JAMES HARDIE
ANNUAL REPORT
2010
CONTENTS
1 Results at a Glance
2 Chairman’s Report
3 CEO’s Report
4 CFO’s Report
7 Asbestos Funding
8 Manufacturing Capacity
9 Summary of Operations
10 USA and Europe Fibre Cement
12 Asia Pacific Fibre Cement
13 Workplace Safety
14 Differentiated Products
15 Sustainability
16 Group Management Team
18 Board Directors
FINANCIAL STATEMENTS
21 Contents
22 Management’s Discussion
and Analysis
37 Directors’ Report
41 Remuneration Report
67 Corporate Governance Report
81 Report of Independent
Registered Public
Accounting Firm
82 Consolidated Balance Sheets
83 Consolidated Statements
of Operations
85 Consolidated Statements
of Cash Flows
87 Consolidated Statements
of Changes in Shareholders’
Deficit
88 Notes to Consolidated
Financial Statements
118 Remuneration Disclosures
119 Selected Quarterly
Financial Data
120 Group Statistics
121 Share/CUFS Information
See pages 34–36 for definitions,
abbreviations and information
about the terminology used in
this report.
James Hardie Industries SE
(ARBN 097 829 895)
Incorporated in Ireland with registered office
at Second Floor, Europa House, Harcourt
Centre, Harcourt Street, Dublin 2, Ireland
and registered number 485719.
The liability of its members is limited.
RESULTS AT
A GLANCE
– Based on net sales, we believe we are the largest manufacturer
of fibre cement products and systems for internal and external
building construction applications in the United States, Australia,
New Zealand and the Philippines.
– Our fibre cement products are used in a number of markets,
including new residential construction, manufactured housing and
repair and remodelling and a variety of commercial and industrial
applications.
– We manufacture numerous types of fibre 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 and floor and tile underlay.
– We employ around 2,500 people and generated net sales of
US$1.1 billion in fiscal year 2010.
In our major market in the United States, annualised seasonally-adjusted
housing starts in March 2010 were 531,000, still significantly below the
January 2006 peak of 1.823 million annualised starts, but 11% above the
trough in April 2009. During fiscal year 2010, residential housing approvals
increased in Australia and New Zealand. In these conditions, all our
businesses performed strongly:
– Total net sales were down 6%, from US$1,202.6 million to
US$1,124.6 million.
– Gross profit increased 7% from US$388.8 million to US$416.1 million.
– Gross profit margin increased 4.7 percentage points to 37.0%.
– Net operating profit decreased from a net operating profit of US$136.3 million
in fiscal year 2009 to a net operating loss of US$84.9 in fiscal year 2010.
The fiscal year 2010 loss includes unfavourable asbestos adjustments of
US$224.2 million, AICF SG&A expenses of US$2.1 million, AICF interest income
of US$3.3 million, a realised gain on the sale of AICF investments of US$6.7
million, and a tax expense related to asbestos adjustments of US$1.1 million.
Net operating profit excluding asbestos increased 67% to US$132.5 million.
– EBIT excluding asbestos increased by 31% to US$205.3 million,
compared to US$156.9 million for the prior year.
– EBIT margin excluding asbestos and ASIC expenses increased by 5.3
percentage points to 18.3%.
– As a percentage of sales, SG&A expenses declined 0.9 of a percentage
point to 16.5%.
– Diluted earnings per share excluding asbestos increased 66% from
US18.3 cents to US30.3 cents.
(Millions of US dollars)
Net sales
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Total net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expenses
Asbestos adjustments
EBIT
Net interest expense
Other income (expense)
Operating (loss) income before taxes
Income tax expense
Net operating profit (loss)
Volume (mmsf)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Average net sales price per unit (per msf)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
2010
$ 828.1
296.5
1,124.6
(708.5)
416.1
(185.8)
(27.1)
(224.2)
(21.0)
(4.0)
6.3
(18.7)
(66.2)
$ (84.9)
1,303.7
389.6
2009
% Change
$
$
929.3
273.3
1,202.6
(813.8)
388.8
(208.8)
(23.8)
17.4
173.6
(3.0)
(14.8)
155.8
(19.5)
136.3
1,526.6
390.6
(11)
9
(6)
13
7
11
(14)
–
–
(33)
–
–
–
–
(15)
–
4
2
US$
A$
635
894
US$
A$
609
879
10
09
08
07
06
1,124.6
1,202.6
1,468.8
1,542.9
1,488.5
10
09
08
07
06
50.5
26.1
38.5
92.1
162.8
10
09
08
07
06
205.3
156.9
207.5
318.9
280.7
10
09
08
07
06
Net Sales
(Millions of US dollars)
Capital Expenditure
(Millions of US dollars)
EBIT 1
(Millions of US dollars)
EBITDA 1
(Millions of US dollars)
10
09
08
07
06
132.5
79.3
117.3
222.2
208.9
10
09
08
07
06
18.3
13.0
14.1
20.7
18.9
10
09
08
07
06
30.3
18.3
25.7
47.6
45.2
10
09
08
07
06
267.0
213.3
264.0
369.6
326.0
17.1
15.3
18.1
26.6
28.9
Net Operating Profits 1,2
(Millions of US dollars)
EBIT Margin 1
(%)
Diluted Earnings per Share 1
(US cents)
Return on Capital Employed
(%)
To allow readers to assess the underlying performance of the fibre cement business, unless otherwise stated, graphs and editorial comments throughout this report
refer to results from continuing operations excluding:
– For fiscal year 2010 - unfavourable asbestos adjustments of US$224.2 million, AICF SG&A expenses of US$2.1 million, AICF interest income of US$3.3 million,
a realised gain on the sale of AICF investments of US$6.7 million and tax expense related to asbestos adjustments of US$1.1 million.
– For fiscal year 2009 - favourable asbestos adjustments of US$17.4 million, AICF SG&A expenses of US$0.7 million, AICF interest income of US$6.4 million,
impairment of AICF investments of US$14.8 million and tax benefit related to asbestos adjustments of US$48.7 million.
Balance sheet references exclude the net AFFA liability of US$966.2 million and US$756.6 million at 31 March 2010 and 2009, respectively.
1 See Definitions starting on page 34.
2 Includes discontinued operations.
1
| JAMES HARDIE | ANNUAL REPORT 2010
Shareholder meetings
As an Irish company we will be holding
our Board meetings in Ireland and we plan
to hold all shareholder meetings there also.
We will simulcast these meetings so that
those shareholders who cannot attend in
person can participate in real time. In
addition, Louis Gries and his team and
I will, of course, continue to meet with
shareholders on a periodic basis.
Summary
On balance, we are pleased with the continued
progress achieved last year on legacy issues
and with the operational results of the
company, despite the economic difficulties
we are all living through. Beyond these
specific accomplishments in 2010, James
Hardie, under the leadership of Louis Gries,
has continued to put in place those strategic
building blocks – product, operational and
organisational – that are necessary for the
continued outstanding success of the
company in the medium and longer term.
Michael Hammes
The company’s improved cash flow for fiscal
year 2010 means that we will contribute
approximately US$64 million to the AICF on
1 July 2010. We should all be encouraged
that the AFFA has proved itself to be a robust
and flexible agreement that simultaneously
enables James Hardie to grow and be
profitable, while meeting its commitments
to the asbestos liabilities of former group
companies.
May 2010 also saw the completion of
the Court of Appeal hearings in the ASIC
proceedings, and the judgment will bring
us closer to finalising this issue.
From a business point of view, especially
considering the uncertain market conditions,
Louis Gries and his team produced
outstanding financial results in profit and
cash flow and continued to make progress
in other operational areas such as health and
safety. Also during fiscal year 2010, the
James Hardie management team put in place
or developed many strategic initiatives that
will continue to benefit the company for many
years to come, including HardieZone™ siding
products engineered for different climates,
Job Pack, where James Hardie products are
delivered to a site in house lots, and the
continuing development of our presence in
the repair and remodelling market segment.
Dividends
We know that the issue of when the dividend
might be reinstated is an important subject to
all of us as shareholders. We decided in May
2009 to omit the year-end dividend for fiscal
year 2009 to conserve capital, and then to
continue to omit dividends until market and
global economic conditions improved
significantly and the level of uncertainty
surrounding future industry trends and
company-specific contingencies dissipated.
These external economic uncertainties
continue and we still await the final resolution
of the 1999 ATO decision. Until the company
has more clarity on the issues mentioned,
we have determined that it continues to be
appropriate to omit dividend payments.
10
09
08
07
06
13.2
9.1
13.2
24.0
29.1
10
09
08
07
06
0.0
8.0
27.0
9.0
10.0
Return on Shareholders Funds
(%)
Dividends Paid per Share
(US cents)
My report last year mentioned the challenges
we had as a company and the continuing
uncertainty in the general economic situation.
In this past year, we have made significant
progress in both the financial and other
operating results of the company, despite the
economic situation remaining quite uncertain
– especially in our major market, the US
housing market. Major progress also
continues to be made on James Hardie’s
legacy issues.
With your support at the Extraordinary
Meetings held in August 2009 and June
2010, we have resolved the complex issue
of domicile, and have transformed ourselves
into an Irish SE company. Our office on
Harcourt Street in central Dublin now
manages our Treasury and Intellectual
Property functions and the company’s
Secretariat. Our senior operating leadership
can now spend essentially all of their time in
our operations and major markets, and our
governance structure has been simplified to
a single board of directors.
With the agreements we reached with the US
IRS and the ATO last fiscal year, we resolved
the outstanding tax issues that faced the
company, with the exception of the 1999
disputed amended assessment for RCI,
where we still await judgment from the
hearing in September 2009.
CHAIRMAN’S
REPORT
2
| JAMES HARDIE | ANNUAL REPORT 2010
Asia Pacific Fibre Cement
Net sales increased 9% to US$296.5 million,
compared to US$273.3 million for fiscal year
2009. In Australian dollars, net sales increased
2% due to an increase in average net sales
price, while sales volume was stable.
Asia Pacific Fibre Cement EBIT increased 25%
from US$47.1 million in fiscal year 2009 to
US$58.7 million. In Australian dollars, Asia
Pacific Fibre Cement EBIT increased 14% due
to strong primary demand growth offsetting
weaker local markets, an increase in average
net sales price and favourable product mix shift,
together with lower raw materials costs and
reduced manufacturing costs. The EBIT margin
for the business was 19.8%.
Outlook
Although new housing construction activity in
the US improved in the fourth quarter of fiscal
year 2010, the start of fiscal year 2011 has seen
another decline in US new housing numbers
following the expiry of the government’s
housing initiatives on 30 April 2010.
Analysts are now less confident that the US
housing market will improve in fiscal year
2011. Severe challenges remain, including
constrained credit conditions that are restricting
the availability of finance for prospective buyers
and developers, a weak employment market,
and a continuing supply of foreclosed homes.
Asia Pacific markets that James Hardie
participates in are likely to be somewhat better
in fiscal year 2011 than in fiscal year 2010.
Operating costs are expected to be considerably
higher than in fiscal year 2010, as market
demand puts upward pressure on basic
commodity prices.
Despite the challenging environment and
higher input costs, the company will continue
to pursue strong financial returns, and, at the
same time, increase spending on long-term
product and market initiatives.
Legacy issues
During the year, we continued to make progress
on the legacy issues that face the company,
reducing distractions for management and
uncertainty for shareholders.
In September 2009, the Federal Court of
Australia heard our appeal against the ATO’s
Objection Decision in the 1999 Disputed
Amended Assessment issued to RCI and
we await a decision.
The appeals lodged by the company’s former
directors and officers against Justice Gzell’s
judgments were heard in April 2010 and the
appeal lodged by the company was heard in
May 2010. Again, judgment is awaited.
The most significant progress was made in
the area of our domicile, when on 17 June
2010, we finalised our transformation to an
Irish Societas Europaea company, domiciled
in Ireland.
These issues are described in more detail in
Management’s Analysis of Results on pages
22–33 of this annual report.
