increase in net sales in
our Australia and New Zealand businesses, which was due to
favorable exchange rates and increased volume, was partially
offset by a reduction in average net sales price. Sales in our
Philippines business were adversely affected during fiscal year
2006 by weaker domestic demand and increased competition in
export markets. Asia Pacific operating income decreased
primarily due to increased costs in Australia.
Our emerging businesses of Europe Fiber Cement and USA Hardie
Pipe continued to make good progress. Our USA Hardie Pipe
business reduced its loss compared to last year even though
sales volumes were lower. Our Europe Fiber Cement business
increased its sales as demand increased. On April 18, 2006,
we announced that we would close our
Artisan®
roofing business. Following a review of the carrying value of
the assets related to this operation, an asset impairment charge
of $13.4 million was recorded in fiscal year 2006.
For further information regarding our business and operations,
please see Item 4, “Information on the Company.”
Critical Accounting Policies
The accounting policies affecting our financial condition and
results of operations are more fully described in Note 2 to
our consolidated financial statements included in Item 18.
Certain of our accounting policies require the application of
judgment by management in selecting appropriate assumptions for
calculating financial estimates, which inherently contain some
degree of uncertainty. Management bases its estimates on
historical experience and other assumptions that are believed to
be reasonable under the
63
circumstances, the results of which form the basis for making
judgments about the reported carrying value of assets and
liabilities and the reported amounts of revenues and expenses
that may not be readily apparent from other sources. Actual
results may differ from these estimates under different
assumptions and conditions. We consider the following policies
to be the most critical in understanding the judgments that are
involved in preparing our consolidated financial statements and
the uncertainties that could impact our results of operations,
financial condition and cash flows.
|
|
|
Accounting for Contingencies |
We account for loss contingencies in accordance with
SFAS No. 5, “Accounting for Contingencies,”
under which we accrue amounts for losses arising from contingent
obligations when the obligations are probable and the amounts
are reasonably estimable. As facts concerning contingencies
become known, we reassess our situation and make appropriate
adjustments to the consolidated financial statements. For
additional information regarding asbestos-related matters and
the Australian Taxation Office, or ATO, assessment, see
Item 3, “Key Information — Risk
Factors,” Item 4, “Information on the
Company — Legal Proceedings” and Notes 12
and 13 to our consolidated financial statements in Item 18.
|
|
|
Accounting for Asbestos-Related Payments |
The amount of the asbestos provision is based on our best
estimate of the probable outcome. This estimate, which reflects
the terms of the Final Funding Agreement, has been calculated by
reference to (but is not exclusively based upon) the most recent
actuarial estimate of projected future cash flows prepared by
KPMG Actuaries. The asbestos provision includes cash flows that
are undiscounted and uninflated and also includes an allowance
for the future operating costs of the special purpose fund, or
SPF.
In estimating the potential financial exposure, KPMG Actuaries
have made a number of assumptions. These include an estimate of
the total number of claims by disease type which are reasonably
estimated to be asserted through 2071, the typical average cost
of a claim settlement (which is sensitive to, among other
factors, the industry in which the plaintiff claims exposure,
the alleged disease type and the jurisdiction in which the
action is being brought), the legal costs incurred in the
litigation of such claims, the proportion of claims for which
liability is repudiated, the rate of receipt of claims, the
settlement strategy in dealing with outstanding claims, the
timing of settlements of future claims and the long-term rate of
inflation of claim awards and legal costs.
Further, KPMG Actuaries have relied on the data and information
provided by the Foundation and Amaca Claim Services, Amaca Pty
Ltd (under NSW External Administration), which we refer to as
ACS, and have assumed that it is accurate and complete in all
material respects. The actuaries have neither verified the
information independently nor established the accuracy or
completeness of the data and information provided or used for
the preparation of the report.
Due to inherent uncertainties in the legal and medical
environment, the number and timing of future claim notifications
and settlements, the recoverability of claims against insurance
contracts, and estimates of future trends in average claim
awards, as well as the extent to which the above-named entities
will contribute to the overall settlements, the actual amount of
liability could differ materially from that which is currently
projected and could result in significant debits or credits to
the consolidated balance sheet and statement of operations.
An updated actuarial assessment will be performed as of
March 31st each year. Any changes in the estimate will be
reflected as a charge or credit to our consolidated statement of
operations at that date. Material adverse changes to the
actuarial estimate would have an adverse effect on our business,
results of operations and financial condition.
For additional information regarding our asbestos provision, see
Item 3, “Key Information — Risk
Factors,” Item 4, “Information on the
Company — Legal Proceedings,” Item 5,
“Operating Review and Prospect” and Notes 12 and
20 to our consolidated financial statements in Item 18.
64
We record estimated reductions to sales for customer rebates and
discounts including volume, promotional, cash and other rebates
and discounts. Rebates and discounts are recorded based on
management’s best estimate when products are sold. The
estimates are based on historical experience for similar
programs and products. Management reviews these rebates and
discounts on an ongoing basis and the related accruals are
adjusted, if necessary, as additional information becomes
available.
We evaluate the collectibility of accounts receivable on an
ongoing basis based on historical bad debts, customer
credit-worthiness, current economic trends and changes in our
customer payment activity. An allowance for doubtful accounts is
provided for known and estimated bad debts. Although credit
losses have historically been within our expectations, we cannot
guarantee that we will continue to experience the same credit
loss rates that we have in the past. Because our accounts
receivable are concentrated in a relatively small number of
customers, a significant change in the liquidity or financial
position of any of these customers could impact their ability to
make payments and result in the need for additional allowances
which would decrease our net sales. For additional information
regarding our customer concentration, see Item 3, “Key
Information — Risk Factors.”
Inventories are recorded at the lower of cost or market. In
order to determine market, management regularly reviews
inventory quantities on hand and evaluates significant items to
determine whether they are excess, slow-moving or obsolete. The
estimated value of excess, slow-moving and obsolete inventory is
recorded as a reduction to inventory and an expense in cost of
sales in the period it is identified. This estimate requires
management to make judgments about the future demand for
inventory, and is therefore at risk to change from period to
period. If our estimate for the future demand for inventory is
greater than actual demand and we fail to reduce manufacturing
output accordingly, we could be required to record additional
inventory reserves, which would have a negative impact on our
gross profit.
We offer various warranties on our products, including a
50-year limited
warranty on certain of our fiber cement siding products in the
United States. Because our fiber cement products have only been
used in North America since the early 1990s, there is a risk
that these products will not perform in accordance with our
expectations over an extended period of time. A typical warranty
program requires that we replace defective products within a
specified time period from the date of sale. We record an
estimate for future warranty-related costs based on an analysis
of actual historical warranty costs as they relate to sales.
Based on this analysis and other factors, we adjust the amount
of our warranty provisions as necessary. Although our warranty
costs have historically been within calculated estimates, if our
experience is significantly different from our estimates, it
could result in the need for additional reserves. For additional
information regarding warranties, see Item 3, “Key
Information — Risk Factors.”
|
|
|
Accounting for Income Tax |
We account for income taxes according to SFAS No. 109,
“Accounting for Income Taxes,” under which we compute
our deferred tax assets and liabilities, which arise from
differences in the timing of recognition of revenue and expense
for tax and financial statement purposes. We must assess
whether, and to what extent, we can recover our deferred tax
assets. If full or partial recovery is unlikely, we must
increase our income tax expense by recording a valuation
allowance against the portion of deferred tax assets that we
cannot recover. We believe that we will recover all of the
deferred tax assets recorded (net of valuation allowance) on our
consolidated balance sheet at March 31, 2006. However, if
facts later indicate that we will be unable to recover all or a
portion of our net deferred tax assets, our income tax expense
would increase in the period in which we determine that recovery
is unlikely.
65
Due to our size and the nature of our business, we are subject
to ongoing reviews by taxing jurisdictions on various tax
matters, including challenges to various positions we assert on
our income tax returns. We accrue for tax contingencies based
upon our best estimate of the taxes ultimately expected to be
paid, which we update over time as more information becomes
available and include knowledge of all relevant facts and
circumstances, taking into account existing tax laws, our
experience with previous audits and settlements, the status of
current tax examinations and how the tax authorities view
certain issues. Such amounts are included in taxes payable or
other non-current liabilities, as appropriate. If we ultimately
determine that payment of these amounts is unnecessary, we
reverse the liability and recognize a tax benefit during the
period in which we determine that the liability is no longer
necessary. We record an additional charge in the period in which
we determine that the recorded tax liability is less than we
expect the ultimate assessment to be.
For additional information, see Item 3, “Key
Information — Risk Factors,” Item 4,
“Information on the Company — Recent
Developments,” and Notes 13 and 20 to our consolidated
financial statements in Item 18.
Results of Operations
In fiscal years 2004 through 2006, there was a significant
increase in net sales generated from our USA Fiber Cement
operations primarily as a result of demand for our fiber cement
products. To meet the increased demand, we have spent
$355.5 million in capital investments during fiscal years
2004 to 2006 in this segment.
The following table shows our selected financial and operating
data for continuing operations, expressed in millions of
U.S. dollars and as a percentage of total net sales:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
USA Fiber Cement
|
|
$ |
1,218.4 |
|
|
|
81.9 |
% |
|
$ |
939.2 |
|
|
|
77.6 |
% |
|
$ |
738.6 |
|
|
|
75.2 |
% |
| |
Asia Pacific Fiber Cement
|
|
|
241.8 |
|
|
|
16.2 |
|
|
|
236.1 |
|
|
|
19.5 |
|
|
|
219.8 |
|
|
|
22.4 |
|
| |
Other(1)
|
|
|
28.3 |
|
|
|
1.9 |
|
|
|
35.1 |
|
|
|
2.9 |
|
|
|
23.5 |
|
|
|
2.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total net sales
|
|
|
1,488.5 |
|
|
|
100.0 |
|
|
|
1,210.4 |
|
|
|
100.0 |
|
|
|
981.9 |
|
|
|
100.0 |
|
|
Cost of goods sold
|
|
|
(937.7 |
) |
|
|
(63.0 |
) |
|
|
(784.0 |
) |
|
|
(64.8 |
) |
|
|
(623.0 |
) |
|
|
(63.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
550.8 |
|
|
|
37.0 |
|
|
|
426.4 |
|
|
|
35.2 |
|
|
|
358.9 |
|
|
|
36.6 |
|
|
Selling, general and administrative expenses
|
|
|
(209.8 |
) |
|
|
(14.1 |
) |
|
|
(174.5 |
) |
|
|
(14.4 |
) |
|
|
(162.0 |
) |
|
|
(16.5 |
) |
|
Research and development expenses
|
|
|
(28.7 |
) |
|
|
(1.9 |
) |
|
|
(21.6 |
) |
|
|
(1.8 |
) |
|
|
(22.6 |
) |
|
|
(2.3 |
) |
|
SCI and other related expenses
|
|
|
(17.4 |
) |
|
|
(1.2 |
) |
|
|
(28.1 |
) |
|
|
(2.3 |
) |
|
|
— |
|
|
|
— |
|
|
Impairment of roofing plant
|
|
|
(13.4 |
) |
|
|
(0.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Asbestos provision
|
|
|
(715.6 |
) |
|
|
(48.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other operating expense
|
|
|
(0.8 |
) |
|
|
— |
|
|
|
(6.0 |
) |
|
|
(0.5 |
) |
|
|
(2.1 |
) |
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(434.9 |
) |
|
|
(29.2 |
) |
|
|
196.2 |
|
|
|
16.2 |
|
|
|
172.2 |
|
|
|
17.5 |
|
|
Interest expense
|
|
|
(7.2 |
) |
|
|
(0.5 |
) |
|
|
(7.3 |
) |
|
|
(0.6 |
) |
|
|
(11.2 |
) |
|
|
(1.1 |
) |
|
Interest income
|
|
|
7.0 |
|
|
|
0.5 |
|
|
|
2.2 |
|
|
|
0.2 |
|
|
|
1.2 |
|
|
|
0.1 |
|
|
Other (expense) income
|
|
|
— |
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
(0.1 |
) |
|
|
3.5 |
|
|
|
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(435.1 |
) |
|
|
(29.2 |
) |
|
|
189.8 |
|
|
|
15.7 |
|
|
|
165.7 |
|
|
|
16.9 |
|
|
Income tax expense
|
|
|
(71.6 |
) |
|
|
(4.8 |
) |
|
|
(61.9 |
) |
|
|
(5.1 |
) |
|
|
(40.4 |
) |
|
|
(4.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(506.7 |
) |
|
|
(34.0 |
)% |
|
$ |
127.9 |
|
|
|
10.6 |
% |
|
$ |
125.3 |
|
|
|
12.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes sales of fiber cement in Chile (fiscal year 2004
through July 2005 only), fiber reinforced concrete pipes in the
United States, a roofing pilot plant in the United States and
fiber cement operations |
66
|
|
|
in Europe. Our Chilean business was sold in July 2005. Our
roofing pilot plant ceased operations in April 2006. See
Item 4, “Information on the Company —
Capital Expenditures and Divestitures” and Note 14 to
our consolidated financial statements in Item 18. |
The following table provides a breakdown of our operating (loss)
income:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
USA Fiber Cement
|
|
$ |
342.6 |
|
|
$ |
241.5 |
|
|
$ |
195.6 |
|
|
Asia Pacific Fiber Cement
|
|
|
41.7 |
|
|
|
46.8 |
|
|
|
37.6 |
|
|
Research and Development
|
|
|
(15.7 |
) |
|
|
(17.5 |
) |
|
|
(17.6 |
) |
|
Other(1)
|
|
|
(26.5 |
) |
|
|
(11.8 |
) |
|
|
(15.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
342.1 |
|
|
|
259.0 |
|
|
|
199.7 |
|
|
General Corporate
|
|
|
(61.4 |
) |
|
|
(62.8 |
) |
|
|
(27.5 |
) |
|
Asbestos provision
|
|
|
(715.6 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total operating (loss) income
|
|
$ |
(434.9 |
) |
|
$ |
196.2 |
|
|
$ |
172.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes impairment charge of $13.4 million in fiscal year
2006 related to the closure of our roofing pilot plant. See Item
4, “Information on the Company — Recent
Developments.” |
|
|
|
Year Ended March 31, 2006 Compared to Year Ended
March 31, 2005 |
Total Net Sales. Total net sales increased 23% from
$1,210.4 million in fiscal year 2005 to
$1,488.5 million in fiscal year 2006. Net sales from USA
Fiber Cement increased 30% from $939.2 million in fiscal
year 2005 to $1,218.4 million in fiscal year 2006 due to
continued growth in sales volume and a higher average net sales
price. Net sales from Asia Pacific Fiber Cement increased 2%
from $236.1 million in fiscal year 2005 to
$241.8 million in fiscal year 2006 primarily due to
increased higher sales volume in Australia and New Zealand.
Other net sales decreased by 19% from $35.1 million in
fiscal year 2005 to $28.3 million in fiscal year 2006, with
this decline primarily due to the sale of our Chilean flat sheet
business in July 2005.
USA Fiber Cement Net Sales. Net sales increased 30% from
$939.2 million in fiscal year 2005 to $1,218.4 million
in fiscal year 2006 due to increased sales volume and a higher
average net sales price. Sales volume increased 18% from
1,855.1 million square feet in fiscal year 2005 to
2,182.8 million square feet in fiscal year 2006, due mainly
to growth in primary demand and a resilient housing market. The
average net sales price increased 10% from $506 per
thousand square feet in fiscal year 2005 to $558 per
thousand square feet in fiscal year 2006 due to price increases
for some products that were implemented during fiscal year 2006
and proportionally stronger growth of differentiated,
higher-priced products. Despite further modest interest rate
increases, we did not experience the expected
’cooling’ of the new housing construction market
during fiscal year 2006. New housing construction activity was
very strong over the full year as it continued to be buoyed by
relatively low interest rates and strong housing prices. Repair
and remodeling activity also remained very strong during fiscal
year 2006.
The strong growth in sales volume was across both our interior
and exterior product categories and our emerging and established
geographic markets, reflecting further market penetration and
the healthy new housing and repair and remodeling activity.
Demand for exterior products continued to grow in all key
regions across the United States, and further market share gains
were achieved at the expense of alternative materials, mainly
vinyl and wood-based siding. There was strong sales growth in
differentiated, higher-priced products, as well as in our core
products.
Implementation of our
ColorPlus®
product business model in the emerging markets continued during
fiscal year 2006. The model is aimed at improving the
positioning of the
ColorPlus®
product range of pre-painted products in markets dominated by
vinyl siding and increasing revenue and contribution per unit.
All
67
phases of the implementation are underway and progressing well.
Sales of the
ColorPlus®
product range as a percentage of exterior product sales in the
business’ emerging markets almost doubled over fiscal year
2005. We intend to introduce
ColorPlus®
products to selected regions of our established markets in
fiscal year 2007.
In the interior products market, sales of both Hardibacker
500®
half-inch backerboard and quarter-inch backerboard grew very
strongly. We continued to take market share in this category,
particularly in the half-inch segment.
In our established markets, we continued to focus on growth
strategies including an increased focus on the repair and
remodel segment. Sales in the established markets were slightly
affected by the impact of the September 2005 hurricanes that
caused considerable damage along the Gulf Coast, particularly in
the states of Louisiana and Mississippi. Sales in these states
account for less than 5% of total sales of the USA Fiber Cement
business.
At the end of fiscal year 2006, we completed construction of one
of the two planned production lines at our new plant in Pulaski,
Virginia, and in April 2006, this line commenced commercial
production. At the end of fiscal year 2006, we also completed
construction of, and commenced production on, a new
ColorPlus®
product line at our Blandon, Pennsylvania plant.
During fiscal year 2006, we commenced the
ramp-up of our new trim
line at Peru, Illinois and continued the
ramp-up of our new West
Coast manufacturing plant at Reno, Nevada. We also began
construction of other additional pre-finishing capacity at
plants in our emerging markets.
Asia Pacific Fiber Cement Net Sales. Net sales increased
2% from $236.1 million in fiscal year 2005 to
$241.8 million in fiscal year 2006. Net sales in Australian
dollars increased 1% due to a 3% increase in the average net
sales price, partly offset by a 2% decline in sales volume from
376.9 million square feet in fiscal year 2005 to
368.3 million square feet in fiscal year 2006.
In our Australia and New Zealand Fiber Cement business, net
sales increased 4% from $210.1 million in fiscal year 2005
to $218.1 million in fiscal year 2006, primarily due to
favorable currency exchange rates and a 3% increase in sales
volume. In Australian dollars, net sales increased 2%. The
average net sales price in Australian dollars decreased 1%
compared to fiscal year 2005. In Australia, both the residential
housing construction and the renovation markets softened,
particularly in New South Wales. The increase in sales volume in
fiscal year 2006 was due to initiatives designed to grow primary
demand for fiber cement and generate further market share in our
targeted markets. In the commercial construction sector,
activity remained at buoyant levels and, following the execution
of the Final Funding Agreement for asbestos-related compensation
in December 2005, we began to regain momentum lost through
product bans and boycotts imposed during the prior year and a
half, particularly in Victoria. We achieved strong sales of our
Linea®
weatherboards, which were launched in Queensland during the
first half of fiscal year 2006, and continued to roll-out our
Business Builder Program in all states to help generate primary
demand for our products. In addition we launched
Aquatectm
Wet Area Flooring in Victoria during the third quarter of the
fiscal year 2006. In New Zealand, housing construction activity
also softened. The growth momentum of
Linea®
weatherboards continued throughout the year and helped to
generate increased primary demand for our products in a weakened
market.
Linea®
weatherboards remain our top selling product in New Zealand.
In the Philippines, net sales decreased 9% from
$26.0 million in fiscal year 2005 to $23.7 million in
fiscal year 2006. In local currency, net sales decreased 11% due
to a 19% decrease in sales volume partly offset by a 10%
increase in the average net sales price. Demand was adversely
affected during fiscal year 2006 by weaker domestic construction
activity resulting from uncertainty associated with increased
domestic political and economic instability, and increased
competition in the business’ export markets.
Other Sales. Other sales include sales of our fiber
cement products manufactured in Chile (through July 2005), sales
of
Hardietm
pipe in the United States, our roofing pilot plant in the United
States which we closed in April 2006, and fiber cement
operations in Europe.
In our pipes business, net sales fell short against fiscal year
2005. A decrease in sales volume was partly offset by a higher
average sales price.
68
In our Europe Fiber Cement business, net sales increased in
fiscal year 2006 compared to fiscal year 2005 due to stronger
demand resulting from increased awareness of the business’
products among builders, distributors and contractors; expansion
into new geographic markets; and higher average net sales price.
Our roofing pilot plant consisted of a small-scale roofing
manufacturing plant in Fontana, California opened in 2003. Since
then, we undertook production and market trials of a new roofing
product in Southern California to quantify the market potential
of the new product. On April 18, 2006, we ceased market
development initiatives for our roofing product and announced
the closure of our roofing plant. Following a review of the
carrying value of the assets related to this operation, an asset
impairment charge of $13.4 million was recorded in fiscal
year 2006. The decision not to proceed with our roofing product
was made after we reviewed market testing results and concluded
that greater shareholder value would be created by focusing on
other market growth initiatives.
We sold our Chilean business in July 2005 due to its small scale
and limited strategic fit.
Gross Profit. Gross profit increased 29% from
$426.4 million in fiscal year 2005 to $550.8 million
in fiscal year 2006 due mainly to a strong gross profit
improvement in the USA Fiber Cement business. The gross profit
margin increased 1.8 percentage points to 37.0% in fiscal
year 2006.
USA Fiber Cement gross profit increased 37% compared to fiscal
year 2005 as a result of increases in both sales volume and the
average net sales price, partially offset by higher
manufacturing costs and freight costs. The gross profit margin
increased 2.1 percentage points in fiscal year 2006.
Asia Pacific Fiber Cement gross profit decreased 5% due to
reduced profitability in the Asia Pacific businesses in
Australia and the Philippines, which was partly offset by
improvements in New Zealand and favorable currency movements. In
Australian dollars, gross profit decreased 7% due primarily to
increased costs in all the Asia Pacific businesses.
Selling, General and Administrative (SG&A) Expenses.
SG&A expenses increased 20% from $174.5 million in
fiscal year 2005 to $209.8 million in fiscal year 2006,
mainly due to an increase in the accrual for employees’
bonuses to reflect our improved profit performance (before the
asbestos provision); increased spending on growth initiatives in
the USA Fiber Cement business; and increased professional
service fees. As a percentage of sales, SG&A expense
decreased 0.3 of a percentage point to 14.1% in fiscal year 2006.
Research and Development Expenses. Research and
development expenses include costs associated with
“core” research projects that are designed to benefit
all business units. These costs are recorded in the Research and
Development segment rather than being attributed to individual
business units. These costs were 3% higher at $12.3 million
in fiscal year 2006. Other research and development costs
associated with commercialization projects in business units are
included in the business unit segment results. In total, these
costs increased 71% to $16.4 million for fiscal year 2006.
SCI and Other Related Expenses. In February 2004, the
Government of New South Wales in Australia established the SCI
to investigate, among other matters, the circumstances in which
the Medical Research and Compensation Foundation was
established. Shortly after release of the SCI report on
September 21, 2004, we commenced negotiations with the NSW
Government, the Australian Council of Trade Unions, or ACTU,
UnionsNSW and a representative of asbestos claimants in relation
to our offer to the SCI on July 14, 2004 to provide funds
voluntarily for proven Australia-based asbestos-related injury
and death claims against certain former James Hardie Australian
subsidiary companies. On December 21, 2004, we entered into
a Heads of Agreement with the above parties to establish and
fund an SPF to provide funding for these claims on a long-term
basis. We subsequently entered negotiations with the NSW
Government on a binding agreement that we intend to put to
shareholders for approval. On December 1, 2005, the Company
and the NSW Government signed the Final Funding Agreement, or
FFA. The Final Funding Agreement is subject to certain
conditions precedent, including the tax exempt status of the SPF
and its approval by our lenders and shareholders.
Costs incurred associated with the SCI and other related
expenses totaled $17.4 million in fiscal year 2006 compared
to $28.1 million in fiscal year 2005.
69
Further information on the SCI and other related matters can be
found in Item 3, “Key Information — Risk
Factors,” Item 4, “Information on the
Company — Legal Proceedings” and Notes 12
and 20 to our consolidated financial statements in Item 18.
Asbestos Provision. The recording of the asbestos
provision is in accordance with U.S. accounting standards
because we have determined that it is probable that we will make
payments to fund asbestos-related claims on a long-term basis.
The amount of the asbestos provision of $715.6 million
(A$1.0 billion) as of March 31, 2006 is our best
estimate of the probable outcome as of that date. This estimate
may change under alternative arrangements such as those
discussed in the next paragraph. This estimate is based on the
terms of the Final Funding Agreement, which includes an
actuarial estimate prepared by KPMG Actuaries, at March 31,
2006 of the projected future cash outflows, undiscounted and
uninflated.
Conditions Precedent Under Discussion with the ATO. On
June 23, 2006, the ATO advised us that it has refused to
endorse the SPF as a tax concession charity (which is required
for it to be exempt from income tax and other federal taxes),
arguing that, in its opinion, the scope of its activities under
the Trust Deed and the Final Funding Agreement does not
meet current legislative requirements for such an endorsement.
The SPF and the Company have received strong legal advice,
including from some of Australia’s leading counsel, that
the SPF satisfies the requirements applicable under income tax
legislation such that the ATO should endorse the SPF as a
charity. At the time of filing this report, the Company is in
further discussions with the ATO and is in discussions and
negotiations with the NSW Government, seeking to resolve this
unsatisfied condition precedent to the Final Funding Agreement
and the means by which it could be fulfilled, amended or
otherwise dealt with in a manner satisfactory to the parties to
the Final Funding Agreement.
On June 29, 2006, the ATO issued a ruling to us to the
effect that our contributions to the SPF would be tax deductible
over the anticipated life of the arrangements in accordance with
the recent “blackhole expenditure” Federal Legislation
which was enacted in April 2006. The ruling issued by the ATO
provides deductibility over a five-year period from the date of
contribution, whereas the condition precedent in the Final
Funding Agreement provides for deductibility of contributions in
the year incurred. The Company has indicated to the NSW
Government that it is prepared to accept this basis of
deductibility of the funding payments, if the tax condition
relating to the tax exempt status of the SPF can be
satisfactorily resolved.
Intention to Make Payments to Asbestos Claimants. Even if
conditions to our funding obligations under the Final Funding
Agreement are not fulfilled, we have determined that it is
nevertheless likely that we will make payments in respect of
certain claimants who were injured by asbestos products
manufactured by certain former Australian subsidiary companies.
Our Joint Board has made it clear that, in a manner consistent
with its obligations to shareholders and other stakeholders in
the Company, it intends to proceed with fair and equitable
actions to compensate the injured parties. Any such alternative
settlement would require lender and shareholder approval.
However, if we proceed with an alternative settlement without
the current conditions precedent being met, it is likely, as a
function of economic reality, that we will have less funds to
support payments in respect of asbestos claims. While we
continue to hope that the conditions precedent to the Final
Funding Agreement will be fulfilled, we have determined that our
intention to proceed responsibly in either event makes it
appropriate for us to record the asbestos provision in the
amounts set forth in the financial statements.
Further information on the asbestos provision, the SCI, and
other related matters can be found in Item 3, “Key
Information — Risk Factors,” Item 4,
“Information on the Company — Legal
Proceedings” and Notes 12 and 20 to our consolidated
financial statements in Item 18.
Operating Income. Operating income decreased from
$196.2 million profit in fiscal year 2005 to a loss of
$434.9 million for fiscal year 2006. Operating income
includes the asbestos provision of a $715.6 million, SCI
and other related expenses of $17.4 million, and an asset
impairment charge of $13.4 million relating to the closure
of our roofing pilot plant.
USA Fiber Cement operating income increased 42% from
$241.5 million in fiscal year 2005 to $342.6 million
in fiscal year 2006. The increase was due to increased sales
volume and higher average net sales
70
price, partially offset by higher unit costs, freight costs and
SG&A expenses. The operating income margin was
2.4 percentage points higher at 28.1%.
Asia Pacific Fiber Cement operating income decreased 11% from
$46.8 million in fiscal year 2005 to $41.7 million in
fiscal year 2006 due to a reduced profit performance in both our
Australia and New Zealand, and Philippines businesses. The
operating income margin was 2.6 percentage points lower at
17.2%. Australia and New Zealand Fiber Cement operating income
decreased 8% from $42.4 million in fiscal year 2005 to
$38.9 million in fiscal year 2006. In Australian dollars,
our Australia and New Zealand business operating income fell by
10% due to increased costs in Australia, which was partially
offset by increased sales volume in Australia and New Zealand.
The operating income margin was 2.4 percentage points lower
at 17.8%. The Philippines Fiber Cement business recorded a
decrease in operating income due to the impact of weaker
domestic construction activity on demand for its products, as
well as increased competitive activity in its export markets.
Our USA Hardie Pipe business reduced its operating loss in
fiscal year 2006 compared to fiscal year 2005.
Our Europe Fiber Cement business incurred an operating loss in
fiscal year 2006 as it continued to build net sales.
Following a review of the results of our roofing product trials
in California, we announced on April 18, 2006 that the
pilot plant was to close. Following a review of the carrying
value of the assets related to this operation, an asset
impairment charge of $13.4 million was recorded.
The Chilean Fiber Cement business was sold in July 2005.
General corporate costs decreased by $1.4 million from
$62.8 million in fiscal year 2005 to $61.4 million in
fiscal year 2006. There was a decrease of $10.7 million in
SCI and other related expenses, a $0.7 million loss in
fiscal year 2005 on the sale of land owned in Sacramento, which
did not recur in fiscal year 2006, and a reduction of
$3.5 million in the cost of the Australian companies’
defined benefit pension scheme. These decreases were partly
offset by a $8.6 million increase in employee bonus plan
expense, a $3.5 million increase in employee share-based
compensation expense from stock options and from stock
appreciation rights, primarily caused by an increase in the
Company’s share price, and an increase in other general
costs of $1.4 million.
Net Interest Expense. Net interest decreased by
$4.9 million to $0.2 million in fiscal year 2006. The
decrease in interest expense was primarily due to our being in a
positive net cash position for the majority of fiscal year 2006.
Income Tax Expense. Income tax expense increased
$9.7 million from $61.9 million in fiscal year 2005 to
$71.6 million in fiscal year 2006. The increase in expense
was due to an increase in profits and the geographic mix of
earnings. This was partially offset by a reduction in the income
tax reserves in the U.S. arising as a result of the
finalization of certain tax audits during fiscal year 2006.
Income from Continuing Operations. Income from continuing
operations decreased from a profit of $127.9 million in
fiscal year 2005 to a loss of $506.7 million in fiscal year
2006. Income from continuing operations in fiscal year 2006
includes $715.6 million relating to the booking of the
asbestos provision, an impairment charge of $13.4 million
($8.0 million, after tax) relating to the closure of our
roofing pilot plant, SCI and other related expenses of
$17.4 million ($16.5 million, after tax) and a
write-back of tax provisions of $20.7 million.
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Year Ended March 31, 2005 Compared to Year Ended
March 31, 2004 |
Total Net Sales. Total net sales increased 23% compared
to fiscal year 2004, from $981.9 million in fiscal year
2004 to $1,210.4 million in fiscal year 2005. Net sales
from USA Fiber Cement increased 27% from $738.6 million in
fiscal year 2004 to $939.2 million in fiscal year 2005 due
to continued strong growth in sales volumes and a higher average
net sales price. Net sales from Asia Pacific Fiber Cement
increased 7% from $219.8 million in fiscal year 2004 to
$236.1 million in fiscal year 2005 due to increased sales
volumes and
71
favorable foreign currency movements. Net sales from other
operations (see footnote 2 to the chart in Item 3,
“Key Information — Selected Financial Data”)
increased 49% from $23.5 million in fiscal year 2004 to
$35.1 million in fiscal year 2005 as the Chilean flat sheet
business, the USA Hardie Pipe business and Europe Fiber Cement
business continued to grow.
USA Fiber Cement Net Sales. Net sales increased 27% from
$738.6 million in fiscal year 2004 to $939.2 million
in fiscal year 2005 due to increased sales volumes and a higher
average net sales price. Sales volume increased 22% from
1,519.9 million square feet in fiscal year 2004 to
1,855.1 million square feet in fiscal year 2005, primarily
due to continued strong growth in primary demand for fiber
cement and a favorable housing construction market. New
residential housing construction remained buoyant during the
year due to strong consumer demand and low inventories of houses
for sale, fueled by low interest rates, solid housing prices and
a strengthening domestic economy.
We continued to grow sales in both our emerging and established
geographic markets and in our exterior and interior product
markets. Further market share was gained in our emerging
geographic markets as our exterior products continued to
penetrate against alternative materials, primarily wood-based
and vinyl siding. There continued to be growth in sales of
higher-priced, differentiated products such as vented soffits,
Heritage®
siding panels, the
ColorPlus®
collection of pre-painted siding and
Harditrim®
XLD®
planks. There were further market share gains in the interior
products market, with sales of Hardibacker
500®
half-inch backerboard up strongly compared to fiscal year 2004.
The average net sales price increased 4% from $486 per
thousand square feet in fiscal year 2004 to $506 per
thousand square feet in fiscal year 2005. The increase was due
to proportionally stronger growth of differentiated, higher
priced products, including
Harditrim®
planks, vented soffit and the
ColorPlus®
collection of products, and price increases for some products
that became effective on July 1, 2004 and January 1,
2005.
Our West Coast manufacturing capacity increased during fiscal
year 2005 with the addition of our new fiber cement plant in
Reno, Nevada. The plant began producing product in the fourth
quarter of fiscal year 2005 and its
ramp-up is progressing
well. At fiscal year end 2005, we were in pre-production with
our new 160 million square foot trim line in Peru,
Illinois. Also, during fiscal year 2005, we added pre-finishing
capacity in Peru, Illinois and we began construction of a plant
in Pulaski, Virginia.
Asia Pacific Fiber Cement Net Sales. Net sales increased
7% from $219.8 million in fiscal year 2004 to
$236.1 million in fiscal year 2005. Net sales increased 1%
in Australian dollars. Sales volume increased 4% from
362.1 million square feet in fiscal year 2004 to
376.9 million square feet in fiscal year 2005.
In our Australia and New Zealand Fiber Cement business, net
sales increased 8% from $195.5 million in fiscal year 2004
to $210.1 million in fiscal year 2005 due to a higher
average net sales price and favorable foreign currency
movements. In Australian dollars, net sales increased 1%. Sales
volumes decreased from 284.2 million square feet in fiscal
year 2004 to 283.3 million square feet in fiscal year 2005
primarily due to weaker market conditions in Australia and the
impact of product bans and boycotts in Australia connected with
the SCI and release of the SCI report. In Australia, new
residential housing activity improved early in fiscal year 2005
led by buoyant activity in Queensland, and the renovation and
commercial segments also remained strong early in fiscal year
2005. However, both new residential housing and renovations
activity softened over fiscal year 2005. In New Zealand, new
residential housing activity was robust in the first half of
fiscal year 2005 but softened slightly during the second half of
fiscal year 2005. Sales of our
Linea®
weatherboards continued to grow strongly. The average net sales
price increased 1% in Australian dollars. During fiscal year
2005 we launched
Eclipsa®
eaves lining, a new pre-painted eave product, across Australia.
Eclipsa®
eaves lining offers cost benefits and construction advantages
over non-painted eave products and we expect that it will be
received favorably by builders.
In the Philippines, net sales increased 25% from
$20.8 million in fiscal year 2004 to $26.0 million in
fiscal year 2005. In local currency, net sales increased 27%.
This increase was due to a 20% increase in sales volume and a 5%
increase in the average net sales price. The increase in the
average net sales price was due to a change in sales mix between
domestic and export sales and higher domestic prices in the
second half of fiscal
72
year 2005. Increased market penetration and regional exports
resulted in significantly stronger demand during fiscal year
2005.
Other Sales. Other sales include sales of our fiber
cement products manufactured in Chile, sales of
Hardietm
pipe in the United States, our roofing operations in the United
States, and fiber cement operations in Europe.
Our Chilean business continued to increase its penetration of
the domestic flat sheet market and increased sales of
higher-priced, differentiated products, and increased regional
exports. Net sales increased compared to fiscal year 2004, due
to growth in sales volume and a higher average net sales price.
In local currency, the average net sales price decreased
primarily due to the impact of a weaker U.S. dollar on
export prices, partly offset by higher domestic prices and a
change in the sales mix. Construction activity in Chile
continued to show signs of improvement during fiscal year 2005.
Our USA Hardie Pipe business continued to penetrate the Florida
market of the United States and to improve its manufacturing
efficiency. Net sales for fiscal year 2005 increased strongly
due to increased sales volumes and higher prices despite severe
weather in Florida that adversely affected sales in the first
half of fiscal year 2005. The increase in sales volume was due
to market share gains and buoyant construction activity in
Florida. The average net sales price improved strongly during
fiscal year 2005, reflecting favorable market conditions and
improved customer focus by the business. The manufacturing
performance of our plant also improved significantly during
fiscal year 2005, but operating costs remain above our targets.
Our European business continued to grow demand during fiscal
year 2005 by building awareness of our products among
distributors, builders and contractors, and by adding further
distribution outlets in both the U.K. and French markets. Sales
have continued to build steadily since commencement of
operations in the first quarter of fiscal year 2004. Progress on
creating primary demand in Europe for fiber cement siding
products and converting tile applications from drywall and wood
to fiber cement products, remains in line with management
expectations.
In June 2003, we completed construction and began production
trials at our roofing pilot plant in Fontana, California. The
pilot plant, which has a design capacity of 25 million
square feet, was built to test our proprietary manufacturing
technology and to provide product for market testing in Southern
California. Our roofing business is continuing to prove its
business model and remains focused on market testing, refining
the manufacturing operation and improving productivity. Our
Artisan®
roofing product, made from a new lightweight concrete roofing
technology, has now been launched in all our targeted markets in
California.
Gross Profit. Gross profit increased 19% from
$358.9 million in fiscal year 2004 to $426.4 million
in fiscal year 2005 due to improvements in our major businesses.
The gross profit margin decreased 1.4 percentage points to
35.2% in fiscal year 2005.
USA Fiber Cement gross profit increased 19% due to higher net
sales, partly offset by an increase in unit cost of sales and
increased freight costs. The higher unit cost of sales resulted
primarily from increased sales of higher-priced, differentiated
products, higher pulp and cement costs, maintenance expenses and
a temporary reduction in manufacturing efficiency at some plants
that occurred during the second quarter of fiscal year 2005.
Higher freight costs were primarily related to an increase in
length of haul of some products due to supply issues associated
with a temporary reduction in plant manufacturing efficiency in
the second quarter of fiscal year 2005, and higher fuel costs
and general liability insurance. The gross profit margin
decreased 2.6 percentage points.
Asia Pacific Fiber Cement gross profit increased 11% following
improvements from Australia and New Zealand Fiber Cement and
Philippines Fiber Cement, which increased 8% and 53%,
respectively. The improved result was due to manufacturing
efficiency gains in both Australia and New Zealand and increased
net sales in New Zealand, partly offset by reduced net sales in
Australia attributable to weaker market conditions and product
bans and boycotts in Australia connected with the SCI and
release of its report. In the Philippines, increased sales
accounted for the stronger gross profit performance. The Asia
Pacific Fiber Cement gross profit margin increased
1.2 percentage points.
73
Selling, General and Administrative (SG&A) Expenses.
SG&A expenses increased 8% compared to fiscal year 2004,
from $162.0 million to $174.5 million. The increase in
SG&A expenses was due mainly to increased sales and
marketing, information technology and other expenses associated
with growth initiatives in the United States. As a percentage of
sales, SG&A expenses for the year were 2.1 percentage
points lower at 14.4%.
Research and Development Expenses. Research and
development expenses include costs associated with
“core” research projects that are designed to benefit
all fiber cement business units. These costs are recorded in the
Research and Development segment rather than being attributed to
individual business units. These costs decreased 15% for fiscal
year 2005, to $12.0 million. Other research and development
costs associated with commercialization projects in business
units are included in the business related unit segment results.
In total, these costs increased 13% to $9.6 million for
fiscal year 2005.
SCI and Other Related Expenses. In February 2004, the NSW
Government, Australia, established a SCI to investigate, among
other matters, the circumstances in which the Foundation was
established and the corporate reorganizations which led to and
followed the establishment of the Foundation. Shortly after
release of the SCI report on September 21, 2004, we
commenced negotiations with the NSW Government, the ACTU,
UnionsNSW and a representative of asbestos claimants in relation
to our offer made to the SCI on July 14, 2004 to provide
funds voluntarily for proven Australian-based asbestos-related
injury and death claims against certain former James Hardie
Group Australian subsidiaries. On December 21, 2004, we
entered into a Heads of Agreement with the above parties to
establish and fund a SPF to provide funding for these claims on
a long-term basis. We have subsequently entered into
negotiations with the NSW Government on an agreement that, when
completed, we expect to be put to shareholders for approval.
Costs incurred during fiscal year 2005 associated with the SCI
and other related matters totaled $28.1 million and
included: $6.8 million related to the SCI;
$4.9 million related to the internal investigation
conducted by independent legal advisers, consistent with
U.S. securities regulations, of the impact on our financial
statements of allegations of illegal conduct raised during the
SCI and any potential impacts on the financial statements (the
investigation found there was no adverse impact on our 2004
financial statements); $1.2 million related to the
Australian Securities and Investments Commission, or ASIC,
investigation into the circumstances surrounding the creation of
the Foundation; $6.4 million for resolution advisory
services; $6.0 million in severance and consulting payments
to former executives; and $2.8 million for other matters.
Further information on the SCI and other related matters can be
found in Item 3, “Key Information — Risk
Factors” and Item 4, “Information on the
Company — Legal Proceedings” And Note 13 to
our consolidated financial statements in Item 18.
Other Operating Expenses. Other operating expenses of
$6.0 million in fiscal year 2005 relate to a settlement
loss of $5.3 million for an employee retirement plan and a
loss on the sale of land in Sacramento, California. The
retirement of a significant number of participants in the
employee retirement plan resulted in a requirement under
SFAS No. 88 to recognize and accelerate the amortizing
of an actuarial loss for the plan. The other operating expense
amount in fiscal year 2004 of $2.1 million mainly reflects
an increase in cost provisions for our Australia and New Zealand
business.
Operating Income. Operating income increased 14% from
$172.2 million in fiscal year 2004 to $196.2 million
in fiscal year 2005. The operating income margin decreased
1.3 percentage points to 16.2% in fiscal year 2005.
Operating income includes SCI and other related expenses of
$28.1 million.
USA Fiber Cement operating income increased 24% from
$195.6 million in fiscal year 2004 to $241.5 million
in fiscal year 2005. The increase was due to growth in net
sales, partly offset by an increase in unit cost of sales, unit
freight cost, general liability insurance and SG&A expenses.
The increase in unit cost of sales was due to increased sales of
higher cost differentiated products, higher pulp and cement
costs, increased maintenance expenses and a temporary reduction
in manufacturing efficiency at some plants that occurred during
the second quarter of fiscal year 2005. Higher freight costs
were primarily related to an increase in length of haul of some
products due to supply issues associated with the temporary
reduction in plant
74
manufacturing efficiency and higher fuel costs. The operating
income margin decreased 0.8 of a percentage point to 25.7%.
Asia Pacific Fiber Cement operating income increased 25% from
$37.6 million in fiscal year 2004 to $46.8 million in
fiscal year 2005. The operating income margin increased
2.7 percentage points to 19.8% in fiscal year 2005.
Australia and New Zealand Fiber Cement operating income
increased 20% from $35.4 million in fiscal year 2004 to
$42.4 million in fiscal year 2005. In Australian dollars,
Australia and New Zealand Fiber Cement operating income
increased 12%. The increase in operating income in Australian
dollars was mainly due to cost savings and the impact of a cost
provision recorded in fiscal year 2004 that did not recur in
fiscal year 2005. The operating income margin increased
2.1 percentage points to 20.2% in fiscal year 2005.
Philippines Fiber Cement business more than doubled its positive
operating income performance compared to fiscal year 2004 due to
increased net sales.
The Chile Fiber Cement business recorded a small positive
operating income in each quarter of fiscal year 2005.
Our USA Hardie Pipe business significantly reduced its operating
loss compared to fiscal year 2004 due to increased sales
volumes, higher selling prices and manufacturing cost savings.
Our Europe Fiber Cement business incurred an operating loss for
fiscal year 2005 as expected.
General corporate costs increased $35.3 million from
$27.5 million in fiscal year 2004 to $62.8 million in
fiscal year 2005. This increase was primarily due to
$28.1 million of SCI and other related expenses, a
settlement loss of $5.3 million related to an employee
retirement plan, a $0.7 million loss on sale of land owned
in Sacramento, California and a net increase in other general
corporate costs. Additionally, in the fiscal year 2004, we
booked a reversal of an excess provision of $1.6 million
related to a vendor dispute that we settled favorably that did
not recur in fiscal year 2005. These increases were partially
offset by a $2.5 million decrease in employee bonus plan
expense and a $3.0 million decrease in employee share-based
compensation expense from stock appreciation rights primarily
caused by a decrease in our share price.
Net Interest Expense. Net interest expense decreased by
$4.9 million from $10.0 million in fiscal year 2004 to
$5.1 million in fiscal year 2005, primarily due to a higher
amount of interest expense capitalized on construction projects
in fiscal year 2005 compared to fiscal year 2004, higher
interest income in fiscal year 2005 due to higher average cash
balances and lower interest expense in fiscal year 2005 due to
lower average debt balances.
Other (Expense) Income. During fiscal year 2005, other
expense consisted primarily of a $2.1 million impairment
charge that we recorded on an investment in a company that filed
a voluntary petition for reorganization under Chapter 11 of
the U.S. bankruptcy code, partially offset by a
$0.8 million gain on a separate investment. In fiscal year
2004, we realized a gain before income tax of $4.5 million
on the sale of property formerly owned by one of our New Zealand
subsidiaries. Additionally, a previously recorded liability
related to potential contingent legal claims was reversed,
resulting in income of $4.3 million. We also realized
$0.1 million in net investment income. These income items
were partially offset by an impairment charge of
$2.2 million that we recorded on an investment in a company
that filed a voluntary petition for reorganization under
Chapter 11 of the U.S. bankruptcy code. Additionally,
we incurred an expense of $3.2 million primarily due to a
capital duty fee paid in conjunction with our Dutch legal
structure. We incurred this to extend the scope of our
international finance subsidiary to lend to global operations.
Income Tax Expense. Income tax expense increased by
$21.5 million from $40.4 million in fiscal year 2004
to $61.9 million in fiscal year 2005 due to the increase in
profit, the geographic mix of earnings, estimated income tax
contingencies recorded during fiscal year 2005 and
non-deductible SCI and other related expenses.
Income from Continuing Operations. Income from continuing
operations increased from $125.3 million in fiscal year
2004 to $127.9 million in fiscal year 2005. Income from
continuing operations includes SCI and other related expenses of
$28.1 million and a related tax benefit of
$5.8 million.
75
Discontinued Operations
In total, we recorded neither income nor a loss from
discontinued operations in fiscal year 2006, a loss of
$1.0 million in fiscal year 2005 and income of
$4.3 million in fiscal year 2004. The amount in fiscal year
2005 relates primarily to additional costs associated with the
sale of New Zealand land in March 2004 and the settlement of a
dispute associated with a former business. The amount for fiscal
year 2004 primarily includes a favorable outcome from matters
related to our former Gypsum business and a gain on the sale of
our New Zealand Building Systems business, net of other
wind-up costs of Gypsum
and other discontinued businesses. See Note 14 to our
consolidated financial statements included in Item 18 for
additional information about the results of our discontinued
operations.
On May 30, 2003, we sold our New Zealand Building Systems
business to a third party. We recorded a gain of
$1.9 million representing the excess of net proceeds from
the sale of $6.7 million over the net book value of assets
sold of $4.8 million. The proceeds from the sale comprised
cash of $5.0 million and a note receivable in the amount of
$1.7 million. As of March 31, 2005, the
$1.7 million note receivable had been collected in full.
Following the establishment of the ABN 60 Foundation and
transfer of the shares in ABN 60 to the ABN 60 Foundation, we no
longer own any shares of ABN 60. ABN 60 Foundation is
managed by independent directors and operates entirely
independently of us. Since that date, we have not and currently
we do not control the activities of ABN 60 or ABN 60 Foundation
in any way. Other than as described in Note 12 to our
consolidated financial statements in Item 18, we have no
economic interest in ABN 60 or ABN 60 Foundation and we have no
right to dividends or capital distributions made by the ABN 60
Foundation. Apart from the express indemnity for non-asbestos
matters provided to ABN 60 and a possible arrangement to fund
some or all future claimants for asbestos-related injuries
caused by former James Hardie Group subsidiary companies and to
the potential liabilities more fully described in Notes 12
and 20 to our consolidated financial statements in Item 18,
we do not believe we will have any liability under current
Australian law should future liabilities of ABN 60 or ABN 60
Foundation exceed the funds available to those entities. As a
result of the change in ownership of ABN 60 on March 31,
2003, we recorded a loss on disposal of $0.4 million,
representing the liabilities of ABN 60 (to the Foundation) of
A$94.6 million ($57.2 million), the
A$94.5 million ($57.1 million) in cash held on the
balance sheet, and costs associated with the establishment and
funding of the ABN 60 Foundation. Also see “Legal
Proceedings” and Notes 12 and 14 to our consolidated
financial statements included below in Item 18.
Under the terms of a Deed of Covenant, Indemnity and Access
entered into by JHI NV and ABN 60 at or around this time, the
ABN 60 Foundation was established, JHI NV agreed to indemnify
ABN 60 Foundation for any non asbestos-related legal claims made
on ABN 60 in relation to any acts or omissions of ABN 60 or its
directors and officers, which occurred prior to the transfer of
ABN 60 to the ABN 60 Foundation. The indemnity is uncapped and
the term of the indemnity is in perpetuity. We believe that the
likelihood of any material non asbestos-related claims occurring
which would result in a call on this indemnity is remote. As
such, we have not recorded a liability for the indemnity. We
have not pledged any assets as collateral for such indemnity.
Also under the terms of that Deed of Covenant, Indemnity and
Access, Amaca, Amaba and ABN 60 agreed to indemnify JHI NV and
its related corporate entities for past and future
asbestos-related liabilities incurred by them as a result of the
acts or omissions of ABN 60 prior to establishing the ABN 60
Foundation. Amaca and Amaba provided similar indemnities under
the Deed of Covenant and Indemnity entered into with ABN 60,
which included indemnities in favor of JHI NV and its related
entities. Amaca, Amaba and ABN 60’s obligation to indemnify
JHI NV and its related entities includes asbestos-related claims
that may arise associated with the manufacturing activities of
those companies.
76
Our liability under or in connection with the indemnities
described above may potentially be mitigated or otherwise
affected by the releases from civil liability described under
the heading “Releases from Civil Liability” in
Item 4, “Information on the Company — Legal
Proceedings.” However, we have taken the view to date that
such legislation does not ameliorate our liability with respect
to those indemnities.
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Disposal of Chile Business |
In June 2005, we approved a plan to dispose of our Chile Fiber
Cement business to Compañía Industrial El Volcan S.A,
which we refer to as Volcan. The sale closed on July 8,
2005. The Company received net proceeds of $3.9 million and
recorded a loss on disposal of $0.8 million. This loss on
disposal is included in other operating expense in our
consolidated statements of operations.
As part of the terms of the sale of the Chile Fiber Cement
business to Volcan, we entered into a two-year take or pay
purchase contract for fiber cement product manufactured by
Volcan. The first and second year of the contract amounts to a
purchase commitment of approximately $2.8 million and
$2.1 million, respectively. As this contract qualifies as
continuing involvement per SFAS No. 144,
“Accounting for the Impairment or Disposal of Long Lived
Assets,” the results of operations and loss on disposal of
the Chile Fiber Cement business are included in our income from
continuing operations. See Note 14 to our consolidated
financial statements included in Item 18 for additional
information about the results of the disposal of our Chile Fiber
Cement business.
Impact of Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 151, “Inventory
Costs — an amendment of Accounting Research Bulletin,
or ARB, No. 43, Chapter 4.”
SFAS No. 151 requires abnormal amounts of inventory
costs related to idle facility, freight handling and wasted
material expenses to be recognized as current period charges.
Additionally, SFAS No. 151 requires that allocation of
fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The adoption of this standard did not
have a material impact on our consolidated financial statements.
|
|
|
American Jobs Creation Act |
In October 2004, the President of the United States signed into
law the American Jobs Creation Act (which we refer to as the
Act). The Act allows for a U.S. federal income tax
deduction for a percentage of income earned from certain
U.S. production activities. Based on the effective date of
the Act, we were eligible for this deduction in the first
quarter of fiscal year 2006. Additionally, in December 2004, the
FASB issued FASB Staff Position, FSP, No. 109-1,
“Application of FASB Statement No. 109, Accounting for
Income Taxes (which we refer to as SFAS No. 109), to
the Tax Deduction on Qualified Production Activities Provided by
the American Jobs Creation Act of 2004.” FSP
No. 109-1, which was effective upon issuance, states the
deduction under this provision of the Act should be accounted
for as a special deduction in accordance with
SFAS No. 109. The adoption of this standard did not
have a material impact on our consolidated financial statements.
The Act also allows for an 85% dividends received deduction on
the repatriation of certain earnings of foreign subsidiaries. In
December 2004, the FASB issued FSP No. 109-2,
“Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004.” FSP No. 109-2, which was
effective upon issuance, allows companies time beyond the
financial reporting period of enactment to evaluate the effect
of the Act on its plan for reinvestment or repatriation of
foreign earnings for purposes of applying
SFAS No. 109. Additionally, FSP 109-2 provides
guidance regarding the required disclosures surrounding a
company’s reinvestment or repatriation of foreign earnings.
The adoption of this standard did not have a material effect on
our consolidated financial statements.
77
|
|
|
Exchanges of Non-Monetary Assets |
In December 2004, the FASB issued SFAS No. 153,
“Exchange of Non-Monetary Assets — An Amendment
of ARB Opinion No. 29,” which requires non-monetary
asset exchanges to be accounted for at fair value. The Company
is required to adopt the provisions of SFAS No. 153
for non-monetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of this standard did not
have a material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment” (which we refer
to as SFAS No. 123R). SFAS No. 123R replaces
SFAS No. 123, “Accounting for Stock-Based
Compensation,” and supersedes Accounting Principles Board,
or APB, Opinion No. 25, “Accounting for Stock Issued
to Employees.” Generally, SFAS No. 123R is
similar in approach to SFAS No. 123 and requires that
compensation cost relating to share-based payments be recognized
in the financial statements based on the fair value of the
equity or liability instruments issued. SFAS No. 123R
is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. In April
2005, the U.S. Securities and Exchange Commission delayed
the effective date of SFAS No. 123R until fiscal years
beginning after June 15, 2005. We adopted
SFAS No. 123 in fiscal year 2003 and do not expect the
adoption of SFAS No. 123R, which will occur in the
first quarter of fiscal year 2007, to have a material effect on
our consolidated financial statements.
|
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Conditional Asset Retirement Obligations |
In March 2005, the FASB issued FASB Interpretation No. 47,
or FIN 47, “Accounting for Conditional Asset
Retirement Obligations.” FIN 47 clarifies the term
“conditional asset retirement obligation” used in
SFAS No. 143, “Accounting for Asset Retirement
Obligations.” FIN 47 is effective no later than the
end of the fiscal year ending after December 15, 2005. The
adoption of this interpretation did not have a material impact
on our consolidated financial statements.
|
|
|
Accounting Changes and Error Corrections |
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.” SFAS No. 154 requires retrospective
application to prior periods’ financial statements of a
voluntary change in accounting principle unless it is
impracticable. APB Opinion No. 20, “Accounting
Changes,” previously required that most voluntary changes
in accounting principle be recognized by including in net income
of the period of the change the cumulative effect of changing to
the new accounting principle. This statement is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The adoption of
this standard is not expected to have a material impact on our
consolidated financial statements.
In June 2006, the FASB issued Interpretation No. 48, or
FIN 48, entitled “Accounting for Uncertainty in Income
Taxes,” an interpretation of SFAS No. 109.
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in
accordance with SFAS No. 109. Unlike
SFAS No. 109, FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. Additionally, FIN 48 provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. We will adopt the provisions of FIN 48
effective April 1, 2007. We have not yet determined the
effect of the adoption of FIN 48 on our financial position
or results of operations.
Liquidity and Capital Resources
Our treasury policy regarding our liquidity management, foreign
exchange risks management, interest rate risk management and
cash management is administered by our treasury department and
is centralized in
78
The Netherlands. This policy is reviewed annually and is
designed to ensure that we have sufficient liquidity to support
our business activities and meet future business requirements in
the countries in which we operate. Counterparty limits are
managed by our treasury department and based upon the
counterparty credit rating; total exposure to any one
counterparty is limited to specified amounts and signed off
annually by the CFO.
We have historically met our working capital needs and capital
expenditure requirements through a combination of cash flow from
operations, proceeds from the divestiture of businesses, credit
facilities and other borrowings, proceeds from the sale of
property, plant and equipment and proceeds from the redemption
of investments. Seasonal fluctuations in working capital
generally have not had a significant impact on our short-term or
long-term liquidity. We believe that we can meet our present
working capital requirements for at least the next
12 months based on our current capital resources. We expect
that cash commitments arising from the Final Funding Agreement
will be met either from cash generated by our operating
activities or, should this prove insufficient, from borrowings
under our existing credit facilities.