Our focus for fiscal year 2011
Last year, when we were closer to the worst
part of the downturn, we were cautious
about spending and growth initiatives. In
October 2009, we committed to the first
wave of growth initiatives and in January
2010 we made some organisational changes
designed to support these growth initiatives,
making Nigel Rigby responsible for all the
US operations and Mark Fisher responsible
for research and development, engineering,
manufacturing, logistics and product
management, as well as the company’s
non-US businesses.
We will continue to focus on delivering good
returns and long term share gains. We will
do this by increasing primary demand growth,
moving to a higher value mix that is difficult
for others to copy, pursuing zero to the landfill
initiative in the plants, and – as we start
ramping up the growth initiatives – making
sure we have the organisational capabilities
to achieve the growth initiatives.
Overall, we are facing a challenging year, with
pressure from both higher input costs and a
weak US housing market, but we are confident
that we will continue to generate above
industry average returns and growth.
10
09
08
07
06
447.9
521.5
509.6
524.1
450.7
Louis Gries
10
09
08
07
06
81.8
68.0
72.0
108.3
85.0
Net Sales/Employee
(Thousands of US dollars)
EBIT/Employee
(Thousands of US dollars)
3
| JAMES HARDIE | ANNUAL REPORT 2010
The key result for fiscal year 2010 was that all
the businesses ran well, despite the lack of
market opportunity that faced the US business.
Although we believe that we have reached the
bottom of the housing downturn in the US,
this is obviously at a very low level.
Net sales decreased 6% to US$1,124.6 million
due to the lower market opportunity, but gross
profit was up 7% to US$416.1 million and EBIT
excluding asbestos and ASIC expenses, was
22% higher, at US$208.7 million, compared
to last year.
USA and Europe Fibre Cement
For the full year, USA and Europe Fibre Cement
sales volume was down 15%, reflecting the
downturn in the housing construction market,
while sales were down 11% compared to fiscal
year 2009, to US$828.1 million.
The fiscal year 2010 results were helped on the
costs side with freight, pulp and energy costs
being lower than in the prior year, although
these started to increase in the last quarter of
fiscal year 2010.
EBIT increased 5% to US$208.5 million, driven
by lower input costs, higher average net sales
price and improved plant performance, partially
offset by lower sales volume and a resulting
increase in the fixed unit cost of manufacturing
as fixed costs were spread over significantly
lower production volume. The EBIT margin
was 25.2%.
CEO’S
REPORT
We also had lower legacy costs in fiscal year
2010. These added to the effective tax rate in
the last few years but are now dissipating and
are unlikely to be material in the future. Given
this, we expect the effective tax rate to continue
in the mid-30% range.
Adjusted EBITDA, excluding asbestos, ASIC
expenses and asset impairments, was US$270.4
million. Depreciation and amortisation amounts
were in line with the prior year and the total
EBITDA was US$40.7 million, versus US$230.0
million in the prior year.
Net operating cash flow was US$183.1 million,
which was a significant turnaround on the
prior year’s figure of negative US$45.2 million,
although fiscal year 2009 cash flow was
affected by two material outflows which did not
recur in 2010: US$110.0 million to the AICF,
and US$101.6 million to the ATO for settlement
of the 2002 to 2006 years.
At US$50.5 million, capital expenditure was
up by 93% on the prior year.
Our debt position improved significantly, with
net debt down to US$134.8 million at the end
of March 2010, a decrease of US$146.8 million
compared to 31 March 2009. At the end of the
fiscal year we had US$291.9 million of cash
and unutilised facilities. We retired US$161.7
million of debt facilities in June 2010 when
they matured. At 31 March 2010, the weighted
average remaining term of our facilities was 2.6
years, one year more than at 31 March 2009, as
a result of a new three-year facility that we put
in place at the beginning of calendar year 2010.
A$ – US$ exchange rate
Our results continued to be significantly
influenced by movements in the A$-US$
exchange rate. This affects the translation
of results and corporate costs that we incur
in Australian dollars, as well as the asbestos
liability. For the year ended 31 March 2010,
the Australian dollar appreciated against
the US dollar by 33%, compared to a 25%
depreciation in the prior year.
Continued page 6
Our fiscal year 2010 results were affected
by continuing weak economic activity,
particularly in the US, where some
improvement in consumer sentiment and
affordability was offset by a soft employment
market and constraints in the availability
of credit.
Despite this, all businesses performed well,
enabling the company to generate strong cash
flow. This allowed us to more than halve net
debt in the year, putting us in a very strong
financial position.
Consolidated results
The results for the business segments are
described in detail on pages 10–12 of this
annual report, and in Management’s Analysis
of Results on pages 22–33.
We recorded a net operating loss of
US$84.9 million for the year, compared to
a net operating profit of US$136.3 million
last year. This result included unfavourable
asbestos adjustments of US$224.2 million,
primarily attributable to the appreciation of
the Australian dollar against the US dollar.
Excluding asbestos, ASIC expenses and tax
adjustments, we recorded a US$133.0 million
profit, a 32% increase on last year’s profit of
US$100.5 million.
Financial results
Our total EBIT excluding asbestos, ASIC
expenses and asset impairments, was up
22% to US$208.7 million. Adding back the
adjustments, the total reported EBIT was a
loss of US$21.0 million.
Corporate costs were 39% lower at US$42.9
million, primarily as a result of a drop in ASIC
expenses from US$14.0 million in the prior
year to US$3.4 million.
Our net interest expense of US$7.3 million
for the year was lower than the prior year’s
US$9.4 million, reflecting a lower average
level of debt through the year.
Our effective tax rate excluding asbestos
and tax adjustments for fiscal year 2010
was 34.4%, versus 41.4% in the prior year.
The lower rate reflected the geographic mix
of earnings, with a lower percentage of US
earnings which have a higher tax rate, and
a higher percentage of earnings from Asia
Pacific Fibre Cement.
10
09
08
07
06
61.7
56.4
56.5
50.7
45.3
10
09
08
07
06
65.1
68.2
81.9
91.1
71.6
Depreciation and Amortisation
(Millions of US dollars)
Income Tax Expense
(Millions of US dollars)
CFO’S
REPORT
4
| JAMES HARDIE | ANNUAL REPORT 2010
Currency of Borrowings
(Millions of US dollars)
Borrowings
USD
Other
Total Borrowings
Deposits
AUD
USD
NZD
PHP
Other
Total Deposits
Net Borrowings
Debt Maturity Profile
(Millions of US dollars)
Less than one year
1–2 years
2–3 years
Total Borrowings
As at 31 March
2010
2009
$ 154.0
– –
$ 154.0
$
$
0.7
14.6
0.9
1.8
1.2
19.2
134.8
$ 324.0
$ 324.0
$ 2.2
32.3
1.3
5.4
1.2
42.4
$ 281.6
$
As at 31 March
2010
$ 95.0
–
59.0
$ 154.0
2009
$ 93.3
230.7
–
$ 324.0
Capital Expenditure
Year ended 31 March
(Millions of US dollars)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development and Corporate
Total Capital Expenditure
$
$
2010
40.6
6.7
3.2
50.5
2009
$ 20.0
4.9
1.2
$ 26.1
Exchange Rates (US$1=)
Weighted Average
AUD
NZD
Closing Spot
AUD
NZD
Gross Capital Employed
(Millions of US dollars)
Fixed assets
Inventories
Receivables/prepayments
Other
Accounts payable and accruals
Gross capital employed
2010
1.1749
1.4740
1.0919
1.4088
2009
1.2600
1.5351
1.4552
1.7592
2010
$ 708.2
149.1
455.6
0.8
(113.7)
$ 1,200.0
2009
$ 700.0
128.9
293.6
0.9
(99.8)
$ 1,023.6
828.1 USA and Europe Fibre Cement
296.5 Asia Pacific Fibre Cement
Net Sales
(Millions of US dollars)
780.8 USA and Europe Fibre Cement
216.9 Asia Pacific Fibre Cement
14.2
Research and Development
Total Identifiable Assets
(Millions of US dollars)
208.5 USA and Europe Fibre Cement
58.7
Asia Pacific Fibre Cement
EBIT for R&D was a loss of 19.0
EBIT
(Millions of US dollars)
10
09
08
07
06
34.4
41.4
37.9
32.5
32.9
10
09
08
07
06
7.3
9.4
8.3
6.5
0.2
10
09
08
07
06
28.1
16.7
25.4
49.1
1,404.0
Effective Income Tax Rate 1
(%)
Net Interest Expense
(Millions of US dollars)
Net Interest Expense Cover
(Times)
1 Excludes asbestos, asset impairments and tax adjustments.
5
| JAMES HARDIE | ANNUAL REPORT 2010
CFO’S REPORT continued from page 4
Asbestos funding
As a result of the company’s positive net
operating cash flow in fiscal year 2010,
James Hardie will make a contribution of
A$72.8 million (US$63.7 million) to the
AICF on 1 July 2010.
More information about James Hardie’s
asbestos compensation funding is set out
on page 7 of this annual report.
Key performance ratios
Many key performance ratios for fiscal
year 2010 showed improvement:
– an increase in diluted earnings per share,
from US18.3 cents to US30.3 cents;
– a return on shareholders’ funds of 13.2%;
– an increase in return on capital employed,
from 15.3% last year to 17.1%; and
– an increase in EBIT margin, from 13.0%
to 18.3%.
Our debt service capacity indicators
remained strong:
– net interest expense cover of 28.1 times;
– net interest paid cover of 29.0 times; and
– net debt payback1 of 0.7 years.
In summary, although sales volumes were
down, especially in the US, the downturn
was more than offset by benefits we
received from input costs, which enabled
us to record a much stronger overall
result for the year. We also benefited
from stronger Asia Pacific currencies,
particularly towards the end of the year.
With costs now moving up and the Asia
Pacific currencies falling relative to the US
dollar, some of the benefits that prevailed
in fiscal year 2010 may not be sustained
through fiscal year 2011. Despite that, our
cash flow continues to be strong and the
company is in good financial shape.
Russell Chenu
10
09
08
07
06
4.5
11.5
12.5
12.5
10.1
10
09
08
07
06
10.9
24.0
22.7
12.8
(1.6)
Working Capital to Net Sales
(%)
Gearing Ratio
(%)
6
| JAMES HARDIE | ANNUAL REPORT 2010
1 Excludes payments under the AFFA.
Fund update
As of 31 March 2010, the AICF had cash
and investment assets of A$63.1 million
(US$57.8 million).
James Hardie will make a contribution of
A$72.8 million (US$63.7 million) to the AICF
on 1 July 2010. This amount represents 35%
of the company’s free cash flow, as defined by
the AFFA, for fiscal year 2010.
The 2010 payment will take James Hardie’s
total contributions to the AICF to A$375.1
million since the beginning of 2007.
AICF notice to James Hardie and
the NSW Government
On 7 November 2009, the Australian and NSW
Governments announced a A$320.0 million
standby facility for the AICF to cover any
shortfall in funding from James Hardie, largely
as a result of a downturn in the US housing
industry. James Hardie continues to work with
the AICF and the NSW Government to finalise
the details of the facility.
This development followed the 23 April 2009
announcement by the AICF that its Board had
determined that it was reasonably foreseeable
that, within two years, the available assets of the
AICF were likely to be insufficient to fund the
payment of all reasonably foreseeable liabilities.
Annual actuarial assessment
KPMG Actuaries conducts an annual actuarial
assessment of the liabilities of the AICF to
enable projections to be regularly updated
in line with actual claims experience and the
claims outlook. Subject to the Annual Cash
Flow Cap1, James Hardie makes payments
to the AICF based on these annual actuarial
assessments.
James Hardie discloses summary information
on claims numbers with its quarterly results
releases. The more detailed information
contained in the annual actuarial report is
made public each year. All of the KPMG
Actuaries’ reports are available in the Investor
Relations area of the James Hardie website
(www.jameshardie.com).
Updated actuarial assessment
James Hardie received an updated actuarial
report from KMPG Actuaries at 31 March 2010,
which showed the discounted central estimate
of the asbestos liability decreased from
A$1.782 billion at 31 March 2009 to A$1.537
billion at 31 March 2010.