We had cash and cash equivalents of $315.1 million as of
March 31, 2006. At that date, we also had credit facilities
totaling $476.7 million, of which $302.7 million was
outstanding. The credit facilities are all non-collateralized
and as of March 31, 2006 consisted of the following:
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|
|
|
|
|
|
|
|
| |
|
At March 31, 2006 | |
| |
|
| |
| |
|
Effective | |
|
|
|
Principal | |
| Description |
|
Interest Rate | |
|
Total Facility | |
|
Outstanding | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
US$ notes, fixed interest, repayable annually in varying
tranches from November 2006 through November 2013
|
|
|
7.16 |
% |
|
$ |
121.7 |
|
|
$ |
121.7 |
|
|
US$ 364-day facilities, can be drawn in US$, variable interest
rates based on LIBOR plus margin, can be repaid and redrawn
until June 2007
|
|
|
5.41 |
% |
|
|
110.0 |
|
|
|
81.0 |
|
|
US$ term facilities, can be drawn in US$, variable interest
rates based on LIBOR plus margin, can be repaid and redrawn
until December 2006
|
|
|
5.27 |
% |
|
|
245.0 |
|
|
|
100.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
476.7 |
|
|
$ |
302.7 |
|
| |
|
|
|
|
|
|
|
|
|
As of March 31, 2006 we had net cash of $12.4 million,
compared with net debt of $45.8 million as of
March 31, 2005, an increase of $58.2 million.
Our credit facilities currently consist of
364-day facilities in
the amount of $110.0 million, which mature in June 2007,
and term facilities in the amount of $245.0 million, which
mature in December 2006. The maturity dates of the
$110.0 million
364-day facilities and
$245.0 million term facilities were extended from December
2006 and June 2006, respectively, in June 2006. For both
facilities, interest is calculated at the commencement of each
draw-down period based on the
U.S.-dollar London
Interbank Offered Rate, or LIBOR, plus the margins of individual
lenders, and is payable at the end of each draw-down period.
During fiscal year 2006, the Company paid $0.7 million in
commitment fees. As of March 31, 2006, $181.0 million
was drawn under the combined facilities and $174.0 million
was available.
In March 2006, our wholly owned subsidiary RCI received an
amended assessment from the ATO of A$412.0 million
($310.0 million). The assessment was subsequently amended
to A$378.0 million ($284.6 million).
RCI is appealing the amended assessment and may incur
substantial legal and other expenses in pursuing this appeal. On
July 5, 2006, pursuant to an agreement negotiated with the
ATO and in accordance with the ATO Receivable Policy, the
Company made a payment of A$189.0 million
($140.4 million — converted using the assets and
liabilities rate at June 30, 2006) being 50% of the amended
assessment, and guaranteed the remaining unpaid 50% of the
amended assessment, pending the outcome of the appeal of the
amended assessment. The Company also agreed to pay general
interest charges accruing on the unpaid balance of the amended
assessment in arrears on a quarterly basis. The first payment of
accrued general interest charges will
79
be due October 15, 2006 in respect of the quarter ending
September 30, 2006. These payments will reduce our
liquidity. We believe that RCI’s view on its tax position
will ultimately prevail in this matter. Accordingly, it is
expected that any amounts paid would be recovered, with
interest, by RCI at the time RCI is successful in its appeal
against the amended assessment. However, if RCI is unsuccessful
in its appeal, RCI will be required to pay the entire
assessment. As of March 31, 2006, we had not recorded any
liability for the amended assessment. For more information, see
Note 13 to our consolidated financial statements in
Item 18.
Additionally, if the conditions precedent to the full
implementation of the Final Funding Agreement, including lender
approval, are satisfied, the maturity date of the
$245.0 million facilities will be automatically extended
until June 2010.
As a result of recording the asbestos provision at
March 31, 2006, and the Supervisory Board’s approval
on May 12, 2006 of the recording of this provision, we
would not have been in compliance with certain of the
restrictive covenants in respect of the
U.S.-dollar
non-collateralized notes. However, under the terms of the
non-collateralized notes agreement, prepayment of these notes
was permitted, and on April 28, 2006 we issued a notice to
all noteholders to prepay in full all outstanding notes on
May 8, 2006. On that date, the
U.S.-dollar
non-collateralized notes were prepaid in full, including a
make-whole payment of $6.0 million. In the fourth quarter
of fiscal year 2006, $181.0 million was drawn down on the
credit facilities in anticipation of the prepayment of the
U.S.-dollar
non-collateralized notes as described above.
The Company anticipates being able to meet its payment
obligations from:
|
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|
| |
• |
existing cash and unutilized committed facilities; |
| |
| |
• |
net operating cash flow during the current year; |
| |
| |
• |
an extension of the term of existing credit facilities; and |
| |
| |
• |
the addition of proposed new funding facilities. |
However, if the conditions precedent to the full implementation
of the Final Funding Agreement are not satisfied or dealt with
in a manner acceptable to all parties to the Final Funding
Agreement, we may not be able to renew our credit facilities on
substantially similar terms, or at all; we may have to pay
additional fees and expenses that we might not have to pay under
normal circumstances; and we may have to agree to terms that
could increase the cost of our debt structure. See Item 3,
“Key Information — Risk Factors.”
If we are unable to extend our credit facilities, or are unable
to renew our credit facilities on terms that are substantially
similar to the ones we presently have, we may experience
liquidity issues and will have to reduce our levels of planned
capital expenditures, reduce or eliminate dividend payments, or
take other measures to conserve cash in order to meet our future
cash flow requirements. Nevertheless, we believe we will have
sufficient funds to meet our working capital and other cash
requirements for at least the next 12 months based on our
existing cash balances and anticipated operating cash flows
arising during the year.
At March 31, 2006, our management believes that we were in
compliance with all restrictive covenants contained in the
non-collateralized notes and credit facility agreements. Under
the most restrictive of these covenants, we are required to
maintain certain ratios of debt to equity and net worth and
levels of earnings before interest and taxes and are limited in
how much we can spend on an annual basis in relation to asbestos
payments to Amaca, Amaba or ABN 60.
|
|
|
Cash Flow — Year Ended March 31, 2006
compared to Year Ended March 31, 2005 |
Net operating cash inflows increased by 9% from
$219.8 million in fiscal year 2005 to $240.6 million
in fiscal year 2006 primarily due to the improved operating
performance of the business, offset by increases in operating
assets.
Net cash used in investing activities increased from
$149.8 million in fiscal year 2005 to $154.0 million
in fiscal year 2006 as we continued to invest in increasing our
production capacity. The increase in capital expenditure was
partially offset by $8.0 million net proceeds from the sale
of our Chilean flat sheet business in July 2005.
80
Net cash provided by investing activities increased from a
utilization of $27.6 million in fiscal year 2005 to
$116.5 million in fiscal year 2006 due to the drawdown of
$181.0 million on our term facilities in preparation for
the prepayment of the
U.S.-dollar
non-collateralized notes on May 8, 2006, and an increase in
proceeds from issuance of shares of $16.1 million. This
increase was offset by an increase of $32.2 million in
dividend payments and a $20.0 million increase in loan
repayments.
|
|
|
Cash Flow — Year Ended March 31, 2005
compared to Year Ended March 31, 2004 |
Net operating cash inflows increased by $57.2 million or
35% from $162.6 million to $219.8 million for the year
ended March 31, 2005 compared to the year ended
March 31, 2004, primarily due to changes in our operating
assets and liabilities.
Net cash used in investing activities was $149.2 million
for the year ended March 31, 2005 compared to
$58.0 million in fiscal year 2004. The increase in the cash
used was primarily due to additional capital expenditures of
$78.4 million for the year ended March 31, 2005,
$10.9 million cash received in fiscal year 2004 from the
sale of land and buildings of our Australia and New Zealand
business in March 2004, and $5.0 million cash received in
the fiscal year 2004 from the sale of our New Zealand Building
Systems business in May 2003 that did not recur in fiscal year
2005, partly offset by proceeds of $3.4 million from the
sale of land in Sacramento, California in fiscal year 2005.
Net cash used in financing activities was $28.2 million for
the year ended March 31, 2005 compared to
$87.9 million for the fiscal year ended March 31,
2004. The decrease in cash used was primarily due to a
$68.7 million repayment of capital in fiscal year 2004 that
did not recur in fiscal year 2005 and a $9.2 million
decrease in dividends paid, partly offset by a
$17.6 million scheduled debt repayment in fiscal year 2005.
|
|
|
Capital Requirements and Resources |
Our capital requirements consist of expansion, renovation and
maintenance of our production facilities and construction of new
facilities. Our working capital requirements, consisting
primarily of inventory and accounts receivable and payables,
fluctuate seasonally during months of the year when overall
construction and renovation activity volumes increase.
During each fiscal year in the three year period ended
March 31, 2006, our continuing businesses generated cash in
excess of our capital requirements. As we continue expanding our
fiber cement businesses, we expect to use cash primarily
generated from our operations to fund capital expenditures and
working capital. During fiscal year 2007, we expect to spend a
significant amount on capital expenditures that include facility
upgrades, new facility construction, and implementation of new
fiber cement technologies. We plan to fund any cash flow
shortfalls that we may experience due to payments that may be
made under the Final Funding Agreement and payments made to the
ATO under the amended assessment, with future cash flow
surpluses, cash on hand of $315.1 million at March 31,
2006, and cash that we anticipate will be available to us under
credit facilities.
On December 1, 2005, we announced that we, the NSW
Government and James Hardie 117 Pty Ltd, which we refer to as
the Performing Subsidiary, had entered into a Final Funding
Agreement to provide long-term funding to a SPF that will
provide compensation for Australian asbestos-related personal
injury claims against the former James Hardie Australian
subsidiaries arising from exposure to asbestos in Australia. The
Final Funding Agreement is subject to a number of conditions
precedent, including our being satisfied with the tax treatment
of the proposed funding arrangements and receiving approval of
our lenders and shareholders. As of March 31, 2006, we
recorded a provision for estimated future asbestos-related
compensation payments (asbestos provision) of
$715.6 million. The booking of this asbestos provision is
based on the Company’s assumption that the conditions
precedent to the effectiveness of the Final Funding Agreement
will be fulfilled, including the achievement of tax
deductibility of payments to the SPF, and the SPF being exempt
from tax. If these conditions are not fulfilled or otherwise
dealt with in a manner acceptable to the parties to the Final
Funding Agreement, we are likely to propose an alternative
settlement, in which case the amount of the provision may be
adjusted to reflect the funds available for contribution by us
under such an alternative
81
settlement. Any such alternative settlement may be subject to
conditions precedent and would require lender and shareholder
approval. See Item 4, “Information on the
Company — Legal Proceedings.”
Currently, the timing of any potential payments is uncertain
because the conditions precedent to the Final Funding Agreement
have not been satisfied. If the conditions precedent to the
Final Funding Agreement are satisfied, we expect to make an
initial payment of approximately A$154 million (equal to
estimated asbestos claims to be paid over the next three years
less existing cash of the Foundation), although given the delays
in implementing the Final Funding Agreement this amount may be
recalculated to take into account the latest available claims
data. We believe that the cash and cash equivalents that we
currently have on hand and funds from credit facilities that we
anticipate will be available, will be sufficient to fund the
initial payment. Additionally, we anticipate that the Final
Funding Agreement will require us to make annual payments to
fund asbestos claims.
On June 23, 2006, the ATO advised us that it has refused to
endorse the SPF as a tax concession charity (which is required
for the SPF to be exempt from tax), arguing that, in its
opinion, the scope of its activities under the Trust Deed
and the Final Funding Agreement does not meet current
legislative requirements for such an endorsement. The SPF and
the Company have received strong legal advice, including from
some of Australia’s leading counsel, that the SPF satisfies
the requirements applicable under income tax legislation such
that the ATO should endorse the SPF as a charity. At the time of
filing this report, the Company is in further discussions with
the ATO and is in discussions and negotiations with the NSW
Government, seeking to resolve this unsatisfied condition
precedent to the Final Funding Agreement and the means by which
it could be fulfilled, amended or otherwise dealt with in a
manner satisfactory to the parties to the Final Funding
Agreement.
On June 29, 2006, the ATO issued a ruling to us to the
effect that our contributions to the SPF would be tax deductible
over the anticipated life of the arrangements in accordance with
the recent “blackhole expenditure” Federal Legislation
which was enacted in April 2006. The ruling issued by the ATO
provides deductibility over a five-year period from the date of
contribution, whereas the condition precedent in the Final
Funding Agreement provides for deductibility of contributions in
the year incurred. The Company has indicated to the NSW
Government that it is prepared to accept this basis of
deductibility of the funding payments, if the tax condition
relating to the tax exempt status of the SPF can be
satisfactorily resolved.
Costs incurred in satisfying the conditions precedent related to
Final Funding Agreement may be significant and will negatively
impact our cash generated from operations over the short-term.
We anticipate that our cash flows from operations, net of
estimated payments that may be made under the Final Funding
Agreement, will be sufficient to fund our planned capital
expenditure and working capital requirements in the short-term.
If we do not generate sufficient cash from operations to fund
our planned capital expenditures and working capital
requirements, we believe the cash and cash equivalents of
$315.1 million at March 31, 2006, and the cash that we
anticipate will be available to us under credit facilities, will
be sufficient to meet any cash shortfalls during at least the
next 12 months.
We expect to rely primarily on increased market penetration of
our products and increased profitability from a more favorable
product mix to generate cash to fund our long-term growth.
Historically, our products have been well-accepted by the market
and our product mix has changed towards higher-priced,
differentiated products that generate higher margins.
We have historically reinvested a portion of the cash generated
from our operations to fund additional capital expenditures,
including research and development activities, which we believe
have facilitated greater market penetration and increased
profitability. Our ability to meet our long-term liquidity
needs, including our long-term growth plan, is dependent on the
continuation of this trend and other factors discussed here.
We believe our business is affected by general economic
conditions and interest rates in the United States and in other
countries because these factors affect the number of new housing
starts, the level of housing prices and household net worth. We
believe that higher housing prices, which may affect available
owner equity and household net worth, are contributors to the
currently relatively strong renovation and remodel
82
markets for our products. Over the past several years, favorable
economic conditions and historically-reasonable mortgage
interest rates in the United States helped sustain new housing
starts and renovation and remodel expenditures in the United
States. However, increases in interest rates during 2005 and
2006 may cause a levelling-off or decrease in new housing starts
over at least the short-term. We expect that business derived
from current U.S. forecasts of new housing starts and
continued healthy renovation and remodel expenditures will
result in our operations generating cash flow sufficient to fund
the majority of our planned capital expenditures. It is possible
that a decline in new housing starts in the United States or in
other countries in which we manufacture and sell our products
would negatively impact our growth and current levels of revenue
and profitability and therefore decrease our liquidity and our
ability to generate sufficient cash from operations to meet our
capital requirements. During calendar years 2005 and 2006,
U.S. home mortgage interest rates steadily increased and,
along with continued housing price increases, the
U.S. housing affordability index has decreased. We believe
that these economic factors, along with others, will cause a
slowdown in growth of U.S. new housing construction over
the short-term, which may reduce demand for our products.
Pulp and cement are primary ingredients in our fiber cement
formulation, which have been subject to price volatility,
affecting our working capital requirements. See Item 3,
“Key Information — Risk Factors.” Cement
prices increased in fiscal year 2006. Pulp prices increased in
fiscal year 2005 and the increase continued during fiscal year
2006. We expect that cement prices will remain high in the
short-term. In addition, it is possible that pulp prices will
also fluctuate. To minimize additional working capital
requirements caused by rising pulp or cement prices, we may seek
to enter into contracts with suppliers for the purchase of pulp
or cement that could fix our pulp or cement prices over the
longer-term. However, if pulp or cement prices do not continue
to rise, cash generated from our operations may be negatively
impacted if pulp or cement pricing is fixed over the longer-term.
Freight costs have increased primarily due to continued higher
fuel prices. We expect fuel costs to remain higher, which will
increase our working capital requirements as compared to fiscal
year 2006.
The collective impact of the foregoing factors, and other
factors, including those identified in Item 3, “Key
Information — Risk Factors,” may affect our
ability to generate sufficient cash flows from operations to
meet our short and longer-term capital requirements. We believe
that we will be able to fund any cash shortfalls for at least
the next 12 months with cash that we anticipate will be
available under our credit facilities and that we will be able
to maintain sufficient cash available under those facilities.
Additionally, we could determine it necessary to reduce or
eliminate dividend payments, scale back or postpone our
expansion plans and/or take other measures to conserve cash to
maintain sufficient capital resources over the short and
longer-term.
Our total capital expenditures, including amounts accrued, for
continuing operations for fiscal years 2006, 2005 and 2004 were
$162.8 million, $153.0 million and $74.1 million,
respectively. The capital expenditures were primarily used to
create additional low cost, high volume manufacturing capacity
to meet increased demand for our fiber cement products and to
create new manufacturing capacity for new fiber cement products.
Significant capital expenditures in fiscal year 2006 included
(i) completion of the first line at our new Pulaski,
Virginia plant and (ii) the continued implementation of our
ColorPlus®
product strategy. This strategy includes constructing additional
ColorPlus®
coating capacity inside our existing plants. In fiscal year
2006, we completed construction of, and commenced production on,
a new
ColorPlus®
product line at our Blandon, Pennsylvania plant. In addition, we
began construction on new
ColorPlus®
coating lines at our Reno, Nevada and Pulaski, Virginia plants.
Significant capital expenditures in fiscal year 2005 included
the completion of our new Reno, Nevada plant and the
construction of a new trim line at our Peru, Illinois plant.
Significant capital expenditures in fiscal year 2004 included
the completion of: (i) an upgrade to our Blandon,
Pennsylvania plant; (ii) a panel production line at our
Waxahachie, Texas plant; (iii) a new pre-finishing line at
our Peru, Illinois plant; and (iv) a roofing pilot plant in
Fontana, California. In addition, in
83
fiscal year 2004 we began construction on a new green-field
fiber cement plant in Reno, Nevada and on a new trim line at our
Peru, Illinois plant. See Item 4, “Information on the
Company — Capital Expenditures and Divestitures.”
The following table summarizes our significant contractual
obligations at March 31, 2006:
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| |
|
Payments Due | |
| |
|
| |
| |
|
|
|
During Fiscal Year Ending March 31, | |
| |
|
|
|
| |
| |
|
Total | |
|
2007 | |
|
2008 to 2009 | |
|
2010 to 2011 | |
|
Thereafter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Long-term Debt(1)
|
|
$ |
121.7 |
|
|
$ |
121.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest on Long-term Debt
|
|
|
10.4 |
|
|
|
10.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Operating Leases
|
|
|
142.8 |
|
|
|
15.8 |
|
|
|
26.3 |
|
|
|
22.0 |
|
|
|
78.7 |
|
|
Purchase Obligations(2)
|
|
|
22.2 |
|
|
|
22.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
297.1 |
|
|
$ |
170.1 |
|
|
$ |
26.3 |
|
|
$ |
22.0 |
|
|
$ |
78.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Under the terms of the
U.S.-dollar
non-collateralized notes agreement (fixed-rate debt), prepayment
was permitted and on April 28, 2006, we issued a notice to
all noteholders to prepay in full all outstanding notes on
May 8, 2006. On May 8, 2006, the
U.S.-dollar
non-collateralized notes were prepaid in full, including a
make-whole payment of $6.0 million. |
| |
| (2) |
Purchase Obligations are defined as agreements to purchase goods
or services that are enforceable and legally-binding on us and
that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transactions.
Purchase obligations listed above primarily represent
commitments for capital expenditures, the majority of which
relate to the construction of the plant we are building in
Pulaski, Virginia. |
The table above does not include amounts related to our future
funding obligations for our Australian defined benefit plan. We
estimate that our pension plan funding will be approximately
$1.4 million for fiscal year 2007. Projected payments
beyond fiscal year 2007 are not currently determinable. See also
Note 7 to our consolidated financial statements in
Item 18.
The table above does not include any amounts related to funding
obligations that might arise from
asbestos-related
matters discussed under Item 3, “Key
Information — Risk Factors,” Item 4,
“Information on the Company — Legal
Proceedings” and Notes 12 and 20 to our consolidated
financial statements in Item 18. Although we have recorded
an asbestos provision at March 31, 2006 of
$715.6 million, conditions precedent to the Final Funding
Agreement have not been met. If conditions precedent to the
Final Funding Agreement are not met, we may seek to enter into
an alternative arrangement under which we would make payments
for the benefit of asbestos claimants. Under alternative
arrangements, this estimate may change. Depending on future
developments, the impact of future cash funding obligations is
significant and our financial position, results of operations
and cash flows would be materially adversely affected and our
ability to pay dividends would be impaired. In addition, the
table above does not include any amounts related to the amended
Australian income tax assessment discussed under Note 13 to
our consolidated financial statements in Item 18. We have
not established a provision for the amended assessment because
at this time such liabilities are not probable. RCI is appealing
the amended assessment and may incur substantial legal and other
expenses in pursuing this appeal. On July 5, 2006, pursuant
to an agreement negotiated with the ATO and in accordance with
the ATO Receivable Policy, the Company made a payment of
A$189.0 million ($140.4 million — converted using
the assets and liabilities rate at June 30, 2006) being 50%
of the amended assessment, and guaranteed the remaining unpaid
50% of the amended assessment, pending the outcome of the appeal
of the amended assessment. The Company also agreed to pay
general interest charges accruing on the unpaid balance of the
amended assessment in arrears on a quarterly basis. The first
payment of accrued general interest charges will be due
October 15, 2006 in respect of the quarter ending
September 30, 2006. These payments will reduce our
84
liquidity. In addition, if we are unsuccessful in our appeal, we
would be required to pay the entire assessment, in which case,
our financial position, liquidity and cash flow will be
materially and adversely affected.
See Notes 9 and 12 to our consolidated financial statements
in Item 18 for further information regarding long-term debt
and operating leases, respectively.
Off-Balance Sheet Arrangements
As of March 31, 2006 and 2005, we did not have any material
off-balance sheet arrangements.
Inflation
We do not believe that inflation has had a significant impact on
our results of operations for the fiscal years ended
March 31, 2006, 2005 or 2004.
Seasonality and Quarterly Variability
Our earnings are seasonal and typically follow activity levels
in the building and construction industry. In the United States,
the calendar quarters ending December and March reflect reduced
levels of building activity depending on weather conditions. In
Australia and New Zealand, the calendar quarter ending March is
usually affected by a slowdown due to summer holidays. In the
Philippines, construction activity diminishes during the wet
season from June to September and during the last half of
December due to the slowdown in business activity over the
holiday period. Also, general industry patterns can be affected
by weather, economic conditions, industrial disputes and other
factors.
Research and Development
For fiscal years 2006, 2005 and 2004, our expenses for research
and development were $28.7 million, $21.6 million and
$22.6 million, respectively.
We have invested heavily in research and development, with a
focus primarily on fiber cement. We view research and
development as key to sustaining our existing market leadership
position and expect to continue to allocate significant funding
to this endeavor. Through our investment in process technology,
we aim to keep reducing our capital and operating costs, and
find new ways to make existing and new products.
For more information on our research and development efforts,
see Item 4, “Information on the Company —
Research and Development.”
Outlook
New housing construction in North America is slowing. The
National Association of Home Builders, or NAHB, currently
predicts housing starts will continue to slow gradually with
higher long-term rates through the end of calendar year 2006 to
the middle of calendar year 2007.
In a June 14, 2006 report, Chief Economist David Seiders at
the NAHB, noted: “The ‘moderate’ and
‘orderly’ housing slowdown appears to be on track,
marked by systematic declines in mortgage applications, home
sales and housing starts as well as by a slowdown in house price
appreciation. The process should extend well into next year as
long as our broad economic and financial market forecasts stay
on track.”
Furthermore, the NAHB cautions that downside risk to its
“soft landing” prediction remains substantial. Our
U.S. business’ focus on growing primary demand for
fiber cement, increasing market share in exterior and interior
product segments and increasing revenue per unit, is expected to
help the business to continue to perform better than the overall
market. Repair and remodeling activity is expected to remain
buoyant in the short term. This market accounts for
approximately 30% of sales in our U.S. business.
Despite an expected moderate softening in new housing
construction, we expect our business to continue growing sales
through further penetration of our targeted markets and by
increasing the proportion of higher-priced differentiated
products in our sales mix.
85
The upward pressure on raw materials and energy costs is
expected to continue and the impact of high oil prices on
freight costs shows no sign of abating.
The housing markets in Australia and New Zealand are also
experiencing a downturn, but our initiatives to grow primary
demand are expected to help dampen the impact.
Conditions in the Philippines are expected to remain difficult
due to some continuing political and economic uncertainty, high
levels of inflation, and our market share being aggressively
pursued by competitors. In the Philippines, improvements in
operational efficiency during the first quarter of fiscal year
2007 are expected to continue in spite of increased costs and
sustained competitive market conditions.
We continue to incur costs associated with the Final Funding
Agreement and other related matters, including costs related to:
discussions with the Commonwealth Treasury and ATO on the tax
exempt status of the SPF; cooperating with ASIC’s ongoing
investigation into the circumstances surrounding and leading up
to the establishment of the Foundation, the corporate
reorganizations in 2001 and 2003, and associated matters;
providing an updated actuarial assessment of the total asbestos
liabilities of the Former James Hardie Companies; and associated
legal and advisory costs. These costs are likely to continue to
be material over the short term.
In addition, the asbestos provision will be updated annually,
based on the most recent actuarial determinations and claims
experience, and quarterly to reflect changes in foreign exchange
rates. Changes to the actuarial reports may have a material
impact on our consolidated financial statements.
|
|
| Item 6. |
Directors, Senior Management and Employees |
Board Practices and Senior Management
We have a multi-tiered board structure, which is consistent with
Dutch corporate law. This structure consists of a Managing
Board, a Supervisory Board and a Joint Board.
In the Netherlands, a two-tier board structure with a Managing
Board and a Supervisory Board is common. In Australia, the vast
majority of companies listed on the ASX have a one-tier board
comprising both executive directors and non-executive directors.
Therefore, in addition to our Managing Board and Supervisory
Board, our board structure includes a Joint Board, which we
refer to as the Joint Board, or, the Board, comprising all
non-executive directors and our CEO. The Joint Board is the
equivalent of a full board of directors of a U.S. or an
Australian company.
The responsibilities of each of our Managing Board, Supervisory
Board and Joint Board are formalized in charters which are
available from the Investor Relations area of our website,
www.jameshardie.com.
The Managing Board includes only executive directors and must
have at least two members, or more as determined by the
Supervisory Board. The members of the Managing Board are
appointed by our shareholders at a General Meeting. The
Supervisory Board and any of our shareholders have the right to
make nominations for the Managing Board.
The Supervisory Board appoints one member of the Managing Board
as its Chairman and one member as its Chief Executive Officer.
The title of Chairman and Chief Executive Officer may be granted
to the same person. The Managing Board is currently chaired by
our Chief Executive Officer, Mr. Gries.
If one or more, or all, of the members of the Managing Board are
prevented from acting, or are failing to act, the Supervisory
Board is authorized to designate a person temporarily in charge
of management.
86
Members of the Managing Board may be suspended and dismissed by
shareholders at the General Meeting. Furthermore, members of the
Managing Board may be suspended at any time by the Supervisory
Board.
No member of the Managing Board (other than our CEO) shall hold
office for a continuous period of more than three years, or past
the end of the third General Meeting following his or her
appointment, whichever is longer, without submitting himself or
herself for re-election.
The Managing Board manages our Company and is responsible for:
|
|
|
| |
• |
the general affairs, operations and finance of the
Company; and |
| |
| |
• |
ensuring the implementation of our goals, strategy and policies,
to achieve results. |
The Managing Board is also responsible for complying with all
relevant legislation and regulations and for managing the risks
associated with our activities.
It reports related developments to, and discusses the internal
risk management and control systems with, the Supervisory Board
and the Audit Committee. The Managing Board is accountable for
the performance of its duties to the Supervisory Board and to
shareholders.
The Managing Board provides the Supervisory Board, in a timely
manner, with all the information it needs to discharge its
duties. In discharging its duties, the Managing Board takes into
account our interests, our enterprise (including the interests
of our employees) shareholders, other stakeholders and all other
parties involved in or with us.
The Supervisory Board includes only non-executive directors and
must have at least two members, or more as determined by the
Supervisory Board. The members of the Supervisory Board are
appointed by shareholders at the General Meeting. The
Supervisory Board and any of our shareholders have the right to
make nominations for the Supervisory Board.
If there is a vacancy on the Supervisory Board at any time after
the end of an annual General Meeting and prior to the subsequent
annual General Meeting, the Supervisory Board may appoint one or
more members of the Supervisory Board to fill any vacancy,
provided that:
|
|
|
| |
• |
such member(s) retire no later than the end of the first General
Meeting following their appointment; and |
| |
| |
• |
the number of the members of the Supervisory Board appointed by
the Supervisory Board at any given time does not exceed
one-third of the aggregate number of members of the Supervisory
Board as fixed by the Supervisory Board. |
The Supervisory Board appoints one of its members as Chairman.
The Supervisory Board is currently chaired by Ms. Meredith
Hellicar.
No member of the Supervisory Board shall hold office for a
continuous period of more than three years, or past the end of
the third General Meeting of shareholders following his or her
appointment, whichever is longer, without submitting himself or
herself for re-election.
87
The Supervisory Board is responsible for:
|
|
|
| |
• |
supervising the policy and actions pursued by the Managing Board; |
| |
| |
• |
supervising the general course of our affairs and the business
enterprise we operate; and |
| |
| |
• |
advising the Managing Board. |
In discharging its duties, the Supervisory Board takes into
account our interests, our enterprise (including the interests
of our employees), shareholders, other stakeholders and all
other parties involved in or with us.
Members of the Supervisory Board may be suspended at any time by
a majority vote of members of the Supervisory Board, and may be
dismissed by the shareholders at the General Meeting.
The Joint Board consists of between three and twelve members as
determined by the Supervisory Board’s Chairman or a greater
number as determined by our shareholders at a General Meeting.
The Joint Board consists of all members of the Supervisory
Board, the Chief Executive Officer and, if the Chairman of the
Supervisory Board decides and designates, one or more other
members of the Managing Board, provided that the number of
members of the Managing Board on the Joint Board is never
greater than the number of members of the Supervisory Board.
The Joint Board currently includes all of the members of the
Supervisory Board as well as our Chief Executive Officer.
The Joint Board appoints one of its members as the Chairman. The
Chairman must be an independent, non-executive director. The
Joint Board is currently chaired by Ms. Hellicar, who also
chairs the Supervisory Board.
The Joint Board is responsible for supervising the general
course of our affairs, approving the strategy set by the
Managing Board, and monitoring our performance. To this end, we
adopt a three-year business plan and a
12-month operating
plan. Our financial results and performance are closely
monitored against these plans.
Our Joint Board also seeks to ensure that we have in place
effective external disclosure policies and procedures so that
our shareholders and the financial markets are fully-informed on
all material matters that might influence the share price.
The core responsibility of members of the Joint Board is to
exercise their business judgment in the best interests of the
Company and our shareholders. Members of the Joint Board must
fulfill their fiduciary duties to shareholders by complying with
all applicable laws and regulations. Directors also take into
consideration the interests of other stakeholders in the
Company, including employees, customers, creditors and others
with a legitimate interest in the Company’s affairs.
In discharging their duties, directors are provided with direct
access to our senior executives and outside advisors and
auditors. Joint Board Committees and individual directors may
seek independent professional advice at the Company’s
expense for the proper performance of their duties.
The Joint Board generally holds at least five meetings per year
and whenever the Chairman of the Joint Board or two or more of
its members have requested a meeting. Joint Board meetings are
generally held at the Company’s offices in The Netherlands,
but may in exceptional circumstances be held elsewhere. In
addition,
88
meetings may also be held by telephone or video-conference
provided that all participants can hear each other
simultaneously. The vast majority of the Joint Board meetings
shall physically be held in The Netherlands.
Each physical Joint Board meeting includes an executive session
without any members of our management present.
The Joint Board has an annual program of visiting our facilities
and spending time with line management and customers to assist
directors to better understand our businesses and the markets in
which we operate.
Directors
Our directors have qualifications, experience and expertise
which assist the Joint Board in fulfilling its responsibilities,
and assist the Company to achieve future growth.
Directors are required to be able to devote a sufficient amount
of time to prepare for, and effectively participate in, board
and committee meetings. The responsibilities of directors and
our expectations of them are set out in a letter at the time the
director is appointed.
All directors are expected to bring their independent views and
judgment to the Joint Board and must declare any potential or
actual conflicts of interest.
The Joint Board considers all relevant facts and circumstances
in determining the independence of directors in accordance with
applicable listing standards, and whether a director has a
material relationship with us or another party that might impair
his or her independence.
The Joint Board may determine that a director is independent
even if there is a material relationship. This may occur if that
relationship is not considered by the Joint Board to influence,
or be perceived to influence, the director’s decisions in
relation to us.
The Joint Board has not set materiality thresholds and considers
all relationships on a case-by-case basis, considering the
accounting standards approach to materiality.
The Joint Board has a policy that a majority of its members and
the Chairman must be independent unless a greater number is
required to be independent under the rules and regulations of
ASX, the NYSE or any other applicable regulatory body. For the
purposes of complying with the independence requirements for
directors who serve on the Nominating and Governance Committee,
the Remuneration Committee and the Audit Committee, a
director’s independence is determined by the Joint Board in
accordance with the rules and regulations of the applicable
exchange or regulatory body.
The office of Chairman of the Joint Board and Chief Executive
Officer cannot be held by the same person simultaneously, other
than in special circumstances and/or for a short period of time.
The Joint Board does not believe that arbitrary limits on the
tenure of directors are appropriate or in the best interests of
our Company and our shareholders. Limits on tenure may cause the
loss of experience and expertise that are important contributors
to our long-term growth and prosperity. Conversely, the Joint
Board does not believe that directors should expect to be
automatically nominated for re-election at the end of their
three-year term. Instead, nomination for re-election should be
based on directors’ individual performance and our needs.
The Joint Board has considered the issue of the independence of
our directors and determined that each member of the Joint Board
is independent, other than Mr. Gries. Mr. Gries is our
Chief Executive Officer and as such is not independent.
89
Two ways in which our corporate governance practices
significantly differ from those followed by U.S. domestic
companies under NYSE listing standards should be noted:
First, in the United States, it is the audit committee of a
board of directors that is required to be solely responsible
for, among other matters, appointing a company’s
independent auditor. However, in accordance with Dutch law, our
shareholders are required to appoint our independent auditor. In
the event our shareholders do not appoint an independent
auditor, our Supervisory Board is authorized to do so and,
should the Supervisory Board fail to appoint an independent
auditor, our Managing Board is authorized to do so.
Second, the NYSE rules require each issuer to have an audit
committee, a compensation committee (the equivalent to a
remuneration committee), and a nominating committee composed
entirely of independent directors. Because we are a foreign
private issuer, we do not have to comply with this requirement.
In our case, the charters of the committees of our board of
directors reflect Australian and Dutch practices and as such
only require that we have a majority of independent directors on
such committees, unless a higher number is mandatory.
Notwithstanding this difference, all of the current members of
our Audit Committee, Remuneration Committee, and Nominating and
Governance Committee presently qualify as independent in
accordance with the rules and regulations of the Securities and
Exchange Commission and the NYSE.
Our directors’ shareholdings, which are disclosed under
“Share Ownership” below, are not considered to detract
from their independence.
All of the independent directors have:
|
|
|
| |
• |
undertaken to advise the Joint Board of any change in their
circumstances that could affect their independence; and |
| |
| |
• |
completed a comprehensive questionnaire that confirms their
independence. |
We have an orientation procedure for new directors. Our Chief
Executive Officer, Chief Financial Officer, General Counsel and
Executive Vice Presidents are responsible for providing
information for the orientation for new directors and for
periodically providing materials or briefing papers to the Joint
Board on matters as requested or appropriate for directors to
fulfill their duties.
Typically, a new director will undergo an extensive orientation
that includes:
|
|
|
| |
• |
visits to our facilities, meetings with management and customers; |
| |
| |
• |
reviews of financial position, strategy, operating performance
and risk management; |
| |
| |
• |
a review of his or her rights, duties and
responsibilities; and |
| |
| |
• |
a discussion of the role of Supervisory Board Committees. |
We also have induction and orientation programs for executives
and employees that are tailored according to seniority and
position.
We encourage our directors to participate in continuing
education programs to assist them in performing their
responsibilities.
Under our Articles of Association, the salary, the bonus (if
any) and the other terms and conditions of employment of the
members of the Managing Board are determined by the Supervisory
Board. Under an amendment to the Dutch Civil Code which came
into force on October 1, 2004, the salary and bonus of
members of the Managing Board must be determined within the
scope and the limits of a Remuneration Policy.
A Remuneration Policy for the members of the Managing Board was
developed by the Supervisory Board and approved by our
shareholders for adoption at the August 2005 Annual General
Meeting. Arrangements
90
for the remuneration of the members of the Managing Board in the
form of shares or CUFS, or rights to acquire shares or CUFS, in
our share capital were approved as a transitional plan for one
year by shareholders at the 2005 General Meeting. New
arrangements will be subject to the approval of shareholders at
the 2006 General Meeting.
Under our Articles of Association, the Supervisory Board
determines the remuneration of its members, provided that the
total amount does not exceed a maximum sum approved by
shareholders at a General Meeting. The total remuneration of
members of the Supervisory Board will always be determined by
shareholders. The shareholders will be asked to approve an
increase of the remuneration cap at the 2006 General Meeting.
Our Articles of Association generally provide that we will
indemnify any person who is (or keep indemnified any person who
was) a member of our Managing, Supervisory or Joint Boards or
one of our employees, officers or agents, who suffers any loss
as a result of any action in connection with their service to
us, provided they acted in good faith in carrying out their
duties and in a manner they reasonably believed to be in our
interest. This indemnification will generally not be available
if the person seeking indemnification acted with gross
negligence or willful misconduct in performing their duties to
us. A court in which an action is brought may, however,
determine that indemnification is appropriate nonetheless.
The Supervisory Board, together with the Nominating and
Governance Committee, has developed, and periodically revises,
management succession plans, policies and procedures for our
Chief Executive Officer and other senior officers, whether such
succession occurs as a result of a promotion, termination,
resignation, retirement or an emergency.
Board Committees
Our Supervisory Board has three committees: the Audit Committee,
the Nominating and Governance Committee and the Remuneration
Committee.
The key aspects of our Audit Committee Charter, as of
March 31, 2006, are set out below.
The Audit Committee contains at least three members of the
Supervisory Board, appointed by the Supervisory Board. The
majority of the members of the Audit Committee must be
independent. If the rules and regulations of the ASX, the NYSE
or any other applicable regulatory body make it a mandatory
requirement that more members of the Audit Committee be
independent, then the number of members of the Audit Committee
required by the rules to be independent must be independent. For
purposes of complying with any applicable independence
requirements, a director’s independence is determined by
the Supervisory Board in accordance with the rules and
regulations of the applicable exchange or regulatory body.
Currently, the members of the Audit Committee are
Mr. Michael Brown (Chairman), Mr. James Loudon,
Mr. Michael Gillfillan, and Ms. Hellicar.
Dr. Gregory Clark, who resigned from our Supervisory Board
on May 9, 2006, was a member of our Audit Committee during
fiscal year 2006. All current Audit Committee members are
independent.
As determined by the Supervisory Board, all members of the Audit
Committee must be financially literate and must have sufficient
business, industry and financial expertise to act effectively as
members of the Audit Committee. At least one member must have
accounting or related financial management expertise. In
addition, at least one member of the Audit Committee shall be an
“audit committee financial expert” as
91
determined by the Supervisory Board in accordance with
U.S. Securities and Exchange Commission rules. These may be
the same person.
The Supervisory Board appoints one member of the Audit Committee
as its Chairman. The Chairman must be independent and is
primarily responsible for the proper functioning of the Audit
Committee. The Chairman acts as spokesman of the Audit Committee
and is the main contact for the Supervisory Board. The Chairman
of the Audit Committee must not be the current Chairman of the
Supervisory Board or a former member of the Managing Board.
Under the NYSE listing standards applicable to
U.S. companies, if a member of an audit committee
simultaneously serves on the audit committees of more than three
public companies, the listed company’s board must determine
that such simultaneous service would not impair the ability of
such member to effectively serve on the listed company’s
audit committee. Mr. Brown serves on the audit committees
of four public companies in addition to our Audit Committee. The
Joint Board has determined that such simultaneous service does
not impair his ability to effectively serve on our Audit
Committee.
|
|
|
Purpose, Duties and Responsibilities |
The Audit Committee provides advice and assistance to the
Supervisory Board in fulfilling its responsibilities relating
to: the integrity of the Company’s financial statements;
the Company’s compliance with legal and regulatory
requirements; the external auditor’s qualifications and
independence; the Company’s internal controls; oversight of
risk assessment and management; the performance of the
Company’s internal audit function and the external auditor;
and such other matters as the Supervisory Board may request from
time to time.
Standards and Quality: The Audit Committee oversees the
adequacy and effectiveness of the Company’s accounting and
financial policies and controls, including periodic discussions
with management, internal auditors and the external auditor, and
seeks assurance of compliance with relevant regulatory and
statutory requirements.
Financial Reports: The Audit Committee oversees the
Company’s financial reporting process and reports on the
results of its activities to the Supervisory Board.
Specifically, the Audit Committee reviews with management and
the external auditor the Company’s annual and quarterly
financial statements and reports to shareholders, seeking
assurance that the external auditor is satisfied with the
disclosures and content of the financial statements, and
recommends their adoption to the Supervisory Board. The Chairman
of the Audit Committee may represent the entire Audit Committee
for the purposes of quarterly reviews.
Risk Assessment and Management: The Audit Committee
reviews, monitors and discusses the Company’s policies and
procedures with respect to:
|
|
|
| |
• |
the identification of strategic, operational and financial risks; |
| |
| |
• |
the establishment of effective systems to monitor, assess,
prioritize, mitigate and manage risk; and |
| |
| |
• |
reporting systems for monitoring compliance with risk policies. |
External Audit: The Audit Committee has general oversight
of the appointment and provision of all external audit services
to the Company.
Internal Audit: The Audit Committee oversees the
Company’s internal audit function, and approves the
appointment and termination of all providers of internal audit
services, both internal and external. The Audit Committee
approves, and can direct, the plan of action for internal audit
services, takes note of internal audit findings and
recommendations, supervises compliance with the plan and
recommendations, and assesses the performance of the internal
audit function.
Internal Controls: The Audit Committee reviews and
discusses the adequacy and effectiveness of the Company’s
internal compliance and control systems as well as and the
effectiveness of their implementation, including any significant
deficiencies in internal controls and significant changes in
such controls.
92
Disclosure Controls and Procedures: The Audit Committee
reviews and discusses the adequacy and effectiveness of the
Company’s disclosure controls and procedures and management
reports thereon.
Complaints: The Audit Committee establishes procedures
for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls and auditing matters,
including procedures for confidential, anonymous submission of
concerns by employees regarding questionable accounting and
auditing matters.
The Audit Committee meets as often as it deems necessary or
appropriate, either in person or by telephone, and at such times
and places, and with such invitees, as the Audit Committee
determines. A quorum for a meeting of the Audit Committee is a
majority of its members. Resolutions of the Audit Committee are
adopted by a majority of votes cast. The Audit Committee keeps
minutes of meetings and records of resolutions passed, and these
are included in the papers for the next Supervisory Board
meeting after each meeting of the Audit Committee. The Audit
Committee reports regularly to the Supervisory Board about its
meetings and activities.
The Audit Committee maintains free and open communications with
the external auditor, the internal auditors and management. The
Audit Committee periodically meets with the external auditor
without representatives of management to discuss the adequacy of
the Company’s disclosures and policies and to satisfy
itself regarding the external auditor’s independence from
management and management’s cooperation with the external
auditor’s requirements. The external auditor may
communicate with the Audit Committee or its Chairman at any time.
In exercising its oversight role, the Audit Committee may
investigate any matter it initiates or that is brought to its
attention, and for this purpose has full access to the
Company’s records, personnel and any required external
support. The Audit Committee has the authority to retain, at the
Company’s expense, the external auditor and such other
outside counsel, accountants, experts and advisors as it
determines appropriate to assist the Audit Committee in the
performance of its functions. The Company will also provide
funding for the payment of ordinary administrative expenses of
the Audit Committee that are necessary or appropriate in
carrying out its duties.
The Audit Committee reviews, and may take any necessary action
to uphold, the overall quality of the Company’s financial
reporting and practices.
The Audit Committee reviews and assesses the adequacy of its
charter at least annually, and recommends any changes it
considers appropriate to the Supervisory Board.
The Audit Committee conducts an annual performance review of the
Audit Committee and reports its findings to the Supervisory
Board.
The Audit Committee oversees the Company’s compliance
programs with respect to legal and regulatory requirements and
the Company’s Code of Ethics policy, including reviewing
related party transactions and other conflict of interest issues
as they arise.
93
In addition to providing the Supervisory Board with a report and
minutes of each of its meetings, the Audit Committee will inform
the Supervisory Board of any general issues that arise with
respect to the quality or integrity of the Company’s
financial statements, the Company’s compliance with legal
or regulatory requirements, the performance and independence of
the external auditor, or the performance of the internal audit
function.
The Audit Committee may undertake other special duties as
requested by the Supervisory Board.
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Annual Information Meeting |
Our External Auditor attends the Annual Information Meeting.
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Certifying Financial Reports |
Under SEC rules, our Chief Executive Officer and Chief Financial
Officer certify that our financial statements contain a fair
presentation of our financial condition and results in
accordance with U.S. law. Similarly, our Chief Executive
Officer and Chief Financial Officer provide a sign-off in
accordance with U.S. requirements.
Also under SEC rules, our Chief Executive Officer and Chief
Financial Officer are required to provide certain certifications
in connection with our annual report on
Form 20-F,
including a certification that the financial statements and
other financial information included in the
Form 20-F fairly
present in all material respects the financial condition,
results of operations, and cash flows of the Company, as of, and
for the period presented in, the report.
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Audit Committee’s Risk Management Subcommittee |
In August 2005, the Audit Committee established a Risk
Management Subcommittee. The Risk Management Subcommittee
provides advice and assistance to the Audit Committee and
assists the Audit Committee in fulfilling its responsibilities
relating to the Company’s risk management and assessment.
The Subcommittee reports to the Audit Committee on the
procedures in place for identifying, monitoring, managing and
reporting on the principal strategic, operational and financial
risks of the Company.
Currently, the members of the Subcommittee are Mr. Brown
(Chairman), Mr. Gries, Mr. Chenu and senior employees
of the Company. Dr. Clark, who resigned from our
Supervisory Board on May 9, 2006, was Chairman of the Risk
Management Subcommittee during fiscal year 2006.
Our complete Audit Committee Charter is available from the
Investor Relations area of our website,
www.jameshardie.com.
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Nominating and Governance Committee |
Our Nominating and Governance Committee was formed in 2002. The
key aspects of our Nominating and Governance Committee Charter,
as of March 31, 2006, are set out below.
The Nominating and Governance Committee consists of at least
three members of the Supervisory Board, and are appointed by the
Supervisory Board.
The majority of the members of the committee must be independent
unless a greater number is required to be independent under the
rules and regulations of the ASX, the NYSE or any other
applicable regulatory body. For the purposes of complying with
any applicable independence requirements for directors who serve
94
on the Nominating and Governance Committee, a director’s
independence is determined by the Supervisory Board in
accordance with the rules and regulations of the applicable
exchange or regulatory body.
The Supervisory Board appoints one member of the committee as
its Chairman. The Chairman must be independent, is primarily
responsible for the committee’s proper functioning, acts as
the committee’s spokesman and is the main contact for the
Supervisory Board.
Currently, the members of the Nominating and Governance
Committee are Mr. McGauchie (Chairman), Mr. Gillfillan
and Ms. Hellicar, all of whom are independent.
Dr. Clark (who resigned from our Supervisory Board on
May 9, 2006) and Mr. Peter Cameron (who resigned from
our Supervisory Board on January 19, 2006) were both
members of our Nominating and Governance Committee during fiscal
year 2006.
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Purpose, Duties and Responsibilities |
The purpose of the committee is to identify individuals
qualified to become members of the Managing Board or Supervisory
Board; recommend to the Supervisory Board candidates for the
Managing Board or Supervisory Board (to be appointed by
shareholders); recommend to the Supervisory Board a set of
corporate governance principles; and perform a leadership role
in shaping the Company’s corporate governance policies.
The committee has the authority to retain such outside counsel,
experts, and other advisors as it determines appropriate to
assist it in the full performance of its functions, including
sole authority to retain and terminate any search firm used to
identify director candidates, and to approve the search
firm’s fees and other retention terms.
The committee meets as often as it deems necessary or
appropriate, either in person by telephone, and at such times
and places as the committee determines. A quorum for a meeting
of the committee is a majority of its members. Resolutions of
the committee are adopted by a majority of votes cast. The
committee reports regularly to the Supervisory Board with
respect to its meetings.
The committee prepares a report of its deliberations and
findings and provides the Supervisory Board with the report at
the first meeting of the Supervisory Board directly following
the meeting of the committee and in any event no less frequently
than annually.
Our complete Nominating and Governance Committee Charter is
available from the Investor Relations area of our website,
www.jameshardie.com.
The key aspects of our Remuneration Committee Charter are set
out below.
The Remuneration Committee consists of at least three members of
the Supervisory Board who are appointed by the Supervisory Board.
The majority of the members of the Remuneration Committee must
be independent unless a greater number is required to be
independent under the rules and regulations of ASX, the NYSE or
any other applicable regulatory body. For the purposes of
complying with any applicable independence requirements for
directors to serve on our Remuneration Committee, a
director’s independence shall be determined by the
Supervisory Board in accordance with the rules and regulations
of the applicable exchange or regulatory body.
95
Additionally, members of the Remuneration Committee must qualify
as “non-employee directors” for purposes of
Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and as
“outside directors” for purposes of
Section 162(m) of the Internal Revenue Code.
The Supervisory Board appoints one member of the Remuneration
Committee as its Chairman. The Chairman must be independent, is
primarily responsible for the committee’s proper
functioning, acts as the committee’s spokesman and is the
main contact for the Supervisory Board. The Chairperson of the
Remuneration Committee may not be the current Chairperson of the
Supervisory Board or a former member of the Managing Board.
Currently, the members of our Remuneration Committee are
Mr. Barr (Chairman), Mr. Loudon and Ms. Hellicar,
all of whom are independent.
|
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Purpose, Duties, and Responsibilities |
The purpose of the Remuneration Committee is to discharge the
responsibilities of the Supervisory Board relating to
remuneration of the Company’s senior executives and
non-executive directors and to further advise the Supervisory
Board on the Company’s remuneration policies and practices.
The Remuneration Committee:
|
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| |
• |
administers and makes recommendations on the Company’s
incentive compensation and equity-based remuneration plans; |
| |
| |
• |
reviews the remuneration of Supervisory Board Directors for
service on the Supervisory Board and Board committees; |
| |
| |
• |
reviews the remuneration policy for members of the Managing
Board; and |
| |
| |
• |
makes recommendations to the Supervisory Board on the
Company’s recruitment, retention and termination policies
and procedures for senior management. |
The Remuneration Committee may delegate any of the foregoing
duties and responsibilities to a subcommittee of the
Remuneration Committee consisting of no fewer than two members
of the committee.
The Remuneration Committee will have the sole authority to
retain, at the expense of the Company, such outside counsel,
experts, remuneration consultants and other advisors as it
determines appropriate to assist it in the full performance of
its functions.
The Remuneration Committee will meet as often as it deems
necessary or appropriate, either in person or by telephone, and
at such times and places as the Remuneration Committee
determines. A quorum for a meeting of the Remuneration Committee
is a majority of its members. Resolutions of the Remuneration
Committee are adopted by a majority of votes cast. The
Remuneration Committee will report regularly to the Supervisory
Board with respect to its meetings and activities.
The Remuneration Committee prepares a report of its
deliberations and findings and provides the Supervisory Board
with the report at its first meeting directly following the
meeting of the Remuneration Committee and, in any event, no less
frequently than annually.
Our complete Remuneration Committee Charter is available from
the Investor Relations area of our website,
www.jameshardie.com.
96
We have a number of policies and programs that address key
aspects of our corporate governance. Our key policies and
programs cover:
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| |
• |
Risk Management; |
| |
| |
• |
Business Conduct and Ethics; |
| |
| |
• |
Ethics Hotline (Whistleblower); |
| |
| |
• |
Continuous Disclosure and Market Communication; |
| |
| |
• |
Insider Trading; and |
| |
| |
• |
Corporate Governance Principles. |
The Joint Board, together with the Audit Committee, is
responsible for satisfying itself that our risk management
systems are effective and, in particular, for ensuring that:
|
|
|
| |
• |
the principal strategic, operational and financial risks are
identified; |
| |
| |
• |
effective systems are in place to monitor and manage
risks; and |
| |
| |
• |
reporting systems, internal controls and arrangements for
monitoring compliance with laws and regulations are adequate. |
As noted above, our Audit Committee receives advice and
assistance from a Risk Management Subcommittee formed in August
2005. In addition to maintaining appropriate insurance and other
risk management measures, the Company has taken the following
steps to address identified risks. It has:
|
|
|
| |
• |
established policies and procedures in relation to treasury
operations, including the use of financial derivatives; |
| |
| |
• |
issued and revised standards and procedures in relation to
environmental and health and safety matters; |
| |
| |
• |
implemented and maintained training programs in relation to
legal issues such as trade practices/antitrust, trade secrecy,
and Intellectual Property protection; and |
| |
| |
• |
issued procedures requiring that significant capital and
recurring expenditure is approved at the appropriate levels. |
The internal and external audit functions are involved in risk
assessment and the management and measurement of the
effectiveness of the Company’s risk management systems. The
internal and external audit functions are separate from and
independent of each other.
The above risks are also addressed in our Code of Business
Conduct and Ethics which applies to all employees and directors,
and monitored through regular reports to the Joint Board. Where
appropriate, members of the management team and independent
advisers also make presentations to the Joint Board and to the
Audit Committee during the year.
We regularly review the need for additional disclosure of our
risk management systems including those related to our internal
compliance and control system.
In accordance with Dutch law, our Managing Board has assessed
our internal risk management and control systems. Based on its
most recent assessment, the Managing Board believes that our
internal risk management and control systems provide a
reasonable level of assurance that they are adequate and that
they have operated effectively in fiscal year 2006.
Consequently, the Managing Board has concluded that we comply
with the requirements of applicable Dutch law.
97
Notwithstanding the foregoing, we do not expect that our
internal risk management and control systems will prevent or
detect all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives
will be met.
The design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due
to error or fraud will not occur or that all control issues and
instances of fraud, if any, within the Company have been
detected.
These inherent limitations include the realities that judgments
in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by
collusion of two or more people, or by management overriding the
controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with our policies
or procedures.
Our analysis of our internal risk management and control systems
for purposes of the Dutch law is different from the report that
we will be required to prepare in the United States pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002.
Section 404 requires, among other things, that companies
include a management report on a company’s internal control
over financial reporting that is accompanied by a separate
auditor’s report on management’s assessment.
For foreign private issuers such as our Company, the deadline
for complying with the requirements of Section 404 has been
extended to the first fiscal year ending on or after
July 15, 2006 or, in our case, March 31, 2007.
Accordingly, our Section 404 report will first appear in
our annual report on
Form 20-F for the
fiscal year ending March 31, 2007.
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|
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Business Conduct and Ethics |
See Item 16B, “Code of Business Conduct and
Ethics.”
Our Code of Business Conduct and Ethics, as amended, is
available from the Investor Relations area of our website,
www.jameshardie.com.
|
|
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Ethics Hotline (Whistleblower) |
See Item 16B, “Code of Business Conduct and
Ethics.”
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Continuous Disclosure and Market Communication
Policy |
We have a Continuous Disclosure and Market Communication Policy
which is designed to ensure that investors can easily understand
our strategies and assess the quality of our management and
examine our financial position and the strength of our growth
prospects.
The policy is also designed to ensure that we satisfy our legal
obligations on disclosure to the ASX and under the Australian
Corporations Act (2001) as well as our obligations in the
United States where we are traded on the NYSE, and in The
Netherlands.
We are committed to communicating effectively with our
investors. Our investor relations program includes:
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| |
• |
management briefings and presentations to accompany quarterly
results, which are accessible on a live webcast and
teleconference; |
98
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| |
• |
audio webcasts of other management briefings and view webcasts
of the shareholder information meeting; |
| |
| |
• |
a comprehensive Investor Relations website that displays all
Company announcements and notices as soon as they have been
cleared by the ASX, as well as all major management and road
show presentations; |
| |
| |
• |
United States and Australian site visits and briefings on
strategy for investment analysts; |
| |
| |
• |
an e-mail alert service
to advise investors and other interested parties of
announcements and other events; and |
| |
| |
• |
equality of access for shareholders, investment analysts and the
media to briefings, presentations and meetings. |
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|
Shareholders’ Participation |
We encourage our shareholders to exercise their rights at our
General Meeting. While our General Meetings take place in The
Netherlands, we conduct informational meetings, which we refer
to as Information Meetings, in Australia to enable CUFS holders
to attend a meeting together to review items of business and
other matters that will be considered and voted on at the
subsequent General Meeting in The Netherlands.
We distribute with the Notice of Meeting a question form which
holders can use to submit questions in advance of the meeting.
We implemented this process to make it easier for more holders
to have questions answered, whether or not they can attend the
Information Meeting. Holders can also ask questions relevant to
the business of the meeting from the floor during the
Information Meeting.
For the benefit of holders unable to attend, the Information
Meeting is broadcast live over the internet at
www.jameshardie.com (click on “Investor
Relations”, then “Annual Meetings”). This webcast
then remains on our website so it can be replayed later.
Each shareholder, person entitled to vote, and CUFS holder (but
not an ADR holder) has the right to attend the General Meeting
either in person or by proxy; to address shareholder meetings;
and, in the case of shareholders and other persons entitled to
vote (for instance, certain pledge holders), to exercise voting
rights, subject to the provisions of our Articles of
Association. While ADR holders cannot vote directly, ADR holders
can direct the voting of their underlying shares through the ADR
depositary. See Item 10, “Additional
Information — Key Provisions of our Articles of
Association of JHI NV — Shareholders Meetings and
Voting Rights.”
We set a registration date for the exercise of the voting rights
at a General Meeting. Shareholders and CUFS holders registered
at this date are entitled to attend the meeting and to exercise
the other shareholder rights (in the meeting in question)
notwithstanding subsequent sale of their shares. This date is
published in advance of every General Meeting. Shareholders who
are entitled to attend a General Meeting may be represented by
proxies.
Unless otherwise required by our Articles of Association or
Dutch law, resolutions of the General Meeting are validly
adopted by an absolute majority of the votes cast at a meeting
at which at least 5% of our issued share capital is present or
represented.
Explanatory notes to the Notice of Meeting inform shareholders
of all facts and circumstances relevant to the proposed
resolutions. The explanatory notes and Notice of Meeting are
sent to shareholders and are available from the Investor
Relations area of our website, www.jameshardie.com.
Our Continuous Disclosure and Market Communication Policy is
available from the Investor Relations area of our website,
www.jameshardie.com.
99
Directors and senior executives are subject to our Insider
Trading Policy and rules.
Directors and senior executives, among others, must notify the
designated compliance officer, currently our General Counsel,
before buying or selling our shares. Our shares may only be
bought or sold by employees, including senior executives and
directors, within four weeks beginning two days after the
announcement of quarterly or full year results. Even during this
trading “window,” all those covered by our Insider
Trading Policy are prohibited from dealing in securities for
“short swing profit” (i.e., where the profit is
realized, or expected to be realized from any purchase and sale,
or sale and purchase, of Company securities within any period of
less than six months) or “hedging transactions,”
(i.e., dealing in call or put options involving Company
securities or any other derivative Company securities that limit
the economic risk of Company securities).
The Managing Board recognizes that it is the individual
responsibility of each of director and employee to ensure that
he or she complies with the spirit and the letter of insider
trading laws and that notification to our compliance officer in
no way implies approval of any transaction.
Our Insider Trading Policy is available from the Investors
Relations area of our website, www.jameshardie.com.
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Corporate Governance Principles |
Our Corporate Governance Principles are available from the
Investor Relations area of our website
(www.jameshardie.com) under the “Policies and
Programs” link and available in print to any shareholder
who requests a copy.
We have a dedicated section on corporate governance as part of
the “Investor Relations” area of our website
(www.jameshardie.com). Information in this section of the
website is updated and expanded from time to time to ensure it
presents the most
up-to-date information
on our corporate governance systems.
Current and Former Directors and Executive Officers
On June 30, 2005, Mr. W. (Pim) Vlot’s employment
agreement expired by its terms. Mr. Vlot was an interim
member of our Managing Board and our Company Secretary.
On July 1, 2005, Mr. Benjamin Butterfield was
appointed our Company Secretary and an interim member of the
Managing Board, and on August 22, 2005 he was appointed to
the Managing Board by our shareholders.
On August 22, 2005, Mr. Russell Chenu was appointed to
the Managing Board by our shareholders.
On August 22, 2005, Mr. Louis Gries, an interim member
of the Managing Board since October 22, 2004, was appointed
to the Managing Board by our shareholders.
On September 1, 2005, Ms. Cathy Wallace joined the
Company as Vice President, Human Resources.
On December 19, 2005, Mr. Donald Merkley resigned from
his position as Executive Vice President Research &
Development and from the Company. Mr. Mark Fisher replaced
Mr. Merkley in the research & development role.
On January 19, 2006, Mr. Peter Cameron, a
non-executive director, resigned from the Joint and Supervisory
Boards and from the Nominating and Governance Committee for
health reasons. Mr. Cameron died in February 2006.
100
On April 10, 2006, Mr. Grant Gustafson joined the
Company as Vice President, Interiors & Business
Development.
On May 9, 2006, Dr. Gregory Clark, a non-executive
director, resigned from his position on our Joint and
Supervisory Boards and from our Audit Committee and Nominating
and Governance Committee.
On September 1, 2006, Mr. David Merkley resigned from
his position as our Executive Vice President, Engineering and
Process Development.
On September 25, 2006, Ms. Hellicar,
Mr. Gillfillan, and Mr. McGauchie were each re-elected
to our Supervisory Board for a three-year term expiring in 2009.
The current members of our Supervisory Board, Managing Board,
Joint Board and our Senior Leadership Team, along with former
directors and a former Senior Leadership Team officer, are as
follows:
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| Name |
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Age | |
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Position |
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Term Expires | |
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Supervisory Board
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Meredith Hellicar
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52 |
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Chairman of the Joint Board and Chairman of the Supervisory Board
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2009 |
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John Barr
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59 |
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Deputy Chairman of the Joint Board and Deputy Chairman of the
Supervisory Board
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2007 |
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Michael Brown
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60 |
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Member of the Joint Board and the Supervisory Board
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2008 |
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Michael Gillfillan
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58 |
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Member of the Joint Board and the Supervisory Board
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2009 |
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James Loudon
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63 |
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Member of the Joint Board and the Supervisory Board
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2008 |
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Donald McGauchie
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56 |
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Member of the Joint Board and the Supervisory Board
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2009 |
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Managing Board
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Louis Gries
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52 |
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Chief Executive Officer, Member of the Joint Board and Chairman
of the Managing Board
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Russell Chenu
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57 |
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Chief Financial Officer and Member of the Managing Board
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Benjamin Butterfield
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46 |
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General Counsel, Member of the Managing Board and Company
Secretary
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| Other Senior Leadership Team Officers |
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Age | |
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Position |
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Steve Ashe
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46 |
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Vice President — Investor Relations |
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Peter Baker
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55 |
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Executive Vice President — Australia |
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James Chilcoff
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42 |
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Vice President — International Business |
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Mark Fisher
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35 |
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Vice President — Research and Development |
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Grant Gustafson(1)
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44 |
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Vice President — Interiors and Business Development |
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Nigel Rigby
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39 |
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Vice President — Emerging Markets |
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Robert Russell
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40 |
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Vice President — Established Markets |
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Cathy Wallace(2)
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50 |
|
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Vice President — Global Human Resources |
101
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| Former Directors and Senior Leadership Team Officers |
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Peter Cameron(3)
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54 |
|
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Former Member of the Joint Board and Supervisory Board |
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Gregory Clark(4)
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63 |
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Former Member of the Joint Board and the Supervisory Board |
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W. (Pim) Vlot(5)
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41 |
|
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Former Interim Member of the Managing Board and Former Company
Secretary |
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Donald Merkley(6)
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43 |
|
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Former Executive Vice President — Research and
Development |
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David Merkley(7)
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43 |
|
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Former Executive Vice President — Engineering and
Process Development |
|
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| (1) |
Mr. Gustafson joined us as a Vice President in April 2006. |
| |
| (2) |
Ms. Wallace joined us as a Vice President in September 2005. |
| |
| (3) |
On January 19, 2006, Mr. Cameron resigned from our
Joint and Supervisory Boards and from the Nominating and
Governance Committee for health reasons. Mr. Cameron died
in February 2006. |
| |
| (4) |
On May 9, 2006, Dr. Clark resigned from our Joint
Board, Supervisory Board, Audit Committee and Nominating and
Governance Committee. |
| |
| (5) |
Mr. Vlot’s temporary employment agreement, as amended,
provided that unless an indefinite contract was negotiated, the
contract would automatically terminate on June 30, 2005.
The agreement expired by its terms on June 30, 2005. |
| |
| (6) |
On December 19, 2005, Mr. Donald Merkley resigned from
his position as Executive Vice President — Research
and Development and from the Company. |
| |
| (7) |
On September 1, 2006, Mr. David Merkley resigned from
his position as Executive Vice President — Engineering
and Process Development and from the Company. |
Directors
Meredith Hellicar is the Chairman of our Joint Board and
the Chairman of our Supervisory Board. From July 19, 2004
until its dissolution on March 31, 2005, Ms. Hellicar
was also the Chairman of the Special Committee overseeing
matters relating to the SCI. Ms. Hellicar is also a member
of our Remuneration Committee, Nominating and Governance
Committee and Audit Committee. Ms. Hellicar joined James
Hardie Industries Limited (now named ABN 60) as an independent,
non-executive director in May 1992. She resigned as director of
JHIL in October 2001 and was appointed as a member of our
Supervisory Board and Joint Board. She was last elected by our
shareholders at our 2006 Annual General Meeting.
Ms. Hellicar was appointed Chairman of our Joint and
Supervisory Board after former Chairman Alan McGregor’s
resignation in August 2004. She is experienced as a company
director and has held chief executive positions in resources,
transport and logistics, law and financial services. She is a
director of AMP Limited (since March 2003), Southern Cross
Airports Group and Amalgamated Holdings Limited (since October
2003); and Chairman of The Sydney Institute and HLA
Envirosciences Pty Limited. Ms. Hellicar is also a member
of the Australian Takeovers Panel and the Garvan Institute
Foundation. Her previous experience includes directorships with
the NSW Environment Protection Authority from 1992 to 1996,
AurionGold until December 2002, the NSW Treasury Corporation
from 2003 to 2004 and HCS Limited from 2001 to 2005.
Ms. Hellicar was Chief Executive Officer of the law firm
Corrs Chambers Westgarth and Managing Director of TNT Logistics
Asia Pte Ltd and InTech Pty Ltd. Ms. Hellicar was awarded a
Centenary Medal for her contribution to society in business
leadership. Ms. Hellicar received a Bachelor of Arts and
Master of Laws, specializing in international business law, from
University of Sydney.
John Barr joined James Hardie Industries N.V. as an
independent, non-executive director as a member of our Joint
Board and Supervisory Board in September 2003 and was appointed
Deputy Chairman of the Joint and Supervisory Boards in October
2004. He was last elected by our shareholders at our 2004 Annual
102
General Meeting. Mr. Barr is also Chairman of our
Remuneration Committee. Mr. Barr has been a director of
Performance Logistics Group, Inc., the second largest provider
of new vehicle transportation services in North America since
September 2005 and was its Chairman from March 2004 to September
2005. In April 2005, he assumed the role of Chief Executive
Officer of Papa Murphy’s International Inc., a
take-and-bake pizza chain, following its June 2004 acquisition
by a partnership consisting of himself, Charlesbank Capital
Partners, LLC and company management. Mr. Barr also has
served as Vice-Chairman of the Board of Directors of Papa
Murphy’s since June 2004. He has more than 30 years of
management experience in the North American industrial sector,
including 25 years at The Valvoline Company, a leading
marketer, distributor and producer of quality branded automotive
and industrial products and services; Mr. Barr also served
as President and Chief Executive Officer of Automotive
Performance Industries from 1999 to April 2004. Between 1995 and
1999, Mr. Barr served as President and Chief Operating
Officer and a member of the board of directors of the Quaker
State Corporation, a leading automotive aftermarket products and
consumer car care company, now part of Royal Dutch Shell. Since
December 2002, Mr. Barr has served as director of United
Auto Group, the second largest publicly held automotive retailer
in the United States, and, in August 2003, he was appointed to
the board of directors of Clean Harbors Inc., the leading
provider of hazardous waste and environmental management
services throughout North America. In December 2003, he was
appointed as director to UST Inc.
Michael Brown is a member of our Joint Board and
Supervisory Board, Chairman of our Audit Committee, and Chairman
of our Risk Management Subcommittee. Mr. Brown joined James
Hardie Industries Limited as an independent, non-executive
director in September 1992 and was appointed to our Supervisory
Board and Joint Board in October 2001. He was last elected by
our shareholders at our 2005 Annual General Meeting.
Mr. Brown has broad executive experience in finance,
accounting and general management in Australia, Asia and the
United States. He is a director of Repco Corporation Ltd (since
2001), having served as its Chairman until March 2006, and is
also a director of Energy Developments Ltd (director since 2001;
Chairman since 2003). He is a non-executive director of Wattyl
Ltd (since 2003) and Innamincka Petroleum Ltd (since 2003). He
was Group Finance Director of Brambles Industries Limited from
1995 to 2000; prior to that, he was Finance Director of Goodman
Fielder Ltd, Renison Goldfields Consolidated Ltd, and Esso
Australia Ltd.
Michael Gillfillan is a member of our Joint Board and
Supervisory Board, and a member of our Nominating and Governance
Committee and our Audit Committee. In addition,
Mr. Gillfillan was a member of the Special Committee
overseeing matters relating to the SCI from July 19, 2004
until its dissolution on March 31, 2005.
Mr. Gillfillan joined James Hardie Industries Limited as an
independent, non-executive director in August 1999 and was
appointed to our Supervisory Board and Joint Board in September
2001. He was last elected by our shareholders at our 2006 Annual
General Meeting. He provides us with considerable knowledge of
U.S. capital markets and a depth of experience in
commercial and corporate banking. He has held a number of senior
executive positions, including Vice Chairman of Wells Fargo
Bank. He was elected as a director of UnionBanCal Corporation
and its primary subsidiary, Union Bank of California, NA in
January 2003 and is a partner at Meriturn Partners, LLC.
Mr. Gillfillan received a B.A. in History from the
University of California, Berkeley and an MBA from the
University of California, Los Angeles.
James Loudon is a member of our Joint Board and
Supervisory Board, Audit Committee and Remuneration Committee.
Mr. Loudon was elected as an independent, non-executive
director in July 2002 after joining James Hardie Industries N.V.
as a consultant to the Board in March 2002. He was last elected
by our shareholders at our 2005 Annual General Meeting. He has
held management positions in finance and investment banking and
senior roles in the transport and construction industries. He is
currently Deputy Chairman of Caledonia Investments Plc and has
been a director of this company since 1995. He is Governor of
the University of Greenwich and of several charitable
organizations. He was a non-executive director of Lafarge
Malayan Cement Berhad from 1989 to 2004. In addition, he served
as Group Finance Director of Blue Circle Industries Plc, one of
the world’s largest cement producers, from 1987 until 2001
and, prior to that, he was the first Vice-President of Finance
for Blue Circle’s companies in the United States.
Mr. Loudon received a Bachelor of Arts from Cambridge
University and an MBA from the Stanford Graduate School of
Business.
103
Donald McGauchie is a member of our Joint Board and
Supervisory Board and the Chairman of our Nominating and
Governance Committee. In addition, Mr. McGauchie was a
member of the Special Committee overseeing matters relating to
the SCI from July 19, 2004 until its dissolution on
March 31, 2005. Mr. McGauchie joined James Hardie
Industries N.V. as an independent, non-executive director in
August 2003. Mr. McGauchie has wide commercial experience
within the food processing, commodity trading, finance and
telecommunication sectors. He also has extensive public policy
experience, having previously held several high-level advisory
positions to the Australian Government including the Prime
Minister’s Supermarket to Asia Council, the Foreign Affairs
Council and the Trade Policy Advisory Council.
Mr. McGauchie is Chairman of Telstra Corporation Limited
(since 2004) and a director of The Reserve Bank of Australia and
Nufarm Limited (since 2003). Mr. McGauchie was a director
of National Foods Limited from 2000 to 2005, director of
Graincorp Limited from 1999 to 2002, Chairman of Woolstock
Australia Limited from 1999 to 2002, Deputy Chairman of Ridley
Corporation Limited from 1998 to 2004, President of the National
Farmers Federation from 1994 to 1998 and Chairman of Rural
Finance Corporation from 2003 to 2004. In 2003, he was awarded
the Centenary Medal for service to Australian society through
agriculture and business.
Louis Gries is our Chief Executive Officer, a member of
the Joint Board, Chairman of the Managing Board and a member of
our Risk Management Subcommittee. Mr. Gries was elected to
the Managing Board by our shareholders at our 2005 Annual
General Meeting. Mr. Gries joined us as Manager of the
Fontana fiber cement plant in California in February 1991 and
was appointed President of James Hardie Building Products
(USA) in December 1993 and Executive Vice
President — Operations in January 2003. In October
2004, Mr. Gries was appointed interim CEO and in February
2005, he was appointed CEO. He previously held management
positions with United States Gypsum Corporation, or USG. He has
a Bachelor of Science in Mathematics from the University of
Illinois and an MBA from California State University, Long Beach.
Russell Chenu is our Chief Financial Officer, a member of
the Managing Board and member of our Risk Management
Subcommittee. Mr. Chenu joined us in October 2004 as
Interim Chief Financial Officer and Executive Vice President,
Australia. In February 2005, he was appointed Chief Financial
Officer. Mr. Chenu was elected to our Managing Board by our
shareholders at the 2005 Annual General Meeting. From February
2001 to July 2004, Mr. Chenu served as Chief Financial
Officer of Tab Limited, then a publicly traded entertainment and
gambling company. Prior to that, from November 1999 to February
2001, he served as Chief Financial Officer of Delta Gold
Limited, then a publicly traded gold mining company.
Mr. Chenu previously worked for us for 13 years in a
variety of capacities, ultimately as Group Banking Manager from
1982 to 1984. He has a Bachelor of Commerce from the University
of Melbourne and an MBA from Macquarie Graduate School of
Management in Australia.
Benjamin Butterfield is our General Counsel, Company
Secretary, and a member of our Managing Board.
Mr. Butterfield joined us in January 2005 as our General
Counsel. On July 1, 2005, he was appointed as an interim
member of the Managing Board and our Company Secretary. He was
elected to the Managing Board by our shareholders at our 2005
Annual General Meeting. From 2003 to 2004, Mr. Butterfield
served as General Counsel of Lennar Corporation. Prior to that,
from 1996 to 2003 he served as General Counsel of Hughes Supply,
Inc. Prior to this, he was a partner at Maguire,
Voorhis & Wells, PA (now part of Holland &
Knight LLP). Mr. Butterfield was Chairman of the Business
Law Section of the Orange County (FL) Bar Association from
1994 to 1995. He has a Bachelor of Arts from Covenant College in
Lookout Mountain, Tennessee and a Juris Doctor from Stetson
University College of Law in St. Petersburg, Florida.
Senior Leadership Team Officers
Steve Ashe is our Vice President — Investor
Relations. Mr. Ashe joined us in January 2000 as Vice
President — Public Affairs and was appointed Vice
President — Investor Relations in October 2001,
responsible for managing the Company’s relationships with
the investment market. Before joining us, Mr. Ashe worked
with PricewaterhouseCoopers (and the former Coopers &
Lybrand) spending ten years specializing in accounting, taxation
and business advice, and six years on regulation and government
matters. He has a Bachelor of Business degree from the
University of Technology Sydney and is a member of the
Australian Institute of Chartered Accountants.
104
Peter Baker is our Executive Vice President —
Australia. Mr. Baker joined us in October 2004 as General
Manager External Affairs and became Executive Vice
President — Australia in September 2005. He has been
involved in various aspects of the resolution of our asbestos
compensation matters and his current role includes managing our
corporate activities in Australia. Mr. Baker is an
experienced corporate executive who has held a number of senior
positions in Australian public and private companies, including
the MIA Group, the Tenix Group and TNT Ltd. In a number of these
senior roles he was responsible for formulating corporate
strategy, new market expansions in Australia and overseas, and
mergers and acquisitions. He has a Bachelor of Science with
first class honors from the University of Leicester, UK; a
Master of Science in Operational Research with distinction from
the London School of Economics, UK; and an MBA from the
University of Chicago.
James Chilcoff is our Vice President —
International Business. Mr. Chilcoff joined us in 1997 as a
Senior Product Manager for Siding. Other roles Mr. Chilcoff
has held with us include: Siding Product Development
Manager — Marketing from 1998 to 1999; Siding Product
Manager from 1999 to 2000; Exterior Marketing Manager from 2000
to 2001; Southern Division Sales/ Marketing Manager from 2001 to
2002; Vice President Sales/ Marketing from 2002 to 2003; and
General Manager of our Australia and New Zealand business from
2003 to 2004. In August 2004, Mr. Chilcoff became Vice
President — International. In July 2005,
Mr. Chilcoff’s role was expanded to include overseeing
our U.S. Marketing Group and the Repair & Remodel
section of our Company. Before joining us, Mr. Chilcoff
held various positions with CertainTeed Corporation, S. C.
Johnson Wax, Formica Corporation and Armstrong World Industries.
Mr. Chilcoff has a Bachelor of Business Administration from
Eastern Michigan University and an MBA from Xavier University in
Ohio.
Mark Fisher is our Vice President — Research
and Development. Mr. Fisher joined us in 1993 as a
Production Engineer. Other roles Mr. Fisher has held with
us include: Finishing Manager, Production Manager and Product
Manager at various locations from 1993 to 1999; Sales and
Marketing Manager from 2000 to 2002; and General Manager of our
Europe Fiber Cement business from 2002 to 2004. In November
2004, Mr. Fisher became Vice President —
Specialty Products. In December 2005, he was appointed as Vice
President — Research Development and is also
responsible for
Artisan®
roofing and our USA Hardie Pipe business. Before joining us,
Mr. Fisher worked in Engineering for Chevron Corporation.
Mr. Fisher has a Bachelor of Science in Mechanical
Engineering and an MBA from University of Southern California.
Grant Gustafson is our Vice President —
Interiors and Business Development. Mr. Gustafson joined us
in April 2006. Prior to joining us, Mr. Gustafson held
various consulting and consulting management positions,
including serving as Managing Director of Arthur D. Little
(Southeast Asia and Greater China) from 2000 to 2004, and as a
consultant with Bain & Company from 1986 to 1988. In
addition, Mr. Gustafson has held senior management
positions in the commercial building products sector, including
serving as Vice President of Marketing for American Buildings
Company from 2005 to 2006, and Director of Marketing with
Varco-Pruden from 1988 to 1993. He was also Senior Vice
President of the investment firm Markmore Sdn Bhd of Malaysia
from 2004 to 2005. He has a Bachelor of Arts from the University
of California Santa Barbara and an MBA from the University
of Chicago.
Nigel Rigby is our Vice President — Emerging
Markets. Mr. Rigby joined us in 1998 as a Planning Manager
for our New Zealand business. Other roles Mr. Rigby held
with us include: Sales and Marketing Manager and Product
Development Manager for our New Zealand business from 1999 to
2002; Strategic Marketing Manager for our Australian business
from 2002 to 2003; Business Development Manager for our
U.S. business in 2003; and Vice President Exterior
Sales — Emerging Markets from 2003 to 2004. In
November 2004, Mr. Rigby became Vice President —
Emerging Markets. Before joining us, Mr. Rigby held various
management positions at Fletcher Challenge, a New Zealand based
company involved in energy, pulp and paper, forestry and
building materials.
Robert Russell is our Vice President —
Established Markets. Mr. Russell joined us in 1996 as a
Production Engineer. Other roles Mr. Russell held with us
include: Production Manager from 1997 to 1998; Plant Manager
from 1998 to 1999; Interior Products & Retail Sales
Manager from 1999 to 2000; Vice President Marketing and Sales
(James Hardie Gypsum) from 2000 to 2001; Business Development
Manager
105
from 2001 to 2002 and Vice President Exterior Sales and
Marketing — Established Markets from 2002 to 2004. In
November 2004, Mr. Russell became Vice
President — Established Markets. Prior to joining us,
Mr. Russell held various engineering positions with USG
Corporation. Mr. Russell has a Bachelor of Science Degree
in Industrial Engineering from the University of Arizona and his
MBA at the University of California Los Angeles.
Cathy Wallace is our Vice President — Global
Human Resources. Ms. Wallace joined us in September 2005.
She has over 20 years of experience in the fields of human
resources, organizational development, customer service and
quality management and has provided strategic leadership for the
planning, implementation and measurement of these functions in
the service, distribution and manufacturing industries. Before
joining us, Ms. Wallace held executive human resources
positions in a variety of organizations including, most
recently, The Home Depot Supply. Her other roles have included
Vice President, Human Resources and member of the senior
management team for the publicly-traded U.S. data storage
company, ANACOMP, and Director, Human Resources and member of
the international management team for Solar Turbines, a
subsidiary of Caterpillar, Inc. Ms. Wallace has a Bachelor
of Science in Psychology from Gordon College (Massachusetts) and
has completed the coursework for a Master of Science in
Industrial/ Organizational Psychology from San Diego State
University in California.
None of the persons above has any familial relationship with
each other. In addition, none of the individuals listed above is
party to any arrangement or understanding with a major
shareholder, customer, supplier or other entity, pursuant to
which any of the above was selected as a director or member of
senior management.
Former Directors and Senior Leadership Team Officers
Peter Cameron was a member of our Joint Board and
Supervisory Board and our Nominating and Governance Committee.
Mr. Cameron resigned on January 19, 2006 due to health
reasons. He died in February 2006. Mr. Cameron joined James
Hardie Industries N.V. as an independent, non-executive director
as a member of our Joint Board and Supervisory Board in August
2003. He was last elected by our shareholders at our 2003 Annual
General Meeting. Mr. Cameron had been involved in some of
Australia’s largest corporate takeovers, mergers and
corporate reconstructions, and had a wealth of commercial and
corporate advisory experience. He was Chairman of Investment
Banking in Australia and Managing Director of Credit Suisse
First Boston. In addition, he was a member of the Australian
Takeovers Panel and Chairman of the Advisory Board of the
University of Sydney Law School. Mr. Cameron was formerly a
partner and Head of Mergers and Acquisitions with the Australian
law firm, Allens Arthur Robinson. Mr. Cameron had a
Bachelor of Arts and Bachelor of Laws from the University of
Sydney.
Gregory Clark was a member of our Joint Board,
Supervisory Board, Nominating and Governance Committee, Audit
Committee, and a member of our Risk Management Subcommittee
during fiscal year 2006. Dr. Clark resigned from these
boards and committees on May 9, 2006. He was elected as an
independent, non-executive director in July 2002. Dr. Clark
first joined the Company as a consultant to the Board in
December 2001. He was last elected by our shareholders at our
2005 Annual General Meeting. He has a distinguished background
in science and business, specializing in the development and
commercialization of new technology. He is the recipient of a
number of international awards for science and technology,
including the Australian Academy of Science Pawsey Medal as the
most outstanding Australian scientist. Dr. Clark is
currently Principal of Clark Capital Partners, a technology
advisor to a number of financial institutions and a Director of
Australia and New Zealand Banking Group Limited (since 2004). He
served as President and Chief Operating Officer of
U.S.-based Loral Space
and Communications LLC from 1998 to 2000. Prior to that, he was
President of News Corporation’s News Technology Group and a
member of News Corporation’s Executive Committee.
Dr. Clark received a Ph.D. in Physics from the Australian
National University.
W. (Pim) Vlot was our Legal Counsel
Europe & Global Intellectual Property Manager, Company
Secretary and an interim member of our Managing Board.
Mr. Vlot joined us in January 2004 as Legal
106
Counsel Europe & Global Manager Intellectual Property.
In February 2004, Mr. Vlot was also appointed Company
Secretary and in October 2004, he was appointed as an interim
member of the Managing Board. Before joining us, from January
2003 to December 2003, he worked at the Amsterdam office of the
Amicorp Group, a privately owned international provider of
multinational company management, trust and fiduciary and
financial services. From October 2001 to December 2002, he
worked at Ernst & Young in The Netherlands as Senior
Manager, tax and legal. From 2000 to 2001, Mr. Vlot worked
at EQT Scandinavia B.V., the Dutch branch of a Swedish Private
Equity firm in Amsterdam, as its in-house counsel tax and legal.
Mr. Vlot has been a part-time teacher in corporate tax law
at the Inholland University for Economic and Legal studies in
Rotterdam and has taught Dutch and international corporate tax
law at the Dutch Federal Tax Consultants Association in
Amsterdam. Mr. Vlot holds a masters degree in Dutch and
International Tax Law from the University of Amsterdam.
|
|
|
Former Senior Leadership Team Officers |
David Merkley was our Executive Vice
President — Engineering and Process Development until
his resignation on September 1, 2006. Mr. Merkley
joined us in 1994 as Plant Manager of our Fontana fiber cement
operation in California. Other roles Mr. Merkley held with
us include: Manager, Research and Development from 1994 to 1996;
Plant Manager, Plant City from 1996 to 1998; Process Development
Manager from 1998 to 2000; and Operations Manager for James
Hardie Building Products USA from 2000 to 2002. In 2002,
Mr. Merkley was made Executive Vice President —
Manufacturing and Engineering, with global responsibility. In
August 2004, Mr. Merkley became Executive Vice
President — Engineering and Process Development with
responsibility for further development of new flat sheets, pipes
and trim technologies, new product engineering and plant design
and construction. Prior to joining us, Mr. Merkley held
various engineering positions in the civil construction
industry. Mr. Merkley has a Bachelor of Science in
Construction from Arizona State University.
Donald Merkley was our Executive Vice
President — Research and Development until his
resignation on December 19, 2005. Mr. Merkley joined
us in 1993 as Manager of our Plant City fiber cement plant in
Florida and was appointed U.S. Product Development Manager
in 1997. In 2002, he was made Executive Vice
President — Research and Development and in January
2003, his role was expanded to give him responsibility for our
emerging roofing business in the United States. Mr. Merkley
is also involved in reviewing business development
opportunities. Before joining us, Mr. Merkley held
positions with USG Corporation in various engineering-related
roles. He has a Bachelor of Science in Engineering from Arizona
State University.
Employees
As of the end of each of the last three fiscal years, we
employed the following number of people:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended | |
| |
|
March 31, | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Fiber Cement United States and Canada
|
|
|
2,150 |
|
|
|
1,820 |
|
|
|
1,722 |
|
|
Fiber Cement Australia
|
|
|
402 |
|
|
|
424 |
|
|
|
459 |
|
|
Fiber Cement New Zealand
|
|
|
170 |
|
|
|
147 |
|
|
|
161 |
|
|
Fiber Cement Philippines
|
|
|
202 |
|
|
|
211 |
|
|
|
225 |
|
|
Pipes (United States and Australia)
|
|
|
129 |
|
|
|
162 |
|
|
|
178 |
|
|
Fiber Cement Europe
|
|
|
58 |
|
|
|
31 |
|
|
|
37 |
|
|
Roofing (United States)
|
|
|
24 |
|
|
|
19 |
|
|
|
18 |
|
|
Fiber Cement Chile
|
|
|
— |
|
|
|
139 |
|
|
|
122 |
|
|
Research & Development, including Technology
|
|
|
118 |
|
|
|
131 |
|
|
|
117 |
|
|
General Corporate
|
|
|
50 |
|
|
|
38 |
|
|
|
34 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total Employees
|
|
|
3,303 |
|
|
|
3,122 |
|
|
|
3,073 |
|
| |
|
|
|
|
|
|
|
|
|
107
We no longer have fiber cement employees in Chile because we
sold our Chilean fiber cement business in July 2005. As of the
end of March 31, 2006, of the 3,303 people employed, 286
were members of labor unions (200 in Australia and 86 in New
Zealand). Our management believes that we have a satisfactory
relationship with these unions and its members and there are
currently no ongoing labor disputes. We currently have no
employees who are members of a union in the United States or the
Philippines.
Compensation
The aggregate amount of compensation that we paid to, or accrued
with respect to, members of our Supervisory Board, Managing
Board and our executive officers (21 persons in aggregate) for
services in all their capacities to us during fiscal year 2006
was approximately $13.8 million. This figure consists of
base salaries, bonuses paid, accrued compensation relating to
awards of shadow stock, superannuation and retirement benefits,
stock options and severance.
At our Annual General Meeting on September 25, 2006, our
shareholders voted to approve an increase in the aggregate
amount of remuneration payable per annum to members of our
Supervisory Board. For information on this increase, see
Item 4, “Information on the Company — Recent
Developments.”
As of March 31, 2006, the total amount accrued to provide
pension, retirement or similar benefits was approximately
$0.6 million and was related to certain members of our
Supervisory Board. See “Other Compensation” for a
description of retirement benefits to which two of our directors
may be entitled.
The tables below set forth the compensation for those
non-executive and executive directors who served on the Board
during the fiscal years ended March 31, 2006 and 2005; and
for our five most highly compensated current executive officers
and for our former executive officers during the fiscal years
ended March 31, 2006 and 2005 (if the current and former
non-executive directors and executive officers were in this
group for that period):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Primary | |
|
Equity | |
|
Post-employment | |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
Directors’ | |
|
JHI NV | |
|
|
|
|
| Name |
|
Fees | |
|
Stock(1) | |
|
Superannuation(2) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
Non-Executive Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Hellicar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
178,777 |
|
|
$ |
20,000 |
|
|
$ |
17,890 |
|
|
$ |
216,667 |
|
| |
Fiscal year 2005
|
|
|
128,750 |
|
|
|
20,000 |
|
|
|
13,388 |
|
|
|
162,138 |
|
|
J. D. Barr
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
51,100 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
61,100 |
|
| |
Fiscal year 2005
|
|
|
60,000 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
70,000 |
|
|
M. R. Brown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
50,598 |
|
|
|
10,000 |
|
|
|
5,454 |
|
|
|
66,052 |
|
| |
Fiscal year 2005
|
|
|
60,000 |
|
|
|
10,000 |
|
|
|
6,300 |
|
|
|
76,300 |
|
|
M. J. Gillfillan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
51,100 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
61,100 |
|
| |
Fiscal year 2005
|
|
|
55,000 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
65,000 |
|
|
J. R. H. Loudon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
47,767 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
57,767 |
|
| |
Fiscal year 2005
|
|
|
40,000 |
|
|
|
20,000 |
|
|
|
— |
|
|
|
60,000 |
|
|
D. G. McGauchie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
50,598 |
|
|
|
10,000 |
|
|
|
5,454 |
|
|
|
66,052 |
|
| |
Fiscal year 2005
|
|
|
55,000 |
|
|
|
10,000 |
|
|
|
5,850 |
|
|
|
70,850 |
|
108
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Primary | |
|
Equity | |
|
Post-employment | |
|
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
Directors’ | |
|
JHI NV | |
|
|
|
|
| Name |
|
Fees | |
|
Stock(1) | |
|
Superannuation(2) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
Former Non-Executive Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. Cameron(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
30,000 |
|
|
|
25,000 |
|
|
|
4,950 |
|
|
|
59,950 |
|
| |
Fiscal year 2005
|
|
|
40,000 |
|
|
|
20,000 |
|
|
|
5,400 |
|
|
|
65,400 |
|
|
G. J. Clark(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
51,100 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
61,100 |
|
| |
Fiscal year 2005
|
|
|
50,000 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
60,000 |
|
|
Total Compensation for Non-Executive Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
511,040 |
|
|
$ |
105,000 |
|
|
$ |
33,748 |
|
|
$ |
649,788 |
|
| |
Fiscal year 2005
|
|
$ |
488,750 |
|
|
$ |
110,000 |
|
|
$ |
30,938 |
|
|
$ |
629,688 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Post- | |
|
|
|
|
|
|
| |
|
Primary | |
|
employment | |
|
Equity | |
|
Other | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
|
|
Super- | |
|
|
|
Relocation | |
|
|
|
|
| |
|
|
|
annuation | |
|
|
|
and | |
|
|
|
|
| |
|
|
|
Noncash | |
|
and 401(k) | |
|
|
|
Expatriate | |
|
|
|
|
| Name |
|
Base Pay | |
|
Bonuses(5) | |
|
Benefits(6) | |
|
Benefits | |
|
Options(7) | |
|
Benefits | |
|
Severance | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
Executive Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L. Gries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
740,385 |
|
|
$ |
1,890,363 |
|
|
$ |
42,657 |
|
|
$ |
10,478 |
|
|
$ |
717,218 |
|
|
$ |
110,774 |
|
|
$ |
— |
|
|
$ |
3,511,875 |
|
| |
Fiscal year 2005
|
|
|
576,654 |
|
|
|
1,160,452 |
|
|
|
136,012 |
|
|
|
13,000 |
|
|
|
233,155 |
|
|
|
— |
|
|
|
— |
|
|
|
2,119,273 |
|
|
R. Chenu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
564,546 |
|
|
|
159,832 |
|
|
|
18,558 |
|
|
|
50,809 |
|
|
|
62,736 |
|
|
|
70,454 |
|
|
|
— |
|
|
|
926,935 |
|
| |
Fiscal year 2005(8)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
B. Butterfield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
311,250 |
|
|
|
450,450 |
|
|
|
30,410 |
|
|
|
9,913 |
|
|
|
128,369 |
|
|
|
215,717 |
|
|
|
— |
|
|
|
1,146,109 |
|
| |
Fiscal year 2005(9)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Former Executive Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. Vlot(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
17,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
60,880 |
|
|
|
78,130 |
|
| |
Fiscal year 2005
|
|
|
136,436 |
|
|
|
— |
|
|
|
— |
|
|
|
3,619 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
140,055 |
|
|
Total Compensation for Executive Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
1,633,431 |
|
|
$ |
2,500,645 |
|
|
$ |
91,625 |
|
|
$ |
71,200 |
|
|
$ |
908,323 |
|
|
$ |
396,945 |
|
|
$ |
60,880 |
|
|
$ |
5,663,049 |
|
| |
Fiscal year 2005
|
|
$ |
713,090 |
|
|
$ |
1,160,452 |
|
|
$ |
136,012 |
|
|
$ |
16,619 |
|
|
$ |
233,155 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,259,328 |
|
109
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Post- | |
|
|
|
|
|
|
| |
|
Primary | |
|
employment | |
|
Equity | |
|
Other | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
|
|
|
|
|
|
Relocation | |
|
|
| |
|
|
|
|
|
|
|
Allowances | |
|
|
| |
|
|
|
|
|
|
|
and Other | |
|
|
| |
|
|
|
Noncash | |
|
401(k) | |
|
|
|
Non- | |
|
|
| Name |
|
Base Pay | |
|
Bonuses(5) | |
|
Benefits(6) | |
|
Benefits | |
|
Options(7) | |
|
recurring(11) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
US$ | |
|
Current Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Chilcoff
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
290,385 |
|
|
$ |
418,231 |
|
|
$ |
13,899 |
|
|
$ |
13,269 |
|
|
$ |
157,409 |
|
|
$ |
113,038 |
|
|
$ |
1,006,231 |
|
| |
Fiscal year 2005
|
|
|
234,231 |
|
|
|
259,688 |
|
|
|
31,956 |
|
|
|
12,000 |
|
|
|
27,172 |
|
|
|
104,971 |
|
|
|
670,018 |
|
|
M. T. Fisher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
260,962 |
|
|
|
376,467 |
|
|
|
30,039 |
|
|
|
14,242 |
|
|
|
191,791 |
|
|
|
— |
|
|
|
873,501 |
|
| |
Fiscal year 2005
|
|
|
215,770 |
|
|
|
262,062 |
|
|
|
50,301 |
|
|
|
12,946 |
|
|
|
107,084 |
|
|
|
17,438 |
|
|
|
665,601 |
|
|
N. Rigby
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
260,962 |
|
|
|
356,419 |
|
|
|
32,919 |
|
|
|
— |
|
|
|
159,020 |
|
|
|
1,257 |
|
|
|
810,577 |
|
| |
Fiscal year 2005(12)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
R. P. Russell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
260,962 |
|
|
|
374,403 |
|
|
|
35,100 |
|
|
|
14,338 |
|
|
|
195,253 |
|
|
|
10,192 |
|
|
|
890,248 |
|
| |
Fiscal year 2005
|
|
|
233,751 |
|
|
|
234,542 |
|
|
|
32,366 |
|
|
|
12,833 |
|
|
|
111,733 |
|
|
|
— |
|
|
|
625,225 |
|
|
Former Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Merkley(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
323,826 |
|
|
$ |
761,679 |
|
|
$ |
24,315 |
|
|
$ |
14,372 |
|
|
$ |
258,299 |
|
|
$ |
7,306 |
|
|
$ |
1,389,797 |
|
| |
Fiscal year 2005
|
|
|
303,769 |
|
|
|
475,573 |
|
|
|
87,978 |
|
|
|
13,000 |
|
|
|
192,269 |
|
|
|
— |
|
|
|
1,072,589 |
|
|
Donald Merkley(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
|
254,800 |
|
|
|
16,515 |
|
|
|
15,222 |
|
|
|
8,540 |
|
|
|
708,790 |
|
|
|
75,829 |
|
|
|
1,079,696 |
|
| |
Fiscal year 2005
|
|
|
334,000 |
|
|
|
521,656 |
|
|
|
65,245 |
|
|
|
13,000 |
|
|
|
195,177 |
|
|
|
— |
|
|
|
1,129,078 |
|
|
Total Compensation for Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiscal year 2006
|
|
$ |
1,651,897 |
|
|
$ |
2,303,714 |
|
|
$ |
151,494 |
|
|
$ |
64,761 |
|
|
$ |
1,670,562 |
|
|
$ |
207,622 |
|
|
$ |
6,050,050 |
|
| |
Fiscal year 2005
|
|
$ |
1,321,521 |
|
|
$ |
1,753,521 |
|
|
$ |
267,846 |
|
|
$ |
63,779 |
|
|
$ |
633,435 |
|
|
$ |
122,409 |
|
|
$ |
4,162,511 |
|
|
|
|
| |
(1) |
The annual allocation to non-executive directors of JHI NV stock
to the value of $10,000 was approved by shareholders at the
Annual General Meeting held on July 19, 2002. The
non-executive directors can elect to take additional stock in
lieu of fees. |
| |
| |
(2) |
The superannuation benefits include Australian-mandated 9%
superannuation guarantee contributions on the Australian
directors’ total fees. |
| |
| |
(3) |
On January 19, 2006, Mr. Cameron resigned from the
Joint and Supervisory Boards and from the Nominating and
Governance Committee for health reasons. |
| |
| |
(4) |
On May 9, 2006, Dr. Clark resigned from our Joint
Board, Supervisory Board, Audit Committee, and Nominating and
Governance Committee. |
| |
| |
(5) |
Includes all incentive amounts paid in the year indicated,
including the portion of any incentive awarded for performance
in the indicated year that was paid in that year, as well as,
any performance incentive amounts realized as a result of prior
years’ performance and paid in the applicable year as a
result of our achievement of predetermined financial targets
pursuant to the terms of our Economic Profit Incentive Plan. See
“Other Compensation: Economic Profit Incentive Plan”
for a summary of the terms of our Economic Profit Incentive Plan. |
| |
| |
(6) |
Includes the aggregate amount of all noncash benefits received
by the executive in the year indicated. Examples of noncash
benefits that may be received by our executives include medical
and life insurance benefits, car and airfare allowances,
membership in executive wellness programs, long service leaves,
and tax services. |
110
|
|
|
| |
(7) |
Options are valued using the Black-Scholes option-pricing model
and the fair value of options granted are included in
compensation during the period in which the options vest. The
weighted average assumptions and weighted average fair value
used for grants in fiscal year 2006 were as follows: 1.2%
dividend yield; 27.4% expected volatility; 4.8% risk free
interest rate; 3.3 years of expected life; and A$1.35
weighted fair value at grant date. The Company’s Shadow
Stock Plan and non-US based Employee Stock Plan were terminated
at the end of February 2005 and the value on that day of all the
outstanding shares of these plans were paid to participants. |
| |
| |
(8) |
Mr. Chenu only became a member of the Managing Board during
fiscal year 2006, following his election by shareholders at the
annual meeting held on August 22, 2005. |
| |
| |
(9) |
Mr. Butterfield only became a member of the Managing Board
during fiscal year 2006, following his election by shareholders
at the annual meeting held on August 22, 2005. |
|
|
| (10) |
On June 30, 2005, Mr. Vlot’s temporary employment
agreement expired by its terms. |
| |
| (11) |
Other non-recurring includes cash paid in lieu of vacation
accrued, as permitted under our U.S. vacation policy and
California law. |
| |
| (12) |
Mr. Rigby’s fiscal year 2005 remuneration did not
place him among the Company’s most highly remunerated
executives. |
| |
| (13) |
On September 1, 2006, Mr. David Merkley resigned from
the Company. |
| |
| (14) |
On December 19, 2005, Mr. Donald Merkley resigned from
the Company. Beginning in calendar 2006, he will receive as
severance payment 18 monthly payments equal in total to his
most recent annual salary and average bonus over the last three
years. He will continue vesting in his stock options until the
end of his post-employment consulting agreement with the
Company. All of the expense associated with his stock options
was recorded during fiscal year 2006. Mr. Merkley received
cash of $75,829 as payment for his accrued vacation time and
this amount is recorded as Other Non-Recurring in this table. |
On March 8, 2006, December 1, 2005, February 22,
2005 and December 14, 2004, we granted options to
purchase 40,200 shares, 5,224,100 shares,
273,000 shares and 5,391,100 shares of our common
stock, respectively, at fair market value to management and
other employees under the 2001 Equity Incentive Plan. See the
section below entitled “Option Ownership” and
“Stock-Based Compensation” for further information
about option awards and a description of our equity compensation
plans. See also “Other Compensation” for a description
of our non-equity based compensation plans.
Employment Contracts
Remuneration and other terms of employment for the Chief
Executive Officer, Company Secretary and General Counsel, Chief
Financial Officer and certain other senior executives are
formalized in service agreements. The main elements of these
agreements are set out below.
Details of the terms of our CEO’s employment contract are
as follows:
| |
|
|
| Components |
|
Details |
| |
|
|
|
Length of contract
|
|
Three year term, commencing February 10, 2005. Term is
automatically extended on 9th day of each February for an
additional one year unless either party notifies the other,
90 days in advance of the automatic renew date, that it
does not want the term to renew. |
|
Base salary
|
|
$750,000 per year. Salary will be reviewed annually by the
JHI NV Board in April. |
111
| |
|
|
| Components |
|
Details |
| |
|
|
|
Short-term incentive
|
|
Annual incentive target is 100% of annual base salary: |
| |
|
— 80% of this incentive target is based on the Company
meeting or exceeding aggressive performance objectives; and |
| |
|
— 20% of this incentive target is based on the CEO
meeting or exceeding personal performance objectives. |
| |
|
The Remuneration Committee recommends the Company’s and
CEO’s performance objectives, and the performance against
these objectives, to the Supervisory Board for approval. If the
Company’s performance exceeds the annual objective, the CEO
realizes an incentive greater than his target incentive, but
only one-third of the excess incentive is paid to the
participant at the end of the fiscal year. The remaining
two-thirds is then deposited with a notional bank and is paid to
the CEO over the following two years if the Company’s
objectives are met in these years, or is reduced if the
Company’s objectives are not met. |
|
Long-term incentive
|
|
The banking mechanism of the annual incentive plan is considered
a long-term incentive. Upon the approval of the shareholders,
stock options with performance hurdles will be granted each
year. The recommended number of options to be granted will be
appropriate for this level of executive in the U.S. |
|
Defined Contribution Plan
|
|
The CEO may participate in the 401(k) defined contribution plan
up to the annual IRS limit. The Company will match his
contributions into the plan up to the annual IRS limit. |
|
Resignation
|
|
The CEO may cease his employment with the Company by providing
written notice. |
|
Termination by James Hardie
|
|
The Company may terminate the CEO’s employment for cause or
not for cause. If the Company terminates the employment, not for
cause, or the CEO terminates his employment “for good
reason” the Company will pay the following: |
| |
|
a. amount equivalent to 1.5 times the annual base salary at
the time of termination; or |
| |
|
b. amount equivalent to 1.5 times the executive’s
Average Annual Incentive actually paid in up to the previous
three fiscal years as CEO. |
|
Post-termination Consulting
|
|
The Company will request the CEO, and the CEO will agree, to
consult to the Company upon termination for a minimum of two
years, as long as he maintains the Company’s non-compete
and confidentiality agreements, and he will receive his annual
base salary and annual target and non-compete. |
Details of our CFO’s employment contract are as follows:
| |
|
|
| Components |
|
Details |
| |
|
|
|
Length of contract
|
|
Fixed period of two and a half (2.5) years concluding
October 5, 2007. |
|
Base salary
|
|
A$750,000 per year. |
|
Short-term incentive
|
|
Annual incentive target is 33% of annual base salary based on
the CFO meeting or exceeding personal performance objectives. |
112
| |
|
|
| Components |
|
Details |
| |
|
|
|
Long-term incentive
|
|
Upon the approval of the shareholders, stock options with
performance hurdles will be granted each year. The recommended
number of options to be granted will equal one-third of the
executive’s base salary. |
|
Superannuation
|
|
The Company will contribute 9% of gross salary to Superannuation
in the executive’s name. |
|
Resignation or Termination
|
|
The Company or CFO may cease the CFO’s employment with the
Company by providing three months’ notice in writing. |
|
Redundancy or material change in role
|
|
If the position of CFO is determined to be redundant or subject
to a material adverse change the Company or the CFO may
terminate the CFO’s employment. The Company will pay the
CFO a severance payment equal to the greater of
12 months’ pay or the remaining proportion of the term
of the contract. |
|
|
|
Company Secretary and General Counsel |
Details of our Company Secretary and General Counsel’s
employment contract are as follows:
| |
|
|
| Components |
|
Details |
| |
|
|
|
Length of contract
|
|
Indefinite. |
|
Base salary
|
|
$315,000 per year. |
|
Short term incentive
|
|
Annual incentive target is 65% of annual base salary: |
| |
|
— 80% of this incentive target is based on the Company
meeting or exceeding aggressive performance objectives; and |
| |
|
— 20% of this incentive target is based on the General
Counsel and Company Secretary meeting or exceeding personal
performance objectives. |
| |
|
The CEO recommends the General Counsel and Company
Secretary’s performance objectives and the performance
against these objectives, to the Remuneration Committee and the
Supervisory Board for approval. The Company’s objectives
are set by the Remuneration Committee’s recommendation to
the Supervisory Board. If the Company’s performance exceeds
the annual objective, the executive realizes a incentive greater
than his target incentive, but only one-third of the excess
incentive is paid to the participant at the end of the fiscal
year. The remaining two-thirds is then deposited with a notional
bank and is paid to the General Counsel and Company Secretary
over the following two years if the Company’s objectives
are met in these years, or is reduced if the Company’s
objectives are not met. |
|
Long-term incentive
|
|
The banking mechanism of the annual incentive plan is considered
a long-term incentive. Upon the approval of the shareholders,
stock options with performance hurdles will be granted each
year. The recommended number of options to be granted will be
appropriate for this level of executive in the United States. |
|
Defined Contribution Plan
|
|
Since the General Counsel and Company Secretary may not
participate in the U.S. 401(k) defined contribution plan up
to the annual IRS limit while he is on assignment to The
Netherlands, the Company will provide a payment up to the annual
IRS limit directly to the executive. |
|
Resignation or Termination
|
|
The General Counsel and Company Secretary may cease his
employment with the Company by providing written notice. |
113
| |
|
|
| Components |
|
Details |
| |
|
|
|
Termination by James Hardie
|
|
The Company may terminate the General Counsel and Company
Secretary’s employment for cause or not for cause. |
|
Post-termination Consulting
|
|
The Company will request the General Counsel and Company
Secretary, and he will agree, to consult to the Company upon
termination for a minimum of two years, as long as he maintains
the Company’s non-compete and confidentiality agreements,
and he will receive his annual base salary in exchange for this
consulting and non-compete. |
|
|
|
Benefits Contained in Contracts for CEO, CFO and Company
Secretary and General Counsel |
Employment contracts for each of our CEO, CFO and General
Counsel and Company Secretary also specify the following
benefits:
| |
|
|
| Components |
|
Details |
| |
|
|
|
International Assignment
|
|
The executives receive additional benefits due to international
assignment: housing allowance, expatriate Goods and Services
allowance, moving and storage. |
|
Other
|
|
Tax Equalization: The Company covers the extra personal
tax burden for Managing Board Directors based in The Netherlands. |
| |
|
Tax Advice: The Company will pay the costs of filing the
executives’ income tax returns to the required countries. |
| |
|
Health, Welfare and Vacation Benefits: The executives are
eligible to receive all health, welfare and vacation benefits
offered to all U.S. employees. They are also eligible to
participate in the Company’s Executive Health and Wellness
program. |
| |
|
Business Expenses: The executives are entitled to receive
reimbursement for all reasonable and necessary travel and other
business expenses they incur or pay for in connection with the
performance of their services under this Agreement. |
| |
|
Automobile: The Company will either purchase or lease an
automobile for business and personal use by the executives, or,
in the alternative, the executives will be entitled to an
automobile lease allowance not to exceed $750 per month.