The reduction in the discounted central
estimate of A$245.0 million is primarily due
to increases in yields on Government Bonds,
which are used for discounting the future cash
flows; and a reduction in the projected future
number of claims to be reported for a number
of disease types.
The graph at the bottom of this page shows the
undiscounted range that KPMG Actuaries have
derived each year, as well as the discounted
and undiscounted central estimates.
Accounting for asbestos liabilities
The asbestos-related assets and liabilities
are denominated in Australian dollars. This
means the reported values of these asbestos-
related assets and liabilities in James Hardie’s
consolidated balance sheets in US dollars are
subject to adjustment, with a corresponding
effect on the company’s consolidated statement
of operations, depending on the closing
exchange rates between the two currencies
at the relevant balance sheet dates.
For the year from 31 March 2009 to 31
March 2010, the Australian dollar appreciated
against the US dollar by 33%, compared
to a 25% depreciation in the prior year.
As a result of this appreciation, James Hardie
recorded an unfavourable asbestos adjustment
of US$224.2 million for fiscal year 2010.
The appreciation of the Australian dollar resulted
in an increase in the actuarial assessment at
31 March 2010, when expressed in US dollar
terms, to US$966.2 million net of tax.
While the accounting liability is based on the
actuarial estimate, under US GAAP there are
some adjustments that are made to the actuarial
estimate to establish the liability for James
Hardie’s accounts.
Claims data2
The number of new claims filed, 535 for the
year ended 31 March 2010, was lower than
new claims of 607 for the prior year, and also
slightly below actuarial expectations for the
year ended 31 March 2010.
The number of claims settled of 540 for the
year ended 31 March 2010, was lower than
claims settled of 596 for the corresponding
period of last year.
The average claim settlement of A$191,000
for the full year ended 31 March 2010 was
in line with that for the corresponding period
last year and slightly below the actuarial
expectation for the full year.
Asbestos claims paid of A$103.2 million for
the year ended 31 March 2010, are lower than
the actuarial expectation of A$114.2 million
for the period.
Legal costs were lower, at A$8.1 million, and
insurance claims and cross claim recoveries
decreased slightly to A$16.9 million. This led
to total net claims costs of A$86.3 million,
lower than the estimate from KPMG Actuaries’
(A$96.5 million) and also the prior year
(A$90.7 million).
Additional information about James Hardie’s
asbestos liabilities and asbestos adjustments
is contained in Note 11 to the consolidated
balance sheets, starting on page 98 of this
annual report.
1 In each financial year, the Annual Payment is limited
such that the Annual Payment cannot exceed the Annual
Cash Flow Cap for that year. The Annual Cash Flow Cap
is calculated as a percentage of James Hardie’s Free Cash
Flow for the immediately preceding financial year. The
Annual Cash Flow Cap Percentage is currently set at a
maximum of 35% per the AFFA. Accordingly, if James
Hardie has zero or negative Free Cash Flow in a financial
year, there will be no Annual Payment made in the
following financial year, as the Annual Cash Flow Cap
will be zero. Free Cash Flow for the purposes of the
Annual Cash Flow Cap calculation is equivalent to
James Hardie’s net cash flow provided by operating
activities less contributions by James Hardie to the AICF.
2 All figures provided in this Claims Data section are gross
of insurance and other recoveries. See Note 11 to the
company’s Consolidated Financial Statements starting
on page 98 of this annual report for further information
on asbestos adjustments.
Undiscounted central
estimate (net)
Discounted central
estimate (net)
Sensitivity range
(net, undiscounted)
ASBESTOS
FUNDING
n
o
i
l
l
i
m
$
A
7000
6000
5000
4000
3000
2000
1000
0
30 June
2004
31 March
2005
30 June
2005
31 March
2006
30 Sept
2006
31 March
2007
31 March
2008
31 March
2009
31 March
2010
Asbestos liability valuations
Source: KPMG Actuaries
Asbestos liability valuations*
* Source: KPMG Actuaries
7
| JAMES HARDIE | ANNUAL REPORT 2010
MANUFACTURING CAPACITy – BUILDING PRODUCTS
Plant location
Existing design capacity/
year (mmsf)1
Number of
Employees
North America – Plants Operating
Cleburne, Texas
Peru, Illinois
Plant City, Florida
Pulaski, Virginia
Reno, Nevada
Tacoma, Washington
Waxahachie, Texas
North America – Plants Suspended
Blandon, Pennsylvania2
Fontana, California3
Summerville, South Carolina3
Brisbane, Queensland
Sydney, New South Wales
Auckland
Manila
Total North America
Australia
Total Australia
New Zealand
Philippines
Europe
Research and Development
Corporate
Total
500
560
300
600
300
200
360
200
180
190
3,390
120
180
300
75
145
1,605
382
137
150
42
105
34
3,910
2,455
MANUFACTURING CAPACITy – PIPES
Australia
Grand total
Plant location
Brisbane, Queensland
Design capacity/year
(Thousand tons4 )
50
Number of
Employees
56
2,511
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. Annual design
capacity does not necessarily reflect our
actual capacity utilisation at each plant.
See below for a description of average
capacity utilisation rates for our fibre
cement plants by region. 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.
Beginning September 2010, annual
design capacity will be calculated
assuming approximate current product
mix and then adjusted for 5/16”
thickness. This change in methodology
will be implemented to reflect changes in
our product mix as we expect to increase
production of thicker products.
For fiscal year 2010, average capacity
utilisation for our fibre cement plants
by region was approximately as follows:
United States 40%; Asia Pacific 69%.
Note: capacity utilisation 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 fibre
cement manufacturing facility capacities.
Asia Pacific capacity utilisation includes
plants in Australia, New Zealand and the
Philippines.
2 We suspended production at our Blandon,
Pennsylvania plant in November 2007.
3 We suspended production at our
Summerville, South Carolina and
Fontana, California plants in November
2008 and December 2008, respectively.
4 Pipe and column capacity is measured
in tons rather than million square feet.
DUBLIN
LONDON
AMSTERDAM
SOUTHAMPTON
PARIS
TACOMA
RENO
MISSION VIEJO
FONTANA
WAXAHACHIE
CLEBURNE
CHICAGO
PERU
DALLAS
BLANDON
PULASKI
SUMMERVILLE
PLANT CITY
TAMPA
BLANDON
PULASKI
SUMMERVILLE
DUBLIN
LONDON
AMSTERDAM
SOUTHAMPTON
PARIS
HONG KONG
MANILA
TACOMA
RENO
MISSION VIEJO
CHICAGO
PERU
FONTANA
WAXAHACHIE
CLEBURNE
PLANT CITY
TAMPA
HONG KONG
PERTH
MANILA
ADELAIDE
MELBOURNE
BRISBANE
SYDNEY
AUCKLAND
CHRISTCHURCH
PERTH
ADELAIDE
MELBOURNE
BRISBANE
SYDNEY
AUCKLAND
CHRISTCHURCH
MANUFACTURING
CAPACITY
8
| JAMES HARDIE | ANNUAL REPORT 2010
James Hardie
Manufacturing Operations
James Hardie
Manufacturing Operations -
production suspended
James Hardie Sales Office
Distribution Hub
Corporate Headquarters
James Hardie
Manufacturing Operations
James Hardie
Manufacturing Operations -
production suspended
James Hardie Sales Office
Distribution Hub
Corporate Headquarters
USA AND EUROPE FIBRE CEMENT
Results
ASIA PACIFIC FIBRE CEMENT
Results
– Net sales decreased 11% from US$929.3
– Net sales increased 9% from US$273.3
million to US$828.1 million.
million to US$296.5 million.
– Sales volume decreased 15% from 1,526.6
million square feet to 1,303.7 million square
feet.
– Net sales in Australian dollars increased
2% due to an increase in average net
sales price.
– Average net sales price increased 4% from
US$609 per thousand square feet to US$635
per thousand square feet.
– Sales volume was stable, at 389.6 million
square feet, compared to 390.6 million
square feet for fiscal year 2009.
– Gross profit increased 5% and gross profit
margin increased by 5.9 percentage points.
– EBIT increased 5% from US$199.3 million
to US$208.5 million.
– EBIT margin increased by 3.8 percentage
points to 25.2%.
Trading conditions
– Annualised seasonally-adjusted single family
housing starts in March 2010 were 531,000,
still significantly below the January 2006 peak
of 1.823 million annualised starts.
– Although US housing affordability improved,
the reduced availability of mortgage credit for
prospective home buyers, the large inventory
of homes for sale and relatively low consumer
confidence continued to negatively affect
demand.
– During the course of the year, key raw
material and energy costs increased.
– Freight costs were lower for fiscal year
2010, compared to the prior year. However,
freight costs rose in the fourth quarter of
fiscal year 2010, compared to the previous
corresponding period, in response to
significantly higher diesel prices amid
emerging signs of a recovery in the United
States economy.
For more information about USA and Europe
Fibre Cement, see pages 10–11.
– Gross profit increased 16%. The higher
value of the Asia Pacific business’
currencies against the US dollar accounted
for 8% of the increase. Gross profit margin
increased by 1.9 percentage points.
– EBIT increased 25% from US$47.1 million
to US$58.7 million.
– The EBIT margin was 2.6 percentage points
higher, at 19.8%.
Trading conditions
– Australian Bureau of Statistics reported a
16% increase in housing approvals for the
year to 31 March 2010, compared to the
prior year, although residential building
activity, based on housing starts, was
down 2% in the year to 31 March 2010,
compared to the prior year.
– New Zealand housing consents for the
year ended 31 March 2010 decreased 5%
compared to the prior year, although the
market showed good growth in the last
quarter with a 32% increase in the quarter
to 31 March 2010, compared to the quarter
to 31 March 2009.
– The Philippines market increased 7% for
the year to 31 March 2010 compared to
the prior year.
– Appreciating local currencies resulted
in a 5% decrease in raw material costs
measured in Australian dollar terms for
the Asia Pacific business compared to
the prior year.
For more information about Asia Pacific
Fibre Cement, see page 12.
Outlook
Although new housing construction activity in
the US improved in the fourth quarter of fiscal
year 2010, the start of fiscal year 2011 has seen
another decline in US new housing numbers
following the expiry of the government’s
housing initiatives on 30 April 2010.
Analysts are now less confident that the US
housing market will improve in fiscal year
2011. Severe challenges remain, including
constrained credit conditions that are restricting
the availability of finance for prospective buyers
and developers, a weak employment market,
and a continuing supply of foreclosed homes.
Asia Pacific markets that James Hardie
participates in are likely to be somewhat better
in fiscal year 2011 than in fiscal year 2010.
Operating costs are expected to be
considerably higher in fiscal year 2011 than
in fiscal year 2010, as market demand puts
upward pressure on basic commodity prices.
Despite the challenging environment and
higher input costs, the company will continue
to pursue strong financial returns, and, at the
same time, increase spending on long-term
product and market initiatives.
9
| JAMES HARDIE | ANNUAL REPORT 2010
SUMMARY OF
OPERATIONS
Based on our net sales, we believe we are the
largest manufacturer of fibre cement products
and systems for internal and external building
construction applications in the United States.
Products
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.
Plants
We have ten manufacturing plants in the
United States: two in Texas and one each
in California3, Florida, Washington, Illinois,
Pennsylvania3, South Carolina3, Nevada
and Virginia. We also have a Research and
Development Centre at our California plant.
Sales
In the United States, we sell fibre cement
products for new residential construction
predominantly to distributors, which then
sell these products to dealers or lumber
yards. Repair and remodel products in the
United States are typically sold through
large home centre retailers and specialist
distributors.
Market position and opportunity
Exterior products
– Based on the NAHB’s Builder Practices
Reports1 for the past three years, fibre cement
has been one of the fastest growing segments
(in terms of market growth) of the siding
industry, gaining market share against vinyl
and wood for reasons including aesthetics,
durability concerns and lower maintenance
requirements compared to wood.