Unused allowance or part thereof will be paid to the executives. |
|
|
|
Other Executive Officer Employment Contracts |
Details of the employment contracts for our other current
executive officers are as follows:
| |
|
|
| Components |
|
Details |
| |
|
|
|
Length of contract
|
|
Indefinite. |
|
Base salary
|
|
Base salary is subject to Remuneration Committee approval and
reviewed annually in May for increase effective July 1. |
|
Short-term incentive
|
|
An annual incentive target is set at a percentage of the
executive’s salary. Targets typically range from 55-90%;
80% of this incentive target is based on the Company meeting or
exceeding aggressive performance objectives; 20% of this
incentive target is based on the executive meeting or exceeding
personal performance objectives. |
114
| |
|
|
| Components |
|
Details |
| |
|
|
| |
|
The CEO recommends the executive’s performance objectives
and the performance against these objectives, to the
Remuneration Committee and Supervisory Board for approval. The
Company’s objectives are set by the Remuneration
Committee’s recommendation to the Supervisory Board. If the
Company’s performance exceeds the annual objective, the
executive realizes a incentive greater than his target
incentive, but only one-third of the excess incentive is paid to
the participant at the end of the fiscal year. The remaining
two-thirds is then deposited with a notional bank and is paid to
the executive over the following two years if the Company’s
objectives are met in these years, or is reduced if the
Company’s objectives are not met. |
|
Long-term incentive
|
|
The banking mechanism of the annual incentive plan is considered
a long term incentive. Upon the approval of our Supervisory
Board, stock options have been granted each year under the JHI
NV 2001 Equity Incentive Plan. It is anticipated that upon the
approval of our Supervisory Board, equity will be granted under
a new plan in the future. |
|
Defined Contribution Plan
|
|
The executive may participate in the U.S. 401(k) defined
contribution plan up to the annual IRS limit. The Company will
match the executive’s contributions into the plan up to the
annual IRS limit. |
|
Resignation
|
|
The executive may cease his employment with the Company by
providing written notice. |
|
Termination by James Hardie
|
|
The Company may terminate the executive’s employment for
cause or not for cause. In the case of one executive, if the
Company terminates the employment, not for cause, or the
executive terminates his employment “for good reason”
then the Company may pay up to: |
| |
|
a. an amount equivalent to 1.5 times the annual base salary
at the time of termination; or |
| |
|
b. amount equivalent to 1.5 times the executive’s
Average Annual Incentive actually paid in the previous three
fiscal years. |
|
Post-termination Consulting
|
|
Depending on the executive’s individual contract, the
Company may, or may be required to, request the executive, and
the executive will agree, to consult to the Company for two
years upon termination in exchange for the payment as designated
in the individual’s contract, as long as the executive
maintains the Company’s non-compete and confidentiality
agreements. The payment amount ranges from the executive’s
annual base salary to the annual base salary plus annual target
incentive as of the termination date. |
|
Other
|
|
Health, Welfare and Vacation Benefits: The executive is
eligible to receive all health, welfare and vacation benefits
offered to all U.S. employees. The executive is also
eligible to participate in the Company’s Executive Health
and Wellness program. |
| |
|
Business Expenses: The executive is entitled to receive
reimbursement for all reasonable and necessary travel and other
business expenses he or she incurs or pays in connection with
the performance of his or her services under this Agreement. |
115
| |
|
|
| Components |
|
Details |
| |
|
|
| |
|
Automobile: The Company will either lease an automobile
for business and personal use by the executive, or, in the
alternative, the executive will be entitled to an automobile
lease allowance not to exceed $750 per month. Unused
allowance or part of this will be paid to the executive. |
|
International Assignment
|
|
Executives who are on assignment in countries other than their
own receive additional benefits which may include tax
equalization payment and tax advice, a car in the country they
are assigned to, and financial assistance with housing, moving
and storage. |
Share Ownership
As of August 31, 2006, the number of shares of our common
stock beneficially owned by each person listed in the table
under the heading “Compensation —
Remuneration,” is set forth below.
| |
|
|
|
|
|
|
|
|
| |
|
Number of | |
|
|
| |
|
Shares | |
|
|
| |
|
Beneficially | |
|
Percent of | |
| Name |
|
Owned(1) | |
|
Class(2) | |
| |
|
| |
|
| |
|
Current Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Meredith Hellicar
|
|
|
11,566 |
|
|
|
* |
|
|
John Barr(3)
|
|
|
22,826 |
|
|
|
* |
|
|
Michael Brown
|
|
|
14,727 |
|
|
|
* |
|
|
Michael Gillfillan(4)
|
|
|
54,727 |
|
|
|
* |
|
|
James Loudon
|
|
|
6,355 |
|
|
|
* |
|
|
Donald McGauchie(5)
|
|
|
9,569 |
|
|
|
* |
|
|
Louis Gries
|
|
|
1,154,719 |
|
|
|
* |
|
|
Russell Chenu
|
|
|
38,250 |
|
|
|
* |
|
|
Benjamin Butterfield
|
|
|
45,000 |
|
|
|
* |
|
|
James Chilcoff
|
|
|
356,570 |
|
|
|
* |
|
|
Mark Fisher
|
|
|
345,396 |
|
|
|
* |
|
|
Nigel Rigby
|
|
|
108,503 |
|
|
|
* |
|
|
Robert Russell
|
|
|
249,634 |
|
|
|
* |
|
|
Former Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Peter Cameron(6)
|
|
|
15,613 |
|
|
|
* |
|
|
Gregory Clark
|
|
|
14,116 |
|
|
|
* |
|
|
David Merkley
|
|
|
325,000 |
|
|
|
* |
|
|
Donald Merkley
|
|
|
739,588 |
|
|
|
* |
|
|
Pim Vlot
|
|
|
— |
|
|
|
* |
|
116
|
|
|
| |
* |
Indicates that the individual beneficially owns less than 1% of
our shares of common stock. |
|
|
| (1) |
Since the Supervisory Board Share Plan, or SBSP, was approved at
the 2002 Annual General Meeting, four general allotments have
been made to non-executive directors. The number of beneficial
shares includes the following SBSP allotments: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shares Allotted under SBSP | |
| |
|
| |
| |
|
November 22, | |
|
December 3, | |
|
August 22, | |
|
August 27, | |
| Name |
|
2005(a) | |
|
2004(b) | |
|
2003(c) | |
|
2002(d) | |
| |
|
| |
|
| |
|
| |
|
| |
|
Meredith Hellicar
|
|
|
1,515 |
|
|
|
2,117 |
|
|
|
2,225 |
|
|
|
2,948 |
|
|
John Barr
|
|
|
758 |
|
|
|
1,068 |
|
|
|
— |
|
|
|
— |
|
|
Michael Brown
|
|
|
758 |
|
|
|
1,068 |
|
|
|
1,260 |
|
|
|
1,641 |
|
|
Michael Gillfillan
|
|
|
758 |
|
|
|
1,068 |
|
|
|
1,260 |
|
|
|
1,641 |
|
|
James Loudon
|
|
|
758 |
|
|
|
2,117 |
|
|
|
1,839 |
|
|
|
1,641 |
|
|
Donald McGauchie
|
|
|
758 |
|
|
|
1,068 |
|
|
|
1,743 |
|
|
|
— |
|
|
Former Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Cameron
|
|
|
1,894 |
|
|
|
2,117 |
|
|
|
5,602 |
|
|
|
— |
|
|
Gregory Clark
|
|
|
758 |
|
|
|
1,068 |
|
|
|
5,602 |
|
|
|
6,688 |
|
|
Alan McGregor
|
|
|
— |
|
|
|
— |
|
|
|
1,260 |
|
|
|
1,641 |
|
|
|
|
| |
(a) |
Each participant’s November 22, 2005 mandatory
participation of 758 shares is subject to a two-year escrow
period ending November 22, 2007. In the case of Peter
Cameron, the escrow was released after he died in February 2006. |
| |
| |
(b) |
Each participant’s December 3, 2004 mandatory
participation of 1,068 shares is subject to a two-year
escrow period ending on December 4, 2006. In the case of
Peter Cameron, the escrow was released after he died in February
2006. |
| |
| |
(c) |
Each participant’s August 22, 2003 mandatory
participation of 1,260 shares were subject to a two-year
escrow period until they were released on August 22, 2005. |
| |
| |
(d) |
Each participant’s August 27, 2002 mandatory
participation of 1,641 shares were subject to a two-year
escrow period until they were released on August 27, 2004. |
|
|
| (2) |
Based on 463,326,011 shares of common stock outstanding at
August 31, 2006 (all of which are subject to CUFS). |
| |
| (3) |
As of August 31, 2006, 21,000 shares were held in a
trust, of which Mr. Barr and his wife are trustees. |
| |
| (4) |
As of August 31, 2006, 50,000 shares were held in a
trust, of which Mr. Gillfillan and his wife are trustees. |
| |
| (5) |
As of August 31, 2006, 6,000 shares were held for the
McGauchie Superannuation Fund for which Mr. McGauchie is a
trustee. |
| |
| (6) |
As of August 31, 2006, 6,000 shares were held by
Mr. Cameron’s wife and 9,613 shares were held by
Mr. Cameron’s estate. |
None of the shares held by any of the directors or executive
officers has any special voting rights. Beneficial ownership of
shares includes shares issuable upon exercise of options which
are exercisable within 60 days of August 31, 2006.
117
Option Ownership
The number of shares of our common stock that each person listed
in the table under the heading “Compensation —
Remuneration,” have an option to purchase as of
August 31, 2006 was:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Shares | |
|
|
|
|
| |
|
Underlying | |
|
|
|
|
| Name |
|
Options Owned | |
|
Exercise Price | |
|
Expiration Date |
| |
|
| |
|
| |
|
|
|
Current Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
Louis Gries
|
|
|
40,174 |
(1,2) |
|
A$ |
3.1321/share |
(3,4,5) |
|
November 2009 |
| |
|
|
175,023 |
(1,6) |
|
A$ |
3.0921/share |
(3,4,5) |
|
November 2010 |
| |
|
|
324,347 |
(7) |
|
A$ |
5.0586/share |
(4,5) |
|
December 2011 |
| |
|
|
325,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
325,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
1,000,000 |
(10) |
|
A$ |
8.53/share |
|
|
November 2015 |
|
Russell Chenu
|
|
|
93,000 |
(11) |
|
A$ |
6.30/share |
|
|
February 2015 |
| |
|
|
90,000 |
(10) |
|
A$ |
8.53/share |
|
|
November 2015 |
|
Benjamin Butterfield
|
|
|
180,000 |
(11) |
|
A$ |
6.30/share |
|
|
February 2015 |
| |
|
|
230,000 |
(10) |
|
A$ |
8.53/share |
|
|
November 2015 |
|
James Chilcoff
|
|
|
40,174 |
(1,2) |
|
A$ |
3.1321/share |
(3,4,5) |
|
November 2009 |
| |
|
|
92,113 |
(1,6) |
|
A$ |
3.0921/share |
(3,4,5) |
|
November 2010 |
| |
|
|
68,283 |
(7) |
|
A$ |
5.0586/share |
(4,5) |
|
December 2011 |
| |
|
|
111,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
180,000 |
(14) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Mark Fisher
|
|
|
92,113 |
(1,6) |
|
A$ |
3.0921/share |
(3,4,5) |
|
November 2010 |
| |
|
|
68,283 |
(7) |
|
A$ |
5.0586/share |
(4,5) |
|
December 2011 |
| |
|
|
74,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
132,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
180,000 |
(14) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Nigel Rigby
|
|
|
20,003 |
(7) |
|
A$ |
5.0586/share |
(4,5) |
|
December 2011 |
| |
|
|
27,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
33,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
180,000 |
(14) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Robert Russell
|
|
|
27,634 |
(1,6) |
|
A$ |
3.0921/share |
(3,4,5) |
|
November 2010 |
| |
|
|
111,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
132,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
180,000 |
(14) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Former Executive Director and Officers
|
|
|
|
|
|
|
|
|
|
|
|
David Merkley
|
|
|
200,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
250,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
172,500 |
(12) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Donald Merkley
|
|
|
48,209 |
(1,2) |
|
A$ |
3.1321/share |
(3,4,5) |
|
November 2009 |
| |
|
|
138,170 |
(1,6) |
|
A$ |
3.0921/share |
(3,4,5) |
|
November 2010 |
| |
|
|
170,709 |
(7) |
|
A$ |
5.0586/share |
(4,5) |
|
December 2011 |
| |
|
|
200,000 |
(8) |
|
A$ |
6.4490/share |
(5) |
|
December 2012 |
| |
|
|
250,000 |
(9) |
|
A$ |
7.05/share |
|
|
December 2013 |
| |
|
|
230,000 |
(14) |
|
A$ |
5.99/share |
|
|
December 2014 |
| |
|
|
190,000 |
(13) |
|
A$ |
8.90/share |
|
|
December 2015 |
|
Pim Vlot
|
|
|
— |
|
|
|
|
|
|
|
118
|
|
| (1) |
This nonqualified stock option to purchase shares of our common
stock was granted on October 19, 2001 under our 2001 Equity
Incentive Plan in exchange for the termination of an award of
shadow stock covering an equal number of shares of JHIL common
stock. See “Equity Plans — 2001 Equity Incentive
Plan” under Item 6. |
|
|
|
| |
(2) |
All options vested and became exercisable in November 2004. |
| |
| |
(3) |
The exercise price reflects an A$0.0965 per share price
reduction due to a capital return paid to shareholders in
December 2001. |
| |
| |
(4) |
The exercise price reflects an A$0.3804 per share price
reduction due to a capital return paid to shareholders in
November 2002. |
| |
| |
(5) |
The exercise price reflects an A$0.2110 per share price
reduction due to a capital return paid to shareholders in
November 2003. |
| |
| |
(6) |
All options vested and became exercisable in November 2005. |
| |
| |
(7) |
Granted under the 2001 Equity Incentive Plan. All options vested
and became exercisable in December 2004. |
| |
| |
(8) |
Granted under the 2001 Equity Incentive Plan. All options vested
and became exercisable in December 2005. |
| |
| |
(9) |
Granted under the 2001 Equity Incentive Plan. Options vest and
become exercisable in three installments: 25% on
December 5, 2004; 25% on December 5, 2005; and 50% on
December 5, 2006. |
|
|
| (10) |
Granted under the Managing Board Transitional Stock Option Plan.
Options vest and become exercisable on the first business day on
or after November 22, 2008 if the following conditions are
met: 50% vest if our total shareholder return, or TSR, is equal
to or above the Median TSR and an additional 2% of the options
shall vest for each 1% increment that the Company’s TSR is
above the Median TSR. If any options remain unvested on the last
business day of each six month period between November 22,
2008 and November 22, 2010, we will reapply the vesting
criteria to those options on that business day. |
| |
| (11) |
Granted under the 2001 Equity Incentive Plan. Options vest and
become exercisable in three installments: 25% on
February 22, 2006; 25% on February 22, 2007; and 50%
on February 22, 2008. |
| |
| (12) |
Granted under the 2001 Equity Incentive Plan. Options vest and
become exercisable: 33% on December 14, 2006; and 67% on
December 14, 2007. |
| |
| (13) |
Granted under the 2001 Equity Incentive Plan. Options vest and
become exercisable in three installments: 25% on
December 1, 2006; 25% on December 1, 2007; and 50% on
December 1, 2008. |
| |
| (14) |
Granted under the 2001 Equity Incentive Plan. Options vest and
become exercisable in three installments: 25% on
December 14, 2005; 25% on December 14, 2006; and 50%
on December 14, 2007. |
Stock-Based Compensation
A modified SBSP, which replaces our SBSP described below, and a
Long Term Incentive Plan and were approved at our Annual General
Meeting on September 25, 2006. See Item 4,
“Information on the Company — Recent
Developments” for information on these new plans.
At March 31, 2006, the Company had the following
stock-based compensation plans: the 2001 Equity Incentive Plan;
the Stock Appreciation Rights Plan; the Supervisory Board Share
Plan; and the Managing Board Transitional Stock Option Plan.
As of March 31, 2005, 1,200,000 options were
outstanding and exercisable under the Peter Macdonald Share
Option Plan and 1,950,000 options were outstanding under
the 2002 Peter Macdonald Option Plan. Mr. Macdonald
exercised all of the 1,200,000 options in April 2005, prior
to its expiration date of April 20, 2005. The remaining
1,950,000 options were cancelled on October 31, 2005
because performance hurdles were not met.
119
On December 5, 2003, 12,600 shadow stock shares were
granted under the terms and conditions of the Key Management
Shadow Stock Incentive Plan. All of these shares remained
outstanding as of March 31, 2005 but were subsequently
cancelled in April 2005.
|
|
|
2001 Equity Incentive Plan |
Under our 2001 Equity Incentive Plan, our employees, including
employees of our subsidiaries and officers who are employees,
but not including any member of our Managing Board or
Supervisory Board, are eligible to receive awards in the form of
nonqualified stock options, performance awards, restricted stock
grants, stock appreciation rights, dividend equivalent rights,
phantom stock or other stock-based benefits. The 2001 Equity
Incentive Plan is intended to promote our long-term financial
interests by encouraging our management and other persons to
acquire an ownership position in us, to align their interests
with those of our shareholders and to encourage and reward their
performance. The 2001 Equity Incentive Plan was approved by our
shareholders and Joint Board subject to implementation of the
consummation of our 2001 Reorganization.
An aggregate of 45,077,100 shares of common stock have been
made available for issuance under the 2001 Equity Incentive
Plan, provided that such number (and any awards granted) is
subject to adjustment in the event of a stock split, stock
dividend or other changes in our common stock or capital
structure or our restructuring. Our ADSs evidenced by ADRs and
our common stock in the form of CUFS will be equivalent to and
interchangeable with our common stock for all purposes of the
2001 Equity Incentive Plan, provided that ADRs will be
proportionately adjusted to account for the ratio of CUFS in
relation to ADRs.
The following number of options to purchase shares of our common
stock issued under this plan were as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options Outstanding as of | |
| |
|
Number of | |
|
August 31, | |
| Share Grant Date |
|
Options Granted | |
|
2006 | |
| |
|
| |
|
| |
|
October 2001(1)
|
|
|
5,468,829 |
|
|
|
1,030,863 |
|
|
December 2001
|
|
|
4,248,417 |
|
|
|
1,270,724 |
|
|
December 2002
|
|
|
4,037,000 |
|
|
|
2,064,800 |
|
|
December 2003
|
|
|
6,179,583 |
|
|
|
3,857,720 |
|
|
December 2004
|
|
|
5,391,100 |
|
|
|
4,445,350 |
|
|
February 2005
|
|
|
273,000 |
|
|
|
273,000 |
|
|
December 2005
|
|
|
5,224,100 |
|
|
|
5,186,100 |
|
|
March 2006
|
|
|
40,200 |
|
|
|
40,200 |
|
| |
|
|
|
|
|
|
| |
Total outstanding
|
|
|
|
|
|
|
18,168,757 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Awarded to our employees on October 19, 2001 in exchange
for the cancellation of JHIL shadow stock awards under the JHIL
Key Management Equity Incentive Plan. |
Our Remuneration Committee administers the 2001 Equity Incentive
Plan. Subject to the provisions of the 2001 Equity Incentive
Plan, our Joint Board or Remuneration Committee is authorized to
determine who may participate in the 2001 Equity Incentive Plan,
the number and types of awards made to each participant and the
terms, conditions and limitations applicable to each award. In
addition, our Joint Board or Remuneration Committee will have
the exclusive power to interpret the 2001 Equity Incentive Plan
and to adopt such rules and regulations as it deems necessary or
appropriate for purposes of administering the 2001 Equity
Incentive Plan. Subject to certain limitations, our Joint Board
or Remuneration Committee will be authorized to amend, modify or
terminate the 2001 Equity Incentive Plan to meet any changes in
legal requirements or for any other purpose permitted by law.
The purchase or exercise price of any award granted under the
2001 Equity Incentive Plan may be paid in cash or other
consideration at the discretion of our Joint Board or
Remuneration Committee. Our Joint Board
120
or Remuneration Committee, in its discretion and as allowed by
applicable laws, may allow cashless exercises of awards or may
permit us to assist in the exercise of options.
Stock Options. Under the 2001 Equity Incentive Plan, our
Joint Board or Remuneration Committee is authorized to award
nonqualified options to purchase shares of common stock as
additional employment compensation. The 2001 Equity Incentive
Plan does not allow us to grant options qualified as
“incentive stock options” under Section 422 of
the U.S. Internal Revenue Code of 1986, as amended. Options
are exercisable over such periods as may be determined by our
Joint Board or Remuneration Committee, but no stock option may
be exercised after 10 years from the date of grant. Options
may be exercisable in installments and upon such other terms as
determined by our Joint Board or Remuneration Committee. Options
are evidenced by notices of option grants authorized by our
Joint Board or Remuneration Committee. No option is transferable
other than by will or by the laws of descent and distribution or
pursuant to certain domestic relations orders.
Performance Awards. Our Joint Board or Remuneration
Committee, in its discretion, may award performance awards to an
eligible person contingent on the attainment of criteria
specified by our Joint Board or Remuneration Committee.
Performance awards are paid in the form of cash, shares of
common stock or a combination of both. Our Joint Board or
Remuneration Committee determines the total number of
performance shares subject to an award, and the terms and the
time at which the performance shares will be issued.
Restricted Stock Awards. Our Joint Board or Remuneration
Committee may award restricted shares of common stock, which are
subject to forfeiture under such conditions and for such periods
of time as our Joint Board or Remuneration Committee may
determine. Shares of restricted stock may not be sold,
transferred, assigned, pledged or otherwise encumbered so long
as such shares remain restricted. Our Joint Board or
Remuneration Committee determines the conditions or restrictions
of any restricted stock awards, which may include restrictions
on requirements of continued employment, individual performance
or our financial performance or other criteria.
Stock Appreciation Rights. Our Joint Board or
Remuneration Committee also may award stock appreciation rights
either in tandem with an option or alone. Stock appreciation
rights granted in tandem with a stock option may be granted at
the same time as the stock option or at a later time. A stock
appreciation right entitles the participant to receive from us
an amount payable in cash, in shares of common stock or in a
combination of cash and common stock, equal to the positive
difference between the fair market value of a share of common
stock on the date of exercise and the grant price, or such
lesser amount as our Joint Board or Remuneration Committee may
determine.
Dividend Equivalent Rights. Dividend equivalent rights,
defined as a right to receive payment with respect to all or
some portion of the cash dividends that are or would be payable
with respect to shares of common stock, may be awarded in tandem
with stock options, stock appreciation rights or other awards
under the 2001 Equity Incentive Plan. Our Joint Board or
Remuneration Committee determines the terms and conditions of
these rights. The rights may be paid in cash, shares of common
stock or other awards.
Other Stock-Based Benefits. Our Joint Board or
Remuneration Committee may award other benefits that, by their
terms, might involve the issuance or sale of our common stock or
other securities, or involve a benefit that is measured by the
value, appreciation, dividend yield or other features
attributable to a specified number of shares of our common stock
or other securities, including but not limited to stock
payments, stock bonuses and stock sales.
Effect of Change in Control. The 2001 Equity Incentive
Plan provides for the automatic acceleration of certain benefits
and the termination of the plan under certain circumstances in
the event of a “change in control.” A change in
control will be deemed to have occurred if either (1) any
person or group acquires beneficial ownership equivalent to 30%
of our voting securities, (2) individuals who are members
of our Joint Board as of the effective date of the 2001 Equity
Incentive Plan, or individuals who became members of our Joint
Board after the effective date of the 2001 Equity Incentive Plan
whose election or nomination for election was approved by a
majority of such individuals (or, in the case of directors
nominated by a person, entity or group with 20% of our voting
securities, by two-thirds of such individuals) cease to
constitute at least
121
a majority of the members of our Joint Board, or (3) there
occurs the consummation of certain mergers, the sale of
substantially all of our assets or our complete liquidation or
dissolution.
|
|
|
Stock Appreciation Rights Plans |
On December 14, 2004, 527,000 stock appreciation rights
were granted to Interim Managing Board members under the terms
and conditions of the JHI NV Stock Appreciation Rights Incentive
Plan. All of these stock appreciation rights were outstanding as
of March 31, 2005. At June 30, 2005, 27,000 stock
appreciation rights were cancelled. The remaining 500,000 stock
appreciation rights were outstanding at March 31, 2006 and
will vest 50% on December 14, 2006 and 50% on
December 14, 2007, and will be settled in cash.
|
|
|
Supervisory Board Share Plan |
At our 2002 Annual General Meeting, our shareholders approved a
Supervisory Board Share Plan, or SBSP, effective for a
three-year period. This plan was renewed at our 2005 Annual
General Meeting. Under the SBSP, all non-executive directors on
our Joint Board and Supervisory Board receive shares of our
common stock as payment for a portion of their director fees.
The SBSP requires that our directors to take at least $10,000 of
their fees in shares and allows directors to receive additional
shares in lieu of fees in their discretion. Shares issued under
the $10,000 compulsory component of the SBSP are subject to a
two-year escrow that requires members of the Supervisory Board
to retain those shares for at least two years following issue.
The issue price for the shares is the average market closing
price at which CUFS were quoted on the ASX during the five
business days preceding the day of issue. No loans will be
entered into by us in relation to the grant of shares pursuant
to the SBSP.
|
|
|
Managing Board Transitional Stock Option Plan |
On November 22, 2005, we granted members of our Managing
Board options to purchase 1,320,000 shares of our common
stock at an exercise price per share equal to A$8.53 under
our Managing Board Transitional Stock Option Plan. Under the
plan’s rules, the exercise price and the number of shares
available on exercise may be adjusted on the occurrence of
certain events, including new issues, share splits, rights
issues and capital reconstructions. 50% of these options become
exercisable on the first business day on or after
November 22, 2008, if our total shareholder return, or TSR
(essentially the dividend yield and common stock performance),
from November 22, 2005 to that date was at least equal to
the median TSR for the companies comprising our peer group, as
set out in the plan. In addition, for each 1% increment
that our TSR is above the median TSR an additional 2% of
the options become exercisable. If any options remain unvested
on the last business day of each six month period between
November 22, 2008 and November 22, 2010, we will
reapply the vesting criteria to those options on that business
day.
Other Compensation
|
|
|
Economic Profit Incentive Plan |
We maintain an Economic Profit Incentive Plan which provides
incentive compensation for certain of our executive directors,
officers and key executives. This plan is a variable pay plan,
which links our incentive payments to certain key individuals to
the performance of the Company and the individual’s
performance. These designated executives are entitled to receive
incentive payments upon the Company’s achievement of
certain predetermined financial targets and certain other
mutually agreed upon personal objectives. A participant is
eligible to receive an incentive payment based on his or her
individual performance regardless of the Company’s
performance. The portion of the target incentive that is based
on the Company’s performance is an amount up to 80% of the
target incentive and is paid to the participant at the end of
the fiscal year if the Company’s predetermined financial
target is met. If the Company’s predetermined financial
target is exceeded, the participant is eligible to receive an
incentive payment that is greater than the target incentive but
only one-third of the portion of the incentive that is greater
than the target incentive is actually paid to the participant at
the end of the fiscal year. The remaining two-thirds is
deposited with a notional bank and is paid
122
to the executive over the following two years if the
Company’s predetermined financial targets are met in those
years, or is reduced if the Company’s predetermined
financial targets are not met. The Company believes that this
Plan distinguishes between sustained performance and one-time
performance and encourages participants to maintain a long-term
view.
We sponsor a U.S. defined contribution plan, the James
Hardie Retirement and Profit Sharing Plan, for our employees in
the United States and a defined benefit pension plan, the James
Hardie Australia Superannuation Plan, for our employees in
Australia. The U.S. defined contribution plan is a
tax-qualified retirement and savings plan (which we refer to as
the 401(k) Plan) covering all U.S. employees, subject
to certain eligibility requirements. Participating employees may
elect to reduce their current annual compensation by up to
$15,000 in calendar year 2006 and have the amount of such
reduction contributed to the 401(k) Plan, with a maximum
compensation limit of $220,000. In addition, we match employee
contributions dollar for dollar up to a maximum of the first 6%
of an employee’s base salary.
|
|
|
James Hardie Australia Superannuation Plan |
The James Hardie Australia Superannuation Plan is funded based
on statutory requirements in Australia and is based primarily on
the contributions and income derived thereon held by the plan on
behalf of the member, and to a lesser degree, on the
participants’ eligible compensation and years of credited
service.
|
|
|
Director Retirement Benefits |
In July 2002, we discontinued a retirement plan that entitled
our Supervisory Board members to receive, upon their termination
for any reason other than misconduct, an amount equal to a
multiple of up to five times their average annual fees for the
three year period prior to their retirement. The applicable
multiple was based on the director’s years of service on
our Supervisory Board, including service on the JHIL Board. Two
of our directors, Ms. Hellicar and Mr. Brown, retained
some benefits that had accrued as of 2002 under the retirement
plan, and they may therefore be entitled to benefits pursuant to
this plan upon retirement from our Supervisory Board. In the
event Ms. Hellicar retires from our Supervisory Board for
any reason other than misconduct, she will be entitled to four
times her average director’s fees for the previous three
years prior to her retirement. In the event Mr. Brown
retires from our Supervisory Board for any reason other than
misconduct, he will be entitled to four times his average
director’s fees for the previous three years prior to his
retirement.
|
|
| Item 7. |
Major Shareholders and Related Party Transactions |
Major Shareholders
As of August 31, 2006, all issued and outstanding shares of
our common stock were listed on the Australian Stock Exchange in
the form of CHESS Units of Foreign Securities, or CUFS. CUFS
represent beneficial ownership of our shares. CHESS Depository
Nominees Pty Ltd is the registered owner of the shares
represented by CUFS. Each of our CUFS represents one share of
our common stock.
To our knowledge, based on shareholder notices filed with the
Australian Stock Exchange (unless indicated otherwise below), as
of August 31, 2006, the following table identifies those
shareholders which
123
beneficially owned 5% or more of our common stock and their
holdings and percentage of shares outstanding as of the date of
their last respective notices:
| |
|
|
|
|
|
|
|
|
| |
|
Shares | |
|
Percentage of | |
| |
|
Beneficially | |
|
Shares | |
| Shareholder |
|
Owned | |
|
Outstanding | |
| |
|
| |
|
| |
|
Commonwealth Bank of Australia (and subsidiaries)
|
|
|
54,916,592 |
|
|
|
11.90% |
|
|
Lazard Asset Management Pacific Co.
|
|
|
46,309,135 |
|
|
|
9.99% |
|
|
Schroder Investment Management Australia Limited
|
|
|
35,496,683 |
|
|
|
7.66% |
|
|
The Capital Group Companies, Inc.
|
|
|
32,960,346 |
|
|
|
7.12% |
|
|
National Australia Bank Limited Group
|
|
|
28,198,184 |
|
|
|
6.15% |
|
|
Concord Capital Ltd.
|
|
|
23,646,400 |
|
|
|
5.10% |
|
Commonwealth Bank merged with Colonial First State Investments
in June 2000, and their combined holdings as of March 22,
2001 exceeded 5% of JHIL’s outstanding stock. Commonwealth
Bank increased its percentage ownership of JHIL to approximately
13% in May 2001. Through subsequent periodic purchases,
Commonwealth Bank gradually increased its interest in JHI NV to
17.03% in July 2003, but based on information provided by
Commonwealth Bank in its Form 13G filed with the
U.S. Securities and Exchange Commission on August 14,
2006, it had reduced its interest in JHI NV to 11.90% as of
August 8, 2006.
Lazard Asset Management Pacific Co became a substantial
shareholder on April 1, 2004, with a 5.34% interest in our
outstanding stock and increased its holding in JHI NV on
July 28, 2006 to 9.99% in the last notice received.
Schroder Investment Management Australia Limited became a
substantial shareholder on January 28, 2004, with a 5.55%
interest in JHI NV’s outstanding shares and, through
subsequent purchases, increased its holding in JHI NV on
April 6, 2004 to 8.69%. Schroder Investment Management
Australia Limited reduced its holding in JHI NV to 7.66% on
July 27, 2006 in the last notice received.
The Capital Group Companies, Inc. became a substantial
shareholder on August 3, 2004, with a 5.09% interest in JHI
NV outstanding shares and increased its holding in JHI NV on
March 17, 2006 to 7.12% in the last notice received.
National Australia Bank Limited Group became a substantial
shareholder on May 25, 2004, with 5.03% of our outstanding
stock and increased its holding in JHI NV on June 16, 2004
to 6.15% in the last notice received.
Concord Capital Ltd became a substantial shareholder on
June 18, 2004, with 5.34% of our outstanding stock. Their
substantial holding status ceased on August 6, 2004 when
their holding fell below 5%. On August 20, 2004 their
holding increased to 5.19% of our outstanding stock, but their
substantial holding status again ceased when their holding fell
below 5% on April 8, 2005. On June 29, 2006 their
holding increased to 5.10% of our outstanding stock.
Each of the above shareholders has the same voting rights as all
other holders of our common stock. To our knowledge, except for
the major shareholders described above, we are not directly or
indirectly owned or controlled by another corporation, by a
foreign government or by any other natural or legal persons
severally or jointly.
Other Security Ownership Information
As of August 31, 2006, 0.48% of the outstanding shares of
our common stock were held by 52 CUFS holders with registered
addresses in the United States. In addition, as of
August 31, 2006, 0.56% of our outstanding shares were
represented by ADRs held by 11 holders, all of whom have
registered addresses in the United States. A total of 1.04% of
our outstanding capital stock was registered to
63 U.S. holders as of August 31, 2006.
124
Related Party Transactions
In accordance with the New York Stock Exchange listing
standards, our Audit Committee reviews and approves all related
party transactions. In discharging the duties set forth in their
charter, the Audit Committee reviews all conflicts and/or
related party transactions at least every year in the fourth
quarter. In addition, the Audit Committee reviews any proposed
related party transaction from time to time as they arise.
Furthermore, the Code of Business Conduct and Ethics adopted by
the Company requires directors and employees to avoid conflicts
of interest, which include related party transactions.
|
|
|
Existing Loans to our Directors and Directors of our
Subsidiaries |
As of August 31, 2006, loans receivable totaling $30,092
were outstanding from certain executive directors or former
directors of subsidiaries of JHI NV who were directors during
fiscal year 2006 under the terms and conditions of the Executive
Share Purchase Plan, which we refer to as the Plan. Loans under
the Plan are interest-free and repayable from dividend income
earned by, or capital returns from, securities acquired under
the Plan. The loans are collateralized by CUFS under the Plan.
No new loans to Directors or executive officers of JHI NV, under
the plan or otherwise, and no modifications to existing loans
have been made since December 1997.
During fiscal year 2006, repayments totaling $1,892 were
received in respect of the Plan from Messrs. Kneeshaw and
Salter. In July 2006, repayments totalling $800 were received in
respect of the Plan from Messrs. Kneeshaw and Salter. No
repayments were made between April and June and in August 2006.
|
|
|
Payments Made to Directors and Director-Related Entities
of JHI NV |
We have subsidiaries located in various countries, many of which
require at least one director to be a local resident. All
payments below arise because of these requirements.
Dr. Clark, who resigned from our Joint and Supervising
Boards on May 9, 2006, is a non-executive director of ANZ
Banking Group Limited with whom we transact banking business.
Mr. McGauchie is also a non-executive director of Telstra
Corporation Limited from which we purchase communications
services. All transactions were in accordance with normal
commercial terms and conditions. It is not considered that these
directors had significant influence over these transactions.
In February 2004, one of our subsidiaries entered into a
consulting agreement in usual commercial terms and conditions
with The Gries Group in respect to professional services. The
principal of The Gries Group, James P. Gries, is Mr. Louis
Gries’ brother. Under the agreement, approximately $12,000
was paid each month to The Gries Group. The agreement expired in
June 2005 and payments of $50,876 were made for the year ended
March 31, 2006. Mr. Louis Gries has no economic
interest in The Gries Group.
Payments of $8,829 for the year ended March 31, 2006 were
made to Grech, Vella, Tortell & Hyzler Advocates.
Dr. Vella was a director of a number of our subsidiaries
during fiscal year 2006. The payments were made in respect of
professional services and were negotiated in accordance with
usual commercial terms and conditions.
Payments totaling $78,496 for the year ended March 31, 2006
were made to M. Helyar, R. Le Tocq and N. Wild
who are directors of one of our subsidiaries. The payments were
made in respect of professional services and were negotiated in
accordance with usual commercial terms and conditions.
Payments totaling $4,984 for the year ended March 31, 2006
were made to Bernaldo, Mirador and Directo Law Offices.
R. Bernaldo is a director of one of our subsidiaries. The
payments were made in respect of professional services and were
negotiated in accordance with usual commercial terms and
conditions.
|
|
| Item 8. |
Financial Information |
See Item 4, “Information on the Company —
Legal Proceedings,” Item 18, “Financial
Statements,” and pages F-1 through F-58. There has been no
significant change to the financial statements included in this
annual report since the date of such financial statements.
125
See Item 10, “Additional Information — Key
Provisions of our Articles of Association of JHI NV —
Dividends.”
Price History
Prior to the restructuring that we completed in October 2001,
there was no public market for shares of JHI NV common stock,
nor was there a market for JHI NV ADRs. Shares in JHIL, which
represented substantially the same operations, assets and
liabilities as those of JHI NV prior to our 2001 Reorganization,
were traded on the Australian Stock Exchange and
over-the-counter as
ADRs. One JHIL ADR represented two JHIL shares. After
October 19, 2001, our shares were listed on the New York
Stock Exchange and one JHI NV ADR represents five JHI NV shares.
JHIL shares were exchanged for JHI NV shares represented by CUFS
shares on October 19, 2001. See Item 4,
“Information on the Company — History and
Development of the Company.”
The high and low trading prices of JHI NV CUFS on the Australian
Stock Exchange are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Period |
|
High | |
|
Low | |
| |
|
(A$) |
|
|
(US$) |
|
|
(A$) |
|
|
(US$) |
|
|
Fiscal year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
March 31, 2006
|
|
|
9.81 |
|
|
|
7.38 |
|
|
|
5.49 |
|
|
|
4.13 |
|
| |
March 31, 2005
|
|
|
7.23 |
|
|
|
5.35 |
|
|
|
4.95 |
|
|
|
3.66 |
|
| |
March 31, 2004
|
|
|
8.04 |
|
|
|
5.58 |
|
|
|
5.84 |
|
|
|
4.05 |
|
| |
March 31, 2003
|
|
|
7.06 |
|
|
|
3.96 |
|
|
|
5.56 |
|
|
|
3.12 |
|
| |
March 31, 2002
|
|
|
6.77 |
|
|
|
3.47 |
|
|
|
4.19 |
|
|
|
2.15 |
|
|
Fiscal quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
June 30, 2006
|
|
|
9.95 |
|
|
|
7.43 |
|
|
|
7.12 |
|
|
|
5.32 |
|
| |
March 31, 2006
|
|
|
9.81 |
|
|
|
7.25 |
|
|
|
8.11 |
|
|
|
6.00 |
|
| |
December 31, 2005
|
|
|
9.03 |
|
|
|
6.72 |
|
|
|
7.65 |
|
|
|
5.69 |
|
| |
September 30, 2005
|
|
|
9.44 |
|
|
|
7.17 |
|
|
|
7.40 |
|
|
|
5.62 |
|
| |
June 30, 2005
|
|
|
7.75 |
|
|
|
5.96 |
|
|
|
5.49 |
|
|
|
4.22 |
|
| |
March 31, 2005
|
|
|
7.23 |
|
|
|
5.63 |
|
|
|
5.79 |
|
|
|
4.49 |
|
| |
December 31, 2004
|
|
|
6.77 |
|
|
|
5.09 |
|
|
|
5.50 |
|
|
|
4.13 |
|
| |
September 30, 2004
|
|
|
6.30 |
|
|
|
4.52 |
|
|
|
4.95 |
|
|
|
3.55 |
|
| |
June 30, 2004
|
|
|
6.88 |
|
|
|
4.92 |
|
|
|
5.22 |
|
|
|
3.73 |
|
|
Month ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
August 31, 2006
|
|
|
7.05 |
|
|
|
5.39 |
|
|
|
6.31 |
|
|
|
4.82 |
|
| |
July 31, 2006
|
|
|
7.85 |
|
|
|
5.90 |
|
|
|
6.56 |
|
|
|
4.93 |
|
| |
June 30, 2006
|
|
|
8.59 |
|
|
|
6.35 |
|
|
|
7.12 |
|
|
|
5.26 |
|
| |
May 31, 2006
|
|
|
9.54 |
|
|
|
7.32 |
|
|
|
8.13 |
|
|
|
6.24 |
|
| |
April 30, 2006
|
|
|
9.95 |
|
|
|
7.32 |
|
|
|
9.18 |
|
|
|
6.76 |
|
| |
March 31, 2006
|
|
|
9.81 |
|
|
|
7.12 |
|
|
|
8.67 |
|
|
|
6.30 |
|
The U.S. dollar prices set forth above were calculated
using the weighted average exchange rate for the relevant period.
126
The high and low trading prices of JHI NV ADRs on the New York
Stock Exchange are as follows:
| |
|
|
|
|
|
|
|
|
|
| Period |
|
High | |
|
Low | |
| |
|
| |
|
| |
| |
|
(US$) | |
|
(US$) | |
|
Fiscal year ended:
|
|
|
|
|
|
|
|
|
| |
March 31, 2006
|
|
|
36.36 |
|
|
|
21.54 |
|
| |
March 31, 2005
|
|
|
27.21 |
|
|
|
18.10 |
|
| |
March 31, 2004
|
|
|
28.50 |
|
|
|
18.25 |
|
| |
March 31, 2003
|
|
|
19.95 |
|
|
|
15.29 |
|
| |
March 31, 2002
|
|
|
17.95 |
|
|
|
11.10 |
|
|
Fiscal quarter ended:
|
|
|
|
|
|
|
|
|
| |
June 30, 2006
|
|
|
36.80 |
|
|
|
25.90 |
|
| |
March 31, 2006
|
|
|
35.59 |
|
|
|
30.51 |
|
| |
December 31, 2005
|
|
|
34.80 |
|
|
|
29.60 |
|
| |
September 30, 2005
|
|
|
36.36 |
|
|
|
27.70 |
|
| |
June 30, 2005
|
|
|
30.00 |
|
|
|
21.54 |
|
| |
March 31, 2005
|
|
|
27.21 |
|
|
|
22.60 |
|
| |
December 31, 2004
|
|
|
26.52 |
|
|
|
20.50 |
|
| |
September 30, 2004
|
|
|
22.26 |
|
|
|
18.10 |
|
| |
June 30, 2004
|
|
|
25.05 |
|
|
|
18.82 |
|
|
Month ended:
|
|
|
|
|
|
|
|
|
| |
August 31, 2006
|
|
|
26.73 |
|
|
|
24.75 |
|
| |
July 31, 2006
|
|
|
28.85 |
|
|
|
25.40 |
|
| |
June 30, 2006
|
|
|
31.91 |
|
|
|
25.90 |
|
| |
May 31, 2006
|
|
|
36.74 |
|
|
|
31.30 |
|
| |
April 30, 2006
|
|
|
36.80 |
|
|
|
33.45 |
|
| |
March 31, 2006
|
|
|
35.59 |
|
|
|
32.50 |
|
Trading Markets
Our securities are listed and quoted on the following stock
exchanges:
| |
|
|
|
|
|
Common Stock (in the form of CUFS)
|
|
|
Australian Stock Exchange |
|
|
ADRs
|
|
|
New York Stock Exchange |
|
We cannot predict the prices at which our shares and ADRs will
trade or the volume of trading for such securities, nor can we
assure you that these securities will continue to meet the
applicable listing requirements of these exchanges.
Trading on the Australian Stock Exchange
The Australian Stock Exchange is headquartered in Sydney,
Australia, with branches located in each Australian state
capital. Our CUFS trade on the Australian Stock Exchange under
the symbol “JHX.” The Australian Stock Exchange is a
publicly listed company with trading being undertaken by brokers
licensed under the Australian Corporations Act 2001. Trading
principally takes place between the hours of 10:00 a.m. and
4:00 p.m. on each weekday (excluding Australian public
holidays). Settlement of trades in uncertificated securities
listed on the Australian Stock Exchange is generally effected
electronically on the third business day following the trade.
This is undertaken through CHESS (Clearing House Electronic
Sub-register System),
which is the clearing and settlement system operated by the
Australian Stock Exchange.
127
Trading on the New York Stock Exchange
In the United States, five JHI NV CUFS equal one JHI NV ADR. Our
ADRs trade on the New York Stock Exchange under the symbol
“JHX.” Trading principally takes place between the
hours of 9:30 a.m. and 4:00 p.m. on each weekday
(excluding U.S. public holidays). All inquiries and
correspondence regarding ADRs should be directed to The Bank of
New York, depository for our ADRs, at The Bank of
New York, ADR Department, 101 Barclay
Street #22W, New York, New York 10286 or at its
website located at
www.adrbny.com or contact: The Bank of
New York, Investor Relations, P.O. Box 11258, Church
Street Station, New York, NY 10286-1258, toll free
telephone number for USA domestic callers: 1-888-BNY-ADRs,
non-U.S. callers
can call: 212-815-3700 or email:
[email protected].
|
|
| Item 10. |
Additional Information |
General
We were originally incorporated in 1998 as a private company
with limited liability, or “besloten vennootschap met
beperkte aansprakelijkheid” (a “B.V.”). By
notarial deed dated July 24, 2001, we changed our name to
James Hardie Industries N.V. and by the same deed we changed our
legal form into that of a “naamloze vennootschap”
(an “N.V.”), a public limited liability company
under Dutch law. Our Articles of Association were most recently
amended on September 1, 2005.
Our corporate seat is in Amsterdam, The Netherlands and we have
offices at The Atrium, 8th floor, Strawinskylaan 3077,
1077 ZX Amsterdam, The Netherlands. We are registered at
the trade register of the Chamber of Commerce and Industry for
Amsterdam, The Netherlands under number 34106455.
Key Provisions of our Articles of Association of JHI NV
Our purposes are:
|
|
|
| |
• |
to participate in, to take an interest in any other way in and
to conduct the management of business enterprises of whatever
nature; |
| |
| |
• |
to raise funds through the issuance of debt or equity or in any
other way and to finance third parties; |
| |
| |
• |
to provide guarantees, including guarantees for the debts of
third parties; and |
| |
| |
• |
to perform all activities which are incidental to or which may
be conducive to, or connected with, any of the foregoing. |
|
|
|
Provisions of our Articles of Association or Charter
Related to Directors |
Power to vote when director is materially interested.
Pursuant to the Company’s Articles of Association, and
subject to limited exceptions, a member of the Managing Board
who has a material personal interest in a matter that relates to
the affairs of the Company must give all other members of the
Managing Board notice of his or her interest. Furthermore,
subject to limited exceptions, a member of the Managing Board
who has a material personal interest in a matter that is being
considered at a meeting of the Managing Board may neither be
present while the matter is being considered at such meeting nor
vote on the matter.
Subject to limited exceptions, a member of the Supervisory Board
who has a material personal interest in a matter that relates to
the affairs of the Company must give all other members of the
Supervisory Board notice of his or her interest. Furthermore,
subject to limited exceptions, a member of the Supervisory Board
who has a material personal interest in a matter that is being
considered at a meeting of the Supervisory Board may neither be
present while the matter is being considered at such meeting nor
vote on the matter.
If a member of the Managing Board has a conflict of interest
with the Company (whether acting in his personal capacity by
entering into an agreement with the Company, conducting any
litigation against the Company or acting in any other capacity),
he or she, will still have the power to represent the Company
128
towards third parties when entering into transactions, unless a
person is designated at the General Meeting of Shareholders for
that purpose or the law provides the designation in a different
manner.
Power to vote compensation. The compensation of the
members of the Supervisory Board is determined at the General
Meeting of Shareholders.
The remuneration of the members of the Managing Board is
determined by the Supervisory Board within the limits of the
remuneration policy adopted at the General Meeting of
Shareholders. The Supervisory Board will submit for approval by
the General Meeting of Shareholders a proposal regarding the
arrangements for the remuneration of the members of the Managing
Board in the form of shares or rights to acquire shares. This
proposal includes at least how many shares or rights to acquire
shares may be awarded to the Managing Board and which criteria
apply to an award or a modification. Our Articles of Association
do not include any provisions regarding the power of the members
of the Managing Board, in the absence of an independent quorum,
to vote compensation to themselves or any other members of the
Managing Board.
Borrowing Powers. Our Articles of Association do not
include any provisions regarding the borrowing powers of members
of the Managing Board or the Supervisory Board. However, the
provisions regarding conflicts of interest generally govern this
issue.
Age Limit Requirement for Retirement or
Non-Retirement. Our Articles of Association do not include
any provisions regarding the mandatory retirement age of a
member of the Managing Board or the Supervisory Board.
Number of shares for director’s qualification. Our
Articles of Association do not impose any obligation on the
members of the Managing Board or the Supervisory Board to hold
shares in the Company.
|
|
|
Issuance of Shares; Preemptive Rights |
Pursuant to Dutch law and our Articles of Association, the
authority to issue shares and to grant rights to subscribe for
shares, such as options, and to limit or exclude preemptive
rights is vested in our shareholders as a group, unless our
shareholders have delegated this authority to another corporate
body. Such delegation is valid for a maximum period of five
years, but may be renewed at any time prior to its expiration.
At our August 22, 2005 Annual General Meeting, our
Supervisory Board has been delegated the authority to issue
shares and to grant rights to subscribe for shares, such as
options, and to limit or exclude preemptive rights until
August 22, 2010. After August 22, 2010, shares and
rights to subscribe for shares may be issued, and preemptive
rights may be limited or excluded by our shareholders or by our
Supervisory Board, provided it has again been delegated this
authority by our shareholders (such delegation shall be for a
maximum period of five years). We plan to ask our shareholders
to delegate this authority to our Supervisory Board again prior
to August 22, 2010. It is anticipated that our Supervisory
Board will eliminate preemptive rights with respect to any and
all issuances of shares of common stock during such period.
Shares of common stock must be issued for a subscription price
at least equal to their nominal value and at least 25% of the
nominal value must have been paid up at the time of issuance.
As a Dutch company that has listed securities in Australia and
the United States, we are subject to applicable legislation
regarding insider trading. Generally, Dutch law prohibits
anyone, whether or not a director or employee of the issuer,
from trading in or bringing about transactions in the securities
of the issuer while in possession of inside, non-public
information and from passing on inside information or
recommending a transaction while in possession of inside
information. Under Australian law, persons are prohibited from
trading on the basis of information which is not generally
available and which, if it were generally available, a
reasonable person would expect to have a material effect on the
price or value of securities. Similarly, in the United States,
persons are prohibited from trading on the basis of material,
non-public information. We have adopted an internal code on
insider trading consistent with Dutch, Australian and
U.S. laws and regulations.
129
At the proposal of our Joint Board, we may acquire shares in our
own capital, subject to certain provisions of Dutch law and of
our Articles of Association, if and insofar as
(1) shareholders’ equity, less the amount to be paid
for the shares acquired, is not less than the sum of the paid
and called up part of our issued share capital, plus any
reserves required to be maintained by Dutch law or our Articles
of Association, (2) the aggregate par value of the shares
of our capital which we or our subsidiaries acquire, already
hold or on which we or they hold a right of pledge, amounts to
no more than one-tenth of the aggregate par value of the issued
share capital and (3) our shareholders, as a group, have
authorized our Managing Board to acquire such shares, which
authorization shall be valid for no more than eighteen months.
Neither we nor any of our subsidiaries may vote shares that are
held by them or us.
At our August 22, 2005 Annual General Meeting, our Managing
Board was authorized to cause JHI NV to acquire shares in JHI
NV’s capital for a period expiring on February 22,
2007. After February 22, 2007, shares in JHI NV’s
capital may be acquired if our Managing Board has again been
authorized to do so by our shareholders (such authorization may
be for a maximum period of 18 months). We intend to ask our
shareholders in our 2006 Annual General Meeting to renew the
authorization of the Managing Board to cause JHI NV to acquire
shares in JHI NV’s capital, on terms substantially
identical to the August 22, 2005 authorization.
|
|
|
Reduction of Share Capital |
Upon the proposal of our Managing Board, our shareholders as a
group have the power to effect a reduction of share capital by
deciding to (i) cancel shares, or depositary receipts
related to shares, acquired by us in our own share capital, or
(ii) to reduce the nominal value of our shares, subject to
applicable statutory provisions, with or without a partial
repayment or release. The proposal of our Managing Board, as
referred to in the preceding sentence, is subject to the
approval of our Joint Board. In case of a partial repayment or
release, these must be made pro rata to all shares. The
pro rata requirements may be waived by agreement of all
shareholders concerned.
|
|
|
Shareholders Meetings and Voting Rights |
Each shareholder, person entitled to vote and CUFS holder (but
not an ADR holder) has the right to attend general meetings of
shareholders, either in person or by proxy, to address
shareholder meetings and, in the case of shareholders and other
persons entitled to vote (for instance, certain pledge holders),
to exercise voting rights, subject to the provisions of our
Articles of Association. As described in the paragraph below,
although ADR holders cannot vote directly, they can direct the
voting of their underlying shares through the ADR depositary.
Meetings of shareholders are held in The Netherlands at least
annually, within six months after the close of each of our
fiscal years. These meetings take place in either Amsterdam, The
Hague, Rotterdam or Haarlemmermeer. Additional meetings of
shareholders may be held as often as our Managing Board or our
Supervisory Board deems necessary or if called by
(1) holders of shares of common stock jointly representing
at least 5% of our issued share capital, or (2) at least
100 holders of shares of common stock or one shareholder
representing at least 100 CUFS holders or any relevant
combination thereof so that the request of at least
100 persons is taken into account. Our Articles of
Association also provide that an information meeting of
shareholders must be held in Australia prior to each general
meeting.
We give notice of each meeting of shareholders by mail and by
way of an announcement in a nationally distributed newspaper in
The Netherlands. Such notice is given no later than the
28th day prior to the day of the meeting and includes or is
accompanied by an agenda identifying the business to be
considered at the meeting. We currently are exempt from the
proxy rules under the U.S. Securities Exchange Act of 1934
(which we refer to as the Exchange Act). Holders of shares of
common stock represented by CUFS are provided notice of general
meetings of shareholders and other communications with
shareholders by us, and the ADR depositary, The Bank of New
York, provides our ADR holders with such notices and
communications. CHESS Depositary Nominees Pty Ltd, or CDN, or we
on behalf of CDN, may deliver to CUFS holders instruction forms
allowing the CUFS holders to instruct CDN how to vote at a
meeting. Similarly, the ADR
130
depositary may deliver to ADR holders instruction forms allowing
the ADR holders to direct the ADR depositary on how to instruct
CDN to vote at a meeting. In order for CUFS holders to attend
general meetings of shareholders in person, such holders need
not withdraw the shares of common stock represented by the CUFS,
but must follow such rules and procedures as may be established
by the CUFS Subregistrar and our share registry. CUFS holders
may request CDN to appoint them as proxy for the purposes of
voting the shares underlying their holding of CUFS on behalf of
CDN. In order for ADR holders to attend general meetings of
shareholders in person, such holders will have to convert their
ADRs into CUFS and, in doing so, must follow the procedures set
forth in the deposit agreement and such rules and procedures as
may be established by the ADR depositary.
Each share of common stock entitles the holder thereof to one
vote on each matter to be voted upon by the shareholders.
Holders of CUFS will be entitled to attend and to speak, but not
vote, at our shareholders meetings. A CUFS holder may follow
instructions set out in a relevant Notice of Meeting to have the
registered shareholder, CDN, appoint the CUFS holder as a proxy
of CDN to vote their CUFS holding at the relevant meeting of
shareholders. Holders of ADRs are not entitled to attend or
speak, nor vote, at our general meetings of shareholders, but,
as described above, they can direct the voting of their
underlying shares through the ADR depositary.
Unless otherwise required by our Articles of Association or
Dutch law, resolutions of the general meeting of shareholders
will be validly adopted by an absolute majority of the votes
cast at a meeting at which at least 5% of our issued share
capital is present or represented. Except where expressly stated
otherwise in this
Form 20-F, all
references here and elsewhere herein to actions by the
shareholders, or shareholders as a group, are references to
actions taken by way of such a resolution at a meeting of
shareholders.
Dutch law and our Articles of Association currently do not
impose any limitations on the rights of persons who are not
resident of The Netherlands to hold or vote shares of common
stock, solely as a result of such non-resident status.
Our fiscal year runs from April 1 through March 31.
Dutch law requires that within five months after the end of our
fiscal year, unless the general meeting of shareholders has
extended this period for a maximum of six months, our Managing
Board must make available to our shareholders a report with
respect to that fiscal year. This report must include the
financial statements and a report of an independent accountant.
The annual report must be submitted to the shareholders for
adoption. The annual report, including the management report, is
prepared in English and, in the case of the consolidated
accounts of JHI NV and its wholly owned subsidiaries, according
to U.S. GAAP, and in the case of JHI NV’s accounts,
according to accounting principles generally accepted in The
Netherlands (which we refer to as Dutch GAAP).
Our Articles of Association provide that we shall generally
indemnify any person who is or was a member of our Managing,
Supervisory or Joint Boards or one of our employees, officers or
agents, and who suffers any loss as a result of any action in
connection with their service to us, provided they acted in good
faith in carrying out their duties and in a manner they
reasonably believed to be in our interest. This indemnification
generally will not be available if the person seeking
indemnification acted with gross negligence or willful
misconduct in the performance of such person’s duties to
us. A court in which an action is brought may, however,
determine that indemnification is appropriate nonetheless.
All calculations to determine the amounts available for
dividends or other distributions are based on our statutory
accounts, which are, as a holding company, different from our
consolidated accounts and which are prepared in accordance with
Dutch GAAP because we are a Dutch company. Because we are a
holding company and have limited operations of our own, we are
largely dependent on dividends or other distributions from our
subsidiaries to fund any cash dividends.
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The profits of JHI NV in any financial year, if any, shall first
be retained by way of a reserve in such amount as determined by
our Supervisory Board. The remaining portion of the profits
shall be at the disposal of our Managing Board for further
allocation to our reserves or, if permitted by Dutch law and our
Articles of Association, be made available for distribution as a
dividend to the holders of shares of common stock, or a
combination thereof. Our Managing Board, upon approval of our
Joint Board, may also declare interim dividends as permitted by
Dutch law and our Articles of Association.
We may not make any distribution, whether out of our profits as
an interim dividend, out of our general share premium reserve or
out of any other reserves that are available for shareholder
distributions under Dutch law, if the distribution would reduce
shareholders’ equity to an amount less than the sum of the
paid and called up part of our issued share capital, plus
certain reserves that are required to be maintained by Dutch law
and our Articles of Association. Distributions may, at the
discretion of Managing Board, upon approval of our Joint Board,
be made in cash or in shares or other securities, such as a
stock dividend, provided that our shareholders as a group are
authorized to make distributions in shares or other securities,
if and so long as our Supervisory Board has not been delegated
the authority to issue shares and rights to subscribe for
shares. See “Issuance of Shares; Preemptive Rights.”
Cash dividends and other distributions that have not been
collected within five years and two days after the date on which
they became due and payable will revert to us.
JHIL historically paid dividends to its shareholders. JHI
NV’s Managing Board, subject to the approval of the Joint
Board, determines whether to declare a dividend and the amount
of any such dividend. Our Managing Board also determines the
record dates at which time registered holders of our shares,
including the CHESS Depositary Nominee issuing CUFS to the ADR
depositary, will be entitled to dividends and sets the payment
dates. Dividends are declared payable to our shareholders in
U.S. dollars. The ADR Depositary (Bank of New York)
receives dividends in U.S. dollars directly from JHI NV on
each CUFS dividend payment date and will distribute any dividend
to holders of ADRs in U.S. dollars pursuant to the terms of
the deposit agreement. Other CUFS holders registered at a
dividend record date are paid their dividend on each CUFS
dividend payment date in the equivalent amount of Australian
dollars, as determined by the prevailing exchange rate shortly
after the CUFS dividend record date.
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Amendment of Articles of Association |
Our Articles of Association may be amended by our shareholders
by resolution approved by 75% of the votes cast at a general
meeting of shareholders at which at least 5% of our issued share
capital is present or represented.
In the event of our dissolution and liquidation, and after we
have paid all debts and liquidation expenses, all assets
available for distribution shall be distributed to our holders
of shares of common stock pro rata based on the nominal
amount paid upon the shares of common stock held by such
holders. As a holding company, our sole material assets are the
capital stock of our subsidiaries. Therefore, in the event of a
dissolution or liquidation, we will either distribute the
capital stock of our subsidiaries or sell such stock and
distribute the net proceeds thereof, or liquidate such
subsidiaries and distribute the net proceeds thereof, after
satisfying our liabilities.