– Based on our knowledge, experience and
third-party data regarding our industry, we
estimate that the total US industry shipments
of fibre cement siding were between 0.87
and 0.93 billion square feet during fiscal
year 2010, a decrease of 19-23% from
fiscal year 2009.
– Based on our knowledge, experience and
third-party data regarding our industry, we
USA AND
EUROPE
FIBRE CEMENT
10
| JAMES HARDIE | ANNUAL REPORT 2010
10
09
08
07
06
635
609
600
583
555
10
09
08
07
06
208.5
199.3
235.2
353.1
316.1
10
09
08
07
06
25.2
21.4
20.1
27.3
25.4
USA and Europe
Fibre Cement Average
Net Sales Price (US dollars/msf)
USA and Europe
Fibre Cement EBIT 1
(Millions of US dollars)
USA and Europe
Fibre Cement EBIT Margin 1
USA And EUropE FIBrE CEMEnt
Net sales US$m
EBIT1 US$m
Total identifiable assets US$m
Volumes (mmsf )
Average net sales price
(per msf ) US$
EBIT Margin1 %
Number of employees
2010
828.1
208.5
780.8
1,303.7
635
25.2
1,647
2009
929.3
199.3
772.6
1,526.6
609
21.4
1,368
2008
1,170.5
235.2
846.4
1,951.2
600
20.1
1,889
2007
1,291.2
353.1
910.0
2,216.2
583
27.3
1,958
2006
1,246.7
316.1
842.4
2,244.4
555
25.4
2,281
estimate that, in fiscal year 2010, we sold
approximately 12%2 of the estimated 6.0-6.5
billion square foot US exterior siding market
(all types of siding, which excludes fascia,
trim and soffit).
– Our fibre cement products exhibit superior
resistance to the damaging effects of
moisture, fire, impact and termites compared
to wood and wood-based products.
– Our early focus on producing planks for new
construction has been expanded to an exterior
products portfolio that contains a full-wrap
exterior bundle (siding, trim and soffits).
– The repair and remodelling segment now
accounts for around 70-75% of our sales mix
and we have identified significant opportunity
for growth here.
Interior products
– We have a technology advantage for floor
applications, and hold a leading position in
the ¼” backer market.
– HardieBacker™ ½” backerboard continues
to drive our market penetration for wall
applications.
– Our ceramic tile underlayment products
provide superior handling and installation
characteristics compared to fiberglass mesh
cement boards.
– In internal lining applications where exposure
to moisture and impact damage are significant
concerns, our products provide superior
moisture resistance and impact resistance
compared to traditional gypsum wet area
wallboard and other competing products.
Our strategy
Our global strategy is to:
– aggressively grow demand for our products
in targeted market segments;
– grow our overall market position while
defending our share in existing market
segments;
– offer products with superior value to that
of our competitors; and
– introduce differentiated products to reduce
direct price competition.
Progress towards our strategy
During the year:
– Our differentiated ColorPlus® product range
continued to increase its penetration rate;
– In May 2009, we began the launch of
HardieZoneTM exterior products in the US.
These products are engineered for specific
climate conditions using our seventh
generation product technology.
– To support planned growth initiatives, we
made organisational changes at the beginning
of 2010, putting all the US businesses under
the management of Nigel Rigby, Executive
General Manager – USA; and research and
development, engineering, manufacturing,
logistics and product management, and
the company’s non-US businesses under
the management of Mark Fisher, Executive
General Manager – International.
– We continued to grow our presence in the
repair and remodelling market segment, which
now represents 70-75% of our US sales mix.
Our focus included re-launching the
Preferred Remodeller website to build
relationships with specialty exterior
replacement contractors; creating marketing
materials to directly communicate the
benefits and affordability of James Hardie
to the consumer; and increasing the
number of sales representatives with repair
and remodel responsibility.
– The business continued to focus on its
three main strategic initiatives of primary
demand growth, product mix shift and
zero to landfill.
1 Excluding impairments.
2 Repair and remodel siding usage report from NAHB
for calendar year 2009 will not be available until
July 2010.
3 Production at the Pennsylvania, California and South
Carolina plants was suspended in November 2007,
November 2008 and December 2008 respectively.
4 The full title of this report is NAHB’s Builder Practices
Reports – Siding Usage/Exterior Wall Finish In New
Construction and Consumer Practices Reports – Siding
Usage/Exterior Wall Finish In Repair & Remodel.
70-75%
Repair and
Remodel
25-30%
New
Construction
30-40%
James Hardie
60-70%
Other
12%
James Hardie
88%
Other
James Hardie
US Sales Mix
US Interior
Backerboard Market
US Exterior
Siding Market 2
11
| JAMES HARDIE | ANNUAL REPORT 2010
ASIA PACIFIC FIBRE CEMENT
Net sales US$m
EBIT US$m
Total identifiable assets US$m
Volumes (mmsf )
Average net sales price
(per msf ) A$
EBIT Margin %
Number of employees
2010
296.5
58.7
216.9
389.6
894
19.8
725
2009
273.3
47.1
167.9
390.6
879
17.2
784
2008
298.3
50.3
218.3
398.2
862
16.9
834
2007
251.7
39.4
199.3
390.8
842
15.7
835
2006
241.8
41.7
170.4
368.3
872
17.2
854
We manufacture a wide range of fibre cement
products in Australia, New Zealand and the
Philippines and sell these throughout the Asia
Pacific region.
Our fibre cement building products are used
in both residential and commercial buildings,
as external siding, internal walls, ceilings,
floors, eaves lining and fascias. In Australia,
we also manufacture pipes for civil and
commercial use, and fibre cement columns
for decorative use.
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 as floor and tile
underlay.
Plants
We manufacture our products at two plants
in Australia, in New South Wales and in
Queensland, and at plants in the Philippines
and New Zealand. Our reinforced concrete
pipes and decorative columns are manufactured
at a second plant in Queensland. We also have
a Research and Development Centre at our
New South Wales plant.
Sales
In Australia and New Zealand, products for both
new construction and renovation are generally
sold directly to distributors/hardware stores
and timber yards. In the Philippines, a network
of thousands of small to medium size dealer
outlets sells our fibre cement products to real
estate developers, contractors and consumers.
Our strategy
Asia Pacific Fibre Cement shares our global
strategy to:
– aggressively grow demand for our products in
targeted market segments;
– grow our overall market position while defending
our share in existing market segments;
– offer products with superior value to that of
our competitors; and
– introduce differentiated products to reduce
direct price competition.
Progress towards our strategy
During the year:
– We focused on four primary areas:
manufacturing efficiencies, overhead cost
management, value pricing and differentiated
product shift, and primary demand growth.
– In Australia, the differentiated Scyon™ branded
product range continued to build momentum,
driven primarily by sales of Secura™ flooring.
Also in Australia, we introduced EasyLap™
panel, a strong, fibre cement base sheet with a
shiplap vertical joint, finished with a site applied
roll-on textured acrylic paint to create a rendered
look with a subtle vertical joint.
– In New Zealand, sales of differentiated products
also grew in fiscal year 2010, with HardieGlaze™
lining a significant driver of this growth.
– In the Philippines, sales of differentiated
products, primarily wall systems, increased
over the full year.
ASIA PACIFIC
FIBRE CEMENT
10
09
08
07
06
58.7
47.1
50.3
39.4
41.7
10
09
08
07
06
19.8
17.2
16.9
15.7
17.2
Asia Pacific EBIT
(Millions of US dollars)
Asia Pacific EBIT Margin
(%)
12
| JAMES HARDIE | ANNUAL REPORT 2010
Safety results
USA and Europe Fibre Cement
safe working environment and has set safety
objectives to:
James Hardie is committed to creating a
The region recorded 22 incidents, a
– achieve an incident rate of less than 2 and
a severity rate of less than 20 (“2 and 20”);
– eliminate serious bodily harm; and
– achieve zero fatalities.
Recognising that the safety of employees
is critical to its Environment, Social and
Governance goals, James Hardie’s Board has
made Safety one of the Scorecard1 measures
used to determine payments to executives
under the company’s incentive plans.
SAFETy PERFORMANCE
IN FISCAL yEAR 2010
USA and Europe Fibre Cement
The USA and Europe Fibre Cement business
recorded 16 incidents in fiscal year 2010, a
42% reduction in the number of incidents
compared to fiscal year 2009.
For the first time, its incident and severity
rates were below the safety goals of
“2 and 20”.
66% reduction on the fiscal year 2009
result. By emphasising the leading
indicators of near-miss reports and hazard
identification in fiscal year 2010, the
region’s businesses broadened safety
participation and ownership and created
momentum in its core safety programs.
The region implemented pre-shift
stretching, mandatory personal protective
equipment requirements and core safety
training programs throughout the plants.
SAFETy PERFORMANCE
IN FISCAL yEAR 2011
Guided by safety managers, safety
co-ordinators or Environment, Health
and Safety officers based at each location,
we will continue to work to instil a safe
culture in the business.
Our global safety programs will involve:
– continuation of regular safety audits;
– behavioural safety programs such as
manual handling;
– identification and management of safety
The significant safety improvements achieved
hazards; and
– developing specific areas of “safety
expertise” at different plants that can
be shared within the company.
in fiscal year 2010 were the result of a
concerted effort to eliminate the top three
types of incidents recorded or identified in
near-miss reports in fiscal year 2009. These
were slips and falls, strains, and machine-
related incidents.
To overcome these incidents, the region
developed site-specific safety plans and safety
observation programs; implemented pre-shift
stretching throughout the group; and focused
on improved housekeeping to reduce trip
hazards.
Asia Pacific Fibre Cement
Asia Pacific Fibre Cement improved its safety
performance during the fiscal year but still
has significant progress to make relative to
the company’s 2 and 20 objective, and the
region’s objective to be best practice within
James Hardie.
– Incident rate 1.1
– Severity rate 19.97
Asia Pacific Fibre Cement
– Incident rate 2.7
– Severity rate 65.1
Definitions
A plant’s incident rate is the number
of recordable incidents that occur per
200,000 hours worked there (equivalent
to the number of incidents per 100
employees per year). A recordable incident
is an incident that requires the employee
to seek professional medical treatment
which may or may not lead to lost or
restricted workdays for the employee
and the facility.
The severity rate for any plant is then the
number of days of lost or restricted duty
(when the employees carries out lighter
duties than required in their normal role)
from recordable incidents per 200,000
hours worked at the plant (equivalent
to the number of days lost or restricted
because of injury per 100 employees
per year).
A lower incident rate and severity rate
is normally regarded as an indicator of
a plant that is safer for employees.
WORKPLACE
SAFETY
1 More information about the Scorecard is contained in the
Remuneration Report on page 44 of this annual report.
13
| JAMES HARDIE | ANNUAL REPORT 2010
The James Hardie ColorPlus® technology
finish also represents a breakthrough.
James Hardie siding products with
ColorPlus technology combine advanced
fibre cement and baked-on pigment using
paint especially formulated for James
Hardie siding. The end result is a durable,
low-maintenance long-lasting and fade-
resistant finish.
In Australia, James Hardie customers can
take advantage of the lightweight cement
composite Scyon™ product range, with
recent new products including Scyon
Stria™ cladding, a wide cladding board with
a horizontal joint that has the classic appeal
of decorative render, and Scyon Secura™
external flooring, a fast and simple-to-
install external structural flooring substrate
for ceramic tile finishes over timber or
lightweight steel floor joists.
The New Zealand business also offers a
differentiated range of products including
Linea® weatherboards, Horizon™ lining,
RAB® board, Axon™ panel and CLD
structural cavity battens.
James Hardie pioneered the successful
development of cellulose reinforced
fibre cement and, since the 1980s,
has progressively introduced products
developed as a result of its proprietary
product formulation and process
technology.
The introduction of differentiated products
is one of the core components of our
global business strategy. This product
differentiation strategy is supported by
our significant investment in research and
development activities. In fiscal year 2010,
we spent US$30.4 million, or approximately
2.7% of total net sales, in research and
development activities.
By targeting specific performance attributes,
we can continue to deliver superior-
performance, low-maintenance, non-
combustible fibre cement products.
In the United States, our latest generation
of technologically advanced products – the
HardieZone™ System – has been created
specifically for two climate conditions:
HZ5 for freezing wet climates and HZ10 for
climates with a combination of hot, humid
or high moisture conditions.
These Engineered for Climate Products™
are the seventh generation of James Hardie
siding products innovation. We started by
developing a fibre cement substrate that
offered superior exterior protection over
wood and stucco, and have made additional
improvements designed to further improve
product performance and enhance aesthetic
qualities in design and colour.
DIFFERENTIATED
PRODUCTS
14
| JAMES HARDIE | ANNUAL REPORT 2010
10
09
08
07
06
30.4
28.3
27.4
30.0
32.1
Research and development expenditure includes US
GAAP research and development expenses and amounts
classified as selling, general and administrative expense
in the amounts of US$3.3 million, US$4.5 million,
US$0.1 million, US$4.1 million and US$3.4 million for
the years ended 31 March 2010, 2009, 2008, 2007 and
2006, respectively.
Research and Development
Expenditure
(Millions of US dollars)
In the development of its products, and in its
support of improved housing and community
design, James Hardie actively contributes to
the building industry’s efforts to create more
sustainable materials, and better built homes
and neighbourhoods.
PRODUCTS
Raw materials
The primary raw materials used in the
manufacture of James Hardie’s products are
readily available: cellulose fibre sourced from
plantation grown timber wherever possible,
sand from various sources, cement from a
worldwide market, and water.
Cement continues to be the biggest
contributor to the impact of James Hardie
products on the environment, but its effect
is being reduced. As the cement industry
adopts cleaner and more efficient
technologies, James Hardie adapts its
processes and formulas to maximise
the benefits to the environment.
Manufacturing processes
We devote considerable time, effort
and capital to advancing fibre cement
technology to ensure we:
– minimise the environmental impacts
from our operations;
– use water and energy more efficiently; and
– make use of recycled or by-product
materials while delivering high performance,
sustainable products.
In fiscal year 2010, we continued to
operate our manufacturing facilities in
an environmentally-responsible manner.
Should any gaps be noted in our compliance
efforts, we formulate and implement
corrective measures to ensure full and
sustainable compliance.
Energy use
Our Australian plants are registered under the
national Energy Efficiency Opportunities Act
2006. We conduct annual energy assessments
of our Australian manufacturing plants, and
publicly reported on this most recently in
December 2009. The latest review identified
additional energy efficiency projects and these
have been incorporated into the company’s
capital investment plan for fiscal year 2011.
James Hardie is subject to the Australian
Federal Government’s National Greenhouse
and Energy Reporting Act 2007. Our plant
emissions remain less than the reporting
threshold for the Carbon Pollution Reduction
Scheme, so we are not required to purchase
carbon pollution permits.
Water conservation
Water is a critical component of the fibre
cement manufacturing process and all of
our plants recognise the importance of
water conservation. In Australia there are a
number of local government initiatives we are
participating in to reduce water consumption,
and to investigate opportunities for using
non-potable recycled water.
Two plants in our US operations have
implemented technology where they have
zero, or close to zero, process water discharge
from their facilities. The continuous research
and experience gained from these plants will
permit us to reduce water usage in our other
manufacturing facilities.
Zero to Landfill
As a whole-of-business initiative for
manufacturing, we have a company-wide
program, called Zero to Landfill, to focus
on eliminating waste and improving material
yield.
A major part of this initiative is the recycling
of our waste materials. At all locations,
as much as possible, solid waste – such
as trimmings, scrap, fine particles and
reject material – is reintroduced into the
manufacturing process as raw materials.
The importance of the Zero to Landfill
program is demonstrated by the fact that it
forms one of the Scorecard1 measures the
Board will use to determine payments to
senior executives under the company’s
long-term incentive plan. In the past three
years the company has made significant
progress in reducing the amount of materials
sent to landfill.
Green products
Our products are typically used in lightweight
construction systems that have lower
embodied energy than many other typical
construction systems. They are also lighter
than many other building products, so they
can be transported using less energy.
Continued over
SUSTAINABILITY
1 More information about the Scorecard is contained in the
Remuneration Report on page 44 of this annual report.
15
| JAMES HARDIE | ANNUAL REPORT 2010
It also contributed products and ideas
to the design and development of the
Smarter Smaller Home™ which combines
a small lot, small house, smart choice
of materials and efficient construction
method to produce a home that is stylish,
sustainable and affordable and in March
2010 published the Smarter Small Home™
case book.
To further enhance its involvement in
sustainable housing design, in March
2010, the Australian business launched its
second national LookHome™ Green Design
Awards, to recognise and reward the best in
sustainable, affordable and innovative home
design. In its first year, in 2009, the awards
attracted 94 entries.
In the United States, James Hardie has
established itself as an educational resource
for developers, architects, builders and city
planners encouraging them to incorporate
more New Urbanist planning principles that
create better places to live.
The management of James Hardie is
overseen by a Group Management Team,
whose members cover the key areas of
fibre cement research and development,
production, manufacturing, sales, human
resources, investor relations, finance
and legal. Team members are:
Louis Gries BSc, MBA
Chief Executive Officer
Age 56
Louis Gries joined James Hardie as Manager
of the Fontana fibre cement plant in California
in February 1991 and was appointed President
of James Hardie Building Product, Inc in
December 1993. Mr Gries became Executive
Vice President Operations in January 2003,
responsible for operations, sales and
marketing in our businesses in the Americas,
Asia Pacific and Europe.
He was appointed Interim CEO in October
2004 and became CEO in February 2005.
Mr Gries was elected to the company’s
Managing Board by CUFS holders at the
2005 AGM and continued as Chairman of
the Managing Board until it was disbanded
in June 2010.
Before he joined James Hardie, Mr Gries
worked for 13 years for USG Corp, in a
variety of roles in research, plant quality and
production, product and plant management.
He has a Bachelor of Science in Mathematics
from the University of Illinois, USA and an
MBA from California State University in
Long Beach, California USA.
Russell Chenu BCom, MBA
Chief Financial Officer
Age 60
Russell Chenu joined James Hardie as Interim
CFO in October 2004 and was appointed
CFO in February 2005. He was elected to
the company’s Managing Board by CUFS
holders at the 2005 AGM, re-elected in 2008
and continued as a member of the Managing
Board until it was disbanded in June 2010.
GROUP
MANAGEMENT
TEAM
SUSTAINABILITY continued from page 15
Our latest generation of technologically
advanced products – the HardieZone® System
launched in the US in May 2009 – enables us
to continue to deliver sustainable fibre cement
products that offer superior performance and
low maintenance.
In the United States, James Hardie is a
member of The US Green Building Council
(USGBC). The USGBC is a non-profit
membership organisation founded in 1993
and dedicated to creating a sustainable built
environment within a generation. The USGBC
Leadership in Energy and Environmental
Design (LEED®) green building certification
system is a feature-oriented certification
program that awards buildings points for
satisfying specified green building criteria
in the categories of Sustainable Sites,
Water Efficiency, Energy and Atmosphere,
Materials and Resources, Indoor
Environmental Quality and Innovation
and Design.
The use of James Hardie products contributes
points towards a LEED certification as well
as the more recently introduced National
Association of Home Builders (NAHB)
– National Green Building Standard. We
actively monitor these programs and relevant
developing standards.
Factors contributing to the points awarded
to James Hardie products include our local
manufacturing facilities, which reduce the
environmental impact of transporting material,
the low toxicity of the raw materials used in
manufacture, and the longer-lasting nature
of the materials which reduces maintenance
and repair costs. The NAHB program also
recognises the benefits of ColorPlus®
technology for removing the need for site-
applied finishing.
HOMES AND NEIGHBOURHOODS
Our Australian operation has published
The Smarter Green Book to help people learn
how to design and build sustainably with
James Hardie products. The book explains
the many green accreditation programs in the
building industry and presents facts regarding
the environmental impact of manufacturing
James Hardie products and the impact of our
products on a building over its whole life.
16
| JAMES HARDIE | ANNUAL REPORT 2010
Mr Chenu is an experienced corporate and
finance executive who has held senior finance
and management positions with a number of
Australian publicly-listed companies.
In a number of these senior roles, he has
been engaged in significant strategic business
planning and business change, including
several turnarounds, new market expansions
and management leadership initiatives.
Mr Chenu has a Bachelor of Commerce from
the University of Melbourne and an MBA from
Macquarie Graduate School of Management,
Australia.
Robert Cox BA, MA, JD
General Counsel
Age 56
Robert Cox commenced as James Hardie’s
General Counsel in January 2008. He
joined the company’s Managing Board as
an Executive Director and as Company
Secretary effective 7 May 2008. He was
elected in 2008 and continued as a member
of the Managing Board until it was disbanded
in June 2010 and as Company Secretary
until 29 June 2010.
Before joining James Hardie, Mr Cox was
Vice President, Deputy General Counsel and
Assistant Secretary with PepsiCo Inc. During
his five years with PepsiCo, Mr Cox was
responsible for corporate governance and
Sarbanes-Oxley/New York Stock Exchange
compliance, and managed the corporate law
group and the office of Corporate Secretary
for the Board of Directors.
His experience also includes 10 years as a
partner of the international law firm Bingham
McCutchen LLP, at their offices in Asia and
California, where he led the business and
transactions practice group in corporate
governance, corporate securities, mergers and
acquisitions, financial services, real estate, tax
and strategic technology transactions.
Mr Cox has a Juris Doctorate from the
University of California, Berkeley, California;
and a Master of Arts from the John Hopkins
School of Advanced International Studies in
Washington, DC, specialising in International
Economics, European Studies, and American
Foreign Policy.
Mark Fisher BSc, MBA
Executive General Manager – International
Age 39
Mark Fisher joined James Hardie in 1993
as a Production Engineer. Since then, he
has worked for the company as Finishing
Manager, Production Manager and Product
Manager at various locations; Sales and
Marketing Manager; and as General Manager
of our Europe Fibre Cement business.
Mr Fisher was appointed Vice President –
Specialty Products in November 2004, then
Vice President Research & Development in
December 2005. In February 2008, his role
was expanded to cover Engineering &
Process Development.
In January 2010, he was appointed Executive
General Manager – International, responsible
for research and development, engineering,
manufacturing, logistics and product
management, as well as the company’s
non-US businesses.
Mr Fisher has a Bachelor of Science in
Mechanical Engineering and an MBA from
the University of Southern California, USA.
Sean O’Sullivan BA, MBA
Vice President – Investor & Media Relations
Age 45
Sean O’Sullivan joined James Hardie as
Vice President, Investor and Media Relations
in December 2008. For the eight years prior
to joining James Hardie, Mr O’Sullivan was
Head of Investor Relations at St George Bank,
where he established and led the investor
relations function.
Mr O’Sullivan’s background includes thirteen
years as a fund manager for GIO Asset
Management, responsible for domestic and
global investments. During this period, he
spent time on secondment with McKinsey
and Co, completing a major study into the
Australian financial services industry.
Mr O’Sullivan’s final position at GIO was
General Manager of Diversified Investments
where his responsibilities included
determining the asset allocation for over
A$10 billion in funds under management.
After leaving the GIO, Mr O’Sullivan worked
for Westpac Banking Corporation in funds
management sales.
He has a Bachelor of Arts majoring in
Economics from Sydney University and an
MBA from Macquarie Graduate School of
Management.
Nigel Rigby
Executive General Manager – USA
Age 43
Nigel Rigby joined James Hardie in 1998
as a Planning Manager for our New Zealand
business and has held a number of sales,
marketing and product and business
development roles with the company. In
November 2004, Mr Rigby was appointed
Vice President – Emerging Markets, and in
2006 he was named Vice President – General
Manager Northern Division. In November
2008, he became Vice President – General
Manager of the company’s newly-formed
US Eastern Division, responsible for the
former Northern and Southern Division
markets and plants.