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Limitations on Right to Hold Common Stock |
Subject to certain exceptions, our Articles of Association
prohibit the holding of shares of our common stock if, because
of an acquisition of a relevant interest (including in the form
of shares of our common stock, CUFS or ADRs) in such shares:
(1) the number of shares of our common stock in which any
person, directly or indirectly, acquires or holds a relevant
interest increases from 20% or below to over 20% or from a
starting point that is above 20% and below 90% of the issued and
outstanding share capital of JHI NV or (2) the voting
rights which any person, directly or indirectly, is entitled to
exercise at a general meeting of shareholders increase from 20%
or below to over 20% or from a starting point that is above 20%
and below 90%
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of the total number of such voting rights which may be exercised
by any person at a general meeting of shareholders. The purpose
of this prohibition is to ensure that the principles which
underpin the Australian Corporations Act 2001 takeover regime
are complied with in a change of control, namely that:
(1) the acquisition of control over the Company takes place
in an efficient, competitive and informed market; (2) the
holders of the shares of our common stock or CUFS and our
Managing Board, Joint Board and Supervisory Board know the
identity of any person who proposes to acquire a substantial
interest in the Company, have a reasonable time to consider the
proposal, and are given enough information to enable them to
assess the merits of the proposal and (3) as far as
practicable, the holders of the shares of our common stock or
CUFS, among others, all have a reasonable and equal opportunity
to participate in any benefits accruing to the holders through
any proposal under which a person would acquire a substantial
interest in the Company. The exceptions to this prohibition set
forth in our Articles of Association generally include:
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acquisitions that result from acceptances under a takeover bid,
which complies with the Articles of Association, including the
principles set forth above; |
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acquisitions which result in a person’s voting power
increasing by not more than 3% in a six-month period; |
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acquisitions which are consistent with the principles set forth
above, conform to the other takeover principles set out in the
Articles of Association (adjusting those principles as
appropriate to meet the particular circumstances of the
acquisitions) and have received the prior approval of the
Supervisory Board; and |
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acquisitions approved at a general meeting of shareholders,
subject to certain requirements being satisfied in relation to
voting and the provision of information. |
The prohibition does not apply to holdings by the CUFS
depositary, CDN, of our shares as custodian for the CUFS holders
but will apply to CDN where another person acquires or holds a
relevant interest in breach of the provisions. If a person
acquires or holds a relevant interest in breach of the
prohibition, JHI NV has several powers available to it under our
Articles of Association. These include powers to require the
disposal of our common stock, disregard the exercise of votes
and suspend dividend rights. These powers will only extend to
that number of shares of common stock which are acquired or held
in breach of the prohibition.
The Supervisory Board may cause JHI NV to exercise these powers
if JHI NV has first obtained a judgment from a court of
competent jurisdiction that a breach of the prohibition has
occurred and is continuing. Alternatively, these powers may also
be exercised without having recourse to the courts if certain
procedures in relation to obtaining legal advice are followed.
Our right to exercise these powers by complying with these
procedures must be renewed by shareholder approval every five
years or such powers will lapse. If renewed, confirmation of
this renewal must be made by lodgment of a declaration by the
Managing Board, on recommendation of the Joint Board, with the
relevant authority in accordance with Dutch law.
Furthermore, if JHI NV becomes subject to the law of any
jurisdiction, which applies so as to regulate the acquisition of
control and the conduct of any takeover of the Company, JHI NV
shall consult promptly with the ASX to determine whether, in the
light of the application of such law:
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(i) ASX requires an amendment to the takeover provisions in
our Articles of Association to comply with the ASX Listing Rules
as then in force; or |
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(ii) any waiver of the ASX Listing Rules permitting the
inclusion of the takeovers provisions has ceased to have effect. |
In either case, the Managing Board shall put to a general
meeting of shareholders a proposal to amend our Articles of
Association so as to make them, to the fullest extent permitted
by law, consistent with the ASX Listing Rules.
Although these provisions of our Articles of Association may
help to ensure that no person may acquire voting control of us
without making an offer to all shareholders, these provisions
may also have the effect of delaying or preventing a change in
control of the Company.
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Pursuant to our Articles of Association, shareholders are
required to notify us of acquisitions of 5% or more of our
outstanding securities and of any further change in their
holdings of 1% or more of our outstanding securities. In
addition, pursuant to our Articles of Association, we have the
power to require our shareholders and CUFS holders to provide to
us information about the identity of persons who have relevant
interests in our securities and the details of that interest.
These provisions are intended to mirror the tracing of
beneficial ownership provisions of the Australian Corporations
Act 2001, which would not have applied statutorily to us as a
Dutch company absent a specific provision in our Articles of
Association.
Finally, shareholders are subject to beneficial ownership
reporting disclosure requirements under U.S. securities
laws, including the filing of beneficial ownership reports on
Schedules 13D and 13G with the SEC. The SEC’s rules require
all persons who beneficially own more than 5% of a class of
securities registered with the SEC to file either a
Schedule 13D or 13G. This filing requirement applies to all
holders of our shares of common stock, ADRs or CUFS because our
securities have been registered with the SEC. The number of
shares of common stock underlying ADRs and CUFS is used to
determine whether a person beneficially owns more than 5% of the
class of securities. This beneficial ownership-reporting
requirement applies whether or not the holders are
U.S. residents. The decision of whether to file a
Schedule 13D or a Schedule 13G will depend primarily
on the nature of the beneficial owner and the circumstances
surrounding the person’s beneficial ownership. A copy of
the rules and regulations relating to the reporting of
beneficial ownership with the SEC, as well as Schedules 13D and
13G, are available on the SEC’s website at
www.sec.gov.
Material Contracts
In addition to the other contracts that are described in this
Annual Report on
Form 20-F,
including without limitation the Final Funding Agreement and
certain other related agreements described in Item 4,
“Information on the Company — Legal
Proceedings,” and any contracts that have been entered into
in the ordinary course of business, the following are the
contracts we consider to be material to us. All contracts
described below have been filed as an exhibit to this Annual
Report on
Form 20-F and are
hereby incorporated by reference and the summary below is
qualified in its entirety by such reference.
Notes. In November 1998, James Hardie International
Finance B.V issued, and JHI NV guaranteed, $225.0 million
of noncollateralized notes as part of a seven-tranche private
placement facility. Principal repayments were due in seven
installments on specified dates that commenced on
November 5, 2004 and were to end on November 5, 2013.
The tranches bore fixed interest rates of 6.86%, 6.92%, 6.99%,
7.05%, 7.12%, 7.24% and 7.42%, respectively. Interest was
payable on May 5, and November 5, each year. On
May 8, 2006, we prepaid the notes in full and as a result
incurred a make-whole payment of $6.0 million. Had we not
prepaid the notes prior to our decision to record the asbestos
provision, as permitted by the non-collateralized notes
agreement, we would not have been in compliance with certain of
the restrictive covenants contained therein. See Item 3,
“Key Information — Risk Factors” and
Note 9 to our consolidated financial statements included in
Item 18.
U.S. Dollar Cash Advance Facilities. Our credit
facilities currently consist of
364-day facilities in
the amount of $110.0 million, which mature in June 2007,
and term facilities in the amount of $245.0 million, which
mature in December 2006. For both facilities, interest is
calculated at the commencement of each draw-down period based on
the U.S.-dollar London
Interbank Offered Rate, or LIBOR, plus the margins of individual
lenders, and is payable at the end of each draw-down period.
During the year ended March 31, 2006, we paid
$0.7 million in commitment fees. As of March 31, 2006,
there was $181.0 million drawn under the combined
facilities and $174.0 million was available.
If the conditions precedent to the full implementation of the
Final Funding Agreement, including lender approval, are
satisfied, the maturity date of the $245.0 million term
facilities will be automatically extended until June 2010. In
the fourth quarter, $181.0 million was drawn down on the
credit facilities in anticipation of the prepayment of the
U.S.-dollar
non-collateralized notes as described above.
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Gypsum Indemnity. We sold our Gypsum wallboard
manufacturing facilities in April 2002. Under the terms of the
sale agreement with the buyer, BPB U.S. Holdings, Inc., we
agreed to customary indemnification obligations which generally
have expired. However, pursuant to the sale agreement, we agreed
to indemnify the buyer for any future liabilities arising from
asbestos-related injuries to persons or property arising from
our former Gypsum business. Although we are not aware of any
asbestos-related claims arising from the Gypsum business nor
circumstances that would give rise to such claims, our
obligation under the sale agreement to indemnify the buyer for
liabilities arising from asbestos-related injuries arises only
if such claims exceed $5 million in the aggregate, is
limited to $250 million in the aggregate and will continue
for 30 years after the closing date of our Gypsum business.
Pursuant to the terms of our agreement to sell our Gypsum
business, we also retained responsibility for any losses
incurred by the buyer resulting from environmental conditions at
the Duwamish River in the State of Washington so long as notice
of a claim is given within 10 years of closing. Our
indemnification obligations in this regard are subject to a
$34.5 million limitation. The Seattle gypsum facility had
previously been included on the “Confirmed and Suspected
Contaminate Sites Report” released in 1987 due to the
presence of metals in the groundwater. Because we believe the
metals found emanated from an offsite source, we do not believe
we are liable for, and have not been requested to conduct, any
investigation or remediation relating to the metals in the
groundwater. See Item 3, “Key Information —
Risk Factors.”
ABN 60 Indemnities. In connection with the separation of
Amaca, Amaba and ABN 60 from the James Hardie Group, JHI NV
agreed to indemnify ABN 60 Foundation for any non
asbestos-related legal claims made against ABN 60. There is
no maximum amount of the indemnity and the term of the indemnity
is in perpetuity. We believe that the likelihood of any material
non-asbestos-related claims occurring against ABN 60 is
remote. As such, we have not recorded a liability for the
indemnity. We have not pledged any assets as collateral for such
indemnity. See “Legal Proceedings” in Item 4, and
Note 12 to our consolidated financial statements included
below in Item 18.
Exchange Controls
There are no legislative or other legal provisions currently in
force in The Netherlands or arising under our Articles of
Association restricting the import of export of capital,
including the availability of cash and cash equivalents for use
by JHI NV and its wholly owned subsidiaries, or remittances to
our security holders not resident in The Netherlands. Cash
dividends payable in U.S. dollars on our common stock may
be officially transferred from The Netherlands and converted
into any other convertible currency.
There are no limitations, either by Dutch law or in our Articles
of Association, on the right of non-residents of The Netherlands
to hold or vote our common stock.
Taxation
The following summarizes the material Dutch and U.S. tax
consequences of an investment in shares of our common stock.
This summary does not address every aspect of taxation relevant
to a particular investor subject to special treatment under any
applicable law and is not intended to apply in all respects to
all categories of investors. In addition, except for the matters
discussed under “Netherlands Taxation,” this summary
does not consider the effect of other foreign tax laws or any
state, local or other tax laws that may apply to an investment
in shares of our common stock. This summary assumes that we will
conduct our business in the manner described in this annual
report. Changes in our organizational structure or the manner in
which we conduct our business may invalidate all or parts of
this summary. The laws on which this summary is based could
change, perhaps with retroactive effect, and any law changes
could invalidate all or parts of this summary. We will not
update this summary for any law changes after the date of this
annual report.
This discussion does not bind either the U.S. or Dutch tax
authorities or the courts of those jurisdictions. We have not
sought a ruling nor will we seek a ruling of the U.S. or
Dutch tax agencies about matters in this summary (although, as
noted in the risk factor in Item 3, “Key
Information — Risk Factors” discussing the
application of the
U.S.- Netherlands
income tax treaty, we have sought a ruling from the
U.S. Internal
135
Revenue Service on a matter of internal company taxation). We
cannot assure you that such tax agencies will concur with the
views in this summary concerning the tax consequences of the
purchase, ownership or disposition of our common stock or that
any reviewing judicial body in the United States or The
Netherlands would likewise concur.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES OF THEIR ACQUIRING,
OWNING AND DISPOSING OF OUR COMMON SHARES, INCLUDING THE EFFECT
OF ANY FOREIGN, STATE OR LOCAL TAXES.
The following is a summary of the material U.S. federal
income tax consequences generally applicable to
“U.S. Shareholders” (as defined below) who invest
in shares of our common stock and hold the shares as capital
assets. For purposes of this summary,
“U.S. Shareholders” means: (1) citizens or
individual residents of the United States (as defined for
U.S. federal income tax purposes); (2) corporations
created or organized in or under the laws of the United States
or any of its political subdivisions; (3) estates whose
income is subject to U.S. federal income taxation
regardless of its source and (4) trusts if (i) a court
in the United States can exercise primary supervision over the
administration of the trust, and one or more U.S. persons
can control all of the substantial decisions of the trust, or
(ii) the trust was in existence on August 20, 1996 and
properly elected to continue to be treated as a United States
person. If a partnership (including for this purpose any entity
treated as a partnership for U.S. federal tax purposes) is
a beneficial owner of shares of our common stock, the
U.S. federal tax treatment of a partner in the partnership
generally will depend on the status of the partner and the
activities of the partnership. A holder of our common stock that
is a partnership and partners in that partnership should consult
their own tax advisors regarding the U.S. federal income
tax consequences of holding and disposing of those shares.
This summary does not comprehensively describe all possible tax
issues that could influence a current or prospective
U.S. Shareholder’s decision to buy or sell shares of
our common stock. In particular, this summary does not discuss:
(1) the tax treatment of special classes of
U.S. Shareholders, such as financial institutions, life
insurance companies, tax exempt organizations, tax-qualified
employer plans and other tax-qualified or qualified accounts,
investors liable for the alternative minimum tax, dealers in
securities, shareholders who hold shares of our common stock as
part of a hedge, straddle or other risk reduction arrangement,
or shareholders whose functional currency is not the
U.S. dollar; (2) the tax treatment of
U.S. Shareholders who own (directly or indirectly by
attribution through certain related parties) 10% or more of our
voting stock and (3) the application of other
U.S. federal taxes, such as the U.S. federal estate
tax. The summary is based on the Internal Revenue Code of 1986,
as amended (which we refer to as the Code), applicable Treasury
regulations, judicial decisions and administrative rulings and
practice, all as of the date of this annual report.
Treatment of ADRs. For U.S. federal income tax
purposes, a holder of an ADR is considered the owner of the
shares of stock represented by the ADR. Accordingly, except as
otherwise noted, references in this summary to ownership of
shares of our common stock includes ownership of the shares of
our common stock underlying the corresponding ADRs.
Taxation of Distributions. Subject to the passive foreign
investment company rules discussed below, the tax treatment of a
distribution on shares of our common stock held by a
U.S. Shareholder depends on whether such distribution is
from our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). To
the extent a distribution is from our current or accumulated
earnings and profits, a U.S. Shareholder will include such
amount in gross income as a dividend. To the extent a
distribution exceeds our current and accumulated earnings and
profits, a U.S. Shareholder will treat such amount first as
a non-taxable return of capital to the extent of the
U.S. Shareholder’s tax basis in such shares, and any
excess amount will be treated and taxed as a capital gain. See
the discussion of “Capital Gains Rates” below.
Notwithstanding the foregoing described treatment, we do not
intend to maintain calculations of our current and accumulated
earnings and profits. Dividends received on shares of our common
stock will not qualify for the inter-corporate dividends
received deduction.
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Distributions to U.S. Shareholders that are treated as
dividends may be subject to a reduced rate of tax under recently
enacted U.S. tax laws. For tax years beginning after
December 31, 2002 and before January 1, 2011,
“qualified dividend income” is subject to a maximum
tax rate of 15%. “Qualified dividend income” includes
dividends received from a “qualified foreign
corporation.” A “qualified foreign corporation”
includes (1) a foreign corporation that is eligible for the
benefits of a comprehensive income tax treaty with the
U.S. that contains an exchange of information program and
(2) a foreign corporation that pays dividends with respect
to shares of its stock that are readily tradable on an
established securities market in the U.S. We believe that
we are, and will continue to be, a “qualified foreign
corporation” and that dividends we pay with respect to our
shares will qualify as “qualified dividend income.” To
be eligible for the 15% tax rate, a U.S. Shareholder must
hold our shares un-hedged for a minimum holding period
(generally, 61 days during the
121-day period
beginning on the date that is 60 days before the
ex-dividend date of the distribution). Although we believe we
presently are, and will continue to be, a “qualified
foreign corporation,” we cannot guarantee that we will so
qualify. For example, we will not constitute a “qualified
foreign corporation” if we are classified as a
“passive foreign investment company” (discussed below)
in either the taxable year of the distribution or the preceding
tax year.
Distributions to U.S. Shareholders that are treated as
dividends are generally considered income from sources outside
the United States and foreign source “passive” income
or, in the case of certain holders, “financial
services” income for purposes of the foreign tax credit
limitation rules. For taxable years beginning after
December 31, 2006, “passive” income generally
will be treated as “passive category” income, and
“financial services” income generally will be treated
as “general category” income. However, if
U.S. persons own, directly or indirectly, 50% or more of
our shares of common stock, then a portion of the dividends
(based on the portion of our earnings and profits that is from
U.S. sources) may be treated as sourced within the
U.S. This 50% ownership rule could potentially limit a
U.S. shareholder’s ability to use foreign tax credits
against the shareholder’s U.S. tax liability. In
addition, special rules will apply to determine a
U.S. Shareholder’s foreign tax credit limitation if a
dividend distributed with respect to our shares constitutes
“qualified dividend income” (as described above). See
the discussion of “Credit of Foreign Taxes Withheld”
below.
The amount of any distribution we make on shares of our common
stock in foreign currency generally will equal the fair market
value in U.S. dollars of such foreign currency on the date
of receipt. A U.S. Shareholder will have a tax basis in the
foreign currency equal to its U.S. dollar value on the date
of receipt and will recognize gain or loss when it sells or
exchanges the foreign currency. Such gain or loss is taxable as
ordinary income or loss from U.S. sources.
U.S. Shareholders who are individuals will not recognize
gain upon selling or exchanging foreign currency if the gain
does not exceed $200 and the sale or exchange constitutes a
“personal transaction” under the Internal Revenue
Code. The amount of any distribution we make with respect to
shares of our common stock in property other than money will
equal the fair market value of that property on the date of
distribution.
Credit of Foreign Taxes Withheld. Under certain
conditions, including a requirement to hold shares of our common
stock un-hedged for a certain period, and subject to limitation,
a U.S. Shareholder may claim a credit against the
U.S. shareholder’s federal income tax liability for
the foreign tax owed and withheld or paid with respect to
distributions on our shares. Alternatively, a
U.S. Shareholder may deduct the amount of withheld foreign
taxes, but only for a year for which the U.S. Shareholder
elects to deduct all foreign income taxes. Complex rules
determine how and when the foreign tax credit applies, and
U.S. Shareholders should consult their tax advisors to
determine whether and to what extent they may claim foreign tax
credits.
Under certain conditions, we may retain a portion of Netherlands
taxes we withhold from dividends paid to our shareholders,
rather than pay that portion of the withheld taxes to The
Netherlands Tax Administration. Uncertainty exists whether a
U.S. Shareholder can properly claim as a foreign tax credit
any Netherlands withholding taxes we retain. As a result,
U.S. Shareholders should consult their tax advisors
regarding their ability to do so. If unable to claim a foreign
tax credit for those tax amounts, a U.S. shareholder still
may deduct them for U.S. federal income tax purposes, but
only for a year for which the U.S. Shareholder elects to
deduct all foreign income taxes. The conditions under which we
could retain Netherlands withholding taxes
137
are unlikely to occur, but upon request, we will inform
U.S. Shareholders whether we retained any Dutch tax
withheld from distributions on shares of our common stock.
Sale or Other Disposition of Shares. Subject to the
passive foreign investment company rules discussed below, a
U.S. Shareholder will recognize capital gain or loss on the
sale or other taxable disposition of shares of our common stock,
equal to the difference between the U.S. Shareholder’s
adjusted tax basis in the shares sold or disposed of and the
amount realized on the sale or disposition. Individual
U.S. Shareholders may benefit from lower marginal tax rates
on capital gains recognized on shares sold, depending on the
U.S. Shareholder’s holding period of the shares. See
the discussion of “Capital Gains Rates” below. Capital
losses not offset by capital gains are subject to limitations on
deductibility. The gain or loss from the sale or other
disposition of shares of our common stock generally will be
treated as income from sources within the United States for
foreign tax credit purposes, unless the U.S. Shareholder is
a U.S. citizen residing outside the United States and
certain other conditions are met.
Capital Gains Rates. For individual
U.S. Shareholders, the tax rates applicable to capital gain
and ordinary income may vary substantially. For calendar year
2005, the highest marginal income tax rate that could apply to
the ordinary income of an individual U.S. Shareholder
(disregarding the effect of limitations on deductions) is 35%.
In contrast, a maximum rate of 15% applies to any net capital
gain of an individual U.S. Shareholder if such gain is
attributable to the sale or exchange of capital assets held more
than one year. Gain attributable to the sale or exchange of
capital assets held one year or less is short-term capital gain,
taxable at the same rates as ordinary income. In addition, a
maximum rate of 15% applies to “qualified dividend
income” (as described above).
Controlled Foreign Corporation Status. If more than 50%
of either the voting power of all classes of our voting stock or
the total value of our stock is owned, directly or indirectly,
by citizens or residents of the United States, United States
domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or
more of the total combined voting power of all classes of our
stock entitled to vote, which we refer to as 10-Percent
Shareholders, we could be treated as a “controlled foreign
corporation,” or CFC, under the Code. This classification
would, among other consequences, require
10-Percent Shareholders
to include in their gross income their pro rata shares of our
“Subpart F income” (as specifically defined by the
Code) and our earnings invested in U.S. property (as
specifically defined by the Code).
In addition, gain from the sale or exchange of our common shares
by a U.S. person who is or was a
10-Percent Shareholder
at any time during the five-year period ending with the sale or
exchange is treated as dividend income to the extent of earnings
and profits of the company attributable to the stock sold or
exchanged. Under certain circumstances, a corporate shareholder
that directly owns 10% or more of our voting shares may be
entitled to an indirect foreign tax credit for income taxes paid
by us in connection with amounts so characterized as dividends
under the Code.
If we were classified as both a passive foreign investment
company, or PFIC, as described below, and a CFC, generally we
would not be treated as a passive foreign investment company
with respect to 10-Percent Shareholders. We believe that we are
not and will not become a CFC.
Passive Foreign Investment Company Status. Special
U.S. federal income tax rules apply to
U.S. Shareholders owning capital stock of a PFIC. A foreign
corporation will be a PFIC for any taxable year in which 75% or
more of its gross income is passive income or in which 50% or
more of the average value of its assets is “passive
assets” (generally assets that generate passive income or
assets held for the production of passive income). For these
purposes, passive income excludes certain interest, dividends or
royalties from related parties.
If we were a PFIC, each U.S. Shareholder would likely face
increased tax liabilities, possibly including in amount, upon
the sale or other disposition of shares of our common stock or
upon receipt of “excess distributions,” unless the
U.S. Shareholder elects (1) to be taxed currently on
its pro rata portion of our income, regardless of whether such
income was distributed in the form of dividends or otherwise
(provided we furnish certain information to our shareholders),
or (2) to mark its shares to market by accounting for any
138
difference between such shares’ fair market value and
adjusted basis at the end of the taxable year by either an
inclusion in income or a deduction from income (provided our
ADRs, CUFS or common shares satisfy a test for being regularly
traded on a qualified exchange or other market). Because of the
manner in which we operate our business, we are not, nor do we
expect to become, a PFIC.
U.S. Federal Income Tax Provisions Applicable to
Non-United States Holders. Holders of shares of our common
stock who are not U.S. Shareholders, which we refer to as
Non-U.S. Shareholders,
generally will not be subject to U.S. federal income taxes,
including U.S. withholding taxes, on any dividends paid on
our shares or on any gain realized on a sale, exchange or other
disposition of the shares unless the dividends or gain is
effectively connected with the conduct by the
Non-U.S. Shareholder
of a trade or business in the United States (and is attributable
to a permanent establishment or fixed base the
Non-U.S. Shareholder
maintains in the United States if an applicable income tax
treaty so requires as a condition for the
Non-U.S. Shareholder
to be subject to U.S. taxation on a net income basis on
income from the common stock). A corporate
Non-U.S. Shareholder
under certain circumstances may also be subject to an additional
“branch profits tax,” the rate of which may be reduced
pursuant to an applicable income tax treaty. In addition, gain
recognized on a sale, exchange or other disposition of our
shares by a
Non-U.S. Shareholder
who is an individual generally will be subject to
U.S. federal income taxes if the
Non-U.S. Shareholder
is present in the United States for 183 days or more in the
taxable year in which the sale or other disposition occurs and
certain other conditions are met.
U.S. Information Reporting and Backup Withholding.
Dividend payments on shares of our common stock and proceeds
from the sale, exchange, or redemption of shares of our common
stock may be subject to information reporting to the Internal
Revenue Service and possible U.S. backup withholding at a
current rate of 28%. Backup withholding will not apply to a
shareholder who furnishes a correct taxpayer identification
number or certificate of foreign status and makes any other
required certification or who is otherwise exempt from backup
withholding. U.S. persons who are required to establish
their exempt status generally must provide such certification on
a properly completed Internal Revenue Service
Form W-9 (Request
for Taxpayer Identification Number and Certification).
Non-U.S. shareholders
generally will not be subject to U.S. information reporting
or backup withholding. However, such shareholders may be
required to provide certification of
non-U.S. status in
connection with payments received in the United States or
through certain
U.S.-related financial
intermediaries.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against a shareholder’s
U.S. federal income tax liability, and a shareholder may
obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund
with the Internal Revenue Service and furnishing any required
information.
The following is a summary of the material Dutch tax
consequences generally applicable to an investment in shares of
our common stock by a beneficial owner who is neither a citizen,
resident nor deemed resident of The Netherlands. This summary
does not comprehensively describe all possible tax issues that
could influence a prospective shareholder’s decision to
acquire shares of our common stock. For example, this summary
omits from discussion Netherlands’ gift, estate and
inheritance taxes. The summary is based on the Dutch tax
legislation, published case law and other applicable regulations
as at the date of this annual report, any of which may change
possibly with retroactive effect.
Treatment of ADRs. In general, for Netherlands tax
purposes, an owner of depositary receipts is considered the
owner of the shares of stock represented by depositary receipts.
Accordingly, except as otherwise noted, references in this
section of the annual report to ownership of shares of our
common stock includes ownership of the shares underlying the
corresponding ADRs.
139
Dutch Dividend Withholding Tax. The Netherlands imposes a
25% withholding tax on amounts we distribute as dividends. The
term “dividends” for this purpose includes, but is not
limited to:
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(1) direct or indirect distributions in cash or in kind,
deemed or constructive distributions, and repayments of
additional paid-in capital not recognized as such for
Netherlands dividend withholding tax purposes; |
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(2) liquidation proceeds, proceeds of redemption of shares
of common stock or, generally, except if a certain specific
exemption applies, consideration paid by us for the repurchase
of shares of common stock in excess of the average paid-in
capital recognized for Netherlands dividend withholding tax
purposes; |
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(3) the par value of shares of common stock issued to a
holder of shares of common stock or an increase of the par value
of shares of common stock, as the case may be, to the extent
that no contribution to capital, recognized for Netherlands
dividend withholding tax purposes, was made or will be
made; and |
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(4) the partial repayment of paid-in capital, recognized
for Netherlands dividend withholding tax purposes, if and to the
extent that there are net profits, or zuivere winst, for
dividend withholding tax purposes, unless the general meeting of
our shareholders has previously resolved to make such repayment
and provided that the par value of the shares of common stock
concerned has been reduced by a corresponding amount by changing
our Articles of Association. As a result of contributions in
kind (i.e., in shares) to our paid-in capital made prior to the
listing of our common shares, a portion of such paid-in capital
may not be recognized for Dutch dividend withholding tax
purposes. |
If a double taxation convention is in effect between The
Netherlands and the country of residence of a non-resident
shareholder and depending on the terms of that double taxation
convention, such non-resident shareholder may be eligible for a
full or partial exemption from, or refund of, Dutch dividend
withholding tax.
Under the U.S.-NL
Treaty, dividends that we pay to citizens and residents of the
United States who are the beneficial owners of shares of our
common stock (other than an exempt organization or exempt
pension organization) are generally eligible for a reduction of
the 25% Netherlands withholding tax to 15%, or in the case of
certain U.S. corporate shareholders owning directly at
least 10% of our voting power, 5%, unless the shares of common
stock held by such residents form part of the business property
of a business carried on through a permanent establishment in
The Netherlands. The same exception applies if the beneficial
owner of the shares, being a citizen or resident of the United
States, performs independent personal services from a fixed base
situated in The Netherlands and the holding of the shares of
common stock in respect of which the dividends are paid pertains
to such fixed base in The Netherlands. The
U.S.-NL Treaty also
exempts from tax dividends we pay to exempt pension
organizations and exempt organizations, as defined under the
treaty. A shareholder of our common stock, other than an
individual, will be ineligible for the benefits of the
U.S.-NL Treaty unless
the shareholder satisfies certain tests under the limitation on
benefits provisions of Article 26 of the
U.S.-NL Treaty. To
prevent so-called dividend stripping, Netherlands law generally
denies the treaty benefit of a reduced dividend withholding tax
rate for any dividend paid to a recipient who is not the
“beneficial owner” of the dividend.
To claim the reduced withholding tax rate on portfolio dividends
under the U.S.-NL
Treaty, a shareholder of our common stock (other than an exempt
organization or exempt pension organization) must give us in
duplicate a signed Form IB 92 USA before payment of the
dividend. The form has a qualifying banker’s affidavit,
requiring a bank member of the New York Stock Exchange or the
American Stock Exchange, or a member bank of the Federal Reserve
System, to attest that the bank has custody of the shares of
common stock, or that the bank has been shown that the common
shares are property of the applicant. If the Form IB 92 USA
is submitted before the dividend payment date and all relevant
conditions are fulfilled, we will withhold tax from the dividend
at the reduced treaty rate of 15%. If a shareholder of our
common stock is unable to claim withholding tax relief in this
manner, the shareholder can get a refund of excess tax withheld
by filing a Form IB 92 USA, describing the circumstances
that prevented the holder’s claiming withholding tax
relief. The holder must file the form within three years after
the end of calendar year in which the tax had been levied.
140
A qualified exempt pension organization may obtain a full
exemption from the dividend withholding tax if, before the
payment of the dividend, the organization gives us in duplicate
a signed Form IB 96 USA, along with the requisite
banker’s affidavit as described above, and includes IRS
Form 6166 for the relevant year or a valid qualification
certification issued by the competent Dutch tax office and
complies with certain other requirements. Other qualifying
exempt organizations are ineligible for relief from withholding
at source but may claim a refund of the tax withheld by filing a
Form IB 95 USA and complying with certain other formalities.
Holders of shares of our common stock through a depository will
initially receive dividends subject to a withholding tax rate of
25%. Upon timely receipt of required documents concerning a
holder’s eligibility for the reduced rate under the
U.S.-NL Treaty,
dependent on the status of the holder, the dividend-disbursing
agent (via any nominee) will pay an amount equal to 10% or 20%
of the dividend to the holder.
Taxes on Income and Capital Gains. A shareholder of
shares of our common stock will not be subject to any
Netherlands taxes on income or capital gains in respect of
dividends distributed by the Company or in respect of capital
gains realized on the disposition of shares of our common stock
(other than the dividend withholding tax described above),
provided that:
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(1) such shareholder is neither resident nor deemed to be
resident in The Netherlands, nor has elected to be subject to
the rules of the Dutch Income Tax Act 2001 that apply to
residents of The Netherlands; |
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(2) such shareholder does not have a business or an
interest in a business that is, in whole or in part, carried on
through a permanent establishment or a permanent representative
in The Netherlands and to which business or part of a business,
as the case may be, the shares of common stock are attributable; |
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(3) such shareholder does not perform independent personal
services in The Netherlands giving rise to a fixed base in The
Netherlands to which the shares of common stock are
attributable; and |
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(4) the shares of common stock owned by such shareholder do
not form part of a substantial interest or a deemed substantial
interest, as defined below, in the share capital of the Company
or, if such shares of common stock do form part of such an
interest, they form part of the assets of a business other than
a Netherlands business. |
Generally, a shareholder of our common stock will have a
substantial interest in our shares only if the shareholder, the
spouse of the shareholder, certain other relatives (including
foster children), or certain persons in the household of the
shareholder, alone or together, whether directly or indirectly,
own or possess certain rights (e.g., the right of usufruct) in,
shares of our stock representing 5% or more of the total issued
and outstanding capital (or the issued and outstanding capital
of any class of shares), or rights to acquire the shares,
whether or not already issued, that represent at any time 5% or
more of the total issued and outstanding capital (or the issued
and outstanding capital of any class of shares) or the ownership
of certain profit participating certificates that relate to 5%
or more of the annual profit and/or to 5% or more of the
liquidation proceeds. Shareholders of our common stock who do
not hold a substantial interest themselves will also be subject
to the “substantial interest” regime if their spouse
and/or certain other relatives hold a substantial interest. A
deemed substantial interest is present if a substantial interest
or part of a substantial interest has been disposed of, or is
deemed to have been disposed of, without recognition of a gain.
If a shareholder has a substantial interest in the shares of our
common stock and is resident of a country with which The
Netherlands has concluded a convention to avoid double taxation,
such shareholder may, depending on the terms of such double
taxation convention, be eligible for an exemption from
Netherlands income tax on capital gains realized upon the
disposition or deemed disposition of shares of our common stock,
or to a full or partial exemption from Netherlands income tax on
dividends we pay.
Under the U.S.-NL
Treaty, capital gains realized by a shareholder that has a
substantial interest in the shares of our common stock and is a
resident of the United States (as defined in the
U.S.-NL Treaty) upon
the disposition of shares of our common stock, are, with certain
exceptions, generally exempt from Netherlands tax.
141
As indicated above, a shareholder of shares of our common stock,
other than an individual, will be ineligible for the benefits of
the U.S.-NL Treaty if
such shareholder does not satisfy the limitation on benefits
provisions under Article 26 of the
U.S.-NL Treaty.
Other Taxes and Duties. No other Netherlands registration
tax, transfer tax, stamp duty or any similar documentary tax or
duty will be payable by our investors in respect of or in
connection with the subscription, issue, placement, allotment or
transfer of shares of our common stock.
Documents Available for Review
We are subject to the reporting requirements of the Exchange Act
applicable to “foreign private issuers” and in
accordance therewith file reports, including annual reports, and
other information with the SEC. Such reports and other
information have been filed electronically with the SEC
beginning November 4, 2002. The SEC maintains a site on the
Internet, at www.sec.gov, which contains reports and other
information regarding issuers that file electronically with the
SEC. In addition, such reports may be obtained, upon written
request, from our Company Secretary at Atrium,
8th floor,
Strawinskylaan 3077, 1077 ZX Amsterdam, The Netherlands or our
Assistant Company Secretary Level 3, 22 Pitt Street,
Sydney, NSW 2000. Such reports and other information filed with
the SEC prior to November 2002 may be inspected and copied at
prescribed rates at the public reference facilities maintained
by the SEC at 100 F Street N.E., Washington, D.C. 20549, or
obtained by written request to our Company Secretary. Although,
as a foreign private issuer, we are exempt from the rules under
the Exchange Act prescribing the furnishing and content of proxy
statements and annual reports to shareholders and the quarterly
reporting requirements of the Exchange Act, we:
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• |
furnish our shareholders with annual reports containing
consolidated financial statements examined by an independent
registered public accounting firm; and |
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• |
furnish quarterly reports for the first three quarters of each
fiscal year containing unaudited consolidated financial
information in filings with the SEC under
Form 6-K. |
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| Item 11. |
Quantitative and Qualitative Disclosures About Market
Risk |
Cash and cash equivalents include amounts on deposit in banks
and cash invested temporarily in various highly liquid financial
instruments with original maturities of three month or less when
acquired.
We have operations in foreign countries and, as a result, are
exposed to foreign currency exchange rate risk inherent in
purchases, sales, assets and liabilities denominated in
currencies other than the U.S. dollar. We also are exposed
to interest rate risk associated with our long-term debt and to
changes in prices of commodities we use in production.
Periodically, interest rate swaps, commodity swaps and forward
exchange contracts are used to manage market risks and reduce
exposure resulting from fluctuations in interest rates,
commodity prices and foreign currency exchange rates. Our policy
is to enter into derivative instruments solely to mitigate risks
in our business and not for trading or speculative purposes.
Foreign Currency Exchange Rate Risk
We have significant operations outside of the United States and,
as a result, are exposed to changes in exchange rates which
affect our financial position, results of operations and cash
flow. In addition, if the conditions precedent to the Final
Funding Agreement are met and we are required to start making
payments to the SPF, those payments will be required to be made
in Australian dollars which, because the majority of our
revenues is produced in U.S. dollars, would expose us to
risks associated with fluctuations in the
U.S.-dollar/ Australian
dollar exchange rate. See Item 3, “Key
Information — Risk Factors.”
142
For our fiscal year ended March 31, 2006, the following
currencies comprised the following percentages of our net sales,
cost of goods sold, expenses and liabilities:
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US$ | |
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A$ | |
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NZ$ | |
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Other(1) | |
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Net sales
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82.9% |
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11.0% |
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3.6% |
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2.5% |
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Cost of goods sold
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84.2% |
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10.7% |
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2.9% |
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2.2% |
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Expenses(2)
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18.7% |
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79.4% |
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0.4% |
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1.5% |
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Liabilities (excluding borrowings)(2)
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25.6% |
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72.4% |
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1.6% |
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0.4% |
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For our fiscal year ended March 31, 2005, the following
currencies comprised the following percentages of our net sales,
cost of goods sold, expenses and liabilities:
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US$ | |
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A$ | |
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NZ$ | |
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Other(1) | |
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Net sales
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79.0% |
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13.3% |
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4.1% |
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3.6% |
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Cost of goods sold
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81.5% |
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12.0% |
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3.1% |
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3.4% |
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Expenses
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60.3% |
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31.5% |
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2.5% |
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5.7% |
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Liabilities (excluding borrowings)
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73.9% |
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17.6% |
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5.1% |
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3.4% |
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Comprises Philippine Pesos, Euros and Chilean Pesos. |
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| (2) |
Includes A$1.0 billion of asbestos provision recorded in
the fourth quarter of fiscal year 2006, which is denominated in
Australian dollars. |
We purchase raw materials and fixed assets and sell some
finished product for amounts denominated in currencies other
than the functional currency of the business in which the
related transaction is generated. In order to protect against
foreign exchange rate movements, we may enter into forward
exchange contracts timed to mature when settlement of the
underlying transaction is due to occur. As of March 31,
2006, there were no such material contracts outstanding.
Interest Rate Risk
We have market risk from changes in interest rates, primarily
related to our borrowings. As of March 31, 2006, 40% of our
borrowings were fixed-rate and 60% were variable-rate, as
compared to 93% of our borrowings at a fixed rate and 7% at a
variable rate as of March 31, 2005. The percentage of
fixed-rate debt reduces the earnings volatility that would
result from changes in interest rates. From time to time, we may
enter into interest rate swap contracts in an effort to mitigate
interest rate risk. As of March 31, 2006, we had no
interest rate swap contracts outstanding.
The table below presents our long-term borrowings at
March 31, 2006, the expected maturity date of future
principal repayments and related weighted average interest
rates. The fair value of our outstanding debt is what we likely
would have to pay over the term of the loan if we were to enter
into debt on substantially the same terms today. As of
March 31, 2006, all of our outstanding fixed-rate
borrowings were denominated in U.S. dollars. As permitted
by our U.S.-dollar
non-collateralized notes agreement (fixed-rate debt), we prepaid
in full our U.S.-dollar
non-collateralized notes on May 8, 2006, and as a result
incurred a make-whole payment of $6.0 million.
Future Principal Repayments by Expected Maturity Date
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Year Ending March 31, | |
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Fair | |
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2007 | |
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Total | |
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Value | |
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(In millions of U.S. dollars, | |
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except percentages) | |
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Fixed-rate debt
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$ |
121.7 |
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$ |
121.7 |
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$ |
133.8 |
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Weighted-average interest rate
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7.16 |
% |
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7.16 |
% |
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143
Commodity Price Risk
We are exposed to changes in prices of commodities used in our
operations, primarily associated with energy, fuel and raw
materials such as pulp and cement. Pulp has historically
demonstrated more price sensitivity than other raw materials
that we use in our manufacturing process. In addition energy,
fuel and cement prices rose in fiscal year 2006. Pulp prices
increased in fiscal year 2005 and the increase continued during
fiscal year 2006. We expect that pulp, energy, fuel and cement
prices will continue to fluctuate in the near future. To
minimize the additional working capital requirements caused by
rising prices related to these commodities, we may seek to enter
into contracts with suppliers for the purchase of these
commodities that could fix our prices over the longer-term.
However, if such commodity prices do not continue to rise, our
cost of sales may be negatively impacted due to fixed pricing
over the longer-term. We have assessed the market risk for pulp
and believe that, based on our most recent estimates, a
$56 per metric ton price movement in pulp prices, which
represents approximately 10% of the average market pulp price in
fiscal year 2006, would have had approximately a 1.2% change in
cost of sales in fiscal year 2006.
We have also assessed the market risk for cement and believe
that, based on our most recent estimates, an $8 per metric
ton price movement in cement prices, which represents
approximately 10% of the average market cement price in fiscal
year 2006, would have had approximately a 0.8% change in cost of
sales in fiscal year 2006.
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| Item 12. |
Description of Securities Other Than Equity
Securities |
Not Required.
PART II
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| Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
None.
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| Item 14. |
Material Modifications to the Rights of Security Holders
and Use of Proceeds |
None.
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| Item 15. |
Controls and Procedures |
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e)
under the U.S. Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this report. In designing
and evaluating our disclosure controls and procedures, our
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives
and are subject to certain limitations, including the exercise
of judgment by individuals, the difficulty in identifying
unlikely future events, and the difficulty in eliminating
misconduct completely. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded
that, our disclosure controls and procedures were effective to
ensure the information required to be disclosed in the reports
that we file or submit under the Exchange Act were recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission and that such information was accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow for timely
decisions regarding required disclosures.
There have been no changes in our internal control over
financial reporting during fiscal year 2006 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
144
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| Item 16A. |
Audit Committee Financial Expert |
Our Joint Board has determined that Michael Brown, Michael
Gillfillan and James Loudon are “audit committee financial
experts,” as such term is defined by applicable SEC rules,
and qualify as independent under the rules of the New York
Stock Exchange, or NYSE.
Under the NYSE listing standards applicable to
U.S. companies, if a member of an audit committee
simultaneously serves on the audit committees of more than three
public companies, the listed company’s board must determine
that such simultaneous service would not impair the ability of
such member to effectively serve on the listed company’s
audit committee. Mr. Brown serves on the audit committees
of four public companies in addition to our Audit Committee. The
Joint Board has determined that such simultaneous service does
not impair his ability to effectively serve on our Audit
Committee.
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| Item 16B. |
Code of Business Conduct and Ethics |
We seek to maintain high standards of integrity and are
committed to ensuring that we conduct our business in accordance
with high standards of ethical behavior.
We require our employees to comply with the spirit and the
letter of all laws and other statutory requirements governing
the conduct of our activities in each country in which we
operate. Our Code of Business Conduct and Ethics applies to all
of our employees, including our senior executives and directors.
Our Code of Business Conduct and Ethics also covers many aspects
of Company policy that govern compliance with legal and other
responsibilities to stakeholders.
We have taken specific action, including training and education,
to ensure that our employees understand and comply with their
obligations in areas such as occupational health and safety,
trade practices/antitrust, environmental protection, employment
practices such as equal opportunity, sexual harassment and
discrimination, continuous disclosure and insider trading,
public and SEC disclosure, and corrupt practices.
In June 2005, we updated our Code of Business Conduct and Ethics
to make it applicable to our directors, in addition to all of
our employees, in compliance with the relevant rules and
regulations of the New York Stock Exchange.
Our Code of Business Conduct and Ethics also provides employees
with instructions about whom they should contact if they have
information or questions regarding violations of the policies in
the Code of Business Conduct and Ethics. We have created a
telephone “Ethics Hotline” to allow employees in each
jurisdiction in which we operate to report anonymously any
concerns. This new hotline has been implemented in every country
in which we operate.
We have not granted any waivers from the provisions of our Code
of Business Conduct and Ethics during fiscal year 2006.
Our complete Code of Business Conduct and Ethics is publicly
available and can be found by visiting our website,
www.jameshardie.com, and clicking on “Investor
Relations,” then “Corporate Governance,” and then
“Policies and Programs.”
145
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| Item 16C. |
Principal Accountant Fees and Services |
Fees Paid to Our Independent Registered Public Accounting
Firm
Fees paid to our independent registered public accounting firm
for services provided for fiscal years 2006, 2005 and 2004 were
as follows:
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Fiscal Years Ended | |
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March 31, | |
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2006 | |
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2005 | |
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2004 | |
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(In millions) | |
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Audit Fees(1)
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$ |
1.6 |
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$ |
3.1 |
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$ |
1.2 |
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Audit-Related Fees(2)
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0.1 |
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0.2 |
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0.1 |
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Tax Fees(3)
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5.2 |
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4.2 |
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3.5 |
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| (1) |
Audit Fees include the aggregate fees for professional services
rendered by our independent registered public accounting firm.
Professional services include the audit of our annual financial
statements and services that are normally provided in connection
with statutory and regulatory filings. During the fiscal year
ended March 31, 2005, total audit fees also included
internal investigation fees of $1.9 million. |
| |
| (2) |
Audit-Related Fees include the aggregate fees billed for
assurance and related services rendered by our independent
registered public accounting firm. Our independent registered
public accounting firm did not engage any temporary employees to
conduct any portion of the audit of our financial statements for
the fiscal year ended March 31, 2006. |
| |
| (3) |
Tax Fees include the aggregate fees billed for tax compliance,
tax advice and tax planning services rendered by our independent
registered public accounting firm. |
Audit Committee Pre-Approval Policies and Procedures
In accordance with our Audit Committee’s policy and the
requirements of the law, all services provided by
PricewaterhouseCoopers LLP are pre-approved annually by the
Audit Committee. Pre-approval includes a list of specific audit
and non-audit services in the following categories: audit
services, audit-related services, tax services and other
services. Any additional services that we may ask our
independent registered public accounting firm to perform will be
set forth in a separate document requesting Audit Committee
approval in advance of the service being performed.
All of the services pre-approved by the Audit Committee are
permissible under the SEC’s auditor independence rules. To
avoid potential conflicts of interest, the law prohibits a
publicly traded company from obtaining certain non-audit
services from its independent registered public accounting firm.
We obtain these services from other service providers as needed.
|
|
| Item 16D. |
Exemptions from Listing Standards for Audit
Committees |
Not Applicable.
|
|
| Item 16E. |
Purchases of Equity Securities by the Issuer and
Affiliated Purchasers |
None.
|
|
| Item 17. |
Financial Statements |
Not applicable.
146
PART III
|
|
| Item 18. |
Financial Statements |
See pages F-1 through F-58, which are incorporated into this
annual report by reference.
Item 19. Exhibits
Documents filed as exhibits to this annual report:
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibits |
| |
|
|
| |
1 |
.1 |
|
Articles of Association, as amended on September 1, 2005 of
James Hardie Industries N.V. (English Translation) |
| |
2 |
.1 |
|
Letter Agreement of September 6, 2001 by and between James
Hardie Industries N.V. and CHESS Depositary Nominees Pty
Limited, as the depositary for CHESS Units of Foreign
Securities(3) |
| |
2 |
.2 |
|
Deposit Agreement dated as of September 24, 2001 between
The Bank of New York, as depositary, and James Hardie Industries
N.V.(3) |
| |
2 |
.3 |
|
Note Purchase Agreement, dated as of November 5, 1998,
among James Hardie Finance B.V., James Hardie N.V. and certain
purchasers thereto re: $225,000,000 Guaranteed Senior Notes(3) |
| |
2 |
.4 |
|
Assignment and Assumption Agreement and First Amendment to Note
Purchase Agreement, dated as of January 24, 2000, by and
among James Hardie Finance B.V., James Hardie U.S. Funding,
Inc., James Hardie N.V., James Hardie Aust Investco Pty Limited
and certain noteholders thereto(3) |
| |
2 |
.5 |
|
Second Amendment to the Note Purchase Agreement dated as of
October 22, 2001, by and among, James Hardie
U.S. Funding, Inc., James Hardie N.V., James Hardie Aust
Investco Pty Limited, James Hardie Australia Finance Pty
Limited, James Hardie International Finance B. V. and certain
noteholders thereto(3) |
| |
2 |
.6 |
|
Assignment and Assumption Agreement and Third Amendment to Note
Purchase Agreement, dated as of November 18, 2002, among
James Hardie U.S. Funding Inc, James Hardie International
Finance B.V., James Hardie Industries N.V., James Hardie N.V.
and certain noteholders thereto(1) |
| |
2 |
.7 |
|
Common Terms Deed Poll dated June 15, 2005 between James
Hardie International Finance B.V. and James Hardie Industries
N.V.(3) |
| |
2 |
.8 |
|
Form of Term Facility Agreement between James Hardie
International Finance B.V. and Financier(3) |
| |
2 |
.9 |
|
Form of Extension of Facilities and other matters for Term
Facility Agreement between James Hardie International Finance
B.V. and Financier |
| |
2 |
.10 |
|
Form of 364-day Facility Agreement between James Hardie
International Finance B.V. and Financier(3) |
| |
2 |
.11 |
|
Form of Extension Request for 364-day Facility Agreement between
James Hardie International Finance B.V. and Financier |
| |
2 |
.12 |
|
Form of Guarantee Deed between James Hardie Industries N.V. and
Financier(3) |
| |
4 |
.1 |
|
James Hardie Industries N.V. 2001 Equity Incentive Plan(3) |
| |
4 |
.2 |
|
Economic Profit and Individual Performance Incentive Plans(3) |
| |
4 |
.3 |
|
JHI NV Stock Appreciation Rights Incentive Plan(3) |
| |
4 |
.4 |
|
Supervisory Board Share Plan 2006 |
| |
4 |
.5 |
|
James Hardie Industries N.V. Long Term Incentive Plan 2006 |
| |
4 |
.6 |
|
2005 Managing Board Transitional Stock Option Plan |
| |
4 |
.7 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
N.V., James Hardie (USA) Inc. and certain indemnitees thereto(3) |
| |
4 |
.8 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
Industries N.V., James Hardie Inc. and certain indemnitees
thereto(3) |
147
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibits |
| |
|
|
| |
4 |
.9 |
|
Form of Deed of Access to Documents, Indemnity and Insurance
among James Hardie Industries N.V. and certain indemnitees
thereto(3) |
| |
4 |
.10 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
Industries N.V., James Hardie Building Products Inc. and certain
indemnities thereto(3) |
| |
4 |
.11 |
|
Lease Amendment, dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at the corner of Cobalt & Silica Street,
Carole Park, Queensland, Australia(2) |
| |
4 |
.12 |
|
Variation of Lease dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at the corner of Colquhoun & Devon Streets,
Rosehill, New South Wales, Australia(2) |
| |
4 |
.13 |
|
Extension of Lease dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at Rutland, Avenue, Welshpool, Western Australia,
Australia(2) |
| |
4 |
.14 |
|
Lease Amendment dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at 46 Randle Road, Meeandah, Queensland, Australia(2) |
| |
4 |
.15 |
|
Lease Agreement dated March 23, 2004 among Studorp Limited,
James Hardie New Zealand Limited and James Hardie Industries
N.V. re premises at the corner of O’Rorke and Station
Roads, Penrose, Auckland, New Zealand(2) |
| |
4 |
.16 |
|
Lease Agreement dated March 23, 2004 among Studorp Limited,
James Hardie New Zealand Limited and James Hardie Industries
N.V. re premises at 44-74 O’Rorke Road, Penrose, Auckland,
New Zealand(2) |
| |
4 |
.17 |
|
Ownership transfer related to corner of O’Rorke and Station
Roads, Penrose, Auckland, New Zealand and 44-74 O’Rorke
Road, Penrose, Auckland, New Zealand effective June 30, 2005 |
| |
4 |
.18 |
|
Industrial Building Lease Agreement, effective October 6,
2000, between James Hardie Building Products, Inc. and Fortra
Fiber-Cement L.L.C., re premises at Waxahachie, Ellis County,
Texas(3) |
| |
4 |
.19 |
|
Asset Purchase Agreement by and between James Hardie Building
Products, Inc. and Cemplank, Inc. dated as of December 12,
2001(3) |
| |
4 |
.20 |
|
Amended and Restated Stock Purchase Agreement dated
March 12, 2002, between BPB U.S. Holdings, Inc. and
James Hardie Inc.(3) |
| |
4 |
.21 |
|
Final Funding Agreement |
| |
4 |
.22 |
|
Asbestos Injuries Compensation Fund Trust Deed by and between
James Hardie Aust. Holdings Pty Limited and Asbestos Injuries
Compensation Fund Limited |
| |
4 |
.23 |
|
Deed of Release by and among James Hardie Industries N.V.,
Australian Council of Trade Unions, Unions New South Wales, and
Bernard Douglas Banton |
| |
4 |
.24 |
|
Parent Guarantee by and among Asbestos Injuries Compensation
Fund Limited, The State of New South Wales, and James Hardie
Industries N.V. |
| |
4 |
.25 |
|
Deed of Release by and between James Hardie Industries N.V.
and The State of New South Wales |
| |
4 |
.26 |
|
Irrevocable Power of Attorney by and between Asbestos Injuries
Compensation Fund Limited and The State of New South Wales |
| |
4 |
.27 |
|
Deed of Accession by and among Asbestos Injuries Compensation
Fund Limited, James Hardie Industries N.V., LGTDD Pty Limited,
and The State of New South Wales |
| |
4 |
.28 |
|
Letters Extending the Condition Precedent Date for the Final
Funding Agreement |
| |
8 |
.1 |
|
List of significant subsidiaries of James Hardie Industries N.V. |
| |
12 |
.1 |
|
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
12 |
.2 |
|
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
13 |
.1 |
|
Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
148
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibits |
| |
|
|
| |
15 |
.1 |
|
Consent of independent registered public accounting firm |
| |
15 |
.2 |
|
Consent of KPMG Actuaries Pty Ltd |
| |
99 |
.1 |
|
Excerpts of the ASX Settlement and Transfer Corporation Pty Ltd
as of June 10, 2005 |
| |
99 |
.2 |
|
Excerpts of the Financial Services Reform Act 2001, as of
March 11, 2002(3) |
| |
99 |
.3 |
|
ASIC Class Order 02/311, dated November 3, 2002(3) |
| |
99 |
.4 |
|
ASIC Modification, dated March 7, 2002(3) |
| |
99 |
.5 |
|
ASIC Modification, dated February 26, 2004 |
|
|
| (1) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
July 2, 2003 and incorporated herein by reference. |
| |
| (2) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
November 22, 2004 and incorporated herein by reference. |
| |
| (3) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
July 7, 2005 and incorporated herein by reference. |
149
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F and that
it has duly caused and authorized the undersigned to sign this
annual report on its behalf.
|
|
| |
JAMES HARDIE INDUSTRIES N.V. |
|
|
| |
|
| |
Louis Gries |
| |
Chief Executive Officer |
Date: September 28, 2006
150
JAMES HARDIE INDUSTRIES N.V.
INDEX
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
|
|
|
F-7 |
|
|
|
|
|
F-56 |
|
|
|
|
|
F-58 |
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
James Hardie Industries N.V. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, cash flows
and changes in shareholders’ equity present fairly, in all
material respects, the financial position of James Hardie
Industries N.V. and Subsidiaries at March 31, 2006 and
2005, and the results of their operations and their cash flows
for each of the three years in the period ended March 31,
2006 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Notes 12 and 13 to the consolidated
financial statements, the Company is subject to certain
significant contingencies, including asbestos-related claims
against former subsidiaries for which a provision in an amount
representing the Company’s best estimate of the probable
outcome has been established; a Special Commission of Inquiry
established by the government of New South Wales, Australia; a
Final Funding Agreement; an investigation by the Australian
Securities and Investments Commission; an offer of an indemnity
to ABN 60 together with a related commitment to provide funding
to the Medical Research and Compensation Foundation; and a
significant amended tax assessment from the Australian Tax
Office.