In January 2010 he was appointed Executive
General Manager – USA, responsible for the
US business.
Before joining James Hardie, Mr Rigby held
various management positions at Fletcher
Challenge, a New Zealand-based company
then involved in energy, pulp and paper,
forestry and building materials.
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Sean O’Sullivan
Nigel Rigby
17
| JAMES HARDIE | ANNUAL REPORT 2010
Donald McGauchie AO
Age 60
Brian Anderson BS, MBA, CPA
Age 59
Donald McGauchie joined James Hardie as
an independent Non-Executive Director in
August 2003 and was appointed Acting Deputy
Chairman of the Joint and Supervisory Boards
in February 2007, and Deputy Chairman of the
Joint and Supervisory Boards in April 2007.
Following completion of the Re-domicile on
17 June 2010, he became Deputy Chairman of
the single Board. Mr McGauchie is a member
of the Board, Chairman of the Nominating and
Governance Committee and a member of the
Remuneration Committee.
Experience: 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.
Directorships of listed companies in the past
three or more years: Current – Director of
Nufarm Limited (since 2003); Director of
GrainCorp Limited (since 2009); Director
and Chairman-elect of Australian Agricultural
Company Limited (since May 2010).
Former – Chairman of Telstra Corporation
Limited (2004-2009); Chairman of Woolstock
Australia Limited (1999-2002); Deputy
Chairman of Ridley Corporation Limited
(1998-2004); Director of National Foods
Limited (2000-2005); Director of GrainCorp
Limited (1999-2002).
Other: Director of The Reserve Bank of
Australia; Chairman Australian Wool Testing
Authority (since 2005) and Director (since
1999); President of the National Farmers
Federation (1994-1998); Chairman of Rural
Finance Corporation (2003-2004); awarded
the Centenary Medal for service to Australian
society through agriculture and business in
2003; resident of Australia.
Last elected: August 2009
Brian Anderson was appointed as an
independent Non-Executive Director of James
Hardie in December 2006. He is a member
of the Board, Chairman of the Audit Committee
and a member of the Remuneration Committee.
Mr Anderson was also Chairman of the
Re-domicile Due Diligence Committee.
Experience: Mr Anderson has extensive
financial and business experience at both
executive and board levels. He has held a
variety of senior positions, with thirteen years
at Baxter International, Inc, including seven
years as Corporate Vice President of Finance,
Senior Vice President and Chief Financial Officer
(1997-2004) and, more recently, as Executive
Vice President and Chief Financial Officer of
OfficeMax, Inc (2004-2005). Earlier in his career,
Mr Anderson was an Audit Partner of Deloitte
& Touche LLP (1986-1991) and he is accredited
as a Certified Public Accountant (1976).
Directorships of listed companies in the past
three or more years: Current – Chairman
(since April 2010) and Director (since 2005)
of A.M. Castle & Co.; Director of Pulte Homes
Corporation (since September 2005); Director
(since 1999) and Chair of the Audit Committee
(since 2003) for W.W. Grainger, Inc.
Other: Director of The Nemours Foundation
(since January 2006); resident of the United
States.
Last elected: August 2009
David Dilger CBE, BA, FCA
Age 53
David Dilger was appointed as an independent
Non-Executive Director of James Hardie effective
2 September 2009. He is a member of the Board,
the Audit Committee and the Remuneration
Committee.
Experience: Mr Dilger has substantial experience
of multinational manufacturing operations,
a strong finance foundation and leadership
qualities, including 16 years as a chief executive
of listed companies. He has a proven ability to
Michael Hammes
Donald McGauchie
Brian Anderson
James Hardie’s directors have
widespread experience, spanning
general management, finance, law and
accounting. Each director also brings
valuable international experience that
assists with James Hardie’s growth.
Michael Hammes BS, MBA
Age 68
Michael Hammes was elected as an
independent Non-Executive Director of James
Hardie in February 2007. He was appointed
Chairman of the Joint and Supervisory Boards
in January 2008 and, following the completion
of the Re-domicile on 17 June 2010, he became
Chairman of the single Board. He is a member
of the Audit Committee, the Remuneration
Committee and the Nominating and Governance
Committee. Mr Hammes was also a member
of the Re-domicile Due Diligence Committee.
Experience: Mr Hammes has extensive
commercial experience at the senior executive
level. He has held a number of executive
positions in the medical products, hardware
and home improvement, and automobile
sectors, including CEO and Chairman of Sunrise
Medical, Inc (2000-2007), Chairman and CEO of
Guide Corporation (1998-2000), Chairman and
CEO of Coleman Company, Inc (1993-1997),
Vice Chairman of Black & Decker Corporation
(1992-1993) and various senior executive roles
with Chrysler Corporation (1986-1990) and
Ford Motor Company (1979-1986).
Directorships of listed companies in the past
three or more years: Current – Director of
Navistar International Corporation (since
1996), Chairman of the Navistar Nominating
and Governance Committee, Chairman of the
Navistar Finance Committee, and a member
of the Navistar Executive Compensation
Committee.
Other: Previous Member of the Board of
Directors of Johns Manville Corporation;
Member of the Board of Visitors, Georgetown
University’s School of Business; resident of
the United States.
Last elected: August 2009
BOARD
DIRECTORS
18
| JAMES HARDIE | ANNUAL REPORT 2010
transform and drive large businesses by setting
a clear strategy and building strong management
teams.
Directorships of listed companies in the past
three or more years: non-executive director of
The Bank of Ireland plc (2003-2009) serving as
Senior Independent Director and as Chairman of
the Bank’s Remuneration Committee.
Other: Chairman of Dublin Airport Authority
plc (since May 2009); Fellow of the Institute
of Chartered Accountants in Ireland; previous
member of the Board and National Executive
Council of the Irish Business and Employers
Confederation (IBEC); and former Board member
of Enterprise Ireland, the government agency
responsible for the development and promotion
of the indigenous business sector; resident of
the Republic of Ireland.
Last elected: Appointed September 2009
David Harrison BA, MBA, CMA
Age 63
David Harrison was appointed as an independent
Non-Executive Director of James Hardie in May
2008. He is a member of the Board, Chairman of
the Remuneration Committee and a member of
the Audit Committee.
Experience: Mr Harrison is an experienced
company director and has a distinguished
finance background, having served with special
expertise in corporate finance roles, international
operations and information technology during
22 years with Borg-Warner/General Electric Co.
He is Managing Partner of the US financial
investor, HCI Inc. and previously spent ten
years at Pentair, Inc., as Executive Vice
President and Chief Financial Officer. His
experience also includes roles as Vice President
and Chief Financial Officer at Scotts, Inc.
and Coltec Industries, Inc. and numerous
accounting and financial roles held during his
career at Borg-Warner/GE, culminating in his
appointment as Vice President Finance Europe/
Canada and Director, Finance North America.
Directorships of listed companies in the past
three or more years: Current – Director and
Chairman of the Audit Committee for National
Oilwell Varco (since 2003); Director and
member of the Audit & Finance Committee
for Navistar International (since 2007).
Other: Member of Ohio University MBA
Advisory Board (since 2003) and of the Iredell
County / Twin Cities / Charlotte Salvation
Army Advisory Board (since 1995); resident
of the United States.
Last elected: August 2008
James Osborne BA Hons, LLB
Age 61
James Osborne was appointed as an
independent Non-Executive Director of James
Hardie in March 2009. He is a member of the
Board and the Nominating and Governance
Committee. Mr Osborne was also a member
of the Re-domicile Due Diligence Committee.
Experience: Mr Osborne is an experienced
company director with a strong legal
background and a considerable knowledge
of international business operating in North
America and Europe. His career includes 35
years with the leading Irish law firm, A&L
Goodbody, in roles which included opening
the firm’s New York office in 1979, and serving
as the firm’s managing partner for 12 years.
He has served as a consultant to the firm since
1994. Mr Osborne also contributed to the
listing of Ryanair in London, New York and
Dublin and continues to serve on its board.
Directorships of listed companies in the
past three or more years: Current – Director
and Chairman of Remuneration Committee,
Ryanair Holdings plc (since 1996);
Former – Chairman, Newcourt Group plc
(2004-2009), Director Bank of Ireland
(1986-1991), Golden Vale plc (1993-1998),
Carrolls Holdings plc (1986-2005) and
Adare plc (1994-1998).
Other: Director of numerous private
companies, including Centric Health
(2006 - present); resident of the Republic
of Ireland.
Last elected: August 2009
Rudy van der Meer M.Ch.Eng
Age 65
Rudy van der Meer was elected as an
independent Non-Executive Director of James
Hardie in February 2007. He is a member of
the Board and the Nominating and Governance
Committee.
Experience: Mr van der Meer is an experienced
executive, with considerable knowledge of global
businesses and the building and construction
sector. During his 32-year association with Akzo
Nobel N.V., he held a number of senior positions
including CEO – Coatings (2000-2005), CEO
– Chemicals (1993-2000), member of the five
member Executive Board (1993-2005), Division
President – Akzo Salt & Base Chemicals
(1991-1993) and member of the Executive Board
– Akzo Salt & Base Chemicals (1989-1991).
Directorships of listed companies in the past
three or more years: Current – Chairman of the
Supervisory Board of Imtech N.V. (since 2005);
Former – Chairman of the Supervisory Board
of Norit International B.V. (2005-2007); Member
of the Supervisory Board of Hagemeyer N.V.
(2006-2008).
Other: Member of the Supervisory Board of
ING Bank Nederland N.V. and ING Verzekeringen
(Insurance) Nederland N.V. (since 2004);
Chairman of the Board of Energie Beheer
Nederland B.V. (since 2006). Previous
appointments include Chairman of VNCI
(Association of the Dutch Chemical Industry)
(1994-2000); Member of the Supervisory Board
of Gelderse Papier N.V. (1994-2000); Member
of the Board of CEFIC (European Chemical
Industry Council) (1998-2002); Member of
the Board and Executive Committee of the
American Chemistry Council (1996-2002);
Member of the Board of the European Council
Paint, Printing Ink and Artists’ Colours Industry
(2004-2005); Chairman of the Board of
Foundation “Toekomstbeeld der Techniek”
(1999-2005); Member of the ING Group N.V.
Advisory Council (1997-2005). Mr van der Meer
is a resident of The Netherlands.
Last elected: August 2009
David Dilger
David Harrison
James Osborne
Rudy van der Meer
Our CEO, Louis Gries, is an Executive
Director on the company’s Board. Mr Gries’
biographical details appear on page 16.
19
| JAMES HARDIE | ANNUAL REPORT 2010
20
| JAMES HARDIE | ANNUAL REPORT 2010
ConTEnTS
22
37
41
67
81
Management’s Discussion and Analysis
Directors’ Report
Remuneration Report
Corporate Governance Report
Report of Independent Registered Public Accounting Firm – Ernst & Young LLP
ConSolidaTEd FinanCial STaTEmEnTS
82
83
85
87
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Deficit
noTES To ConSolidaTEd FinanCial STaTEmEnTS
88
89
94
94
94
94
95
96
96
97
98
103
104
105
109
114
114
117
117
Inventories
1 Background and Basis of Presentation
2 Summary of Significant Accounting Policies
3 Cash and Cash Equivalents
4 Restricted Cash and Cash Equivalents
5 Accounts and Other Receivables
6
7 Property, Plant and Equipment
8 Accounts Payable and Accrued Liabilities
9 Short and Long-Term Debt
10 Product Warranties
11 Asbestos
12 Fair Value Measurements
13 Commitment and Contingencies
14
15 Stock-Based Compensation
16 Share Repurchase Program
17 Operating Segment Information and Concentrations of Risk
18 Accumulated Other Comprehensive Income
19 Re-domicile
Income Taxes
oThEr inFormaTion
118
119
120
121
124
Remuneration Disclosures – Remuneration of Independent Registered Public Accounting Firm
Selected Quarterly Financial Data (Unaudited)
Group Statistics
Share/CUFS Information
Addresses
FINANCIAL
STATEMENTS
21 | JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
ovErviEw
This discussion is intended to provide information that will assist
in understanding James Hardie’s (the company’s) 31 March 2010
consolidated financial statements, the changes in significant items
in those consolidated financial statements from year to year, and the
primary reasons for those changes and the factors and trends which are
anticipated to have a material effect on the company’s financial condition
and results of operations in future periods. This discussion includes
information about James Hardie’s critical accounting policies and how
these policies affect its 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
the financial condition and results of operations as a whole.