/s/
PricewaterhouseCoopers
LLP
____________________________________________________________
PricewaterhouseCoopers
LLP
Los Angeles, California
May 12, 2006, except for Note 20,
as to which the dates are June 23, 2006,
June 29, 2006 and July 5, 2006
F-2
James Hardie Industries N.V. and Subsidiaries
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
March 31 | |
| |
|
|
|
| |
| |
|
Notes | |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Millions of US dollars) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
|
3 |
|
|
$ |
315.1 |
|
|
$ |
113.5 |
|
| |
Accounts and notes receivable, net of allowance for doubtful
accounts of $1.3 million and $1.5 million as of
March 31, 2006 and March 31, 2005, respectively
|
|
|
4 |
|
|
|
153.2 |
|
|
|
127.2 |
|
| |
Inventories
|
|
|
5 |
|
|
|
124.0 |
|
|
|
99.9 |
|
| |
Prepaid expenses and other current assets
|
|
|
|
|
|
|
33.8 |
|
|
|
12.0 |
|
| |
Deferred income taxes
|
|
|
13 |
|
|
|
30.7 |
|
|
|
26.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
|
|
|
|
656.8 |
|
|
|
378.6 |
|
|
Property, plant and equipment, net
|
|
|
6 |
|
|
|
775.6 |
|
|
|
685.7 |
|
|
Deferred income taxes
|
|
|
13 |
|
|
|
4.8 |
|
|
|
12.3 |
|
|
Other assets
|
|
|
|
|
|
|
8.2 |
|
|
|
12.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total assets
|
|
|
|
|
|
$ |
1,445.4 |
|
|
$ |
1,088.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts payable and accrued liabilities
|
|
|
8 |
|
|
$ |
117.8 |
|
|
$ |
94.0 |
|
| |
Current portion of long-term debt
|
|
|
9 |
|
|
|
121.7 |
|
|
|
25.7 |
|
| |
Short-term debt
|
|
|
9 |
|
|
|
181.0 |
|
|
|
11.9 |
|
| |
Accrued payroll and employee benefits
|
|
|
|
|
|
|
46.3 |
|
|
|
35.7 |
|
| |
Accrued product warranties
|
|
|
11 |
|
|
|
11.4 |
|
|
|
8.0 |
|
| |
Income taxes payable
|
|
|
13 |
|
|
|
24.5 |
|
|
|
21.4 |
|
| |
Other liabilities
|
|
|
|
|
|
|
3.3 |
|
|
|
1.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
|
|
|
|
506.0 |
|
|
|
198.4 |
|
|
Long-term debt
|
|
|
9 |
|
|
|
— |
|
|
|
121.7 |
|
|
Deferred income taxes
|
|
|
13 |
|
|
|
79.8 |
|
|
|
77.5 |
|
|
Accrued product warranties
|
|
|
11 |
|
|
|
4.1 |
|
|
|
4.9 |
|
|
Asbestos provision
|
|
|
12 |
|
|
|
715.6 |
|
|
|
— |
|
|
Other liabilities
|
|
|
10 |
|
|
|
45.0 |
|
|
|
61.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
|
|
|
|
1,350.5 |
|
|
|
464.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock, Euro 0.59 par value, 2.0 billion shares
authorized; 463,306,511 shares issued and outstanding at
March 31, 2006 and 459,373,176 shares issued and
outstanding at March 31, 2005
|
|
|
15 |
|
|
|
253.2 |
|
|
|
245.8 |
|
| |
Additional paid-in capital
|
|
|
15 |
|
|
|
158.8 |
|
|
|
139.4 |
|
| |
Retained (deficit) earnings
|
|
|
|
|
|
|
(288.3 |
) |
|
|
264.3 |
|
| |
Employee loans
|
|
|
15 |
|
|
|
(0.4 |
) |
|
|
(0.7 |
) |
| |
Accumulated other comprehensive loss
|
|
|
18 |
|
|
|
(28.4 |
) |
|
|
(24.1 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders’ equity
|
|
|
|
|
|
|
94.9 |
|
|
|
624.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
$ |
1,445.4 |
|
|
$ |
1,088.9 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
James Hardie Industries N.V. and Subsidiaries
Consolidated Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years Ended March 31 | |
| |
|
|
|
| |
| |
|
Notes | |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Millions of US dollars, except per | |
| |
|
|
|
share data) | |
|
Net sales
|
|
|
17 |
|
|
$ |
1,488.5 |
|
|
$ |
1,210.4 |
|
|
$ |
981.9 |
|
|
Cost of goods sold
|
|
|
|
|
|
|
(937.7 |
) |
|
|
(784.0 |
) |
|
|
(623.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
|
|
|
|
550.8 |
|
|
|
426.4 |
|
|
|
358.9 |
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
(209.8 |
) |
|
|
(174.5 |
) |
|
|
(162.0 |
) |
|
Research and development expenses
|
|
|
|
|
|
|
(28.7 |
) |
|
|
(21.6 |
) |
|
|
(22.6 |
) |
|
SCI and other related expenses
|
|
|
12 |
|
|
|
(17.4 |
) |
|
|
(28.1 |
) |
|
|
— |
|
|
Impairment of roofing plant
|
|
|
6 |
|
|
|
(13.4 |
) |
|
|
— |
|
|
|
— |
|
|
Asbestos provision
|
|
|
12 |
|
|
|
(715.6 |
) |
|
|
— |
|
|
|
— |
|
|
Other operating expense
|
|
|
|
|
|
|
(0.8 |
) |
|
|
(6.0 |
) |
|
|
(2.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Operating (loss) income
|
|
|
|
|
|
|
(434.9 |
) |
|
|
196.2 |
|
|
|
172.2 |
|
|
Interest expense
|
|
|
|
|
|
|
(7.2 |
) |
|
|
(7.3 |
) |
|
|
(11.2 |
) |
|
Interest income
|
|
|
|
|
|
|
7.0 |
|
|
|
2.2 |
|
|
|
1.2 |
|
|
Other (expense) income
|
|
|
|
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
3.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Loss) income from continuing operations before income taxes
|
|
|
17 |
|
|
|
(435.1 |
) |
|
|
189.8 |
|
|
|
165.7 |
|
|
Income tax expense
|
|
|
13 |
|
|
|
(71.6 |
) |
|
|
(61.9 |
) |
|
|
(40.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Loss) income from continuing operations
|
|
|
|
|
|
|
(506.7 |
) |
|
|
127.9 |
|
|
|
125.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from discontinued operations, net of income tax
benefit (expense) of nil, $0.2 million and
($0.1) million for 2006, 2005 and 2004, respectively
|
|
|
14 |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
0.2 |
|
| |
(Loss) gain on disposal of discontinued operations, net of
income tax benefit of nil, nil and $4.8 million for 2006,
2005 and 2004, respectively
|
|
|
14 |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
4.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from discontinued operations
|
|
|
|
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
4.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net (loss) income
|
|
|
|
|
|
$ |
(506.7 |
) |
|
$ |
126.9 |
|
|
$ |
129.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share — basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from continuing operations
|
|
|
|
|
|
$ |
(1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.27 |
|
| |
Income from discontinued operations
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net (loss) income per share — basic
|
|
|
|
|
|
$ |
(1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share — diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from continuing operations
|
|
|
|
|
|
$ |
(1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.27 |
|
| |
Income from discontinued operations
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net (loss) income per share — diluted
|
|
|
|
|
|
$ |
(1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (Millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
2 |
|
|
|
461.7 |
|
|
|
458.9 |
|
|
|
458.1 |
|
| |
Diluted
|
|
|
2 |
|
|
|
461.7 |
|
|
|
461.0 |
|
|
|
461.4 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
James Hardie Industries N.V. and Subsidiaries
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(506.7 |
) |
|
$ |
126.9 |
|
|
$ |
129.6 |
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss (gain) on sale of land and buildings
|
|
|
— |
|
|
|
0.7 |
|
|
|
(4.2 |
) |
| |
Loss (gain) on disposal of subsidiaries and businesses
|
|
|
— |
|
|
|
2.1 |
|
|
|
(1.9 |
) |
| |
Depreciation and amortization
|
|
|
45.3 |
|
|
|
36.3 |
|
|
|
36.4 |
|
| |
Deferred income taxes
|
|
|
4.3 |
|
|
|
11.1 |
|
|
|
14.6 |
|
| |
Prepaid pension cost
|
|
|
2.9 |
|
|
|
7.6 |
|
|
|
1.8 |
|
| |
Tax benefit from stock options exercised
|
|
|
2.2 |
|
|
|
0.4 |
|
|
|
0.4 |
|
| |
Stock compensation
|
|
|
5.9 |
|
|
|
3.0 |
|
|
|
3.3 |
|
| |
Asbestos provision
|
|
|
715.6 |
|
|
|
— |
|
|
|
— |
|
| |
Impairment of roofing plant
|
|
|
13.4 |
|
|
|
— |
|
|
|
— |
|
| |
Other
|
|
|
1.7 |
|
|
|
— |
|
|
|
0.7 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts and notes receivable
|
|
|
(24.0 |
) |
|
|
(3.7 |
) |
|
|
(24.8 |
) |
| |
Inventories
|
|
|
(26.6 |
) |
|
|
4.3 |
|
|
|
(24.9 |
) |
| |
Prepaid expenses and other current assets
|
|
|
(24.8 |
) |
|
|
32.6 |
|
|
|
2.1 |
|
| |
Accounts payable and accrued liabilities
|
|
|
24.4 |
|
|
|
15.0 |
|
|
|
1.3 |
|
| |
Other accrued liabilities and other liabilities
|
|
|
7.0 |
|
|
|
(16.5 |
) |
|
|
28.2 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by operating activities
|
|
|
240.6 |
|
|
|
219.8 |
|
|
|
162.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(162.0 |
) |
|
|
(153.2 |
) |
|
|
(74.8 |
) |
|
Proceeds from sale of property, plant and equipment
|
|
|
— |
|
|
|
3.4 |
|
|
|
10.9 |
|
|
Proceeds from disposal of subsidiaries and businesses, net of
cash divested
|
|
|
8.0 |
|
|
|
— |
|
|
|
5.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash used in investing activities
|
|
|
(154.0 |
) |
|
|
(149.8 |
) |
|
|
(58.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from line of credit
|
|
|
— |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Proceeds from borrowings
|
|
|
181.0 |
|
|
|
— |
|
|
|
— |
|
|
Repayments of borrowings
|
|
|
(37.6 |
) |
|
|
(17.6 |
) |
|
|
— |
|
|
Proceeds from issuance of shares
|
|
|
18.7 |
|
|
|
2.6 |
|
|
|
3.2 |
|
|
Repayments of capital
|
|
|
— |
|
|
|
— |
|
|
|
(68.7 |
) |
|
Dividends paid
|
|
|
(45.9 |
) |
|
|
(13.7 |
) |
|
|
(22.9 |
) |
|
Collections on loans receivable
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by (used in) financing activities
|
|
|
116.5 |
|
|
|
(27.6 |
) |
|
|
(87.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash
|
|
|
(1.5 |
) |
|
|
(1.2 |
) |
|
|
0.5 |
|
|
Net increase in cash and cash equivalents
|
|
|
201.6 |
|
|
|
41.2 |
|
|
|
17.2 |
|
|
Cash and cash equivalents at beginning of period
|
|
|
113.5 |
|
|
|
72.3 |
|
|
|
55.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents at end of period
|
|
$ |
315.1 |
|
|
$ |
113.5 |
|
|
$ |
72.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Components of Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash at bank and on hand
|
|
$ |
24.9 |
|
|
$ |
28.6 |
|
|
$ |
24.6 |
|
| |
Short-term deposits
|
|
|
290.2 |
|
|
|
84.9 |
|
|
|
47.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
315.1 |
|
|
$ |
113.5 |
|
|
$ |
72.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest, net of amounts
capitalized
|
|
$ |
3.5 |
|
|
$ |
10.7 |
|
|
$ |
11.7 |
|
|
Cash paid (refunded) during the period for income taxes, net
|
|
$ |
93.4 |
|
|
$ |
15.7 |
|
|
$ |
(6.5 |
) |
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
James Hardie Industries N.V. and Subsidiaries
Consolidated Statements of Changes in Shareholders’
Equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
Retained | |
|
|
|
Other | |
|
|
| |
|
|
|
Additional | |
|
Earnings | |
|
|
|
Comprehensive | |
|
|
| |
|
Common | |
|
Paid-In | |
|
(Accumulated | |
|
Employee | |
|
Income | |
|
|
| |
|
Stock | |
|
Capital | |
|
Deficit) | |
|
Loans | |
|
(Loss) | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Balances as of March 31, 2003
|
|
$ |
269.7 |
|
|
$ |
171.3 |
|
|
$ |
44.4 |
|
|
$ |
(1.7 |
) |
|
$ |
(49.0 |
) |
|
$ |
434.7 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
129.6 |
|
|
|
— |
|
|
|
— |
|
|
|
129.6 |
|
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortization of unrealized transition loss on derivative
instruments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
1.1 |
|
| |
|
Foreign currency translation gain
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16.0 |
|
|
|
16.0 |
|
| |
|
Unrealized loss on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
| |
|
Additional minimum pension liability adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.7 |
|
|
|
7.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Other comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24.7 |
|
|
|
24.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154.3 |
|
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(22.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(22.9 |
) |
|
Conversion of common stock from Euro 0.64 par value to Euro
0.73 par value
|
|
|
48.4 |
|
|
|
(48.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Conversion of common stock from Euro 0.73 par value to Euro
0.5995 par value and subsequent return of capital
|
|
|
(68.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(68.7 |
) |
|
Conversion of common stock from Euro 0.5995 par value to
Euro 0.59 par value
|
|
|
(5.0 |
) |
|
|
5.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock compensation
|
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.3 |
|
|
Tax benefit from stock options exercised
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
Employee loans repaid
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
0.4 |
|
|
Stock options exercised
|
|
|
0.8 |
|
|
|
2.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2004
|
|
$ |
245.2 |
|
|
$ |
134.0 |
|
|
$ |
151.1 |
|
|
$ |
(1.3 |
) |
|
$ |
(24.3 |
) |
|
$ |
504.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
126.9 |
|
|
|
— |
|
|
|
— |
|
|
|
126.9 |
|
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortization of unrealized transition loss on derivative
instruments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
1.1 |
|
| |
|
Foreign currency translation loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
(0.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Other comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127.1 |
|
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(13.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13.7 |
) |
|
Stock compensation
|
|
|
— |
|
|
|
3.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.0 |
|
|
Tax benefit from stock options exercised
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
Employee loans repaid
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.6 |
|
|
|
— |
|
|
|
0.6 |
|
|
Stock options exercised
|
|
|
0.6 |
|
|
|
2.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2005
|
|
$ |
245.8 |
|
|
$ |
139.4 |
|
|
$ |
264.3 |
|
|
$ |
(0.7 |
) |
|
$ |
(24.1 |
) |
|
$ |
624.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
(506.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
(506.7 |
) |
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortization of unrealized transition loss on derivative
instruments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
0.5 |
|
| |
|
Foreign currency translation loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.8 |
) |
|
|
(4.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Other comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.3 |
) |
|
|
(4.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511.0 |
) |
|
Dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(45.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(45.9 |
) |
|
Stock compensation
|
|
|
— |
|
|
|
5.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.9 |
|
|
Tax benefit from stock options exercised
|
|
|
— |
|
|
|
2.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.2 |
|
|
Employee loans repaid
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
0.3 |
|
|
Stock options exercised
|
|
|
7.4 |
|
|
|
11.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2006
|
|
$ |
253.2 |
|
|
$ |
158.8 |
|
|
$ |
(288.3 |
) |
|
|
(0.4 |
) |
|
$ |
(28.4 |
) |
|
$ |
94.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
| 1. |
Background and Basis of Presentation |
The Company manufactures and sells fiber cement building
products for interior and exterior building construction
applications primarily in the United States, Australia, New
Zealand, Philippines and Europe.
On July 2, 1998, ABN 60 000 009 263 Pty Ltd, formerly James
Hardie Industries Limited (“JHIL”), then a public
company organized under the laws of Australia and listed on the
Australian Stock Exchange, announced a plan of reorganization
and capital restructuring (the “1998 Reorganization”).
James Hardie N.V. (“JHNV”) was incorporated in August
1998, as an intermediary holding company, with all of its common
stock owned by indirect subsidiaries of JHIL. On
October 16, 1998, JHIL’s shareholders approved the
1998 Reorganization. Effective as of November 1, 1998, JHIL
contributed its fiber cement businesses, its US gypsum wallboard
business, its Australian and New Zealand building systems
businesses and its Australian windows business (collectively,
the “Transferred Businesses”) to JHNV and its
subsidiaries. In connection with the 1998 Reorganization, JHIL
and its non-transferring subsidiaries retained certain unrelated
assets and liabilities.
On July 24, 2001, JHIL announced a further plan of
reorganization and capital restructuring (the “2001
Reorganization”). Completion of the 2001 Reorganization
occurred on October 19, 2001. In connection with the 2001
Reorganization, James Hardie Industries N.V. (“JHI
NV”), formerly RCI Netherlands Holdings B.V., issued common
shares represented by CHESS Units of Foreign Securities
(“CUFS”) on a one for one basis to existing JHIL
shareholders in exchange for their shares in JHIL such that JHI
NV became the new ultimate holding company for JHIL and JHNV.
Following the 2001 Reorganization, JHI NV controls the same
assets and liabilities as JHIL controlled immediately prior to
the 2001 Reorganization.
The consolidated financial statements represent the financial
position, results of operations and cash flows of JHI NV and its
current wholly owned subsidiaries, collectively referred to as
either the “Company” or “James Hardie” and
JHI NV together with its subsidiaries as of the time relevant to
the applicable reference, the “James Hardie Group,”
unless the context indicates otherwise.
|
|
| 2. |
Summary of Significant Accounting Policies |
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America (“US GAAP”). The US dollar is used
as the reporting currency. All subsidiaries are consolidated and
all significant intercompany transactions and balances are
eliminated.
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
F-7
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Certain prior year balances have been reclassified to conform
with the current year presentation.
|
|
|
Foreign Currency Translation |
All assets and liabilities are translated into US dollars at
current exchange rates while revenues and expenses are
translated at average exchange rates in effect for the period.
The effects of foreign currency translation adjustments are
included directly in other comprehensive income in
shareholders’ equity. Gains and losses arising from foreign
currency transactions are recognized in income currently.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents include amounts on deposit in banks
and cash invested temporarily in various highly liquid financial
instruments with original maturities of three months or less
when acquired.
Inventories are valued at the lower of cost or market. Cost is
generally determined under the
first-in, first-out
method, except that the cost of raw materials and supplies is
determined using actual or average costs. Cost includes the
costs of materials, labor and applied factory overhead.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment are stated at cost. Property,
plant and equipment of businesses acquired are recorded at their
estimated cost based on fair value at the date of acquisition.
Depreciation of property, plant and equipment is computed using
the straight-line method over the following estimated useful
lives:
| |
|
|
|
|
| |
|
Years | |
| |
|
| |
|
Buildings
|
|
|
40 |
|
|
Building improvements
|
|
|
5 to 10 |
|
|
Manufacturing machinery
|
|
|
20 |
|
|
General equipment
|
|
|
5 to 10 |
|
|
Computer equipment
|
|
|
3 to 4 |
|
|
Office furniture and equipment
|
|
|
3 to 10 |
|
The costs of additions and improvements are capitalized, while
maintenance and repair costs are expensed as incurred. Interest
is capitalized in connection with the construction of major
facilities. Capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset’s
estimated useful life. Retirements, sales and disposals of
assets are recorded by removing the cost and accumulated
depreciation amounts with any resulting gain or loss reflected
in the consolidated statements of operations.
|
|
|
Impairment of Long-Lived Assets |
In accordance with Statement of Financial Accounting standards
(“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” long-lived
assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of the asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the
fair value of the assets.
F-8
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Environmental remediation expenditures that relate to current
operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable
and the costs can be reasonably estimated. Estimated liabilities
are not discounted to present value. Generally, the timing of
these accruals coincides with completion of a feasibility study
or the Company’s commitment to a formal plan of action.
|
|
|
Mineral Acquisition Costs |
The Company records acquired proven and probable silica mineral
ore reserves at their fair value at the date of acquisition.
Depletion expense is recorded based on the estimated rate per
ton multiplied by the number of tons extracted during the
period. The rate per ton may be periodically revised by
management based on changes in the estimated tons available to
be extracted which, in turn, is based on third party studies of
proven and probable reserves.
SFAS No. 143, “Accounting for Asset Retirement
Obligations,” requires the recording of a liability for an
asset retirement obligation in the period in which the liability
is incurred. The initial measurement is based upon the present
value of estimated third party costs and a related long-lived
asset retirement cost capitalized as part of the asset’s
carrying value and allocated to expense over the asset’s
useful life. Accordingly, the Company accrues for reclamation
costs associated with mining activities, which are accrued
during production and are included in determining the cost of
production.
The Company recognizes revenue when the risks and obligations of
ownership have been transferred to the customer, which generally
occurs at the time of delivery to the customer. The Company
records estimated reductions to sales for customer rebates and
discounts including volume, promotional, cash and other
discounts. Rebates and discounts are recorded based on
management’s best estimate when products are sold. The
estimates are based on historical experience for similar
programs and products. Management reviews these rebates and
discounts on an ongoing basis and the related accruals are
adjusted, if necessary, as additional information becomes
available.
Cost of goods sold is primarily comprised of cost of materials,
labor and manufacturing. Cost of goods sold also includes the
cost of inbound freight charges, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs and
shipping and handling costs.
Shipping and handling costs are charged to cost of goods sold as
incurred. Recovery of these costs is incorporated in the
Company’s sales price per unit and is therefore classified
as part of net sales.
|
|
|
Selling, General and Administrative |
Selling, general and administrative expenses primarily include
costs related to advertising, marketing, selling, information
technology and other general corporate functions. Selling,
general and administrative expenses also include certain
transportation and logistics expenses associated with the
Company’s distribution network. Transportation and logistic
costs were $2.5 million, $1.2 million and
$1.3 million for the years ended March 31, 2006, 2005
and 2004, respectively.
F-9
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising expense was
$19.1 million, $15.7 million and $15.2 million
for the years ended March 31, 2006, 2005 and 2004,
respectively.
|
|
|
Accrued Product Warranties |
An accrual for estimated future warranty costs is recorded based
on an analysis by the Company, including the historical
relationship of warranty costs to sales.
The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are
recognized by applying enacted statutory rates applicable to
future years to differences between the tax bases and financial
reporting amounts of existing assets and liabilities. The effect
on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A
valuation allowance is provided when it is more likely than not
that all or some portion of deferred tax assets will not be
realized.
To meet the reporting requirements of SFAS No. 107,
“Disclosures About Fair Value of Financial
Instruments,” the Company calculates the fair value of
financial instruments and includes this additional information
in the notes to the consolidated financial statements when the
fair value is different than the carrying value of those
financial instruments. When the fair value reasonably
approximates the carrying value, no additional disclosure is
made. The estimated fair value amounts have been determined by
the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Periodically, interest rate swaps, commodity swaps and forward
exchange contracts are used to manage market risks and reduce
exposure resulting from fluctuations in interest rates,
commodity prices and foreign currency exchange rates. Where such
contracts are designated as, and are effective as, a hedge,
gains and losses arising on such contracts are accounted for in
accordance with SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended.
Specifically, changes in the fair value of derivative
instruments designated as cash flow hedges are deferred and
recorded in other comprehensive income. These deferred gains or
losses are recognized in income when the transactions being
hedged are completed. The ineffective portion of these hedges is
recognized in income currently. Changes in the fair value of
derivative instruments designated as fair value hedges are
recognized in income, as are changes in the fair value of the
hedged item. Changes in the fair value of derivative instruments
that are not designated as hedges for accounting purposes are
recognized in income. The Company does not use derivatives for
trading purposes.
The Company reflects stock-based compensation expense under a
fair value based accounting method for all options granted,
modified or settled according with SFAS No. 123,
“Accounting for Stock based Compensation” and
SFAS No. 148, “Accounting for Stock based
Compensation — Transition and Disclosure.”
F-10
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The Company sponsors both defined benefit and defined
contribution retirement plans for its employees. Employer
contributions to the defined contribution plans are recognized
as periodic pension expense in the period that the
employees’ salaries or wages are earned. The defined
benefit plan covers all eligible employees and takes into
consideration the following components to calculate net periodic
pension expense: (a) service cost; (b) interest cost;
(c) expected return on plan assets; (d) amortization
of unrecognized prior service cost; (e) recognition of net
actuarial gains or losses; and (f) amortization of any
unrecognized net transition asset. If the amount of the
Company’s total contribution to its pension plan for the
period is not equal to the amount of net periodic pension cost,
the Company recognizes the difference either as a prepaid or
accrued pension cost.
Dividends are recorded as a liability on the date that the
Supervisory Board of Directors formally declares the dividend.
The Company is required to disclose basic and diluted earnings
per share (“EPS”). Basic EPS is calculated using
income divided by the weighted average number of common shares
outstanding during the period. Diluted EPS is similar to basic
EPS except that the weighted average number of common shares
outstanding is increased to include the number of additional
common shares calculated using the treasury method that would
have been outstanding if the dilutive potential common shares,
such as options, had been issued. Accordingly, basic and
dilutive common shares outstanding used in determining net
income per share are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of shares) | |
|
Basic common shares outstanding
|
|
|
461.7 |
|
|
|
458.9 |
|
|
|
458.1 |
|
|
Dilutive effect of stock options
|
|
|
— |
|
|
|
2.1 |
|
|
|
3.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding
|
|
|
461.7 |
|
|
|
461.0 |
|
|
|
461.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (Continuing operations — US dollar) |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Net (loss) income per share — basic
|
|
($ |
1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
|
Net (loss) income per share — diluted
|
|
($ |
1.10 |
) |
|
$ |
0.28 |
|
|
$ |
0.28 |
|
Potential common shares of 6.6 million, 8.2 million
and 2.0 million for the years ended March 31, 2006,
2005 and 2004, respectively, have been excluded from the
calculation of diluted common shares outstanding because the
effect of their inclusion would be anti-dilutive. Due to the net
loss for the year ended March 31, 2006, the assumed net
exercise of stock options was excluded, as the effect would have
been anti-dilutive.
|
|
|
Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) includes foreign
currency translation and derivative instruments and is presented
as a separate component of shareholders’ equity.
F-11
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
Recent Accounting Pronouncements |
In November 2004, the Financial Accounting Standard Board
(“FASB”) issued SFAS No. 151,
“Inventory Costs — an amendment of Accounting
Research Bulletin (“ARB”) No. 43,
Chapter 4.” SFAS No. 151 requires abnormal
amounts of inventory costs related to idle facility, freight
handling and wasted material expenses to be recognized as
current period charges. Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the
production facilities. SFAS No. 151 is effective for
fiscal years beginning after June 15, 2005. The adoption of
this standard did not have a material impact on the
Company’s consolidated financial statements.
|
|
|
American Jobs Creation Act |
In October 2004, the President of the United States signed into
law the American Jobs Creation Act (the “Act”). The
Act allows for a US federal income tax deduction for a
percentage of income earned from certain US production
activities. Based on the effective date of the Act, the Company
was eligible for this deduction in the first quarter of fiscal
year 2006. Additionally, in December 2004, the FASB issued FASB
Staff Position (“FSP”) 109-1, “Application of
FASB Statement No. 109, Accounting for Income Taxes
(“SFAS No. 109”), to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs
Creation Act of 2004.” FSP 109-1, which was effective upon
issuance, states the deduction under this provision of the Act
should be accounted for as a special deduction in accordance
with SFAS No. 109. The adoption of this standard did
not have a material impact on the Company’s consolidated
financial statements.
The Act also allows for an 85% dividends received deduction on
the repatriation of certain earnings of foreign subsidiaries. In
December 2004, the FASB issued FSP 109-2, “Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004.”
FSP 109-2, which was effective upon issuance, allows companies
time beyond the financial reporting period of enactment to
evaluate the effect of the Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying
SFAS No. 109. Additionally, FSP 109-2 provides
guidance regarding the required disclosures surrounding a
company’s reinvestment or repatriation of foreign earnings.
The adoption of this standard did not have a material effect on
the Company’s consolidated financial statements.
|
|
|
Exchanges of Non-Monetary Assets |
In December 2004, the FASB issued SFAS No. 153,
“Exchange of Non-Monetary Assets — An Amendment
of ARB Opinion No. 29,” which requires non-monetary
asset exchanges to be accounted for at fair value. The Company
is required to adopt the provisions of SFAS No. 153
for non-monetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of this standard did not
have a material impact on the Company’s consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”
(“SFAS No. 123R”). SFAS No. 123R
replaces SFAS No. 123 and supersedes APB Opinion
No. 25, “Accounting for Stock Issued to
Employees.” Generally, SFAS No. 123R is similar
in approach to SFAS No. 123 and requires that
compensation cost relating to share-based payments be recognized
in the financial statements based on the fair value of the
equity or liability instruments issued. SFAS No. 123R
is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. In April
2005, the United States Securities and Exchange Commission
delayed the effective date of SFAS No. 123R until
fiscal years beginning after June 15, 2005. The Company
adopted SFAS No. 123 in
F-12
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
fiscal year 2003 and does not expect the adoption of
SFAS No. 123R, which will occur in the first quarter
of fiscal year 2007 to have a material effect on the
Company’s consolidated financial statements.
|
|
|
Conditional Asset Retirement Obligations |
In March 2005, the FASB issued FASB Interpretation No. 47
(“FIN 47”), “Accounting for Conditional
Asset Retirement Obligations.” FIN 47 clarifies the
term “conditional asset retirement obligation” used in
SFAS No. 143, “Accounting for Asset Retirement
Obligations.” FIN 47 is effective no later than the
end of the fiscal year ending after December 15, 2005. The
adoption of this standard did not have a material impact on the
Company’s consolidated financial statements.
|
|
|
Accounting Changes and Error Corrections |
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.” SFAS No. 154 requires retrospective
application to prior periods’ financial statements of a
voluntary change in accounting principle unless it is
impracticable. APB Opinion No. 20, “Accounting
Changes,” previously required that most voluntary changes
in accounting principle be recognized by including in net income
of the period of the change the cumulative effect of changing to
the new accounting principle. This statement is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The adoption of
this standard will not have a material impact on the
Company’s consolidated financial statements.
In July 2005, the FASB issued an exposure draft of a proposed
interpretation “Accounting for Uncertain Tax
Positions.” The proposed interpretation clarifies the
accounting for uncertain tax positions in accordance with
SFAS No. 109. The proposed interpretation requires
that a tax position meet a “probable recognition
threshold” for the benefit of the uncertain tax position to
be recognized in the financial statements. A tax position that
fails to meet the probable recognition threshold will result in
either reduction of current or deferred tax asset or receivable,
or recording a current or deferred tax liability. The proposed
interpretation also provides guidance on measurement,
derecognition of tax benefits, classification, interim reporting
disclosure and transition requirements in accounting for
uncertain tax positions. The exposure draft has not yet been
finalized. If and when finalized, the Company will determine the
impact, if any, on its consolidated financial statements.
|
|
| 3. |
Cash and Cash Equivalents |
Cash and cash equivalents include amounts on deposit in banks
and cash invested temporarily in various highly liquid financial
instruments with original maturities of three months or less.
Cash and cash equivalents consist of the following components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Cash at bank and on hand
|
|
$ |
24.9 |
|
|
$ |
28.6 |
|
|
Short-term deposits
|
|
|
290.2 |
|
|
|
84.9 |
|
| |
|
|
|
|
|
|
| |
Total cash and cash equivalents
|
|
$ |
315.1 |
|
|
$ |
113.5 |
|
| |
|
|
|
|
|
|
Short-term deposits are placed at floating interest rates
varying between 4.60% to 4.85% and 2.70% to 2.76% as of
March 31, 2006 and 2005, respectively. Included in Cash at
bank and on hand at March 31, 2006 is $5.0 million of
restricted cash.
F-13
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| 4. |
Accounts and Notes Receivable |
Accounts and notes receivable consist of the following
components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Trade receivables
|
|
$ |
146.5 |
|
|
$ |
121.6 |
|
|
Other receivables and advances
|
|
|
8.0 |
|
|
|
7.1 |
|
|
Allowance for doubtful accounts
|
|
|
(1.3 |
) |
|
|
(1.5 |
) |
| |
|
|
|
|
|
|
| |
Total accounts and notes receivable
|
|
$ |
153.2 |
|
|
$ |
127.2 |
|
| |
|
|
|
|
|
|
The collectibility of accounts receivable, consisting mainly of
trade receivables, is reviewed on an ongoing basis and an
allowance for doubtful accounts is provided for known and
estimated bad debts. The following are changes in the allowance
for doubtful accounts:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Balance at April 1
|
|
$ |
1.5 |
|
|
$ |
1.2 |
|
|
Charged to expense
|
|
|
0.3 |
|
|
|
0.4 |
|
|
Costs and deductions
|
|
|
(0.5 |
) |
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
Balance at March 31
|
|
$ |
1.3 |
|
|
$ |
1.5 |
|
| |
|
|
|
|
|
|
Inventories consist of the following components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Finished goods
|
|
$ |
84.1 |
|
|
$ |
71.1 |
|
|
Work-in-process
|
|
|
9.2 |
|
|
|
8.5 |
|
|
Raw materials and supplies
|
|
|
33.0 |
|
|
|
22.4 |
|
|
Provision for obsolete finished goods and raw materials
|
|
|
(2.3 |
) |
|
|
(2.1 |
) |
| |
|
|
|
|
|
|
| |
Total inventories
|
|
$ |
124.0 |
|
|
$ |
99.9 |
|
| |
|
|
|
|
|
|
F-14
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| 6. |
Property, Plant and Equipment |
Property, plant and equipment consist of the following
components:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Machinery | |
|
|
|
|
| |
|
|
|
|
|
and | |
|
Construction | |
|
|
| |
|
Land | |
|
Buildings | |
|
Equipment | |
|
in Progress | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Balance at April 1, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$ |
11.3 |
|
|
$ |
135.0 |
|
|
$ |
562.8 |
|
|
$ |
63.0 |
|
|
$ |
772.1 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(21.0 |
) |
|
|
(184.0 |
) |
|
|
— |
|
|
|
(205.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value
|
|
|
11.3 |
|
|
|
114.0 |
|
|
|
378.8 |
|
|
|
63.0 |
|
|
|
567.1 |
|
|
Changes in net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
0.2 |
|
|
|
3.2 |
|
|
|
32.5 |
|
|
|
117.1 |
|
|
|
153.0 |
|
|
Retirements and sales
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.1 |
) |
|
|
(4.1 |
) |
|
Depreciation
|
|
|
— |
|
|
|
(4.5 |
) |
|
|
(31.8 |
) |
|
|
— |
|
|
|
(36.3 |
) |
|
Other movements
|
|
|
— |
|
|
|
— |
|
|
|
3.4 |
|
|
|
— |
|
|
|
3.4 |
|
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
2.6 |
|
|
|
— |
|
|
|
2.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total changes
|
|
|
0.2 |
|
|
|
(1.3 |
) |
|
|
6.7 |
|
|
|
113.0 |
|
|
|
118.6 |
|
|
Balance at March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
11.5 |
|
|
|
131.1 |
|
|
|
606.6 |
|
|
|
176.6 |
|
|
|
925.8 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(24.4 |
) |
|
|
(215.7 |
) |
|
|
— |
|
|
|
(240.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value
|
|
$ |
11.5 |
|
|
$ |
106.7 |
|
|
$ |
390.9 |
|
|
$ |
176.6 |
|
|
$ |
685.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Machinery | |
|
|
|
|
| |
|
|
|
|
|
and | |
|
Construction | |
|
|
| |
|
Land | |
|
Buildings | |
|
Equipment | |
|
in Progress | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at April 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$ |
11.5 |
|
|
$ |
131.1 |
|
|
$ |
606.6 |
|
|
$ |
176.6 |
|
|
$ |
925.8 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(24.4 |
) |
|
|
(215.7 |
) |
|
|
— |
|
|
|
(240.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value
|
|
|
11.5 |
|
|
|
106.7 |
|
|
|
390.9 |
|
|
|
176.6 |
|
|
|
685.7 |
|
|
Changes in net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
4.1 |
|
|
|
16.4 |
|
|
|
90.8 |
|
|
|
51.5 |
|
|
|
162.8 |
|
|
Retirements and sales
|
|
|
— |
|
|
|
— |
|
|
|
(8.9 |
) |
|
|
— |
|
|
|
(8.9 |
) |
|
Depreciation
|
|
|
— |
|
|
|
(7.3 |
) |
|
|
(38.0 |
) |
|
|
— |
|
|
|
(45.3 |
) |
|
Impairment
|
|
|
— |
|
|
|
— |
|
|
|
(13.4 |
) |
|
|
— |
|
|
|
(13.4 |
) |
|
Other movements
|
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
— |
|
|
|
(0.9 |
) |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
(4.4 |
) |
|
|
— |
|
|
|
(4.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total changes
|
|
|
4.1 |
|
|
|
9.1 |
|
|
|
25.2 |
|
|
|
51.5 |
|
|
|
89.9 |
|
|
Balance at March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
15.6 |
|
|
|
147.5 |
|
|
|
669.8 |
|
|
|
228.1 |
|
|
|
1,061.0 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(31.7 |
) |
|
|
(253.7 |
) |
|
|
— |
|
|
|
(285.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value
|
|
$ |
15.6 |
|
|
$ |
115.8 |
|
|
$ |
416.1 |
|
|
$ |
228.1 |
|
|
$ |
775.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress consists of plant expansions and
upgrades.
F-15
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Interest related to the construction of major facilities is
capitalized and included in the cost of the asset to which it
relates. Interest capitalized was $5.7 million,
$5.9 million and $1.6 million for the years ended
March 31, 2006, 2005 and 2004, respectively. Depreciation
expense for continuing operations was $45.3 million,
$36.3 million and $35.9 million for the years ended
March 31, 2006, 2005 and 2004, respectively. The impairment
charge for the pilot roofing plant was $13.4 million for
the year ended March 31, 2006.
The Company sponsors a US retirement plan, the James Hardie
Retirement and Profit Sharing Plan, for its employees in the
United States and a retirement plan, the James Hardie Australia
Superannuation Plan, for its employees in Australia. The US
retirement plan is a tax-qualified defined contribution
retirement and savings plan covering all US employees subject to
certain eligibility requirements and matches employee
contributions (subject to limitations) dollar for dollar up to
6% of their salary or base compensation. The James Hardie
Australia Superannuation Plan has two types of participants.
Participants who joined the plan prior to July 1, 2003 have
rights and benefits that are accounted for as a defined benefit
plan in the Company’s consolidated financial statements
while participants who joined the plan subsequent to
July 1, 2003 have rights and benefits that are accounted
for as a defined contribution plan in the Company’s
consolidated financial statements. The James Hardie Australia
Superannuation Plan is funded based on statutory requirements in
Australia. The Company’s expense for its defined
contribution plans totaled $2.6 million, $5.2 million
and $3.8 million for the years ended March 31, 2006,
2005 and 2004, respectively. Details of the defined benefit
component of the James Hardie Australia Superannuation Plan
(“Defined Benefit Plan”) are as follows.
The investment strategy/policy of the Defined Benefit Plan is
set by the Trustee (Mercer) for each investment option. The
strategy includes the selection of a long-term mix of
investments (asset classes) that supports the option’s aims.
The aims of the Mercer Growth option, in which the Defined
Benefit Plan assets are invested, are:
|
|
|
| |
• |
to achieve a rate of return (net of tax and investment expenses)
that exceeds inflation (CPI) increases by at least
3% per annum over a moving five year period; |
| |
| |
• |
to achieve a rate of return (net of tax and investment expenses)
above the median result for the Mercer Pooled Fund Survey over a
rolling three year period; and |
| |
| |
• |
over shorter periods, outperform the notional return of the
benchmark mix of investments. |
The assets are invested by appointing professional investment
managers and/or from time to time investing in a range of
investment vehicles offered by professional investment managers.
Investment managers may utilize derivatives in managing
investment portfolios for the Trustee. However, the Trustee does
not undertake
day-to-day management
of derivative instruments. Derivatives may be used, among other
things, to manage risk (e.g., for currency hedging). Losses from
derivatives can occur (e.g., due to stock market movements). The
Trustee seeks to manage risk by placing limits on the extent of
derivative use in any relevant Investment Management Agreements
between the Trustee and investment managers. The Trustee also
considers the risks and the controls set out in the
managers’ Risk Management Statements. The targeted ranges
of asset allocations are:
| |
|
|
|
|
|
Equity securities
|
|
|
40- 75 |
% |
|
Debt securities
|
|
|
15- 60 |
% |
|
Real estate
|
|
|
0- 20 |
% |
F-16
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following are the actual asset allocations by asset category
for the Defined Benefit Plan:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
|
Equity securities
|
|
|
48.8 |
% |
|
|
36.6 |
% |
|
Fixed interest
|
|
|
15.1 |
|
|
|
12.7 |
|
|
Real estate
|
|
|
5.7 |
|
|
|
4.7 |
|
|
Cash
|
|
|
30.4 |
|
|
|
46.0 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
| |
|
|
|
|
|
|
The following are the components of net periodic pension cost
for the Defined Benefit Plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Service cost
|
|
$ |
1.9 |
|
|
$ |
2.5 |
|
|
$ |
2.9 |
|
|
Interest cost
|
|
|
2.3 |
|
|
|
2.5 |
|
|
|
2.9 |
|
|
Expected return on plan assets
|
|
|
(2.6 |
) |
|
|
(3.2 |
) |
|
|
(3.6 |
) |
|
Amortization of unrecognized transition asset
|
|
|
— |
|
|
|
— |
|
|
|
(0.9 |
) |
|
Amortization of prior service costs
|
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Recognized net actuarial loss
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net periodic pension cost
|
|
|
2.0 |
|
|
|
2.3 |
|
|
|
1.8 |
|
|
Settlement loss
|
|
|
0.9 |
|
|
|
5.3 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net pension cost
|
|
$ |
2.9 |
|
|
$ |
7.6 |
|
|
$ |
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
The settlement losses in fiscal year 2006 and 2005 relate to
lump sum payments made to terminated participants of the Defined
Benefit Plan and are included in other operating expense in the
consolidated statements of operations.
The following are the assumptions used in developing the net
periodic cost and projected benefit obligation as of
March 31 (of each year listed below) for the Defined
Benefit Plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
% | |
|
% | |
|
% | |
| |
|
| |
|
| |
|
| |
|
Net Periodic Benefit Cost Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.5 |
|
|
|
6.5 |
|
|
|
6.8 |
|
|
Rate of increase in compensation
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
3.5 |
|
|
Expected return on plan assets
|
|
|
6.5 |
|
|
|
6.5 |
|
|
|
6.8 |
|
|
Projected Benefit Obligation Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0 |
|
|
|
6.5 |
|
|
|
6.5 |
|
|
Rate of increase in compensation
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
The discount rate methodology is based on the yield on
10-year high quality
investment securities in Australia adjusted to reflect the rates
at which pension benefits could be effectively settled. The
change in the discount rate used on the projected benefit
obligation from 2005 to 2006 is a direct result of the change in
yields of high quality investment securities over the same
periods, adjusted to rates at which pension benefits could be
effectively settled. The increase in the rate of increase in
compensation under the projected benefit obligation assumption
from 2004 to 2005 reflects an increase in the expected margin of
compensation
F-17
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
increases over price inflation. The decrease in the expected
return on plan assets from 2004 to 2005 was a result of lower
expected after-tax rates of return. The expected return on plan
assets assumption is determined by weighting the expected
long-term return for each asset class by the target/actual
allocation of assets to each class. The returns used for each
class are net of investment tax and investment fees. Net
unrecognized gains and losses are amortized over the average
remaining service period of active employees. A market related
value of assets is used to determine pension costs with the
difference between actual and expected investment return each
year recognized over five years.
The following are the actuarial changes in the benefit
obligation, changes in plan assets and the funded status of the
Defined Benefit Plan:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
| |
Benefit obligation at April 1
|
|
$ |
37.6 |
|
|
$ |
40.7 |
|
| |
Service cost
|
|
|
1.9 |
|
|
|
2.5 |
|
| |
Interest cost
|
|
|
2.3 |
|
|
|
2.5 |
|
| |
Plan participants’ contributions
|
|
|
0.6 |
|
|
|
0.9 |
|
| |
Actuarial loss
|
|
|
2.7 |
|
|
|
2.0 |
|
| |
Benefits paid
|
|
|
(6.7 |
) |
|
|
(11.4 |
) |
| |
Foreign currency translation
|
|
|
(2.8 |
) |
|
|
0.4 |
|
| |
|
|
|
|
|
|
| |
|
Benefit obligation at March 31
|
|
$ |
35.6 |
|
|
$ |
37.6 |
|
| |
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
| |
Fair value of plan assets at April 1
|
|
$ |
37.7 |
|
|
$ |
41.2 |
|
| |
Actual return on plan assets
|
|
|
6.6 |
|
|
|
4.7 |
|
| |
Employer contributions
|
|
|
1.2 |
|
|
|
1.8 |
|
| |
Participant contributions
|
|
|
0.6 |
|
|
|
0.9 |
|
| |
Benefits paid
|
|
|
(6.7 |
) |
|
|
(11.4 |
) |
| |
Foreign currency translation
|
|
|
(2.9 |
) |
|
|
0.5 |
|
| |
|
|
|
|
|
|
| |
|
Fair value of plan assets at March 31
|
|
$ |
36.5 |
|
|
$ |
37.7 |
|
| |
|
|
|
|
|
|
|
Funded status
|
|
$ |
0.9 |
|
|
$ |
0.1 |
|
|
Unrecognized actuarial loss
|
|
|
5.2 |
|
|
|
8.3 |
|
| |
|
|
|
|
|
|
| |
|
Other assets
|
|
$ |
6.1 |
|
|
$ |
8.4 |
|
| |
|
|
|
|
|
|
The following table provides further details of the Defined
Benefit Plan:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Projected benefit obligation
|
|
$ |
35.6 |
|
|
$ |
37.6 |
|
|
Accumulated benefit obligation
|
|
|
35.6 |
|
|
|
37.6 |
|
|
Fair market value of plan assets
|
|
|
36.5 |
|
|
|
37.7 |
|
F-18
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The Defined Benefit Plan measurement date is March 31,
2006. The Company expects to make contributions to the Defined
Benefit Plan of approximately $1.4 million during fiscal
year 2007.
The following are the expected Defined Benefit Plan benefits to
be paid in each of the following ten fiscal years:
| |
|
|
|
|
|
| |
|
Years Ended | |
| |
|
March 31 | |
| |
|
| |
| |
|
(Millions of US dollars) | |
|
2007
|
|
$ |
3.2 |
|
|
2008
|
|
|
2.1 |
|
|
2009
|
|
|
2.2 |
|
|
2010
|
|
|
2.6 |
|
|
2011
|
|
|
2.6 |
|
|
2012-2016
|
|
|
13.0 |
|
| |
|
|
|
| |
Estimated future benefit payments
|
|
$ |
25.7 |
|
| |
|
|
|
|
|
| 8. |
Accounts Payable and Accrued Liabilities |
Accounts payable and accrued liabilities consist of the
following components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Trade creditors
|
|
$ |
66.0 |
|
|
$ |
65.3 |
|
|
Other creditors and accruals
|
|
|
51.8 |
|
|
|
28.7 |
|
| |
|
|
|
|
|
|
| |
Total accounts payable and accrued liabilities
|
|
$ |
117.8 |
|
|
$ |
94.0 |
|
| |
|
|
|
|
|
|
|
|
| 9. |
Short and Long-Term Debt |
Long-term debt consists of the following components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
US$ noncollateralized notes — current portion
|
|
$ |
121.7 |
|
|
$ |
25.7 |
|
|
US$ noncollateralized notes — long-term portion
|
|
|
— |
|
|
|
121.7 |
|
| |
|
|
|
|
|
|
| |
Total debt at 7.11% average rate
|
|
$ |
121.7 |
|
|
$ |
147.4 |
|
| |
|
|
|
|
|
|
The US$ non-collateralized notes form part of a seven tranche
private placement facility which provides for maximum borrowings
of $165.0 million. Principal repayments are due in seven
installments that commenced on November 5, 2004 and end on
November 5, 2013. The tranches bear fixed interest rates of
6.86%, 6.92%, 6.99%, 7.05%, 7.12%, 7.24% and 7.42%. Interest is
payable on May 5th and November 5th each
year. The first tranche of $17.6 million was repaid in
November 2004.
As a result of the recording of the asbestos provision at
March 31, 2006, and the Supervisory Board’s approval
of this on May 12, 2006, the Company would not have been in
compliance with certain of the restrictive covenants in respect
of the US$ non-collateralized notes. However, under the terms of
the non-collateralized notes agreement, prepayment of these
notes is permitted and on April 28, 2006, the Company
F-19
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
issued a notice to all note holders to prepay in full all
outstanding notes on May 8, 2006. On that date the US$
non-collateralized notes were prepaid in full, incurring a
make-whole payment of $6.0 million.
The Company’s credit facilities currently consist of
364-day facilities in
the amount of $110.0 million, which mature in December 2006
and term facilities in the amount of $245.0 million, which
mature in June 2006. For both facilities, interest is calculated
at the commencement of each draw-down period based on the US$
London Interbank Offered Rate (“LIBOR”) plus the
margins of individual lenders, and is payable at the end of each
draw-down period. During the year ended March 31, 2006, the
Company paid $0.7 million in commitment fees. At
March 31, 2006, there was $181.0 million drawn under
the combined facilities and $174.0 million was available.
The Company has requested that its lenders extend the maturity
date of the 364-day
facilities from December 2006 to June 2007 and the maturity date
of the other term facilities to December 2006. Upon satisfaction
of the conditions precedent to the full implementation of the
Final Funding Agreement, including lender approval, the maturity
date of the other term facilities will be automatically extended
until June 2010. In the fourth quarter, $181.0 million was
drawn down on the credit facilities in anticipation of the
prepayment of the US$ non-collateralized notes described above.
The Company anticipates being able to meet its payment
obligations from:
|
|
|
| |
• |
existing cash and unutilized committed facilities; |
| |
| |
• |
net operating cash flow during the current year; |
| |
| |
• |
an extension of the term of existing credit facilities; and |
| |
| |
• |
the addition of proposed new funding facilities. |
However, if the conditions precedent to the full implementation
of the Final Funding Agreement are not satisfied, the Company
may not be able to renew its credit facilities on substantially
similar terms, or at all; may have to pay additional fees and
expenses that it might not have to pay under normal
circumstances; and it may have to agree to terms that could
increase the cost of its debt structure. Additionally, in order
to appeal the amended Australian income tax assessment referred
to above, pursuant to the ATO Receivables Policy, the Company is
required to post a cash deposit in an amount which could be as
large as the amount of the entire assessment. Even if the
Company is ultimately successful in its appeal and the cash
deposit is refunded, this procedural requirement to post a cash
deposit could materially and adversely affect the Company’s
financial position and liquidity. If the Company is unable to
extend its credit facilities, or is unable to renew its credit
facilities on terms that are substantially similar to the ones
it presently has, it may experience liquidity issues and will
have to reduce its levels of planned capital expenditures and/or
take other measures to conserve cash in order to meet its future
cash flow requirements.
At March 31, 2006, our management believes that the Company
was in compliance with all restrictive covenants contained in
the non-collateralized notes and credit facility agreements.
Under the most restrictive of these covenants, the Company is
required to maintain certain ratios of debt to equity and net
worth and levels of earnings before interest and taxes and has
limits on how much it can spend on an annual basis in relation
to asbestos payments to either Amaca Pty Ltd (formerly James
Hardie & Coy Pty Ltd) (“Amaca”), Amaba Pty
Ltd (formerly Jsekarb Pty Ltd) (“Amaba”) or ABN 60 Pty
Ltd (“ABN 60”).
F-20
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| 10. |
Non-Current Other Liabilities |
Non-current other liabilities consist of the following
components:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Employee entitlements
|
|
$ |
17.0 |
|
|
$ |
5.3 |
|
|
Product liability
|
|
|
0.7 |
|
|
|
4.7 |
|
|
Other
|
|
|
27.3 |
|
|
|
51.7 |
|
| |
|
|
|
|
|
|
| |
Total non-current other liabilities
|
|
$ |
45.0 |
|
|
$ |
61.7 |
|
| |
|
|
|
|
|
|
The Company offers various warranties on its products, including
a 50-year limited
warranty on certain of its fiber cement siding products in the
United States. A typical warranty program requires that the
Company replace defective products within a specified time
period from the date of sale. The Company records an estimate
for future warranty related costs based on an analysis of actual
historical warranty costs as they relate to sales. Based on this
analysis and other factors, the adequacy of the Company’s
warranty provisions are adjusted as necessary. While the
Company’s warranty costs have historically been within its
calculated estimates, it is possible that future warranty costs
could exceed those estimates.
Additionally, the Company includes in its accrual for product
warranties amounts for a Class Action Settlement Agreement
(the “Settlement Agreement”) related to its previous
roofing product, which is no longer manufactured in the United
States. On February 14, 2002, the Company signed the
Settlement Agreement for all product, warranty and property
related liability claims associated with its previously
manufactured roofing products. These products were removed from
the marketplace between 1995 and 1998 in areas where there had
been any alleged problems. The total amount included in the
product warranty provision relating to the Settlement Agreement
is $5.7 million and $5.8 million as of March 31,
2006 and 2005, respectively.
The following are the changes in the product warranty provision:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Balance at beginning of period
|
|
$ |
12.9 |
|
|
$ |
12.0 |
|
|
Accruals for product warranties
|
|
|
6.2 |
|
|
|
4.3 |
|
|
Settlements made in cash or in kind
|
|
|
(3.4 |
) |
|
|
(3.4 |
) |
|
Foreign currency translation adjustments
|
|
|
(0.2 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
15.5 |
|
|
$ |
12.9 |
|
| |
|
|
|
|
|
|
The “Accruals for product warranties” line item above
includes an additional accrual of $0.6 million for the year
ended March 31, 2006 related to the Settlement Agreement.
This increase reflects the results of the Company’s most
recent estimate of its total exposure. The “Settlements
made in cash or in kind” line item above includes
settlements related to the Settlement Agreement of
$0.7 million and $0.9 million for the years ended
March 31, 2006 and 2005, respectively.
F-21
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| 12. |
Commitments and Contingencies |
|
|
|
Commitment to provide funding on a long-term basis in
respect of asbestos-related liabilities of former
subsidiaries |
On December 1, 2005, the Company announced that it, the NSW
Government and a wholly owned Australian subsidiary of the
Company (LGTDD Pty Ltd, described below as the “Performing
Subsidiary”) had entered into a conditional agreement (the
“Final Funding Agreement”) to provide long-term
funding to a special purpose fund (“SPF”) that will
provide compensation for Australian asbestos-related personal
injury claims against certain former James Hardie companies
(being Amaca Pty Ltd (“Amaca”), Amaba Pty Ltd
(“Amaba”) and ABN 60 Pty Ltd (“ABN 60”))
(the “Former James Hardie Companies”).
Key events occurring since 2001 that led to the signing of the
Final Funding Agreement are summarized further below.
The Final Funding Agreement remains subject to a number of
conditions precedent, including the receipt of an independent
expert’s report confirming that the funding proposal is in
the best interests of the Company and its enterprise as a whole,
approval of the Company’s shareholders and lenders, and
confirmation satisfactory to the Company’s Board of
Directors, acting reasonably, that the contributions to be made
by JHI NV and the Performing Subsidiary under the Final Funding
Agreement will be tax deductible and the SPF will be exempt from
Australian federal income tax on its income.
In summary, the Final Funding Agreement provides for the
following key steps to occur if the conditions precedent to that
agreement are satisfied or waived in writing by the parties:
|
|
|
| |
• |
the establishment of the SPF to provide compensation to
Australian asbestos-related personal injury claimants with
proven claims against the Former James Hardie Companies; |
| |
| |
• |
initial funding of approximately A$154 million provided by
the Performing Subsidiary to the SPF, calculated on the basis of
an actuarial report prepared by KPMG Actuaries Pty Ltd
(“KPMG Actuaries”) as of March 31, 2006. That
report provided an estimate of the discounted net present value
of all present and future Australian asbestos-related personal
injury claims against the Former James Hardie Companies of
A$1.52 billion ($1.14 billion). |
| |
| |
• |
a two-year rolling cash buffer in the SPF and, subject to the
cap described below, an annual contribution in advance to top up
those funds to equal the actuarially calculated estimate of
expected Australian asbestos-related personal injury claims
against the Former James Hardie Companies for the following
three years, to be revised annually; |
| |
| |
• |
a cap on the annual payments made by the Performing Subsidiary
to the SPF, initially set at 35% of the Company’s free cash
flow (defined as cash from operations in accordance with US GAAP
in force at the date of the Final Funding Agreement) for the
immediately preceding financial year, with provisions for the
percentage to decline over time depending upon the
Company’s financial performance (and therefore the
contributions already made to the SPF) and the claims outlook; |
| |
| |
• |
an initial term of approximately 40 years, at which time
the parties may either agree upon a final payment to be made by
the Company in satisfaction of any further funding obligations,
or have the term automatically extended for further periods of
10 years until such agreement is reached or the relevant
asbestos-related liabilities cease to arise; |
| |
| |
• |
the entry by the parties and/or others into agreements to or
connected with the Final Funding Agreements (the “Related
Agreements”); |
| |
| |
• |
no cap on individual payments to asbestos claimants; |
F-22
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
| |
• |
the Performing Subsidiary’s payment obligations are
guaranteed by the James Hardie Industries N.V.; |
| |
| |
• |
the SPF’s claims to the funding payments required under the
Final Funding Agreement will be subordinated to the claims of
the Company’s lenders; and |
| |
| |
• |
the compensation arrangements will extend to members of the
Baryulgil community for asbestos-related claims arising from the
activities of a former subsidiary of ABN 60 (as described below). |
In addition to entering into the Final Funding Agreement, one or
more of the Company, the Performing Subsidiary, the SPF and the
NSW Government have entered into a number of agreements
ancillary to or connected with the Final Funding Agreements (the
“Related Agreements”), including a trust deed for the
establishment of the SPF, a deed of guarantee under which James
Hardie Industries N.V. provides the guarantee described above,
intercreditor deeds to achieve the subordination arrangements
described above and deeds of release in connection with the
releases from civil liability described below.
The Company considers that the principal outstanding conditions
to be fulfilled before the Final Funding Agreement becomes
effective are those relating to the taxation treatment in
Australia of payments made by the Performing Subsidiary to the
SPF, the tax exempt status of the SPF, and approval of the Final
Funding Agreement by the Company’s shareholders. The
Company is in discussions relating to the taxation issues
described above with the Australian Federal Commissioner of
Taxation and is seeking confirmation in a form binding on the
Commissioner that those conditions have been satisfied including
in relation to the impact of legislation which took effect on
April 6, 2006 and which is described further below.
In relation to the approval of the Final Funding Agreement by
the Company’s shareholders, the Company has undertaken
significant work towards preparing the necessary documentation
to be sent to shareholders, but at present is unable to specify
a date for holding the relevant meeting. The Company considers
that it can only properly put the proposal to shareholders once
the tax issues described above have been resolved, since as
further described below, such issues materially affect the
affordability of the proposal which shareholders will be asked
to approve.
The recording of the asbestos provision is in accordance with US
accounting standards because it is probable that the Company
will make payments to fund asbestos-related claims on a
long-term basis. The amount of the asbestos provision of
$715.6 million (A$1.0 billion) at March 31, 2006
is the Company’s best estimate of the probable outcome.
This estimate is based on the terms of the Final Funding
Agreement, which includes an actuarial estimate prepared by KPMG
Actuaries as of March 31, 2006 of the projected future cash
outflows, undiscounted and uninflated. The Company’s
ability to obtain a tax deduction under legislation remains the
subject of an ongoing application to the Australian Tax Office
(“ATO”). If the conditions precedent to the Final
Funding Agreement, such as the tax deductibility of payments,
are not met, the Company may seek to enter into an alternative
arrangement under which it would make payments for the benefit
of asbestos claimants. Under alternative arrangements, the
estimate may change.
Even if conditions to the Company’s funding obligations
under the Final Funding Agreement, including the achievement of
tax deductibility, are not fulfilled, the Company has determined
that it is nevertheless likely that it will make payments in
respect of certain claimants who were injured by asbestos
products manufactured by certain former Australian subsidiary
companies. The Board of James Hardie has made it clear that, in
a manner consistent with its obligations to shareholders and
other stakeholders in the Company, it intends to proceed with
fair and equitable actions to compensate the injured parties.
Any such alternative settlement may be subject to conditions
precedent and would require lender and shareholder approval.
However, if James Hardie proceeds with an alternative settlement
without the assurance of tax deductibility, it is likely, as a
function of economic reality, that the Company will have less
funds to support payments in respect of asbestos claims. While
the Company continues to hope that the conditions precedent to
the Final Funding Agreement will be fulfilled, it has determined
that its intention to continue to proceed responsibly in
F-23
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
either event makes it appropriate for the Company to record the
asbestos provision in the amounts set forth in the financial
statements.
|
|
|
Key events since 2001 leading to the signing of the Final
Funding Agreement |
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Separation of Amaca Pty Ltd and Amaba Pty Ltd and ABN 60 |
In February 2001, ABN 60, formerly known as James Hardie
Industries Limited (“JHIL”), established the Medical
Research and Compensation Foundation (the
“Foundation”) by gifting A$3.0 million
($1.7 million) in cash and transferring ownership of Amaca
and Amaba to the Foundation. The Foundation is a special purpose
charitable foundation established to fund medical and scientific
research into asbestos-related diseases. Amaca and Amaba were
Australian companies which had manufactured and marketed
asbestos-related products prior to 1987.
The Foundation is managed by independent trustees and operates
entirely independently of the Company and its current
subsidiaries. The Company does not control (directly or
indirectly) the activities of the Foundation in any way and,
effective from February 16, 2001, has not owned or
controlled (directly or indirectly) the activities of Amaca or
Amaba. In particular, the trustees of the Foundation are
responsible for the effective management of claims against Amaca
and Amaba, and for the investment of Amaca’s and
Amaba’s assets. Other than the offers to provide interim
funding to the Foundation and the indemnity to the directors of
ABN 60 as described below, the Company has no direct legally
binding commitment to or interest in the Foundation, Amaca or
Amaba, and it has no right to dividends or capital distributions
made by the Foundation. None of the Foundation, Amaca, Amaba or
ABN 60 are parties to the Final Funding Agreement described
above, and none of those entities has obtained any directly
enforceable rights under that agreement or the related
agreements contemplated under that agreement.
On March 31, 2003, the Company transferred control of ABN
60 to a newly established company named ABN 60 Foundation Pty
Ltd (“ABN 60 Foundation”). ABN 60 Foundation was
established to be the sole shareholder of ABN 60 and to ensure
that ABN 60 met the payment obligations owed to the Foundation
under the terms of a deed of covenant and indemnity described
below. Following the establishment of the ABN 60 Foundation, the
Company no longer owned any shares in ABN 60. ABN 60 Foundation
is managed by independent directors and operates entirely
independently of the Company. Since that date, the Company has
not and currently does not control the activities of ABN 60 or
ABN 60 Foundation in any way, it has no economic interest in ABN
60 or ABN 60 Foundation, and it has no right to dividends or
capital distributions made by the ABN 60 Foundation.
Under the Final Funding Agreement and under legislation
associated with that agreement described below, it is
contemplated that following the establishment of the SPF and as
part of the satisfaction of the conditions precedent to the
Final Funding Agreement, the Company will, subject to limited
exceptions, be entitled to appoint a majority of directors on
the board of directors of the SPF, which will in turn be
empowered under that legislation to issue certain specified
directions to the boards of directors of the Former James Hardie
Companies. That legislation also imposes statutory obligations
upon the Former James Hardie Companies To comply with such
directions, and the NSW Government may require the directors of
the trustees of the Foundation and of the ABN 60 Foundation to
resign pursuant to powers granted under the James Hardie
Former Subsidiaries (Special Provisions) Act 2005.
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Potential for claims against the Former James Hardie
Companies to be made against the Company |
Up to the date of the establishment of the Foundation, Amaca and
Amaba incurred costs of asbestos-related litigation and
settlements. From time to time, ABN 60 was joined as a party to
asbestos suits which were primarily directed at Amaca and Amaba.
Because Amaca, Amaba and ABN 60 were not or have not been a part
of the Company since the time of establishment of the Foundation
and the ABN 60 Foundation,
F-24
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
no provision for asbestos-related claims was established in the
Company’s consolidated financial statements prior to
March 31, 2006.
The Final Funding Agreement does not confer upon the Former
James Hardie Companies any directly enforceable rights against
the Company in respect of the funding obligations. Similarly,
the Final Funding Agreement does not create any directly
enforceable rights in favor of any persons who may have personal
injury claims against the Former James Hardie Companies and that
agreement does not seek to make the Company or any current
member of the James Hardie Group directly liable for damages for
personal injury or death in connection with the former
manufacture or sale of asbestos products by Amaca, Amaba or ABN
60. The funding obligations of the Performing Subsidiary and the
Company to the SPF will be enforceable by the SPF and, in
certain circumstances, directly by the NSW Government.
Apart from the funding obligations arising under the Final
Funding Agreement, it is possible that the Company could become
subject to suits for damages for personal injury or death in
connection with the former manufacture or sale of asbestos
products that have been or may be filed against Amaca, Amaba or
ABN 60. However, as described further below, the ability of any
claimants to initiate or pursue such suits is restricted by
legislation enacted by the NSW Government pursuant to the Final
Funding Agreement. Although it is difficult to predict the
incidence or outcome of future litigation, and thus no
assurances as to such incidence or outcome can be given, the
Company believes that, in the absence of new legislation or a
change in jurisprudence as adopted in prior case law before the
NSW Supreme Court and Federal High Court, as more fully
described below, the Company’s liability with respect to
such suits if such suits could be successfully asserted directly
against the Company is not probable and estimable at this time.
This belief is based on the following factors: following the
transfers of Amaca and Amaba to the Foundation and of ABN 60 to
the ABN 60 Foundation, none of those companies has been part of
the Company and while those companies are proposed to become
subsidiaries of the SPF as part of the steps to implement the
Final Funding Agreement, neither the SPF nor the Company will
thereby assume the liabilities of the Former James Hardie
Companies under Australian law; the separateness of corporate
entities under Australian law; the limited circumstances in
which “piercing the corporate veil” might occur under
Australian and Dutch law; the absence of an equivalent under
Australian common law of the US legal doctrine of
“successor liability”; the effect of the James
Hardie (Civil Liability) Act 2005 and the James Hardie
(Civil Penalty Compensation Release) Act 2005 as described
further below; and the belief that the principle applicable
under Dutch law, to the effect that transferees of assets may be
held liable for the transferor’s liabilities when they
acquire assets at a price that leaves the transferor with
insufficient assets to meet claims, is not triggered by the
transfers of Amaca, Amaba and ABN 60, the restructure of the
Company in 2001, or previous group transactions. The courts in
Australia have generally refused to hold parent entities
responsible for the liabilities of their subsidiaries absent any
finding of fraud, agency, direct operational responsibility or
the like. However, if suits are made possible and/or
successfully brought, they could have a material adverse effect
on the Company’s business, results of operations or
financial condition.
In New Zealand, where RCI Holdings Pty Ltd owns a subsidiary
that formerly manufactured asbestos-containing products, claims
have been made against the statutory fund established under New
Zealand’s accident compensation regime (rather than against
the subsidiary). The relevant legislation at present is the
Injury Prevention, Rehabilitation and Compensation Act 2001
(NZ). Where there is cover under this legislation, claims for
compensatory damages are barred. Although claims not barred by
the legislation could still be brought in some circumstances,
any such claims are not currently estimable.
During the period ended March 31, 2006, the Company has not
been a party to any material asbestos litigation and has not
made any settlement payments in relation to any such litigation.
Under US laws, the doctrine of “successor liability”
provides that an acquirer of the assets of a business can, in
certain jurisdictions and under certain circumstances, be held
responsible for liabilities arising from the
F-25
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
conduct of that business prior to the acquisition,
notwithstanding the absence of a contractual arrangement between
the acquirer and the seller pursuant to which the acquirer
agreed to assume such liabilities.
The general principle under Australian law is that, in the
absence of a contractual agreement to transfer specified
liabilities of a business, and where there is no fraudulent
conduct, the liabilities remain with the corporation that
previously carried on the business and are not passed on to the
acquirer of assets. Prior to March 2004, the Company leased
manufacturing sites from Amaca, a former subsidiary that is now
owned and controlled by the Foundation. In addition, the Company
purchased certain plant and equipment and inventory from Amaca
at fair value in connection with the first phase of the
Company’s restructuring. Each of these transactions
involved only Australian companies and, accordingly, the Company
believes the transactions are governed by Australian laws and
not the laws of any other jurisdiction. The Company does not
believe these transactions should give rise to the assumption by
the Company of any asbestos-related liabilities (tortious or
otherwise) under Australian law that may have been incurred
during the period prior to the transfer of the assets.
Under Dutch law, a Dutch transferee of assets may be held
responsible for the liabilities of the transferor following a
transfer of assets if the transfer results in the transferor
having insufficient assets to meet the claims of its creditors
or if the transfer otherwise jeopardizes the position of the
creditors of the transferor. The Company believes the transfer
by ABN 60 of all of the shares of James Hardie N.V. (“JH
NV”) to JHI NV in the 2001 Reorganization will not result
in the Company being held responsible as transferee under this
rule because, upon the transfer and the implementation of the
other aspects of the 2001 Reorganization, ABN 60 had the same
financial resources to meet the claims of its creditors as it
had prior to the transfer.
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Special Commission of Inquiry |
On October 29, 2003, the Foundation issued a press release
stating that its “most recent actuarial analysis estimates
that the compensation bill for the organization could reach one
billion Australian dollars in addition to those funds already
paid out to claimants since the Foundation was formed and that
existing funding could be exhausted within five years.” In
February 2004, the NSW Government established a Special
Commission of Inquiry (“SCI”) to investigate, among
other matters described below, the circumstances in which the
Foundation was established. The SCI was instructed to determine
the current financial position of the Foundation and whether it
would be likely to meet its future asbestos-related claims in
the medium to long-term. It was also instructed to report on the
circumstances in which the Foundation was separated from ABN 60
and whether this may have resulted in or contributed to a
possible insufficiency of assets to meet future asbestos-related
liabilities, and the circumstances in which any corporate
restructure or asset transfers occurred within or in relation to
the James Hardie Group prior to the funding of the Foundation to
the extent that this may have affected the Foundation’s
ability to meet its current and future liabilities. The SCI was
also instructed to report on the adequacy of current
arrangements available to the Foundation under the Corporations
Act of Australia to assist the Foundation in managing its
liabilities and whether reform was desirable in order to assist
the Foundation in managing its obligations to current and future
claimants.
On July 14, 2004, following the receipt of a new actuarial
estimate of asbestos liabilities of the Foundation by KPMG
Actuaries, the Company lodged a submission with the SCI stating
that the Company would recommend to its shareholders that they
approve the provision of an unspecified amount of additional
funding to enable an effective statute-based scheme to
compensate all future claimants for asbestos-related injuries
for which Amaca and Amaba may become liable. The Company
proposed that the statutory scheme include the following
elements:
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speedy, fair and equitable compensation for all existing and
future claimants, including objective criteria to reduce
superimposed inflation. Superimposed inflation is inflation in
claim awards above the underlying rate of inflation and is
sometimes called judicial inflation; |
F-26
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
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contributions to be made in a manner which provide certainty to
claimants as to their entitlement, the scheme administrator as
to the amount available for distribution, and the proposed
contributors (including the Company) as to the ultimate amount
of their contributions; |
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significant reductions in legal costs through reduced and more
abbreviated litigation; and |
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limitation of legal avenues outside of the scheme. |
The submission stated that the proposal was made without any
admission of liability or prejudice to the Company’s rights
or defenses.
The SCI issued its report on September 21, 2004. The
following is a summary of the principal findings of the SCI
relating to the Company based on the SCI’s report and other
information available to the Company.
This summary does not contain all of the findings contained or
observations made in the SCI report. It should be noted that the
SCI is not a court and, therefore, its findings have no legal
force.
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Principal findings in favor of the Company |
The principal findings in favor of the Company were that:
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the establishment of the Foundation was legally effective and
causes of action which the Foundation, Amaba or Amaca might have
against the James Hardie Group, its officers and advisers would
be unlikely to result in any significant increase in the funds
of Amaba, Amaca or the Foundation (putting this finding
conversely, the Company is unlikely to face any significant
liability to the Foundation, Amaba or Amaba as a result of the
then current causes of action of such entities against the
current members of the James Hardie Group); |
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there was no finding that JHI NV had committed any material
breach of any law as a result of the separation and
reorganization transactions which took place in 2001; |
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many of the allegations and causes of action put forward by
lawyers for the Foundation, Amaba and Amaca were
“speculative”; and |
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the SCI rejected the suggestion that JHI NV had breached any law
or was part of a conspiracy in relation to the fact that the
reorganization scheme documents prepared in 2001 did not refer
to the possibility of the partly-paid shares being cancelled
(the shares were cancelled in 2003). |
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Other principal findings relevant to the Company |
The other principal findings relevant to the Company were that:
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as a practical (but not legal) matter, if the “right”
amount (and not merely the minimum amount) of funding was not
provided to the Foundation, the Company would face potential
legislative, customer, union and public action to apply
legislative and boycott measures and public pressure to ensure
that the Company met any significant funding shortfall; and |
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the directors of ABN 60 at the time of the cancellation of the
partly-paid shares (Messrs Morley and Salter) effectively
followed the instructions of JHI NV in relation to the
cancellation. As a result, it might be concluded that JHI NV was
a shadow director of ABN 60 at that time. However, while
expressing some reservations about what occurred, the SCI did
not find that the ABN 60 directors (including JHI NV as a
shadow director) breached their duties in undertaking the
cancellation. |
F-27
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
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Principal findings against ABN 60 (formerly called JHIL) |
A number of further findings (positive and adverse) were also
made in relation to ABN 60, which is not a current member of the
James Hardie Group. Such findings were not directed against the
Company. For the reasons provided above, the Company does not
believe that it will have any liability under current Australian
law if future liabilities of ABN 60 or ABN 60 Foundation exceed
the funds available to those entities. This includes liabilities
that may attach to ABN 60 or ABN 60 Foundation as a result of
claims made, if successful, in connection with the transactions
involved in the establishment of the ABN 60 Foundation and the
separation of ABN 60 from the Company.
The SCI found that, given ABN 60’s limited financial
resources, ABN 60 would need to be able to succeed in making a
claim against JHI NV in respect of the cancellation of the
partly-paid shares before claims by Amaba or Amaca against ABN
60 had any practical value. Although expressing reservations
about what occurred, the SCI did not find that the directors of
ABN 60 had breached their duty in canceling the partly-paid
shares.
The SCI did not make any finding that any cause of action by ABN
60 with respect to the partly-paid shares was likely to succeed.
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Principal findings against Mr. Macdonald and
Mr. Shafron |
The principal (but non-determinative) findings against Messrs
Macdonald and Shafron pertained to their conduct while officers
of ABN 60 in relation to:
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alleged false and misleading conduct associated with a
February 16, 2001 press release, particularly regarding a
statement that the Foundation was “fully funded” in
contravention of New South Wales and Commonwealth legislation
prohibiting false or misleading conduct; |
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allegedly breaching their duties as officers of ABN 60 by
encouraging the board of directors of ABN 60 to act on the
Trowbridge report, dated February 13, 2001 (the
“Trowbridge Report”), in forming a view that the
Foundation would be “fully funded”; and |
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criticisms, falling short of findings of contraventions of law,
based on their respective roles in the separation and
reorganization transactions. These included criticisms relating
to their development, control over, reliance on and use of the
Trowbridge Report, despite (in the SCI’s view) their
knowledge of its limitations. |
The Commissioner noted that he had not carried out an exhaustive
investigation and concluded that it was a matter for
Commonwealth authorities (notably the Australian Securities and
Investments Commission “ASIC”) to determine whether
any further action should be taken in relation to matters which
the Commissioner considered comprised, or might be likely to
have comprised, contraventions of Australian corporations law.
The Commissioner acknowledged that in relation to various of his
findings, there was an issue as to whether Amaba or Amaca
suffered any loss or damage from the actions reviewed by him but
in this regard he did not find it necessary to reach any
definitive conclusion.
In relation to the question of the funding of the Foundation,
the SCI found that there was a significant funding shortfall. In
part, this was based on actuarial work commissioned by the
Company indicating that the discounted value of the central
estimate of the asbestos liabilities of Amaca and Amaba was
approximately A$1.573 billion as of June 30, 2003. The
central estimate was calculated in accordance with Australian
Actuarial Standards, which differ from generally accepted
accounting principles in the United States. As of June 30,
2003, the undiscounted value of the central estimate of the
asbestos liabilities of Amaca and Amaba, as determined by KPMG
Actuaries, was approximately A$3.403 billion
($2.272 billion). The SCI found that the net assets of the
Foundation and the ABN 60 Foundation were not sufficient to meet
these prospective liabilities and were likely to be exhausted in
the first half of 2007.
F-28
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
In relation to the Company’s statutory scheme proposal, the
SCI reported that there were several issues that needed to be
refined quite significantly but that it would be an appropriate
starting point for devising a compensation scheme.
The SCI’s findings are not binding and if the same issues
were presented to a court, the court might come to different
conclusions on one or more of the issues.
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Events Following the SCI Findings |
The NSW Government stated that it would not consider assisting
the implementation of any proposal advanced by the Company
unless it was the result of an agreement reached with the unions
acting through the Australian Council of Trade Unions
(“ACTU”), UnionsNSW (formerly known as the Labor
Council of New South Wales), and a representative of the
asbestos claimants (together, the “Representatives”).
The statutory scheme that the Company proposed on July 14,
2004 was not accepted by the Representatives.
The Company continues to believe that, apart from the
obligations it voluntarily assumed under the Final Funding
Agreement described herein and as discussed below under the
subheading “Interim Funding and ABN 60 Indemnity,”
under current Australian law, it is not legally liable for any
shortfall in the assets of Amaca, Amaba, the Foundation, the ABN
60 Foundation or ABN 60.
Following the release of the SCI report, the Representatives and
others indicated that they would encourage or continue to
encourage consumers and union members in Australia and elsewhere
to ban or boycott the Company’s products, to demonstrate or
otherwise create negative publicity toward the Company in order
to influence the Company’s approach to the discussions with
the NSW Government or to encourage governmental action if the
discussions were unsuccessful. The Company’s financial
position, results of operations and cash flows were affected by
such bans and boycotts, although the impact was not material.
The Representatives and others also indicated that they might
take actions in an effort to influence the Company’s
shareholders, a significant number of which are located in
Australia, to approve any proposed arrangement. Pursuant to the
Final Funding Agreement, the Representatives agreed to use their
best endeavors to achieve forthwith the lifting of all bans or
boycotts on any products manufactured, produced or sold by the
Company, and the Company and the Representatives signed a deed
of release in December 2005 under which the Company agreed to
release the Representatives and the members of the ACTU and
UnionsNSW from civil liability arising in relation to bans or
boycotts instituted as a result of the events described above.
Such releases did not extend to any new bans or boycotts, if
applicable, implemented after the date of signing of the Final
Funding Agreement, or to any bans or boycotts which persisted
beyond January 1, 2006. The Company is aware of a number of
bans or boycotts having been lifted, and is monitoring the
progress towards the lifting of a number of remaining bans or
boycotts. However, if the conditions precedent to the Final
Funding Agreement are not satisfied or if for any other reason
that agreement is not implemented, it remains the case that
fresh bans or boycotts could be implemented against the
Company’s products. Any such measures, and the influences
resulting from them, could have a material adverse impact on the
Company’s financial position, results of operations and
cash flows.
On October 28, 2004, the NSW Premier announced that the NSW
Government would seek the agreement of the Ministerial Council,
comprising Ministers of the Commonwealth and the Australian
States and Territories, to allow the NSW Government to pass
legislation which he announced would “wind back James
Hardie’s corporate restructure and rescind the cancellation
of A$1.9 billion in partly-paid shares.” The
announcement said that “the laws will effectively enforce
the liability (for asbestos-related claims) against the Dutch
parent company.”
F-29
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
On November 5, 2004, the Australian Attorney-General and
the Parliamentary Secretary to the Treasurer (the two relevant
ministers of the Australian Federal Government) issued a news
release stating that the Ministerial Council for Corporations
(the relevant body of Federal, State and Territory Ministers)
(“MINCO”) had unanimously agreed “to support a
negotiated settlement that will ensure that victims of
asbestos-related diseases receive full and timely compensation
from James Hardie” and if “the current negotiations
between James Hardie, the ACTU and asbestos victims do not reach
an acceptable conclusion, MINCO also agreed in principle to
consider options for legislative reform.” The news release
of November 5, 2004 indicated that treaties to enforce
Australian judgments in Dutch and US courts are not required,
but that the Australian Government had been involved in
communications with Dutch and US authorities regarding
arrangements to ensure that Australian judgments are able to be
enforced where necessary. If the conditions precedent to the
full implementation of the Final Funding Agreement are not
satisfied or if otherwise the Final Funding Agreement is
terminated by James Hardie, the Company is aware that
legislative intervention may ensue but has no detailed
information as to the content of any such legislation.
On December 21, 2004, the Company announced that it had
entered into a non-binding Heads of Agreement with the NSW
Government and the Representatives which was expected to form
the basis of a proposed binding agreement under which a
subsidiary of the Company would agree to provide, and the
Company would guarantee, funding payments to a special purpose
fund established to provide funding on a long-term basis to be
applied towards meeting proven asbestos-related personal injury
and death claims (“Claims”) against the Former James
Hardie Companies. The Heads of Agreement set out the key
principles to be reflected in a more detailed legally binding
agreement.
Negotiations between the NSW Government and the Company as to
the terms of such legally binding agreement continued throughout
2005 and resulted in the execution of the Final Funding
Agreement as described herein.
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Extension of Heads of Agreement to cover Baryulgil claims |
On April 15, 2005, the Company announced that it had
extended the coverage of the funding arrangements agreed under
the Heads of Agreement to enable the SPF to settle or meet
proven Claims by members of the Baryulgil community in Australia
against Asbestos Mines Pty Ltd (“Asbestos Mines”),
which conducted asbestos-related mining activities in Baryugil,
NSW. Asbestos Mines began mining at Baryulgil in 1944 as a joint
venture between Wunderlich Ltd (now Seltsam Ltd, an entity of
CSR Ltd) and a former James Hardie subsidiary (now Amaca Pty
Ltd.) From 1954 until 1976, Asbestos Mines was a wholly owned
subsidiary of James Hardie Industries Limited (now ABN 60).
Asbestos Mines, which has subsequently been renamed Marlew
Mining Pty Ltd, has not been part of the James Hardie Group
since 1976, when it was sold to Woodsreef Mines Ltd
(subsequently renamed Mineral Commodities Ltd). The Company has
no current right to access any Claims information in relation to
Claims against Asbestos Mines, and has no current involvement in
the management or settlement of such Claims.
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Interim Funding and ABN 60 Indemnity |
The Company has previously announced a number of measures in
relation to the funding position of the Foundation prior to the
Company’s entry into the Final Funding Agreement. On
December 3, 2004, and in part as a result of initiatives
undertaken by the Company, the Foundation received a payment of
A$88.5 million from ABN 60 for use in processing and
meeting asbestos-related claims pursuant to the terms of a deed
of covenant and indemnity which ABN 60, Amaca and Amaba had
entered into in February 2001.
The Company facilitated the payment of such funds by granting an
indemnity (under a separate deed of indemnity) to the directors
of ABN 60, which it announced on November 16, 2004. Under
the terms of that
F-30
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
indemnity, the Company agreed to meet any liability incurred by
the ABN 60 directors resulting from the release of the
A$88.5 million by ABN 60 to the Foundation. The Company
believes that the release of funding by ABN 60 is in accordance
with law and effective contracts and therefore the Company
should not incur liability under this indemnity. The Company has
not received any claim nor made any payments in relation to this
indemnity.
Additionally, on November 16, 2004, the Company offered to
provide funding to the Foundation on an interim basis for a
period of up to six months from that date. Such funding would
only be provided once existing Foundation funds (in particular,
funding available to Amaca and Amaba) had been exhausted. On the
basis of updated information provided to KPMG Actuaries by
representatives of the Foundation as to the incidence of claims
and the current net assets of the Amaca and Amaba, and assuming
such incidence of claims continues, the Company considers that
it is unlikely that the Foundation funds will be exhausted
before late calendar year 2006.
On March 31, 2005, the Company announced that it would
extend the timing of its commitment to assist the Foundation to
obtain interim funding, if necessary, prior to the Final Funding
Agreement being finalized in accordance with the updated
timetable announced on that date.
The Company has not recorded a provision for either the
indemnity or the potential payments under the interim funding
proposal. The Company has not been required to make any payments
pursuant to this commitment.
With regard to the ABN 60 indemnity, there is no maximum value
or limit on the amount of payments that may be required. As
such, the Company is unable to disclose a maximum amount that
could be required to be paid. The Company believes, however,
that the expected value of any potential future payments
resulting from the ABN 60 indemnity is zero and that the
likelihood of any payment being required under this indemnity is
remote.
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Releases From Civil Liability |
The Final Funding Agreement was supplemented by legislation
passed by the NSW Government to provide releases to the James
Hardie Group and to current and former directors, officers,
employees, agents and advisers of James Hardie Group members
from all civil liabilities in connection with, among other
matters, the establishment and funding (or underfunding) of the
Foundation as described above, the corporate reorganizations of
the James Hardie Group in 2001 and other matters examined by the
SCI.
The full form of the statutory releases is set out in
legislation passed by the NSW Parliament and contained in the
James Hardie (Civil Liability) Act 2005 and the James
Hardie (Civil Penalty Compensation Release) Act 2005. The
term “civil liabilities” is not defined in that
legislation and therefore bears its ordinary meaning under
Australian law. When introducing that legislation into the NSW
Parliament, the Attorney General of New South Wales stated that
the legislation was intended to extinguish liabilities for civil
penalties for which a compensation order may be imposed under
the Corporations Act 2001 (Cth), but it was not intended to
release the released persons from any other kind of civil
penalty orders that may be imposed (including any liabilities
for fines, orders banning individuals from being directors, or
court declaration that a contravention of a civil penalty
provision has occurred). Australian courts may have regard to
those statements in determining the scope of civil liabilities
released under this legislation, where they consider that the
natural and ordinary meaning of “civil liabilities” is
ambiguous or obscure.
That legislation also released certain persons in relation to
the entry by JHI NV and the Performing Subsidiary into the Heads
of Agreement, the Final Funding Agreement and the Related
Agreements and their implementation by the James Hardie Group,
and the circumstances giving rise to the same. However, such
releases did not affect the obligations of JHI NV and the
Performing Subsidiary set out in the Final Funding Agreement or
Related Agreements.
F-31
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The NSW Government has also undertaken to refrain from taking
any action inconsistent with such releases and extinguishments.
The releases and extinguishments contained in the legislation
described above are permanent in relation to all released
persons who are natural persons. In relation to companies and
other non-natural persons who were released under that
legislation, the releases and extinguishments may be suspended
by the NSW Government if the Performing Subsidiary is and
remains in breach of any obligation to make a funding payment
under the Final Funding Agreement or of its obligations not to
undertake certain prejudicial specified dealings, and the
Performing Subsidiary or the Company has not remedied the breach
within three months of the Company having received a notice
under the Final Funding Agreement.
|
|
|
Actuarial Study; Claims Estimate |
The Company commissioned an updated actuarial study of potential
asbestos-related liabilities as of March 31, 2006. Based on
the results of these studies, it is estimated that the
discounted value of the central estimate for claims against the
Former James Hardie companies was approximately
A$1.52 billion ($1.14 billion). The undiscounted value
of the central estimate of the asbestos-related liabilities of
Amaca and Amaba as determined by KPMG Actuaries was
approximately A$3.08 billion ($2.3 billion). Actual
liabilities of those companies for such claims could vary,
perhaps materially, from the central estimate described above.
This central estimate is calculated in accordance with
Australian Actuarial Standards, which differ from accounting
principles generally accepted in the United States.
In estimating the potential financial exposure, the actuaries
made assumptions related to the total number of claims which
were reasonably estimated to be asserted through 2071, the
typical cost of settlement (which is sensitive to, among other
factors, the industry in which the plaintiff claims exposure,
the alleged disease type and the jurisdiction in which the
action is being brought), the legal costs incurred in the
litigation of such claims, the rate of receipt of claims, the
settlement strategy in dealing with outstanding claims and the
timing of settlements.
Further, the actuaries have relied on the data and information
provided by the Foundation and Amaca Claim Services, Amaca Pty
Ltd (Under NSW External Administration) (“ACS”) and
assumed that it is accurate and complete in all material
respects. The actuaries have not verified the information
independently nor established the accuracy or completeness of
the data and information provided or used for the preparation of
the report.
Due to inherent uncertainties in the legal and medical
environment, the number and timing of future claim notifications
and settlements, the recoverability of claims against insurance
contracts, and estimates of future trends in average claim
awards, as well as the extent to which the above-named entities
will contribute to the overall settlements, the actual amount of
liability could differ materially from that which is currently
projected.
A sensitivity analysis has been performed to determine how the
actuarial estimates would change if certain assumptions (i.e.,
the rate of inflation and superimposed inflation, the average
costs of claims and legal fees, and the projected numbers of
claims) were different from the assumptions used to determine
the central estimates. This analysis shows that the discounted
central estimates could be in a range of A$1.0 billion
($0.7 billion) to A$2.5 billion ($1.8 billion)
(undiscounted estimates of A$1.8 billion
($1.4 billion) to A$5.3 billion ($3.9 billion) as
of March 31, 2006. It should be noted that the actual cost
of the liabilities could be outside of that range depending on
the results of actual experience relative to the assumptions
made.
The potential range of costs as estimated by KPMG Actuaries is
affected by a number of variables such as nil settlement rates
(where no settlement is payable by the Former James Hardie
Companies because the claim settlement is borne by other
asbestos defendants (other than the Former James Hardie
subsidiaries) which are held liable), peak year of claims, past
history of claims numbers, average settlement rates, past
history of Australian asbestos-related medical injuries, current
number of claims, average defense and plaintiff
F-32
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
legal costs, base wage inflation and superimposed inflation. The
potential range of losses disclosed includes both asserted and
unasserted claims. While no assurances can be provided, if the
Final Funding Agreement is approved by all of the necessary
parties, including the Company’s Board of Directors,
shareholders and lenders, the Company expects to be able to
partially recover losses from various insurance carriers. As of
March 31, 2006, KPMG Actuaries’ undiscounted central
estimate of asbestos-related liabilities was A$3.1 billion
($2.2 billion). This undiscounted central estimate is net
of expected insurance recoveries of A$504.8 million
($379.9 million) after making a general credit risk
allowance for bad debt insurance carriers and an allowance for
A$65.5 million ($49.3 million) of “by claim”
or subrogation recoveries from other third parties.
Currently, the timing of any potential payments is uncertain
because the conditions precedent to the Final Funding Agreement
have not been satisfied. In addition, the Company has not yet
incurred any settlement costs pursuant to its offer to provide
the Foundation with interim funding, which is described above
under the heading “Interim Funding and ABN 60
Indemnity” because the Foundation continues to meet all
claims of Amaca and Amaba.
The following table, provided by KPMG Actuaries, shows the
number of claims pending as of March 31, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
|
Australia
|
|
|
556 |
|
|
|
712 |
|
|
New Zealand
|
|
|
— |
|
|
|
— |
|
|
Unknown — Court Not Identified(1)
|
|
|
20 |
|
|
|
36 |
|
|
USA
|
|
|
1 |
|
|
|
1 |
|
|
|
| (1) |
The “Unknown — Court Not Identified”
designation reflects that the information for such claims had
not been, as of the date of publication, entered into the
database which the Foundation maintains. Over time, as the
details of “unknown” claims are provided to the
Foundation, the Company believes the database is updated to
reflect where such claims originate. Accordingly, the Company
understands the number of unknown claims pending fluctuates due
to the resolution of claims as well as the reclassification of
such claims. |
For the years ended March 31, 2006, 2005 and 2004 the
following tables, provided by KPMG Actuaries, show the claims
filed, the number of claims dismissed, settled or otherwise
resolved for each period, and the average settlement amount per
claim.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Australia | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
346 |
|
|
|
489 |
|
|
|
379 |
|
|
Number of claims dismissed
|
|
|
97 |
|
|
|
62 |
|
|
|
119 |
|
|
Number of claims settled or otherwise resolved
|
|
|
405 |
|
|
|
402 |
|
|
|
316 |
|
|
Average settlement amount per claim
|
|
A$ |
151,883 |
|
|
A$ |
157,594 |
|
|
A$ |
167,450 |
|
|
Average settlement amount per claim
|
|
US$ |
114,322 |
|
|
US$ |
116,572 |
|
|
US$ |
116,127 |
|
F-33
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unknown — Court Not Identified | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
6 |
|
|
|
7 |
|
|
|
1 |
|
|
Number of claims dismissed
|
|
|
10 |
|
|
|
20 |
|
|
|
15 |
|
|
Number of claims settled or otherwise resolved
|
|
|
12 |
|
|
|
2 |
|
|
|
— |
|
|
Average settlement amount per claim
|
|
A$ |
198,892 |
|
|
A$ |
47,000 |
|
|
A$ |
— |
|
|
Average settlement amount per claim
|
|
US$ |
149,706 |
|
|
US$ |
34,766 |
|
|
US$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
USA | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Number of claims filed
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Number of claims dismissed
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
Number of claims settled or otherwise resolved
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
Average settlement amount per claim
|
|
A$ |
— |
|
|
A$ |
228,293 |
|
|
A$ |
— |
|
|
Average settlement amount per claim
|
|
US$ |
— |
|
|
US$ |
168,868 |
|
|
US$ |
— |
|
The following table, provided by KPMG Actuaries, shows the
activity related to the numbers of open claims, new claims, and
closed claims during each of the past five years and the average
settlement per settled claim and case closed.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Number of open claims at beginning of year
|
|
|
749 |
|
|
|
743 |
|
|
|
814 |
|
|
|
671 |
|
|
|
569 |
|
|
Number of new claims
|
|
|
352 |
|
|
|
496 |
|
|
|
380 |
|
|
|
409 |
|
|
|
375 |
|
|
Number of closed claims
|
|
|
524 |
|
|
|
490 |
|
|
|
451 |
|
|
|
266 |
|
|
|
273 |
|
|
Number of open claims at year-end
|
|
|
577 |
|
|
|
749 |
|
|
|
743 |
|
|
|
814 |
|
|
|
671 |
|
|
Average settlement amount per settled claim
|
|
A$ |
153,236 |
|
|
A$ |
157,223 |
|
|
A$ |
167,450 |
|
|
A$ |
201,200 |
|
|
A$ |
197,941 |
|
|
Average settlement amount per case closed
|
|
A$ |
121,945 |
|
|
A$ |
129,949 |
|
|
A$ |
117,327 |
|
|
A$ |
177,752 |
|
|
A$ |
125,435 |
|
|
Average settlement amount per settled claim
|
|
US$ |
115,341 |
|
|
US$ |
116,298 |
|
|
US$ |
116,127 |
|
|
US$ |
112,974 |
|
|
US$ |
101,603 |
|
|
Average settlement amount per case closed
|
|
US$ |
91,788 |
|
|
US$ |
96,123 |
|
|
US$ |
81,366 |
|
|
US$ |
99,808 |
|
|
US$ |
64,386 |
|
The Company has not had any responsibility or involvement in the
management of claims against ABN 60 since the time ABN 60 left
the James Hardie Group in 2003. Since February 2001, when Amaca
and Amaba were separated from the James Hardie Group, neither
the Company nor any current subsidiary of the Company has had
any responsibility or involvement in the management of claims
against those entities. Prior to that date, the principal entity
potentially involved in relation to such claims was ABN 60,
which has not been a member of the James Hardie Group since
March 2003. However, the Final Funding Agreement and associated
New South Wales legislation contemplates that the SPF will have
both the responsibility for and arrangement of claims against
the Former James Hardie Companies, and that the Company will
have the right to appoint a majority of the directors of the SPF
unless a special default or insolvency event arises, as
explained further above.
F-34
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
On October 26, 2004, the Company, the Foundation and KPMG
Actuaries entered into an agreement under which the Company
would be entitled to obtain a copy of the actuarial report
prepared by KPMG Actuaries in relation to the claims liabilities
of the Foundation and Amaba and Amaca, and would be entitled to
publicly release the final version of such reports. Under the
terms of the Final Funding Agreement, but subject to it being
implemented, the Company has obtained similar rights of access
to actuarial information produced for the SPF by the actuary to
be appointed by the SPF (the “Approved Actuary”). The
Company’s future disclosures with respect to claims
statistics is subject to it obtaining such information from the
Approved Actuary. The Company has had no general right (and has
not obtained any right under the Final Funding Agreement) to
audit or otherwise require independent verification of such
information or the methodologies to be adopted by the Approved
Actuary. As a result, the Company cannot make any
representations or warranties as to the accuracy or completeness
of the actuarial information disclosed herein or that may be
disclosed in the future.
|
|
|
SCI and Other Related Expenses |
The Company has incurred substantial costs associated with the
SCI and may incur material costs in the future related to the
SCI or subsequent legal proceedings. The following are the
components of SCI and other related expenses:
| |
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
SCI
|
|
$ |
— |
|
|
$ |
6.8 |
|
|
Internal investigation
|
|
|
— |
|
|
|
4.9 |
|
|
ASIC investigation
|
|
|
0.8 |
|
|
|
1.2 |
|
|
Severance and consulting
|
|
|
0.1 |
|
|
|
6.0 |
|
|
Resolution advisory fees
|
|
|
9.8 |
|
|
|
6.4 |
|
|
Funding advice
|
|
|
2.9 |
|
|
|
0.6 |
|
|
Other
|
|
|
3.8 |
|
|
|
2.2 |
|
| |
|
|
|
|
|
|
| |
Total SCI and other related expenses
|
|
$ |
17.4 |
|
|
$ |
28.1 |
|
| |
|
|
|
|
|
|
Internal investigation costs reflect costs incurred by the
Company in connection with an internal investigation conducted
by independent legal advisors to investigate allegations raised
during the SCI and the preparation and filing of the
Company’s annual financial statements in the United States.
ASIC has announced that it is conducting an investigation into
the events examined by the SCI, without limiting itself to the
evidence compiled by the SCI. ASIC has served notices to produce
relevant documents upon the Company and various directors and
officers of the Company and upon certain of the Company’s
advisers and auditors at the time of the separation and
restructure transactions described above. ASIC has also served
notices requiring the Company and ABN 60 to produce certain
computerized information and requiring certain current and
former directors and officers of ABN 60 or the Company to
present themselves for examination by ASIC delegates. So far as
the Company is aware, the individuals who have been required to
attend such examinations have done so. To date, ASIC has
announced that it is investigating various matters, but it has
not specified the particulars of alleged contraventions under
investigation, nor has it announced that it has reached any
conclusion that any person or entity has contravened any
relevant law.
F-35
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
To assist ASIC’s investigation, the Australian Federal
Government enacted legislation to abrogate the legal
professional privilege which would otherwise have attached to
certain documents relevant to matters under investigation or to
any future civil proceedings to be taken. The legislation is set
out in the James Hardie (Investigations and Proceedings) Act
2004.
The Company may incur liability to meet the costs of current or
former directors, officers or employees of the James Hardie
Group to the extent that those costs are covered by indemnity
arrangements granted by the Company to those persons. To date,
no claims have been received from any current or former officers
in relation to the ASIC investigation, except in relation to the
examination by a former director of ABN 60 by ASIC delegates,
the amount of which cannot be assessed at present. In relation
to this claim and any others that may arise, the Company may be
reimbursed in whole or in part under directors’ and
officers’ insurance policies maintained by the Company.
|
|
|
Financial Position of the Foundation |
On the basis of the current cash and financial position of the
Foundation’s subsidiaries (Amaca and Amaba) and following
the Company’s entry into the Heads of Agreement, the
applications previously made to the Supreme Court of NSW by the
Foundation for the appointment of a provisional liquidator to
the Foundation’s subsidiaries were dismissed with the
Foundations consent. Such applications have now been rendered
unnecessary by the passage of the civil liability release
legislation described above.
The potential for Amaba, Amaca or ABN 60 to be placed into
insolvency has been further reduced by legislation passed in NSW
(the James Hardie Former Subsidiaries (Winding Up and
Administration) Act 2005), parts of which came into force on
December 2, 2005 and which will, when fully effective,
replace the James Hardie Former Subsidiaries (Special
Provisions) Act 2005. That legislation maintains the
status quo of Amaca, Amaba and ABN 60, including by
providing for a statutory form of administration for those
entities so as to prevent them being placed into administration
or liquidation under the provisions of the Australian
Corporations Act which would usually apply to an insolvent
Australian company. The legislation also sought to ensure that
the directors of those entities would not seek to remove the
assets or the register of shares in those entities outside New
South Wales.
The Company believes it is possible that future costs related to
the Company’s implementation of the Final Funding Agreement
may be material. The Company does not expect any material
additional costs to be incurred in connection with the SCI.
The operations of the Company, like those of other companies
engaged in similar businesses, are subject to a number of
federal, state and local laws and regulations on air and water
quality, waste handling and disposal. The Company’s policy
is to accrue for environmental costs when it is determined that
it is probable that an obligation exists and the amount can be
reasonably estimated. In the opinion of management, based on
information presently known except as set forth above, the
ultimate liability for such matters should not have a material
adverse effect on either the Company’s consolidated
financial position, results of operations or cash flows.
The Company is involved from time to time in various legal
proceedings and administrative actions incidental or related to
the normal conduct of its business. Although it is impossible to
predict the outcome of any pending legal proceeding, management
believes that such proceedings and actions should not, except as
it relates to asbestos as described above, individually or in
the aggregate, have a material adverse effect on either its
consolidated financial position, results of operations or cash
flows.
F-36
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
As the lessee, the Company principally enters into property,
building and equipment leases. The following are future minimum
lease payments for non-cancelable operating leases having a
remaining term in excess of one year at March 31, 2006:
| |
|
|
|
|
|
| Years Ending March 31: |
|
(Millions of US dollars) | |
| |
|
| |
|
2007
|
|
$ |
15.8 |
|
|
2008
|
|
|
14.0 |
|
|
2009
|
|
|
12.3 |
|
|
2010
|
|
|
11.1 |
|
|
2011
|
|
|
10.9 |
|
|
Thereafter
|
|
|
78.7 |
|
| |
|
|
|
| |
Total
|
|
$ |
142.8 |
|
| |
|
|
|
Rental expense amounted to $12.5 million, $9.1 million
and $8.1 million for the years ended March 31, 2006,
2005 and 2004, respectively.
Commitments for the acquisition of plant and equipment and other
purchase obligations, primarily in the United States, contracted
for but not recognized as liabilities and generally payable
within one year, were $22.2 million at March 31, 2006.
Income tax expense includes income taxes currently payable and
those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities.
Income tax expense for continuing operations consists of the
following components:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Domestic(1)
|
|
$ |
113.7 |
|
|
$ |
90.5 |
|
|
$ |
103.5 |
|
| |
Foreign
|
|
|
(548.8 |
) |
|
|
99.3 |
|
|
|
62.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes:
|
|
$ |
(435.1 |
) |
|
$ |
189.8 |
|
|
$ |
165.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Domestic(1)
|
|
$ |
(9.0 |
) |
|
$ |
(14.1 |
) |
|
$ |
(6.7 |
) |
| |
|
Foreign
|
|
|
(91.5 |
) |
|
|
(37.1 |
) |
|
|
(20.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(100.5 |
) |
|
|
(51.2 |
) |
|
|
(27.1 |
) |
| |
|
|
|
|
|
|
|
|
|
F-37
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Domestic(1)
|
|
|
(0.3 |
) |
|
|
5.0 |
|
|
|
(3.9 |
) |
| |
Foreign
|
|
|
29.2 |
|
|
|
(15.7 |
) |
|
|
(9.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
28.9 |
|
|
|
(10.7 |
) |
|
|
(13.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total income tax expense for continuing operations
|
|
$ |
(71.6 |
) |
|
$ |
(61.9 |
) |
|
$ |
(40.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Since JHI NV is the Dutch parent holding company, domestic
represents The Netherlands. |
Income tax expense computed at the statutory rates represents
taxes on income applicable to all jurisdictions in which the
Company conducts business, calculated as the statutory income
tax rate in each jurisdiction multiplied by the pre-tax income
attributable to that jurisdiction. Income tax expense from
continuing operations is reconciled to the tax at the statutory
rates as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Income tax expense computed at statutory tax rates
|
|
$ |
121.0 |
|
|
$ |
(65.3 |
) |
|
$ |
(60.7 |
) |
|
US state income taxes, net of the federal benefit
|
|
|
(7.1 |
) |
|
|
(5.3 |
) |
|
|
(0.2 |
) |
|
Asbestos provision
|
|
|
(214.7 |
) |
|
|
— |
|
|
|
— |
|
|
Benefit from Dutch financial risk reserve regime
|
|
|
12.7 |
|
|
|
18.1 |
|
|
|
24.8 |
|
|
Expenses not deductible
|
|
|
(3.4 |
) |
|
|
(2.3 |
) |
|
|
(2.5 |
) |
|
Non-assessable items
|
|
|
1.4 |
|
|
|
— |
|
|
|
1.3 |
|
|
Losses not available for carryforward
|
|
|
(2.6 |
) |
|
|
(2.4 |
) |
|
|
— |
|
|
Change in reserves
|
|
|
20.7 |
|
|
|
(3.7 |
) |
|
|
(3.9 |
) |
|
Other items
|
|
|
0.4 |
|
|
|
(1.0 |
) |
|
|
0.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total income tax expense
|
|
$ |
(71.6 |
) |
|
$ |
(61.9 |
) |
|
$ |
(40.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
16.5 |
% |
|
|
32.6 |
% |
|
|
24.4 |
% |
| |
|
|
|
|
|
|
|
|
|
Deferred tax balances consist of the following components:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Provisions and accruals
|
|
$ |
33.2 |
|
|
$ |
29.0 |
|
| |
Net operating loss carryforwards
|
|
|
8.9 |
|
|
|
12.8 |
|
| |
Capital loss carryforwards
|
|
|
31.2 |
|
|
|
33.7 |
|
| |
Taxes on intellectual property transfer
|
|
|
8.3 |
|
|
|
10.0 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
81.6 |
|
|
|
85.5 |
|
|
Valuation allowance
|
|
|
(35.2 |
) |
|
|
(38.1 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets net of valuation allowance
|
|
|
46.4 |
|
|
|
47.4 |
|
| |
|
|
|
|
|
|
F-38
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment
|
|
|
(91.7 |
) |
|
|
(86.9 |
) |
| |
Prepaid pension cost
|
|
|
(1.8 |
) |
|
|
(2.5 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
(93.5 |
) |
|
|
(89.4 |
) |
| |
Foreign currency movements
|
|
|
2.8 |
|
|
|
2.8 |
|
| |
|
|
|
|
|
|
| |
|
Net deferred tax liabilities
|
|
$ |
(44.3 |
) |
|
$ |
(39.2 |
) |
| |
|
|
|
|
|
|
Under SFAS No. 109, “Accounting for Income
Taxes,” the Company establishes a valuation allowance
against a deferred tax asset if it is more likely than not that
some portion or all of the deferred tax asset will not be
realized. The Company has established a valuation allowance
pertaining to a portion of its Australian net operating loss
carryforwards and all of its Australian capital loss
carryforwards. The valuation allowance decreased by
$2.9 million during fiscal year 2006 primarily due to
foreign currency movements.
As of March 31, 2006, the Company had Australian tax loss
carryforwards of approximately $23.7 million that will
never expire. As of March 31, 2006, the Company had a
$13.8 million valuation allowance against the Australian
tax loss carryforwards.
As of March 31, 2006, the Company had $103.9 million
in Australian capital loss carryforwards which will never
expire. At March 31, 2006, the Company had a 100% valuation
allowance against the Australian capital loss carryforwards.
As of March 31, 2006, the undistributed earnings of
non-Dutch subsidiaries approximated $475.6 million. The
Company intends to indefinitely reinvest these earnings, and
accordingly, has not provided for taxes that would be payable
upon remittance of those earnings. The amount of the potential
deferred tax liability related to undistributed earnings is
impracticable to determine at this time.
Due to the size of the Company and the nature of its business,
the Company is subject to ongoing reviews by taxing
jurisdictions on various tax matters, including challenges to
various positions the Company asserts on its income tax returns.
The Company accrues for tax contingencies based upon its best
estimate of the taxes ultimately expected to be paid, which it
updates over time as more information becomes available. Such
amounts are included in taxes payable or other non-current
liabilities, as appropriate. If the Company ultimately
determines that payment of these amounts is unnecessary, the
Company reverses the liability and recognizes a tax benefit
during the period in which the Company determines that the
liability is no longer necessary. The Company records an
additional charge in the period in which it determines that the
recorded tax liability is less than it expects the ultimate
assessment to be.
In fiscal year 2006, the Company finalized certain tax audits
and paid all additional amounts due for the applicable fiscal
years and recorded a $20.7 million tax benefit to reduce
amounts accrued in excess of all amounts paid.
In fiscal year 2005, the Company settled certain tax audits and
filed amended income tax returns and paid additional tax for the
applicable fiscal years. The Company recorded a
$2.5 million tax benefit to reduce amounts accrued in
excess of all amounts paid.
Relevant tax authorities from various jurisdictions in which the
Company operates are in the process of auditing the
Company’s respective jurisdictional income tax returns for
various ranges of years. Of the audits currently being conducted
none have progressed sufficiently to predict their ultimate
outcome. The Company accrues income tax liabilities for these
audits based upon knowledge of all relevant facts and
circumstances,
F-39
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
taking into account existing tax laws, its experience with
previous audits and settlements, the status of current tax
examination and how the tax authorities view certain issues.
The Company currently derives significant tax benefits under the
US-Netherlands tax treaty. The treaty was amended during fiscal
year 2005 and became effective for the Company on
February 1, 2006. The amended treaty provides, among other
things, new requirements that the Company must meet for the
Company to continue to qualify for treaty benefits and its
effective income tax rate. During fiscal year 2006, the Company
made changes to its organizational and operational structure to
satisfy the requirements of the amended treaty and believes that
it is now in compliance and should continue qualifying for
treaty benefits. However, if during a subsequent tax audit or
related process the Internal Revenue Service (“IRS”)
determines that these changes do not meet the new requirements,
the Company may not qualify for treaty benefits; its effective
income tax rate could significantly increase beginning in the
fiscal year that such determination is made; and it could be
liable for taxes owed from the effective date of the amended
treaty provisions.
In March 2006, RCI Pty Ltd (RCI) a wholly owned subsidiary
of the Company received an amended assessment from the
Australian Taxation Office (“ATO”) in respect of
RCI’s income tax return for the year ended March 31,
1999. The amended assessment relates to the amount of net
capital gains arising as a result of an internal corporate
restructure carried out in 1998 and has been issued pursuant to
the discretion granted to the Commissioner of Taxation under
Part IVA of the Income Tax Assessment Act 1936. The
original amended assessment issued to RCI was for a total of
A$412.0 million. However, after a subsequent remission of
general interest charges by the ATO, the total is now
A$378.0 million, comprised of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
US$ | |
|
A$ | |
| |
|
| |
|
| |
| |
|
(Millions of dollars) | |
|
Primary tax after allowable credits
|
|
$ |
129.5 |
|
|
A$ |
172.0 |
|
|
Penalties(1)
|
|
|
32.4 |
|
|
|
43.0 |
|
|
General interest charges
|
|
|
122.7 |
|
|
|
163.0 |
|
| |
|
|
|
|
|
|
| |
Total amended assessment
|
|
$ |
284.6 |
|
|
A$ |
378.0 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Represents 25% of primary tax |
In late 2005, the Tax Laws Amendment (Improvements to Self
Assessment Act (No 2)) 2005 of Australia (the ROSA Act) came
into effect. Prior to the ROSA Act becoming law, the ATO had the
power to amend earlier tax assessments to give effect to a
determination under the general anti avoidance provisions of the
tax legislation, Part IVA, within six years after the date
on which tax became due and payable under the earlier
assessment. The ROSA Act changed this period from six to four
years. Unlike the other changes made by the ROSA Act to the
ATO’s powers to amend earlier assessments (which apply only
to the 2005 and later tax years), the changes to Part IVA
operated immediately from royal assent on December 15,
2005. The amended assessment was issued to RCI to give effect to
a Part IVA determination after the ROSA Act became law, but
was issued after the four year period had expired (although just
before the old six year period had expired).
The ATO has acknowledged in writing to the Company that this was
an issue and deferred the time for payment of tax to
June 30, 2006 because of the uncertainty. The Government
announced on May 9, 2006 that there had been a drafting
error and that a law would be presented to Parliament to ensure
retrospectively that the relevant Part IVA changes would
only take effect from the 2005 and later tax years. The Company
has not seen any draft law.
Even though the ATO did not appear to have the power to make and
issue the amended assessment because it was out of time (subject
to retrospective correcting legislation being passed), there
remains an issue
F-40
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
as to whether the amended assessment is valid until successfully
challenged in Court, or whether it is invalid and a nullity.
However, if the validity of the amended assessment is confirmed,
there is a range of possible payment outcomes in accordance with
the ATO Receivable Policy. These will be subject to negotiation
with the ATO and include RCI paying the entire assessment on
June 30, 2006 or entering into an arrangement with the ATO
to pay at least 50% of the primary tax on June 30, 2006.
The Company believes that RCI’s tax position will
ultimately prevail in this matter. Accordingly, it is expected
that any amounts paid on June 30, 2006 (or any later time)
would be recovered by RCI (with interest) at the time RCI is
successful in its appeal against the amended assessment.
RCI strongly disputes the amended assessment and is pursuing all
avenues of objection and appeal to contest the ATO’s
position in this matter. The ATO has confirmed that RCI has a
reasonably arguable position that the amount of net capital
gains arising as a result of the corporate restructure carried
out in 1998 has been reported correctly in fiscal year 1999 tax
return and that Part IVA does not apply. As a result, the
ATO reduced the amount of penalty from an automatic 50% of
primary tax that would otherwise apply in these circumstances,
to 25% of primary tax. In Australia, a reasonably arguable
position means that the tax position is about as likely to be
correct as it is not correct. The Company and RCI received legal
and tax advice at the time of the transaction, during the ATO
enquiries and following receipt of the amended assessment. The
Company believes that the tax position reported in RCI’s
tax return for the 1999 year will be upheld on appeal.
Accordingly, at this time, the Company is unable to determine
with any certainty whether any amount will ultimately become
payable by RCI or, if any amount is ultimately payable, the
amount of any such payment. Therefore, the Company believes that
the probable and estimable requirements under
SFAS No. 5, “Accounting for Contingencies,”
for recording a liability have not been met and therefore has
not recorded any liability at March 31, 2006 for the
amended assessment.
|
|
| 14. |
Discontinued Operations |
On May 30, 2003, the Company sold its New Zealand Building
Systems business to a third party. A gain of $1.9 million
represented the excess of net proceeds from the sale of
$6.7 million over the net book value of assets sold of
$4.8 million. The proceeds from the sale were comprised of
cash of $5.0 million and a note receivable in the amount of
$1.7 million. As of March 31, 2005, the
$1.7 million note receivable had been collected in full.
Following the establishment of the ABN 60 Foundation, the
Company no longer owns any shares of ABN 60. ABN 60 Foundation
is managed by independent directors and operates entirely
independently of the Company. Since that date, the Company has
not and currently does not control the activities of ABN 60 or
ABN 60 Foundation in any way. The Company has no economic
interest, other than described in Note 12, in ABN 60 or ABN
60 Foundation and has no right to dividends or capital
distributions made by the ABN 60 Foundation. Apart from the
express indemnity for non-asbestos matters provided to ABN 60
and a possible arrangement to fund some or all future claimants
for asbestos-related injuries caused by former James Hardie
subsidiary companies and to the potential liabilities more fully
described in Note 12, the Company does not believe it will
have any liability under current Australian law should future
liabilities of ABN 60 or ABN 60 Foundation exceed the funds
available to those entities. As a result of the change in
ownership of ABN 60 on March 31, 2003, a loss on disposal
of $0.4 million was recorded by James Hardie at
March 31, 2003, representing the liabilities of ABN 60 (to
the Foundation) of A$94.6 million ($57.2 million), the
F-41
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
A$94.5 million ($57.1 million) in cash held on the
balance sheet, and costs associated with the establishment and
funding of ABN 60 Foundation.