James Hardie’s consolidated financial statements are prepared in
accordance with US GAAP. The discussion in this section includes
several non-US GAAP measures to provide additional information
concerning the company’s performance. James Hardie believes
that these non-US GAAP measures enhance an investor’s overall
understanding of the company’s financial performance by being more
reflective of its core operational activities and to be more comparable
with financial results over various periods. In addition, the company
uses non-US GAAP financial measures internally for strategic decision
making, forecasting future results and evaluating current performance.
Non-US GAAP financial measures include:
– operating income excluding asbestos, ASIC expenses and
asset impairments;
– effective tax rate excluding asbestos, asset impairments and
tax adjustments; and
– net operating profit excluding asbestos, ASIC expenses, asset
impairments and tax adjustments.
The company has reconciled these non-US GAAP financial measures
to the most directly comparable US GAAP financial measure for fiscal
years 2010 and 2009 on pages 34–36. These non-US GAAP financial
measures are not prepared in accordance with US GAAP; therefore,
the information is not necessarily comparable to other companies’
financial information and should be considered as a supplement to, not
a substitute for, or superior to, the corresponding measures calculated
in accordance with US GAAP.
James Hardie’s pre-tax results for fiscal years 2010 and 2009 were
affected by unfavourable asbestos adjustments of US$224.2 million
and favourable asbestos adjustments of US$17.4 million, respectively;
AICF SG&A expenses of US$2.1 million and US$0.7 million,
respectively; and ASIC expenses of US$3.4 million and
US$14.0 million, respectively. Information regarding asbestos-related
matters and ASIC matters can be found in this discussion and in Notes
11 and 13 to the consolidated financial statements starting on pages 98
and 104 of this annual report.
The Company and the Building Product Markets
Based on net sales, James Hardie believes it is the largest manufacturer
of fibre cement products and systems for internal and external building
construction applications in the United States, Australia, New Zealand,
22
| JAMES HARDIE | ANNUAL REPORT 2010
and the Philippines. The company’s current primary geographic markets
include the United States, Australia, New Zealand, the Philippines,
Europe and Canada. Through significant research and development
expenditure, James Hardie develops key product and production
process technologies that it patents or holds as trade secrets. James
Hardie believes that these technologies give it a competitive advantage.
James Hardie’s fibre 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 remodelling and a variety of commercial and industrial
applications (stores, warehouses, offices, hotels, motels, schools,
libraries, museums, dormitories, hospitals, detention facilities, religious
buildings and gymnasiums). The company manufactures numerous
types of fibre 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 and floor
and tile underlayments.
The company’s 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, the availability of financing to homeowners to
purchase a new home or make improvements to their existing homes,
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. A number of these factors continued to be generally
unfavourable during fiscal year 2010, resulting in weaker residential
construction activity.
Fiscal Year 2010 Key Results
Total net sales decreased 6% to US$1,124.6 million in fiscal year
2010. James Hardie recorded an operating loss of US$21.0 million
in fiscal year 2010 compared to an operating profit of US$173.6
million in fiscal year 2009. The operating loss of US$21.0 million in
fiscal year 2010 was adversely affected by the unfavourable asbestos
adjustment of US$224.2 million. EBIT excluding asbestos and ASIC
expenses increased 22% to US$208.7 million in fiscal year 2010 from
US$170.9 million in fiscal year 2009.
Net income excluding asbestos, ASIC expenses and tax adjustments
increased 32% to US$133.0 million in fiscal year 2010 from
US$100.5 million in fiscal year 2009. Including asbestos,
ASIC expenses and tax adjustments, net income moved from
US$136.3 million to a loss of US$84.9 million.
The company’s largest market is North America. Based on the NAHB’s
Builder Practices Reports, for the past three years, fibre cement has
been one of the fastest growing segments (in terms of market growth) of
the US residential exteriors industry. During fiscal year 2010, USA and
Europe Fibre Cement net sales contributed approximately 74% of total
net sales, and its operating income was the primary contributor to the
total company results. Net sales for the USA and Europe Fibre Cement
business decreased due to a reduction in sales volume, slightly offset
by a higher average net sales price.
(US GAAP – US$ Millions)
Net Sales
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Total Net Sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research & development expenses
Asbestos adjustments
EBIT
Net interest expense
Other income (expense)
Operating (loss) income before taxes
Income tax expense
Net operating (loss) profit
Volume (mmsf)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Average net sales price per unit (per msf)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
2010
2009
% Change
$
828.1
296.5
$ 1,124.6
(708.5)
416.1
(185.8)
(27.1)
(224.2)
(21.0)
(4.0)
6.3
(18.7)
(66.2)
(84.9)
$
$
929.3
273.3
$ 1,202.6
(813.8)
388.8
(208.8)
(23.8)
17.4
173.6
(3.0)
(14.8)
155.8
(19.5)
136.3
$
1,303.7
389.6
1,526.6
390.6
US$
A$
635
894
US$
A$
609
879
(11)
9
(6)
13
7
11
(14)
–
–
(33)
–
–
–
–
(15)
–
4
2
Operating income for the USA and Europe Fibre Cement segment
increased in fiscal year 2010 from fiscal year 2009 primarily due to
lower material input costs, higher average net sales price and improved
plant performance, partially offset by lower sales volume and a resulting
increase in the fixed unit costs of manufacturing as fixed costs were
spread over significantly lower production volume.
During fiscal year 2010, Asia Pacific Fibre Cement net sales contributed
approximately 26% of total net sales. Net sales increased 9% due to
favourable currency exchange rates movements in the Asia Pacific
business’ currencies compared to the US dollar and a 2% increase
in average net sales price.
ToTal nET SalES
Total net sales decreased 6% from US$1,202.6 million in fiscal year
2009 to US$1,124.6 million in fiscal year 2010 reflecting the ongoing
decline in US housing activity.
uSa and EuropE FibrE CEmEnT nET SalES
Net sales decreased 11% from US$929.3 million in fiscal year 2009
to US$828.1 million in fiscal year 2010 due to lower sales volume,
partially offset by a higher average net sales price.
Sales volume decreased 15% from 1,526.6 million square feet in fiscal
year 2009 to 1,303.7 million square feet in fiscal year 2010, primarily
due to weaker demand for the company’s products in the United States
as a result of the downturn in activity in the US housing construction
and renovations market amid overall weak economic conditions.
Although housing affordability has improved, the reduced availability
of mortgage credit for prospective home buyers, the large inventory of
homes for sale and relatively low consumer confidence continued to
negatively affect demand. The average net sales price increased 4%
from US$609 per msf in fiscal year 2009 to US$635 per msf in fiscal
year 2010 as a result of a price increase early in fiscal year 2010 and
a favourable shift in product mix.
According to the US Census Bureau, annualised seasonally-
adjusted single family housing starts in March 2010 were 531,000,
still significantly below the January 2006 peak of 1.823 million
annualised starts.
For the full year ended 31 March 2010, the NBSK pulp price was
US$761 per ton, 7% down compared to US$814 per ton for the prior
year; however during the course of the year, key raw material and
energy costs increased. The average pulp price in the fourth quarter
was 24% higher than in the fourth quarter of fiscal year 2009, and
9% higher than in the third quarter of fiscal year 2010, as a result of
continued strong demand, especially from China, and the effects on
supply of the Chilean earthquake in February 2010.
Although production capacity has been re-commissioned as the NBSK
pulp price index has risen, the price of pulp is expected to remain high
in the immediate to medium term. In April 2010, the average NBSK pulp
price rose to US$939 per ton.
23
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Similarly, freight costs were lower for fiscal year 2010, compared to
fiscal year 2009. However, freight costs rose in the fourth quarter of
fiscal year 2010, compared to the third quarter of fiscal year 2010
and the fourth quarter of fiscal year 2009, in response to significantly
higher diesel prices amid emerging signs of a recovery in the United
States economy.
Over the full year, the ColorPlus® product range continued to increase
its penetration rate.
The company’s strategy remains unchanged, with the focus continuing
to be on primary demand growth, product mix shift and zero to landfill.
aSia paCiFiC FibrE CEmEnT nET SalES
Net sales from Asia Pacific Fibre Cement increased 9% from US$273.3
million in fiscal year 2009 to US$296.5 million in fiscal year 2010. The
higher value of the Asia Pacific business’ currencies against the US
dollar accounted for 7% of the increase, while the remaining 2% of the
increase was due to the underlying Australian dollar business results. In
Australian dollars, net sales increased 2% due to an increase in average
net sales price.
Australian Bureau of Statistics (ABS) reported a 16% increase in
housing approvals in fiscal year 2010 compared to fiscal year 2009.
Asia Pacific sales volume was stable as increasing volume in Australia
and the Philippines was offset by an 11% decrease in New Zealand
volume, due to a weaker domestic market in fiscal year 2010, compared
to fiscal year 2009.
In Australia, the Scyon™ branded product range continued to build
momentum over the course of the fiscal year. In New Zealand, sales of
differentiated products also grew in fiscal year 2010. Similarly, in the
Philippines, sales of differentiated products, primarily thicker board,
increased over the full year.
Appreciating local currencies resulted in a 5% decrease in raw material
costs measured in Australian dollar terms for the Asia Pacific business
compared to fiscal year 2009. The vast majority of this saving relates to
pulp which is traded in US dollars.
groSS proFiT
Gross profit increased 7% from US$388.8 million in fiscal year 2009 to
US$416.1 million in fiscal year 2010. The gross profit margin increased
4.7 percentage points from 32.3% in fiscal year 2009 to 37.0% in fiscal
year 2010.
USA and Europe Fibre Cement gross profit increased 5% in fiscal
year 2010 compared to fiscal year 2009. Gross profit benefited 11%
as a result of higher average net sales price and 12% from a reduction
of input costs, primarily pulp, energy and freight and lower warranty
expenses. The benefits were partially offset by a 19% detriment
due to lower sales volume and a resulting increase in the fixed
unit cost of manufacturing, as fixed costs were spread over a lower
production volume.
The gross profit margin of the USA and Europe Fibre Cement business
increased by 5.9 percentage points.
24
| JAMES HARDIE | ANNUAL REPORT 2010
Asia Pacific Fibre Cement gross profit increased 16% in fiscal year
2010 compared to fiscal year 2009. The higher value of Asia Pacific
business’ currencies against the US dollar accounted for 8% of
the increase.
In Australian dollars, Asia Pacific Fibre Cement gross profit benefited 6%
as a result of a favourable price movement, including product mix shift. In
addition, gross profit benefited 5% from reduced manufacturing costs and
decreased raw material input costs as appreciating local currencies more
than offset increasing costs of raw materials that are traded in US dollars.
These benefits were offset by higher warranty expenses.
The gross profit margin of the Asia Pacific Fibre Cement business
increased by 1.9 percentage points.
SElling, gEnEral and adminiSTraTivE
(Sg&a) ExpEnSES
SG&A expenses decreased 11% from US$208.8 million in fiscal
year 2009 to US$185.8 million in fiscal year 2010. The decrease was
primarily due to a favourable US$7.6 million adjustment to a legal
provision following settlement of a contractual warranty and lower
general corporate costs, partially offset by higher SG&A spending
in the USA and Europe Fibre Cement and Asia Pacific Fibre Cement
segments. As a percentage of sales, SG&A expenses declined 0.9 of
a percentage point to 16.5% in fiscal year 2010. For fiscal year 2010,
SG&A expenses included non-claims handling related operating
expenses of the AICF of US$2.1 million.