Under the terms on which the ABN 60 Foundation was established,
JHI NV agreed to indemnify ABN 60 Foundation for any non
asbestos-related legal claims made on ABN 60 in relation to any
acts or omissions of ABN 60 or its directors and officers which
occurred prior to the transfer of ABN 60 to the ABN 60
Foundation. The indemnity is uncapped and the term of the
indemnity is in perpetuity. James Hardie believes that the
likelihood of any material non asbestos-related claims
occurring, which would result in a call on this indemnity, is
remote. As such, the Company has not recorded a liability for
the indemnity. The Company has not pledged any assets as
collateral for such indemnity.
Also under those terms of establishing the ABN 60 Foundation,
Amaca, Amaba and ABN 60 agreed to indemnify JHI NV and its
related corporate entities for past and future asbestos-related
liabilities incurred by them as a result of the acts or
omissions of ABN 60 prior to establishing the ABN 60 Foundation.
Amaca, Amaba and ABN 60’s obligation to indemnify JHI NV
and its related entities includes asbestos-related claims that
may arise associated with the manufacturing activities of those
companies.
|
|
|
Disposal of Chile Business |
In June 2005, the Company approved a plan to dispose of its
Chile Fiber Cement business to Compañía Industrial El
Volcan S.A. (Volcan). The sale closed on July 8, 2005. The
Company received net proceeds of $3.9 million and recorded
a loss on disposal of $0.8 million. This loss on disposal
is included in other operating expense in the Company’s
consolidated statements of operations.
As part of the terms of the sale of the Chile Fiber Cement
business to Volcan, the Company entered into a two-year take or
pay purchase contract for fiber cement product manufactured by
Volcan. The first year of the contract amounts to a purchase
commitment of approximately $2.8 million and the second
year amounts to a purchase commitment of approximately
$2.1 million. As this contract qualifies as continuing
involvement per SFAS No. 144, “Accounting for the
Impairment or Disposal of Long Lived Assets,” the operating
results and loss on disposal of the Chile Fiber Cement business
are included in the Company’s income from continuing
operations and are comprised of the following components:
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Chile Fibre Cement
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
5.1 |
|
|
$ |
13.3 |
|
| |
Cost of goods sold
|
|
|
(3.5 |
) |
|
|
(10.1 |
) |
| |
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
1.6 |
|
|
|
3.2 |
|
| |
Selling, general and administrative expenses
|
|
|
(1.2 |
) |
|
|
(2.0 |
) |
| |
Loss on disposal of business
|
|
|
(0.8 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Operating (loss) income
|
|
|
(0.4 |
) |
|
|
1.2 |
|
| |
Interest expense
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
| |
|
|
|
|
|
|
| |
|
|
Net (loss) income
|
|
$ |
(0.6 |
) |
|
$ |
0.8 |
|
| |
|
|
|
|
|
|
F-42
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following are the results of operations of discontinued
businesses:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 |
|
2005 | |
|
2004 | |
| |
|
|
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Building Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2.9 |
|
| |
Income before income tax expense
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
| |
Income tax expense
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Building Services
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Loss before income tax benefit
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
| |
Income tax benefit
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net loss
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
|
— |
|
|
|
— |
|
|
|
2.9 |
|
| |
(Loss) income before income tax benefit (expense)
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
0.3 |
|
| |
Income tax benefit (expense)
|
|
|
— |
|
|
|
0.2 |
|
|
|
(0.1 |
) |
| |
|
Net (loss) income
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
0.2 |
|
| |
|
(Loss) gain on disposal, net of income taxes
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
4.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(Loss) income from discontinued operations
|
|
$ |
— |
|
|
$ |
(1.0 |
) |
|
$ |
4.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 15. |
Stock-Based Compensation |
At March 31, 2006, the Company had the following
stock-based compensation plans: the Executive Share Purchase
Plan; the 2001 Equity Incentive Plan; one Stock Appreciation
Rights Plan; the Supervisory Board Share Plan and the Managing
Board Transitional Stock Option Plan. As of March 31, 2006,
the Company has no units outstanding under the following stock
based compensation plans: Peter Donald Macdonald Share Option
Plan; Peter Donald Macdonald Share Option Plan 2001; Peter
Donald Macdonald Share Option Plan 2002; and Key Management
Shadow Stock Incentive Plan.
The Company accounts for stock options using the fair value
provisions of SFAS No. 123, which requires the Company
to value stock options issued based upon an option pricing model
and recognize this value as compensation expense over the
periods in which the options vest.
The Company estimates the fair value of each option grant on the
date of grant using the Black-Scholes option-pricing model. In
the table below are the weighted average assumptions and
weighted average fair values used for grants in fiscal year
2006, 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Dividend yield
|
|
|
1.2 |
% |
|
|
1.1 |
% |
|
|
1.0 |
% |
|
Expected volatility
|
|
|
27.4 |
% |
|
|
29.1 |
% |
|
|
26.0 |
% |
|
Risk free interest rate
|
|
|
4.8 |
% |
|
|
3.2 |
% |
|
|
2.7 |
% |
|
Expected life in years
|
|
|
3.3 |
|
|
|
3.3 |
|
|
|
3.3 |
|
|
Weighted average fair value at grant date
|
|
A$ |
1.35 |
|
|
A$ |
1.35 |
|
|
A$ |
1.42 |
|
F-43
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Compensation expense arising from stock option grants as
determined using the Black-Scholes model was $5.9 million,
$3.0 million and $3.2 million for the fiscal years
ended March 31, 2006, 2005 and 2004, respectively.
|
|
|
Executive Share Purchase Plan |
Prior to July 1998, JHIL issued stock under an Executive Share
Purchase Plan (the “Plan”). Under the terms of the
Plan, eligible executives purchased JHIL shares at their market
price when issued. Executives funded purchases of JHIL shares
with non-recourse, interest-free loans provided by JHIL and
collateralized by the shares. In such cases, the amount of
indebtedness is reduced by any amounts payable by JHIL in
respect of such shares, including dividends and capital returns.
These loans are generally payable within two years after
termination of an executive’s employment. As part of the
2001 Reorganization, the identical terms of the agreement have
been carried over to JHI NV. Variable plan accounting under the
provisions of Accounting Principles Board (“APB”)
Opinion No. 25 has been applied to the Executive Share
Purchase Plan shares granted prior to April 1, 1995 and
fair value accounting, pursuant to the requirements of
SFAS No. 123, has been applied to shares granted after
March 31, 1995. Accordingly, the Company recorded variable
compensation expense of nil, nil and $0.1 million for the
years ended March 31, 2006, 2005 and 2004, respectively. No
shares were issued to executives during fiscal year 2006, 2005
and 2004.
|
|
|
Managing Board Transitional Stock Option Plan |
The Managing Board Transitional Stock Option Plan provides an
incentive to the members of the Managing Board. The maximum
number of ordinary shares that may be issued and outstanding or
subject to outstanding options under this plan shall not exceed
1,380,000 shares. At March 31, 2006, there were
1,320,000 options outstanding under this plan.
The Company granted options to
purchase 1,320,000 shares of the Company’s common
stock at an exercise price per share equal to A$8.53 under the
Managing Board Transitional Stock Option plan on
November 22, 2005 to the Managing Directors. As set out in
the plan rules, the exercise price and the number of shares
available on exercise may be adjusted on the occurrence of
certain events, including new issues, share splits, right issues
and capital reconstructions. 50% of these options become
exercisable on the first business day on or after
November 22, 2008, if the total shareholder returns
(“TSR”) (essentially its dividend yield and common
stock performance) from November 22, 2005 to that date was
at least equal to the median TSR for the companies comprising
the Company’s peer group, as set out in the plan. In
addition, for each 1% increment that the Company’s TSR is
above the median TSR an additional 2% of the options become
exercisable. If any options remain unvested on the last business
day of each six month period following November 22, 2008
and November 22, 2010, the Company will reapply the vesting
criteria to those options on that business day.
|
|
|
2001 Equity Incentive Plan |
On October 19, 2001 (the grant date), JHI NV granted a
total of 5,468,829 stock options under the JHI NV 2001 Equity
Incentive Plan (the “2001 Equity Incentive Plan”) to
key US executives in exchange for their previously granted Key
Management Equity Incentive Plan (“KMEIP”) shadow
shares that were originally granted in November 2000 and 1999 by
JHIL. These options may be exercised in five equal tranches (20%
each year) starting with the first anniversary of the original
shadow share grant.
F-44
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
October 2001 | |
|
|
| |
|
Original | |
|
Number of | |
|
Option | |
| |
|
Exercise | |
|
Options | |
|
Expiration | |
| Original Shadow Share Grant Date |
|
Price | |
|
Granted | |
|
Date | |
| |
|
| |
|
| |
|
| |
|
November 1999
|
|
A$ |
3.82 |
|
|
|
1,968,544 |
|
|
|
November 2009 |
|
|
November 2000
|
|
A$ |
3.78 |
|
|
|
3,500,285 |
|
|
|
November 2010 |
|
As set out in the plan rules, the exercise prices and the number
of shares available on exercise may be adjusted on the
occurrence of certain events, including new issues, share
splits, rights issues and capital reconstructions. Consequently,
the exercise price was reduced by A$0.21, A$0.38 and A$0.10 for
the November 2003, November 2002 and December 2001 returns of
capital, respectively.
Under the 2001 Equity Incentive Plan, additional grants have
been made at fair market value to management and other employees
of the Company as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Original | |
|
Number of | |
|
Option | |
| |
|
Exercise | |
|
Options | |
|
Expiration | |
| Share Grant Date |
|
Price | |
|
Granted | |
|
Date | |
| |
|
| |
|
| |
|
| |
|
December 2001
|
|
A$ |
5.65 |
|
|
|
4,248,417 |
|
|
|
December 2011 |
|
|
December 2002
|
|
A$ |
6.66 |
|
|
|
4,037,000 |
|
|
|
December 2012 |
|
|
December 2003
|
|
A$ |
7.05 |
|
|
|
6,179,583 |
|
|
|
December 2013 |
|
|
December 2004
|
|
A$ |
5.99 |
|
|
|
5,391,100 |
|
|
|
December 2014 |
|
|
February 2005
|
|
A$ |
6.30 |
|
|
|
273,000 |
|
|
|
February 2015 |
|
|
December 2005
|
|
A$ |
8.90 |
|
|
|
5,224,100 |
|
|
|
December 2015 |
|
|
March 2006
|
|
A$ |
9.50 |
|
|
|
40,200 |
|
|
|
March 2016 |
|
Each option confers the right to subscribe for one ordinary
share in the capital of JHI NV. The options may be exercised as
follows: 25% after the first year; 25% after the second year;
and 50% after the third year. All unexercised options expire
10 years from the date of issue or 90 days after the
employee ceases to be employed by the Company. Also, as set out
in the plan rules, the exercise prices and the number of shares
available on exercise may be adjusted on the occurrence of
certain events, including new issues, share splits, rights
issues and capital reconstructions.
Consequently, the exercise price on the December 2002 and
December 2001 option grants were reduced by A$0.21 for the
November 2003 return of capital and the December 2001 option
grant was reduced by A$0.38 for the November 2002 return of
capital.
The Company is authorized to issue 45,077,100 shares under
the 2001 Equity Incentive Plan. The following table summarizes
the shares available for grant under this plan:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| Shares Available for Grant |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Shares available at beginning of period
|
|
|
24,340,258 |
|
|
|
27,293,210 |
|
|
|
32,884,940 |
|
|
Awards granted
|
|
|
(5,264,300 |
) |
|
|
(5,664,100 |
) |
|
|
(6,179,583 |
) |
|
Options forfeited
|
|
|
700,275 |
|
|
|
2,711,148 |
|
|
|
587,853 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares available at end of period
|
|
|
19,776,233 |
|
|
|
24,340,258 |
|
|
|
27,293,210 |
|
| |
|
|
|
|
|
|
|
|
|
F-45
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following table shows the movement in all of the
Company’s outstanding options:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
| |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In Australian dollars) | |
|
Outstanding at beginning of period
|
|
|
20,128,610 |
|
|
A$ |
5.75 |
|
|
|
17,978,707 |
|
|
A$ |
5.72 |
|
|
|
13,410,024 |
|
|
A$ |
5.20 |
|
|
Granted
|
|
|
6,584,300 |
|
|
|
8.83 |
|
|
|
5,664,100 |
|
|
|
6.00 |
|
|
|
6,179,583 |
|
|
|
7.05 |
|
|
Exercised
|
|
|
(3,925,378 |
) |
|
|
4.79 |
|
|
|
(803,049 |
) |
|
|
4.13 |
|
|
|
(1,023,047 |
) |
|
|
4.38 |
|
|
Forfeited
|
|
|
(3,274,275 |
) |
|
|
5.68 |
|
|
|
(2,711,148 |
) |
|
|
6.56 |
|
|
|
(587,853 |
) |
|
|
5.79 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
19,513,257 |
|
|
A$ |
6.99 |
|
|
|
20,128,610 |
|
|
A$ |
5.75 |
|
|
|
17,978,707 |
|
|
A$ |
5.72 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31
|
|
|
7,234,897 |
|
|
A$ |
5.82 |
|
|
|
7,155,625 |
|
|
A$ |
5.08 |
|
|
|
3,858,736 |
|
|
A$ |
4.54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
|
|
|
| |
|
| |
|
|
| |
|
|
|
Weighted | |
|
|
|
Options Exercisable | |
| |
|
|
|
Average | |
|
|
|
| |
| |
|
|
|
Remaining | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
Number | |
|
Contractual | |
|
Average | |
|
Number | |
|
Average | |
| |
|
Outstanding at | |
|
Life (in | |
|
Exercise | |
|
Exercisable at | |
|
Exercise | |
| Range of Exercise Price |
|
March 31, 2006 | |
|
Years) | |
|
Price | |
|
March 31, 2006 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In Australian dollars) | |
|
A$3.09
|
|
|
773,750 |
|
|
|
4.6 |
|
|
A$ |
3.09 |
|
|
|
773,750 |
|
|
A$ |
3.09 |
|
|
3.13
|
|
|
257,113 |
|
|
|
3.6 |
|
|
|
3.13 |
|
|
|
257,113 |
|
|
|
3.13 |
|
|
5.06
|
|
|
1,270,724 |
|
|
|
5.7 |
|
|
|
5.06 |
|
|
|
1,270,724 |
|
|
|
5.06 |
|
|
5.99
|
|
|
4,464,850 |
|
|
|
8.7 |
|
|
|
5.99 |
|
|
|
967,900 |
|
|
|
5.99 |
|
|
6.30
|
|
|
273,000 |
|
|
|
8.9 |
|
|
|
6.30 |
|
|
|
68,250 |
|
|
|
6.30 |
|
|
6.45
|
|
|
2,064,800 |
|
|
|
6.7 |
|
|
|
6.45 |
|
|
|
2,064,800 |
|
|
|
6.45 |
|
|
7.05
|
|
|
3,857,720 |
|
|
|
7.7 |
|
|
|
7.05 |
|
|
|
1,832,360 |
|
|
|
7.05 |
|
|
8.53
|
|
|
1,320,000 |
|
|
|
9.7 |
|
|
|
8.53 |
|
|
|
— |
|
|
|
— |
|
|
8.90
|
|
|
5,191,100 |
|
|
|
9.7 |
|
|
|
8.90 |
|
|
|
— |
|
|
|
— |
|
|
9.50
|
|
|
40,200 |
|
|
|
9.9 |
|
|
|
9.50 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$3.09 to A$9.50
|
|
|
19,513,257 |
|
|
|
8.2 |
|
|
A$ |
6.99 |
|
|
|
7,234,897 |
|
|
A$ |
5.82 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supervisory Board Share Plan |
At the 2002 Annual General Meeting, the shareholders approved a
Supervisory Board Share Plan (“SBSP”), which requires
that all non-executive directors on the Joint Board and
Supervisory Board receive shares of the Company’s common
stock as payment for a portion of their director fees. The SBSP
requires that the directors take at least $10,000 of their fees
in shares and allows directors to receive additional shares is
lieu of fees in their discretion. Shares issued under the
$10,000 compulsory component of the SBSP are subject to a
two-year escrow that requires members of the Supervisory Board
to retain those shares for at least two years following issue.
In exceptional circumstances, this may be varied at the
discretion of the Managing Board. The issue price for the shares
is the market value at the time of issue. No loans will be
entered into by the Company relation to the grant of shares
pursuant to the SBSP.
F-46
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
Peter Donald Macdonald Share Option Plans |
|
|
|
Peter Donald Macdonald Share Option Plan |
As a replacement for options previously granted by JHIL on
November 17, 1999, Mr. Macdonald was granted an option
to purchase 1,200,000 shares of the Company’s
common stock at an exercise price of A$3.87 per share under
the JHI NV Peter Donald Macdonald Share Option Plan. As with the
original JHIL option grant, this stock option became fully
vested and exercisable on November 17, 2004. The options
had an expiration date of April 20, 2005, six months after
the date of Mr. Macdonald’s resignation. The exercise
price and the number of shares available on exercise could be
adjusted on the occurrence of certain events, including new
issues, share splits, rights issues and capital reconstructions,
as set out in the plan rules. Consequently, the exercise price
was reduced by A$0.21, A$0.38 and A$0.10 for the November 2003,
November 2002 and December 2001 returns of capital,
respectively. Mr. Macdonald exercised all of these options
in April 2005.
|
|
|
Peter Donald Macdonald Share Option Plan 2001 |
As a replacement for options previously granted by JHIL on
July 12, 2001, Mr. Macdonald was granted an option to
purchase 624,000 shares of the Company’s common
stock at an exercise price per share equal to A$5.45 under the
JHI NV Peter Donald Macdonald Share Option Plan 2001. The
replacement options were to become exercisable for
468,000 shares on the first business day on or after
July 12, 2004, if JHI NV’s TSR (essentially its
dividend yield and common stock performance) from July 12,
2001 to that date was at least equal to the median TSR for the
companies comprising JHI NV’s peer group, as set out in the
plan. In addition, the replacement options were to become
exercisable on that same day for an additional 6,240 shares
for each one-percent improvement in JHI NV’s TSR ranking
above the median total shareholder returns for its peer group
(up to a total of 156,000 additional shares). On the first
business day of each month from November 2004 until the options
expired on April 20, 2005, six months after the date of
Mr. Macdonald’s resignation, JHI NV’s total
shareholder returns were compared with that of its peer group to
determine if any previously unvested options vest according to
the applicable test described above. As set out in the plan
rules, the exercise price and the number of shares available on
exercise could be adjusted on the occurrence of certain events,
including new issues, share splits, rights issues and capital
reconstructions. Consequently, the exercise price was reduced by
A$0.21, A$0.38 and A$0.10 for the November 2003, November 2002
and December 2001 returns of capital, respectively. As the TSR
requirement had not been met six months after Mr. Macdonald
ceased to be employed by JHI NV, all of these options expired in
April 2005.
|
|
|
Peter Donald Macdonald Share Option Plan 2002 |
On July 19, 2002, under the JHI NV Peter Donald Macdonald
2002 Share Option Plan, Mr. Macdonald was granted an
option to purchase 1,950,000 shares of the
Company’s common stock at an exercise price of
A$6.30 per share. These options were to become exercisable
for 1,462,500 shares of JHI NV’s common stock on the
first business day on or after July 19, 2005, if JHI
NV’s TSR from July 19, 2002 to that date was at least
equal to the median TSR for the companies comprising its peer
group, which comprises those companies included in the S&P/
ASX 200 index excluding the companies listed in the 200
Financials and 200 Property Trust indices. Additionally, for
each one-percent improvement in JHI NV’s TSR ranking above
the median TSR for its peer group 19,500 shares were to
become exercisable (up to a total of 487,500 additional shares).
If any options remained unexercisable on that date because the
applicable test for TSR was not satisfied, then on the first
business day of each month occurring from that day until
October 31, 2005, JHI NV’s TSR would again be compared
with that of its peer group to determine if any previously
unvested options vested according to the applicable test
described above. Any vested options would have remained
exercisable until the tenth anniversary of the issue date,
July 19, 2012. As set out in the plan rules, the exercise
price and the number of shares available on exercise could be
adjusted on the occurrence of certain events, including new
issues, share
F-47
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
splits, rights issues and capital reconstructions. Consequently,
the exercise price was reduced by A$0.21 and A$0.38 for the
November 2003 and November 2002 returns of capital,
respectively. All 1,950,000 options expired on October 31,
2005.
|
|
|
Key Management Shadow Stock Incentive Plan |
On December 5, 2003, 12,600 shadow stock shares were
granted under the terms and conditions of the Key Management
Shadow Stock Incentive Plan. At March 31, 2005, 12,600
shadow stock shares were outstanding. All of these shadow stock
shares were cancelled in April 2005.
|
|
|
Stock Appreciation Rights Plan |
On December 14, 2004, 527,000 stock appreciation rights
were granted under the terms and conditions of the JHI NV Stock
Appreciation Rights Incentive Plan. This plan provides similar
incentives as the 2001 Equity Incentive Plan. 27,000 of these
stock appreciation rights were cancelled in April 2005. The
remaining 500,000 stock appreciation rights were outstanding at
March 31, 2006 and will vest 50% December 2006 and 50%
December 2007. These rights have been accounted for as stock
appreciation rights under SFAS No. 123 and,
accordingly, compensation expense of $0.5 million, nil and
$2.6 million was recognized in fiscal year 2006, 2005 and
2004, respectively.
|
|
| 16. |
Financial Instruments |
As a multinational corporation, the Company maintains
significant operations in foreign countries. As a result of
these activities, the Company is exposed to changes in exchange
rates which affect its results of operations and cash flows. As
of March 31, 2006 and 2005, the Company had not entered
into any material contracts to hedge these exposures.
The Company purchases raw materials and fixed assets and sells
some finished product for amounts denominated in currencies
other than the functional currency of the business in which the
related transaction is generated. In order to protect against
foreign exchange rate movements, the Company may enter into
forward exchange contracts timed to mature when settlement of
the underlying transaction is due to occur. As of March 31,
2006 and 2005, there were no material contracts outstanding.
Financial instruments which potentially subject the Company to
credit risk consist primarily of cash and cash equivalents,
investments and trade accounts receivable.
The Company maintains cash and cash equivalents, investments and
certain other financial instruments with various major financial
institutions. At times, these financial instruments may be in
excess of federally insured limits. To minimize this risk, the
Company performs periodic evaluations of the relative credit
standing of these financial institutions and, where appropriate,
places limits on the amount of credit exposure with any one
institution.
For off-balance sheet financial instruments, including
derivatives, credit risk also arises from the potential failure
of counterparties to meet their obligations under the respective
contracts at maturity. The Company controls risk through the use
of credit ratings and reviews of appropriately assessed
authority limits.
The Company is exposed to losses on forward exchange contracts
in the event that counterparties fail to deliver the contracted
amount. The credit exposure to the Company is calculated as the
mark-to-market value of
all contracts outstanding with that counterparty. As of
March 31, 2006 and 2005, total credit exposure arising from
forward exchange contracts was not material.
F-48
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Credit risk with respect to trade accounts receivable is
concentrated due to the concentration of the distribution
channels for the Company’s fiber cement products. Credit is
extended based on an evaluation of each customer’s
financial condition and, generally, collateral is not required.
The Company has historically not incurred significant credit
losses.
The carrying values of cash and cash equivalents, marketable
securities, accounts receivable, short-term borrowings and
accounts payable and accrued liabilities are a reasonable
estimate of their fair value due to the short-term nature of
these instruments. The following table summarizes the estimated
fair value of the Company’s long-term debt (including
current portion of long-term debt):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
| |
|
Value | |
|
Value | |
|
Value | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Floating
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Fixed
|
|
|
121.7 |
|
|
|
133.8 |
|
|
|
147.4 |
|
|
|
173.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
121.7 |
|
|
$ |
133.8 |
|
|
$ |
147.4 |
|
|
$ |
173.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Fair values of long-term debt were determined by reference to
the March 31, 2006 and March 31, 2005 market values
for comparably rated debt instruments.
|
|
| 17. |
Operating Segment Information and Concentrations of Risk |
The Company has reported its operating segment information in
the format that the operating segment information is available
to and evaluated by the Board of Directors. USA Fiber Cement
manufactures and sells fiber cement interior linings, exterior
siding and related accessories products in the United States.
Asia Pacific Fiber Cement includes all fiber cement manufactured
in Australia, New Zealand and the Philippines and sold in
Australia, New Zealand and Asia. Research and Development
represents the cost incurred by the research and development
centers. Other includes the manufacture and sale of fiber cement
products in Chile (fiscal years 2005 and 2004 only), the
manufacture and sale of fiber cement reinforced pipes in the
United States, fiber cement operations in Europe and roofing
operations in the United States. The roofing plant was closed
and the business ceased operations in April 2006. The
Company’s operating segments are strategic operating units
that are managed separately due to their different products
and/or geographical location.
The following are the Company’s operating segments and
geographical information:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Sales to Customers(1) | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA Fiber Cement
|
|
$ |
1,218.4 |
|
|
$ |
939.2 |
|
|
$ |
738.6 |
|
|
Asia Pacific Fiber Cement
|
|
|
241.8 |
|
|
|
236.1 |
|
|
|
219.8 |
|
|
Other
|
|
|
28.3 |
|
|
|
35.1 |
|
|
|
23.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Worldwide total from continuing operations
|
|
$ |
1,488.5 |
|
|
$ |
1,210.4 |
|
|
$ |
981.9 |
|
| |
|
|
|
|
|
|
|
|
|
F-49
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Loss) Income From Continuing | |
| |
|
Operations Before Income Taxes | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA Fiber Cement(2)
|
|
$ |
342.6 |
|
|
$ |
241.5 |
|
|
$ |
195.6 |
|
|
Asia Pacific Fiber Cement(2)
|
|
|
41.7 |
|
|
|
46.8 |
|
|
|
37.6 |
|
|
Research and Development(2)
|
|
|
(15.7 |
) |
|
|
(17.5 |
) |
|
|
(17.6 |
) |
|
Other
|
|
|
(26.5 |
) |
|
|
(11.8 |
) |
|
|
(15.9 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Segments total
|
|
|
342.1 |
|
|
|
259.0 |
|
|
|
199.7 |
|
|
General Corporate(3),(4)
|
|
|
(61.4 |
) |
|
|
(62.8 |
) |
|
|
(27.5 |
) |
|
Asbestos provision
|
|
|
(715.6 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total operating (loss) income
|
|
|
(434.9 |
) |
|
|
196.2 |
|
|
|
172.2 |
|
|
Net interest expense(5)
|
|
|
(0.2 |
) |
|
|
(5.1 |
) |
|
|
(10.0 |
) |
|
Other income (expense), net
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
3.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Worldwide total from continuing operations
|
|
$ |
(435.1 |
) |
|
$ |
189.8 |
|
|
$ |
165.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Identifiable Assets | |
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA Fiber Cement
|
|
$ |
826.0 |
|
|
$ |
670.1 |
|
|
Asia Pacific Fiber Cement
|
|
|
170.4 |
|
|
|
181.4 |
|
|
Other
|
|
|
54.8 |
|
|
|
79.4 |
|
| |
|
|
|
|
|
|
| |
Segments total
|
|
|
1,051.2 |
|
|
|
930.9 |
|
|
General Corporate(6)
|
|
|
394.2 |
|
|
|
155.8 |
|
| |
|
|
|
|
|
|
| |
Worldwide total
|
|
$ |
1,445.4 |
|
|
$ |
1,086.7 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Additions to Property, | |
| |
|
Plant and Equipment(7) | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA Fiber Cement
|
|
$ |
154.5 |
|
|
$ |
144.8 |
|
|
$ |
56.2 |
|
|
Asia Pacific Fiber Cement
|
|
|
6.6 |
|
|
|
4.1 |
|
|
|
8.4 |
|
|
Other
|
|
|
1.7 |
|
|
|
4.1 |
|
|
|
9.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Worldwide total
|
|
$ |
162.8 |
|
|
$ |
153.0 |
|
|
$ |
74.1 |
|
| |
|
|
|
|
|
|
|
|
|
F-50
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and | |
| |
|
Amortization | |
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA Fiber Cement
|
|
$ |
32.4 |
|
|
$ |
23.1 |
|
|
$ |
25.1 |
|
|
Asia Pacific Fiber Cement
|
|
|
10.0 |
|
|
|
10.1 |
|
|
|
9.7 |
|
|
Other
|
|
|
2.9 |
|
|
|
3.1 |
|
|
|
1.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Segments total
|
|
|
45.3 |
|
|
|
36.3 |
|
|
|
36.3 |
|
|
General Corporate
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Worldwide total
|
|
$ |
45.3 |
|
|
$ |
36.3 |
|
|
$ |
36.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Sales to Customers(1) | |
| |
|
Years Ended March 31 | |
| |
|
| |
| Geographic Areas |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA
|
|
$ |
1,233.7 |
|
|
$ |
955.7 |
|
|
$ |
748.9 |
|
|
Australia
|
|
|
164.5 |
|
|
|
160.5 |
|
|
|
154.9 |
|
|
New Zealand
|
|
|
53.6 |
|
|
|
49.6 |
|
|
|
40.6 |
|
|
Other Countries
|
|
|
36.7 |
|
|
|
44.6 |
|
|
|
37.5 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Worldwide total from continuing operations
|
|
$ |
1,488.5 |
|
|
$ |
1,210.4 |
|
|
$ |
981.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Identifiable Assets | |
| |
|
March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
USA
|
|
$ |
870.3 |
|
|
$ |
729.2 |
|
|
Australia
|
|
|
108.5 |
|
|
|
118.8 |
|
|
New Zealand
|
|
|
18.7 |
|
|
|
21.4 |
|
|
Other Countries
|
|
|
53.7 |
|
|
|
61.5 |
|
| |
|
|
|
|
|
|
| |
Segments total
|
|
|
1,051.2 |
|
|
|
930.9 |
|
|
General Corporate(6)
|
|
|
394.2 |
|
|
|
155.8 |
|
| |
|
|
|
|
|
|
| |
Worldwide total
|
|
$ |
1,445.4 |
|
|
$ |
1,086.7 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Export sales and inter-segmental sales are not significant. |
| |
| (2) |
Research and development costs of $13.2 million,
$7.6 million and $6.3 million in fiscal years 2006,
2005 and 2004, respectively, were expensed in the USA Fiber
Cement operating segment. Research and development costs of
$2.3 million, $1.9 million and $2.2 million in
fiscal years 2006, 2005 and 2004, respectively, were expensed in
the Asia Pacific Fiber Cement segment. Research and development
costs of $12.3 million, $12.0 million and
$14.1 million in fiscal years 2006, 2005 and 2004,
respectively, were expensed in the Research and Development
segment. Research and Development costs of $0.9 million,
$0.1 million and nil in fiscal years 2006, 2005 and 2004,
respectively, were expensed in Other segment. Research and
Development costs also include selling, general and
administrative expenses of $3.4 million, $5.5 million
and $3.5 million in fiscal years 2006, 2005 and 2004,
respectively. |
|
|
| |
Research and development expenditures are expensed as incurred
and in total amounted to $28.7 million, $21.6 million
and $22.6 million for the years ended March 31, 2006,
2005 and 2004, respectively. |
F-51
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| (3) |
The principal components of General Corporate are officer and
employee compensation and related benefits, professional and
legal fees, administrative costs and rental expense, net of
rental income, on the Company’s corporate offices. |
|
|
| |
Net periodic pension cost related to the Australian Defined
Benefit Plan for the Asia Pacific Fiber Cement segment totaling
$2.0 million, $2.3 million and $1.8 million in
fiscal years 2006, 2005 and 2004, respectively, has been
included in the General Corporate segment. Also, a settlement
loss of $0.9 million and $5.3 million on the Defined
Benefit Plan in fiscal years 2006 and 2005, respectively, has
been included in the General Corporate segment. |
|
|
| (4) |
Includes costs of $17.4 million and $28.1 million for
SCI and other related expenses in fiscal years 2006 and 2005,
respectively. See Note 12. |
| |
| (5) |
The Company does not report net interest expense for each
operating segment as operating segments are not held directly
accountable for interest expense. |
| |
| (6) |
The Company does not report deferred tax assets and liabilities
for each operating segment as operating segments are not held
directly accountable for deferred taxes. All deferred taxes are
included in General Corporate. |
| |
| (7) |
Additions to property, plant and equipment are calculated on an
accrual basis, and therefore differ from property, plant and
equipment in the consolidated statements of cash flows. |
The distribution channels for the Company’s fiber cement
products are concentrated. If the Company were to lose one or
more of its major customers, there can be no assurance that the
Company will be able to find a replacement. Therefore, the loss
of one or more customers could have a material adverse effect on
the Company’s consolidated financial position, results of
operations and cash flows. The Company has three major customers
that individually account for over 10% of the Company’s net
sales.
These three customers’ accounts receivable represented 60%
and 49% of the Company’s trade accounts receivable at
March 31, 2006 and 2005, respectively. The following are
gross sales generated by these three customers, which are all
from the USA Fiber Cement segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Customer A
|
|
$ |
168.5 |
|
|
$ |
131.8 |
|
|
$ |
111.3 |
|
|
Customer B
|
|
|
426.2 |
|
|
|
295.4 |
|
|
|
252.2 |
|
|
Customer C
|
|
|
156.6 |
|
|
|
131.7 |
|
|
|
112.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
751.3 |
|
|
$ |
558.9 |
|
|
$ |
476.4 |
|
| |
|
|
|
|
|
|
|
|
|
Approximately 17% of the Company’s fiscal year
2006 net sales from continuing operations were derived from
outside the United States. Consequently, changes in the value of
foreign currencies could significantly affect the consolidated
financial position, results of operations and cash flows of the
Company’s non-US operations on translation into US dollars.
F-52
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
| 18. |
Other Comprehensive Loss |
The following are the components of total accumulated other
comprehensive loss, which is displayed in the consolidated
balance sheets:
| |
|
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31 | |
| |
|
| |
| |
|
2006 | |
|
2005 | |
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Unrealized transition loss on derivative instruments classified
as cash flow hedges
|
|
$ |
— |
|
|
$ |
(0.5 |
) |
|
Foreign currency translation adjustments
|
|
|
(28.4 |
) |
|
|
(23.6 |
) |
| |
|
|
|
|
|
|
| |
Total accumulated other comprehensive loss
|
|
$ |
(28.4 |
) |
|
$ |
(24.1 |
) |
| |
|
|
|
|
|
|
In August 2000, the Company entered into a contract with a third
party to hedge the price of 5,000 metric tons per month of pulp,
a major commodity used in the manufacture of fiber cement
products. The original contract term was effective from
September 1, 2000 to August 31, 2005, with settlement
payments due each month. On April 1, 2001, the Company
adopted SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended. The
cumulative effect on April 1, 2001 of adopting this
statement was to reduce other comprehensive income, a component
of shareholders’ equity, by $4.9 million.
Subsequently, this amount has been amortized over the original
term of the pulp contract to cost of goods sold.
|
|
| 19. |
Related Party Transactions |
|
|
|
JHI NV Directors’ Securities Transactions |
The Company’s Directors and their director-related entities
held an aggregate of 271,561 ordinary shares and 266,217
ordinary shares at March 31, 2006 and 2005, respectively,
and 2,782,544 options and 1,189,544 options at March 31,
2006 and 2005, respectively.
Supervisory Board members on November 22, 2005 participated
in an allotment of 7,957 shares at A$8.64 per share
under the terms of the Supervisory Board Share Plan which was
approved by JHI NV shareholders on August 22, 2005.
Directors’ allocations were as follows:
| |
|
|
|
|
|
| |
|
Shares | |
| Director |
|
Allotted | |
| |
|
| |
|
M. Hellicar
|
|
|
1,515 |
|
|
J. Barr
|
|
|
758 |
|
|
M.R. Brown
|
|
|
758 |
|
|
P.S. Cameron
|
|
|
1,894 |
|
|
G.J. Clark
|
|
|
758 |
|
|
M.J. Gillfillan
|
|
|
758 |
|
|
J.R.H. Loudon
|
|
|
758 |
|
|
D.G. McGauchie
|
|
|
758 |
|
| |
|
|
|
| |
Total
|
|
|
7,957 |
|
| |
|
|
|
The JHI NV dividend paid on July 1, 2004 and
December 16, 2005 to Directors and their related entities
was on the same terms and conditions that applied to other
holders.
F-53
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
Existing Loans to the Company’s Directors and
Directors of James Hardie Subsidiaries |
At March 31, 2006 and March 31, 2005, loans totaling
$30,466 and $33,204, respectively, were outstanding from certain
executive directors or former directors of subsidiaries of JHI
NV under the terms and conditions of the Executive Share
Purchase Plan (the “Plan”). Loans under the Plan are
interest free and repayable from dividend income earned by, or
capital returns from, securities acquired under the Plan. The
loans are collateralized by CUFS under the Plan. No new loans to
Directors or executive officers of JHI NV, under the plan or
otherwise, and no modifications to existing loans have been made
since December 1997.
During fiscal years 2006 and 2005, repayments totaling $1,892
and $18,632, respectively, were received in respect of the Plan
from AT Kneeshaw, PD Macdonald, PG Morley and DAJ Salter. During
fiscal year 2005, an executive director of a subsidiary resigned
with loans outstanding of $117,688. Under the terms of the plan,
this director has two years from due date of his resignation to
repay such loan.
|
|
|
Payments made to Directors and Director Related Entities
of JHI NV during the Year |
In August 2004, Chairman Meredith Hellicar was appointed to a
role as Chairman of a special committee of the Board of
Directors. The special committee was established to oversee the
Company’s asbestos matters and was dissolved on
March 31, 2005. In this role, she received a fee of $33,777
and $45,000 for the years ended March 31, 2006 and 2005,
respectively.
Supervisory Board Director GJ Clark is a director of ANZ Banking
Group Limited with whom the Company transacts banking business.
Supervisory Board Director DG McGauchie is a director of Telstra
Corporation Limited from whom the Company purchases
communications services. All transactions were in accordance
with normal commercial terms and conditions. It is not
considered that these Directors had significant influence over
these transactions.
In February 2004, a subsidiary of the Company entered into a
consulting agreement in usual commercial terms and conditions
with The Gries Group in respect to professional services. The
principal of The Gries Group, James P. Gries, is Louis
Gries’ brother. Under the agreement, approximately $12,000
was paid each month to The Gries Group. The agreement expired in
June 2005 and payments of $50,876 and $157,080 were made for the
years ended March 31, 2006 and 2005, respectively. Louis
Gries has no economic interest in The Gries Group.
|
|
|
Payments made to Director and Director Related Entities of
Subsidiaries of JHI NV |
The Company has subsidiaries located in various countries, many
of which require that at least one director be a local resident.
All payments described below arise because of these requirements.
Payments of $8,829 and $6,817 for the years ended March 31,
2006 and 2005, respectively, were made to Grech, Vella,
Tortell & Hyzler Advocates. Dr JJ Vella was a director
of one of the Company’s subsidiaries. The payments were in
respect of professional services and were negotiated in
accordance with usual commercial terms and conditions.
Payments of nil and $86,822 for the years ended March 31,
2006 and 2005, respectively, were made to Pether and Associates
Pty Ltd, technical contractors. The late JF Pether was a
director of a subsidiary of the Company and was a director of
Pether and Associates Pty Ltd. The payments were in respect of
technical services and were negotiated in accordance with usual
commercial terms and conditions.
Payments totaling nil and $27,634 for the years ended
March 31, 2006 and 2005, respectively, were made to R
Christensen and T Norman who are directors of some of the
Company’s subsidiaries. The payments were in respect of
professional services and were negotiated in accordance with
usual commercial terms and conditions.
F-54
James Hardie Industries N.V. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Payments totaling $78,496 and $71,849 for the years ended
March 31, 2006 and 2005, respectively, were made to M
Helyar, R Le Tocq and N Wild who are directors of a subsidiary
of the Company. The payments were in respect of professional
services and were negotiated in accordance with usual commercial
terms and conditions.
Payments totaling nil and $15,488 for the years ended
March 31, 2006 and 2005, respectively, were made to Marlee
(UK) Ltd. Marlee (UK) Ltd is a director of a
subsidiary of the Company. The payments were in respect of
professional services and were negotiated in accordance with
usual commercial terms and conditions.
Payments totaling $4,984 and $4,730 for the years ended
March 31, 2006 and 2005, respectively, were made to
Bernaldo, Mirador and Directo Law Offices. R Bernaldo is a
director of a subsidiary of the Company. The payments were in
respect of professional services and were negotiated in
accordance with usual commercial terms and conditions.
Since the Company filed its consolidated financial statements
with the ASX on May 15, 2006, there have been the following
significant developments:
|
|
|
| |
• |
On June 29, 2006, the ATO issued a ruling to the Company to
the effect that James Hardie’s contributions to the SPF
would be tax deductible over the anticipated life of the
arrangements in accordance with the recent “blackhole
expenditure” Federal Legislation which was enacted in April
2006. |
| |
| |
• |
On June 23, 2006, the ATO advised the Company that it has
refused to endorse the SPF as a tax concession charity, arguing
that, in its opinion, the scope of its activities under the
Trust Deed and the Final Funding Agreement does not meet
current legislative requirements for such an endorsement. The
Company is reviewing the implications of this development.
Having the SPF qualify for tax exempt status remains a condition
precedent to the completion of the Final Funding Agreement. |
| |
| |
• |
On June 23, 2006, following negotiation with the ATO
regarding the payment options in relation to the amended
assessment referred to in Note 13, the ATO advised the
Company that it may make a partial payment of 50% of the
A$378 million amended assessment (A$189 million)
pending the outcome of an appeal. This amount was paid on
July 5, 2006. |
| |
| |
• |
In June 2006, the Company’s lenders agreed to extend the
maturity date of its
364-day facilities from
December 2006 to June 2007 and to extend the maturity date of
its term facilities from June 2006 to December 2006. |
F-55
James Hardie Industries N.V. and Subsidiaries
Remuneration Disclosures
(unaudited, not forming part of the consolidated financial
statements)
Remuneration of Directors
Income paid or payable, or otherwise made available by the
Company and related parties to directors of the Company in
connection with the management of affairs of the Company totaled
$10.9 million and $15.1 million for the years ended
March 31, 2006 and 2005, respectively.
Remuneration for Supervisory Board Directors includes attendance
at meetings of the Board and its
Sub-committees.
Remuneration for the Managing Board Directors is determined on
the same basis as for other executives as described in below.
Director Retirement Benefits
In July 2002, the Company discontinued a retirement plan that
entitled the Supervisory Board Directors to receive, upon their
termination for any reason other than misconduct, an amount
equal to a multiple of up to five times their average annual
fees for the three year period prior to their retirement. The
applicable multiple was based on the director’s years of
service on the Supervisory Board, including service on the JHIL
Supervisory Board.
Two directors, Ms. Hellicar and Mr. Brown, retained
some benefits that had accrued as of 2002 under the retirement
plan and they may therefore be entitled to benefits pursuant to
this plan upon retirement from the Supervisory Board. In the
event Ms. Hellicar retires from the Supervisory Board for
any reason other than misconduct, she will be entitled to four
times her average director’s fees for the previous three
years prior to her retirement. In the event Mr. Brown
retires from the Supervisory Board for any reason other than
misconduct, he will be entitled to four times his average
director’s fees for the previous three years prior to his
retirement.
Remuneration of Executives
Remuneration received or receivable from the Company by all
executives (including Managing Board Directors) whose
remuneration was at least $0.1 million was
$13.7 million and $18.5 million for the years ended
March 31, 2006 and 2005, respectively. Remuneration for
each executive includes salary, incentives, superannuation,
stock options, retirement and termination payments, motor
vehicles, fringe benefits, tax and other benefits.
An executive is defined as the CEO, members of the Senior
Leadership Team, General Managers of Business Units and Company
Secretaries of JHI NV.
Remuneration is determined on the basis of the cost of the
remuneration to the Company, but excludes insurance premiums
paid by the Company in respect of directors’ and
officers’ liability insurance contracts.
Options and shares issued to executives under the Executive
Share Purchase Plan are valued using the Black-Scholes model and
the fair value of options granted is included in remuneration.
Remuneration of Independent Registered Public Accounting
Firm
Remuneration to the Company’s independent registered public
accounting firm for services provided for fiscal years 2006,
2005 and 2004 were as follows:
The aggregate fees for professional services rendered by its
independent registered public accounting firm during the years
ended March 31, 2006, 2005 and 2004 were $1.6 million,
$3.1 million and $1.2 million, respectively.
Professional services include the audit of the Company’s
annual financial statements and services
F-56
James Hardie Industries N.V. and Subsidiaries
Remuneration Disclosures
(unaudited, not forming part of the consolidated financial
statements)
that are normally provided in connection with statutory and
regulatory filings. The fees for the year ended March 31,
2005 included $1.9 million of internal investigation fees.
The aggregate fees billed for assurance and related services
rendered by the Company’s independent registered public
accounting firm during the years ended March 31, 2006, 2005
and 2004 were $0.1 million, $0.2 million and
$0.1 million, respectively.
The aggregate fees billed for tax compliance, tax advice and tax
planning services rendered by the Company’s independent
registered public accounting firm during the years ended
March 31, 2006, 2005 and 2004 were $5.2 million,
$4.2 million and $3.5 million, respectively.
F-57
James Hardie Industries N.V. and Subsidiaries
Selected Quarterly Financial Data
(unaudited, not forming part of the consolidated financial
statements)
The information furnished in the selected quarterly financial
data for the years ended March 31, 2006 and 2005 is
unaudited but includes all adjustments which, in the opinion of
management, are necessary for a fair statement of the financial
results of the respective interim periods. Such adjustments are
of a normal recurring nature. Interim financial statements are
by necessity somewhat tentative; judgments are used to estimate
interim amounts for items that are normally determinable only on
an annual basis.
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended March 31, 2006 | |
|
Year Ended March 31, 2005 | |
| |
|
By Quarter | |
|
By Quarter | |
| |
|
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Millions of US dollars) | |
|
Net sales
|
|
$ |
359.4 |
|
|
$ |
376.6 |
|
|
$ |
362.7 |
|
|
$ |
389.8 |
|
|
$ |
306.1 |
|
|
$ |
300.9 |
|
|
$ |
287.0 |
|
|
$ |
316.4 |
|
|
Cost of goods sold
|
|
|
(214.1 |
) |
|
|
(239.3 |
) |
|
|
(234.0 |
) |
|
|
(250.3 |
) |
|
|
(194.8 |
) |
|
|
(203.8 |
) |
|
|
(190.3 |
) |
|
|
(195.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
145.3 |
|
|
|
137.3 |
|
|
|
128.7 |
|
|
|
139.5 |
|
|
|
111.3 |
|
|
|
97.1 |
|
|
|
96.7 |
|
|
|
121.3 |
|
|
Operating income (loss)
|
|
|
86.9 |
|
|
|
76.4 |
|
|
|
64.4 |
|
|
|
(662.6 |
) |
|
|
58.3 |
|
|
|
40.0 |
|
|
|
33.3 |
|
|
|
64.6 |
|
|
Interest expense
|
|
|
(1.7 |
) |
|
|
(2.2 |
) |
|
|
(1.1 |
) |
|
|
(2.2 |
) |
|
|
(2.8 |
) |
|
|
(1.9 |
) |
|
|
(1.3 |
) |
|
|
(1.3 |
) |
|
Interest income
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
1.9 |
|
|
|
2.9 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
Other (expense) income, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.9 |
) |
|
|
0.4 |
|
|
|
0.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
86.2 |
|
|
|
75.4 |
|
|
|
65.2 |
|
|
|
(661.9 |
) |
|
|
55.8 |
|
|
|
36.8 |
|
|
|
33.0 |
|
|
|
64.2 |
|
|
Income tax (expense) benefit
|
|
|
(30.3 |
) |
|
|
(27.8 |
) |
|
|
(24.5 |
) |
|
|
11.0 |
|
|
|
(18.7 |
) |
|
|
(12.1 |
) |
|
|
(13.2 |
) |
|
|
(17.9 |
) |
|
Income (loss) from continuing operations
|
|
|
55.9 |
|
|
|
47.6 |
|
|
|
40.7 |
|
|
|
(650.9 |
) |
|
|
37.1 |
|
|
|
24.7 |
|
|
|
19.8 |
|
|
|
46.3 |
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from discontinued operations net of income tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.3 |
) |
|
|
— |
|
| |
(Loss) gain on disposal of discontinued operations net of income
tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Loss) income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
(0.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
55.9 |
|
|
$ |
47.6 |
|
|
$ |
40.7 |
|
|
$ |
(650.9 |
) |
|
$ |
36.3 |
|
|
$ |
24.8 |
|
|
$ |
19.5 |
|
|
$ |
46.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
Exhibit Index
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibits |
| |
|
|
| |
1 |
.1 |
|
Articles of Association, as amended on September 1, 2005 of
James Hardie Industries N.V. (English Translation) |
| |
2 |
.1 |
|
Letter Agreement of September 6, 2001 by and between James
Hardie Industries N.V. and CHESS Depositary Nominees Pty
Limited, as the depositary for CHESS Units of Foreign
Securities(3) |
| |
2 |
.2 |
|
Deposit Agreement dated as of September 24, 2001 between
The Bank of New York, as depositary, and James Hardie Industries
N.V.(3) |
| |
2 |
.3 |
|
Note Purchase Agreement, dated as of November 5, 1998,
among James Hardie Finance B.V., James Hardie N.V. and certain
purchasers thereto re: $225,000,000 Guaranteed Senior Notes(3) |
| |
2 |
.4 |
|
Assignment and Assumption Agreement and First Amendment to Note
Purchase Agreement, dated as of January 24, 2000, by and
among James Hardie Finance B.V., James Hardie U.S. Funding,
Inc., James Hardie N.V., James Hardie Aust Investco Pty Limited
and certain noteholders thereto(3) |
| |
2 |
.5 |
|
Second Amendment to the Note Purchase Agreement dated as of
October 22, 2001, by and among, James Hardie
U.S. Funding, Inc., James Hardie N.V., James Hardie Aust
Investco Pty Limited, James Hardie Australia Finance Pty
Limited, James Hardie International Finance B. V. and certain
noteholders thereto(3) |
| |
2 |
.6 |
|
Assignment and Assumption Agreement and Third Amendment to Note
Purchase Agreement, dated as of November 18, 2002, among
James Hardie U.S. Funding Inc, James Hardie International
Finance B.V., James Hardie Industries N.V., James Hardie N.V.
and certain noteholders thereto(1) |
| |
2 |
.7 |
|
Common Terms Deed Poll dated June 15, 2005 between James
Hardie International Finance B.V. and James Hardie Industries
N.V.(3) |
| |
2 |
.8 |
|
Form of Term Facility Agreement between James Hardie
International Finance B.V. and Financier(3) |
| |
2 |
.9 |
|
Form of Extension of Facilities and other matters for Term
Facility Agreement between James Hardie International Finance
B.V. and Financier |
| |
2 |
.10 |
|
Form of 364-day Facility Agreement between James Hardie
International Finance B.V. and Financier(3) |
| |
2 |
.11 |
|
Form of Extension Request for 364-day Facility Agreement between
James Hardie International Finance B.V. and Financier |
| |
2 |
.12 |
|
Form of Guarantee Deed between James Hardie Industries N.V. and
Financier(3) |
| |
4 |
.1 |
|
James Hardie Industries N.V. 2001 Equity Incentive Plan(3) |
| |
4 |
.2 |
|
Economic Profit and Individual Performance Incentive Plans(3) |
| |
4 |
.3 |
|
JHI NV Stock Appreciation Rights Incentive Plan(3) |
| |
4 |
.4 |
|
Supervisory Board Share Plan 2006 |
| |
4 |
.5 |
|
James Hardie Industries N.V. Long Term Incentive Plan 2006 |
| |
4 |
.6 |
|
2005 Managing Board Transitional Stock Option Plan |
| |
4 |
.7 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
N.V., James Hardie (USA) Inc. and certain indemnitees thereto(3) |
| |
4 |
.8 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
Industries N.V., James Hardie Inc. and certain indemnitees
thereto(3) |
| |
4 |
.9 |
|
Form of Deed of Access to Documents, Indemnity and Insurance
among James Hardie Industries N.V. and certain indemnitees
thereto(3) |
| |
4 |
.10 |
|
Form of Joint and Several Indemnity Agreement among James Hardie
Industries N.V., James Hardie Building Products Inc. and certain
indemnities thereto(3) |
| |
4 |
.11 |
|
Lease Amendment, dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at the corner of Cobalt & Silica Street,
Carole Park, Queensland, Australia(2) |
| |
4 |
.12 |
|
Variation of Lease dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at the corner of Colquhoun & Devon Streets,
Rosehill, New South Wales, Australia(2) |
| |
4 |
.13 |
|
Extension of Lease dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at Rutland, Avenue, Welshpool, Western Australia,
Australia(2) |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Exhibits |
| |
|
|
| |
4 |
.14 |
|
Lease Amendment dated March 23, 2004, among Amaca Pty
Limited (f/k/a/ James Hardie & Coy Pty Limited), James
Hardie Australia Pty Limited and James Hardie Industries N.V. re
premises at 46 Randle Road, Meeandah, Queensland, Australia(2) |
| |
4 |
.15 |
|
Lease Agreement dated March 23, 2004 among Studorp Limited,
James Hardie New Zealand Limited and James Hardie Industries
N.V. re premises at the corner of O’Rorke and Station
Roads, Penrose, Auckland, New Zealand(2) |
| |
4 |
.16 |
|
Lease Agreement dated March 23, 2004 among Studorp Limited,
James Hardie New Zealand Limited and James Hardie Industries
N.V. re premises at 44-74 O’Rorke Road, Penrose, Auckland,
New Zealand(2) |
| |
4 |
.17 |
|
Ownership transfer related to corner of O’Rorke and Station
Roads, Penrose, Auckland, New Zealand and 44-74 O’Rorke
Road, Penrose, Auckland, New Zealand effective June 30, 2005 |
| |
4 |
.18 |
|
Industrial Building Lease Agreement, effective October 6,
2000, between James Hardie Building Products, Inc. and Fortra
Fiber-Cement L.L.C., re premises at Waxahachie, Ellis County,
Texas(3) |
| |
4 |
.19 |
|
Asset Purchase Agreement by and between James Hardie Building
Products, Inc. and Cemplank, Inc. dated as of December 12,
2001(3) |
| |
4 |
.20 |
|
Amended and Restated Stock Purchase Agreement dated
March 12, 2002, between BPB U.S. Holdings, Inc. and
James Hardie Inc.(3) |
| |
4 |
.21 |
|
Final Funding Agreement |
| |
4 |
.22 |
|
Asbestos Injuries Compensation Fund Trust Deed by and between
James Hardie Aust. Holdings Pty Limited and Asbestos Injuries
Compensation Fund Limited |
| |
4 |
.23 |
|
Deed of Release by and among James Hardie Industries N.V.,
Australian Council of Trade Unions, Unions New South Wales, and
Bernard Douglas Banton |
| |
4 |
.24 |
|
Parent Guarantee by and among Asbestos Injuries Compensation
Fund Limited, The State of New South Wales, and James Hardie
Industries N.V. |
| |
4 |
.25 |
|
Deed of Release by and between James Hardie Industries N.V.
and The State of New South Wales |
| |
4 |
.26 |
|
Irrevocable Power of Attorney by and between Asbestos Injuries
Compensation Fund Limited and The State of New South Wales |
| |
4 |
.27 |
|
Deed of Accession by and among Asbestos Injuries Compensation
Fund Limited, James Hardie Industries N.V., LGTDD Pty Limited,
and The State of New South Wales |
| |
4 |
.28 |
|
Letters Extending the Condition Precedent Date for the Final
Funding Agreement |
| |
8 |
.1 |
|
List of significant subsidiaries of James Hardie Industries N.V. |
| |
12 |
.1 |
|
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
12 |
.2 |
|
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
13 |
.1 |
|
Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
| |
15 |
.1 |
|
Consent of independent registered public accounting firm |
| |
15 |
.2 |
|
Consent of KPMG Actuaries Pty Ltd |
| |
99 |
.1 |
|
Excerpts of the ASX Settlement and Transfer Corporation Pty Ltd
as of June 10, 2005 |
| |
99 |
.2 |
|
Excerpts of the Financial Services Reform Act 2001, as of
March 11, 2002(3) |
| |
99 |
.3 |
|
ASIC Class Order 02/311, dated November 3, 2002(3) |
| |
99 |
.4 |
|
ASIC Modification, dated March 7, 2002(3) |
| |
99 |
.5 |
|
ASIC Modification, dated February 26, 2004 |
|
|
| (1) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
July 2, 2003 and incorporated herein by reference. |
| |
| (2) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
November 22, 2004 and incorporated herein by reference. |
| |
| (3) |
Previously filed as an exhibit to our Annual Report on
Form 20-F dated
July 7, 2005 and incorporated herein by reference. |