ASIC Proceedings
On 23 April 2009, his Honour Justice Gzell issued judgment against
the company and ten former officers and directors of the company.
All defendants other than two lodged appeals against Justice Gzell’s
judgments, and ASIC responded by lodging cross-appeals against the
appellants. The appeals lodged by the former directors and officers were
heard in April 2010 and the appeal lodged by the company was heard
in May 2010. A final judgment is awaited.
Depending upon the outcome of the appeals and cross-appeals, further
or different findings may be made as to the liability of each defendant-
appellant, any banning orders, fines payable, and costs of the appeal
and the first instance proceedings that the company may become
liable for either in respect of its own appeal or the appeals of other
defendants-appellants under indemnities.
As with the first instance proceedings, the company has agreed to pay
a proportion of the costs of bringing and defending appeals, with the
remaining costs being met by third parties. The company notes that
other recoveries may be available, including as a result of successful
appeals or repayments by former directors and officers in accordance
with the terms of their indemnities.
As a result of the above uncertainties, it is not presently possible for
the company to estimate the amount or range of amounts, including
costs that it might become liable to pay as a consequence of the appeal
proceedings. Accordingly, as of 31 March 2010, the company has not
recorded any related loss reserves.
It is the company’s policy to expense legal costs as incurred. Losses
and expenses arising from the ASIC proceedings and appeals could
have a material adverse effect on the company’s financial position,
liquidity, results of operations and cash flows.
proceedings in 2003 against the former James Hardie Chilean entity
alleging that it had engaged in predatory pricing, by selling products
below cost when it entered the Chilean market, in breach of the relevant
anti-trust laws in Chile. Quimel also joined the proceedings.
For the year ended 31 March 2010, the company incurred legal
costs related to the ASIC proceedings, noted as ASIC expenses,
of US$3.4 million. These costs were substantially lower compared
to fiscal year 2009, when the company incurred ASIC expenses of
US$14.0 million. ASIC expenses are included in SG&A expenses.
The company’s net costs in relation to the ASIC proceedings from their
commencement in February 2007 and the appeals to 31 March 2010
total US$23.1 million.
Background
In February 2007, ASIC commenced civil proceedings in the Supreme
Court of New South Wales (the Court) against the company, ABN 60
and ten then-present or former officers and directors of the James
Hardie Group. While the subject matter of the allegations varied
between individual defendants, the allegations against the company
were confined to alleged contraventions of provisions of the Australian
Corporations Act/Law relating to continuous disclosure, and engaging
in misleading or deceptive conduct in respect of a security.
The company defended each of the allegations made by ASIC and the
orders sought against it in the proceedings, as did the other former
directors and officers of the company.
See Note 13 to the consolidated financial statements starting on
page 104 of this annual report for further information on the ASIC
Proceedings.
Chile Litigation
On 30 December 2009, the company entered into a settlement
agreement with El Volcan resolving all outstanding issues between
the parties relating to the sale of FC Volcan to El Volcan in July 2005.
Under the settlement agreement, James Hardie will have no further
obligation to defend or indemnify El Volcan in the antitrust proceedings
commenced by Cementa or Quimel.
El Volcan will now be responsible for its own defence of the antitrust
proceedings, including payment of any final judgments rendered
on appeal. El Volcan will also be required to defend and indemnify
James Hardie against any future claims by third parties related to the
management or business of FC Volcan, including any future antitrust
allegations. The terms and conditions of the settlement remain
confidential. All amounts owed under the terms of the settlement were
paid in full on 31 December 2009. As a result, the amount of the
provision in excess of the settlement amount was reversed, resulting
in a gain of US$7.6 million included in general corporate costs for the
year ended 31 March 2010.
Background
On 24 April 2009, a trial court in Santiago, Chile awarded the then
equivalent of US$13.4 million in damages against FC Volcan, in civil
litigation brought by Cementa in 2007.
Cementa, a fibre cement manufacturer in Chile, commenced anti-trust
As these actions existed prior to James Hardie’s sale of its Chilean
business in July 2005, the company had agreed to indemnify the buyer,
El Volcan, subject to certain conditions and limitations, for damages or
penalties awarded against FC Volcan in relation to such proceedings.
After the anti-trust proceedings concluded in 2006, Cementa, in 2007,
brought a separate civil action against FC Volcan claiming that Cementa
had suffered damages, allegedly as a result of predatory pricing.
Quimel also filed a separate civil action against FC Volcan in 2007
claiming that it had suffered damages, allegedly as a result of predatory
pricing. On 23 June 2009, the Chilean trial court dismissed the claim
filed by Quimel against FC Volcan.
James Hardie denied and continues to deny the allegations of predatory
pricing in Chile.
See Note 13 to the consolidated financial statements starting on
page 104 of this annual report for more information on the Chile
Litigation.
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 9% higher for fiscal year 2010, at US$15.7 million.
Other research and development costs associated with
commercialisation projects in business units are included in the
business unit segment results. In total, these costs were 24% higher
for fiscal year 2010 at US$11.4 million, compared to fiscal year 2009.
aSbESToS adjuSTmEnTS
The company’s asbestos adjustments are derived from an estimate
of future Australian asbestos-related liabilities in accordance with the
AFFA that was signed with the NSW Government in November 2006
and approved by the company’s security holders in February 2007.
The discounted central estimate of the asbestos liability has decreased
from AUS$1.782 billion at 31 March, 2009 to AUS$1.537 billion at
31 March, 2010. The reduction in the discounted central estimate of
A$245.0 million is primarily due to increases in yields on Government
Bonds, which are used for discounting the future cash flows; and a
reduction in the projected future number of claims to be reported for
a number of disease types.
The asbestos-related assets and liabilities are denominated in
Australian dollars. Therefore the reported value of these asbestos-
related assets and liabilities in the company’s consolidated balance
sheets in US dollars is subject to adjustment, with a corresponding
effect on the company’s consolidated statement of operations,
depending on the closing exchange rate between the two currencies
at each balance sheet date.
25
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
For fiscal year 2010, the Australian dollar appreciated against the US
dollar by 33%, compared to a 25% depreciation in fiscal year 2009.
The company receives an updated actuarial estimate as of 31 March
each year. The last actuarial assessment was performed as of 31 March
2010. The asbestos adjustments for the fiscal years ended 31 March
2010 and 2009 are as follows:
(US$ millions)
Change in estimates
Effect of foreign exchange movements
Asbestos adjustments
Fiscal Years Ended 31 March
2010
(3.3)
(220.9)
(224.2)
$
$
2009
$ (162.3)
179.7
(17.4)
$
ClaimS daTa
The number of new claims filed in fiscal year 2010 of 535 is lower than
new claims of 607 reported for fiscal year 2009, and also slightly below
actuarial expectations for fiscal year 2010.
The number of claims settled of 540 for fiscal year 2010 is lower than
claims settled of 596 for fiscal year 2009.
The average claim settlement of A$191,000 for fiscal year 2010 is in
line with fiscal year 2009 and slightly below the actuarial expectations
for fiscal year 2010.
Asbestos claims paid of A$103.2 million for fiscal year 2010 were lower
than the actuarial expectation of A$114.2 million for fiscal year 2010.
As of 31 March 2010, the AICF had cash and investment assets
of A$63.1 million (US$57.8 million). James Hardie will make a
contribution of A$72.8 million (US$63.7 million) to the AICF on 1 July
2010. This amount represents 35% of the company’s free cash flow for
fiscal year 2010, as defined by the AFFA.
All figures provided in this claims data section are gross of insurance
and other recoveries. See Note 11 to the consolidated financial
statements for further information on asbestos adjustments.
EbiT
EBIT moved from US$173.6 million in fiscal year 2009 to a loss of
US$21.0 million for fiscal year 2010. The loss for fiscal year 2010
includes net unfavourable asbestos adjustments of US$224.2 million
(due primarily to the appreciation of the Australian dollar against the
US dollar during the period), AICF SG&A expenses of US$2.1 million
and ASIC expenses of US$3.4 million.
In fiscal year 2009, EBIT included net favourable asbestos adjustments
of US$17.4 million (attributable to depreciation of the Australian dollar
against the US dollar during the period, partially offset by a change in
the actuarial estimate), AICF SG&A expenses of US$0.7 million and
ASIC expenses of US$14.0 million.
Excluding asbestos and ASIC expenses, operating income increased
from US$170.9 million in fiscal year 2009 to US$208.7 million in fiscal
year 2010 as shown in the following table:
$
2010
208.5
58.7
(19.0)
(42.9)
(224.2)
(2.1)
(21.0)
224.2
2.1
3.4
208.7
$
$ 1,124.6
18.6%
$
2009
199.3
47.1
(18.9)
% Change
5
25
(1)
(70.6)
17.4
(0.7)
173.6
(17.4)
0.7
14.0
170.9
$
$ 1,202.6
14.2%
39
-
-
-
-
-
(76)
22
(6)
(Millions of US$)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Research & Development
General Corporate:
General corporate costs
Asbestos adjustments
AICF SG&A expenses
EBIT
Excluding:
Asbestos:
Asbestos adjustments
AICF SG&A expenses
ASIC expenses
EBIT excluding asbestos and ASIC expenses
Net sales
EBIT margin excluding asbestos and ASIC expenses
26
| JAMES HARDIE | ANNUAL REPORT 2010
USA and Europe Fibre Cement EBIT increased by 5% from
US$199.3 million in fiscal year 2009 to US$208.5 million in fiscal
year 2010. The improvement was driven by lower material input costs
(primarily pulp, energy and freight), higher average net sales price and
improved plant performance which contributed to lower average unit
manufacturing costs. These benefits were partially offset by lower sales
volume and a resulting increase in the fixed unit cost of manufacturing
as fixed costs were spread over significantly lower production volume.
The USA and Europe Fibre Cement EBIT margin was 3.8 percentage
points higher at 25.2%.
Asia Pacific Fibre Cement EBIT increased 25% from US$47.1 million
in fiscal year 2009 to US$58.7 million in fiscal year 2010. Favourable
currency exchange rate movements in the Asia Pacific business’
currencies compared to the US dollar accounted for 11% of this
increase. In Australian dollars, Asia Pacific Fibre Cement EBIT for the
full year increased 14% due to strong primary demand growth offsetting
weakened local markets, an increase in average net sales price, and
favourable product mix shift, together with lower raw materials costs
and reduced manufacturing costs. These benefits were partially offset by
an increase in warranty expenses. The EBIT margin was 2.6 percentage
points higher at 19.8%.
gEnEral CorporaTE CoSTS
General corporate costs decreased US$27.7 million from
US$70.6 million in fiscal year 2009 to US$42.9 million in fiscal year
2010. The company incurred costs associated with its Re-domicile of
US$9.1 million in fiscal year 2010, compared to US$10.3 million in
fiscal year 2009. ASIC expenses decreased from US$14.0 million in
fiscal year 2009 to US$3.4 million in fiscal year 2010.
General corporate costs excluding ASIC expenses and Re-domicile
costs for fiscal year 2010 decreased from US$46.3 million in fiscal year
2009 to US$30.4 million in fiscal year 2010. The reduction was due to
a US$7.6 million reversal of a legal provision and reductions in other
general corporate costs.
nET inTErEST ExpEnSE
Net interest expense increased from US$3.0 million in fiscal year
2009 to US$4.0 million in fiscal year 2010. Net interest expense for
fiscal year 2010 included AICF interest income of US$3.3 million and
a realised loss of US$2.5 million on interest rate swap contracts. Net
interest expense for fiscal year 2009 included AICF interest income of
US$6.4 million and nil related to interest rate swap contracts.
oThEr inComE (ExpEnSE)
Other income moved from an expense of US$14.8 million in fiscal
year 2009 to income of US$6.3 million in fiscal year 2010. The
turnaround resulted from an other-than-temporary impairment charge
of US$14.8 million recognised at 31 March 2009 on restricted short-
term investments held by the AICF. Other income for the full year also
benefited from a US$6.7 million (A$7.9 million) realised gain arising
from the sale of restricted short-term investments held by the AICF,
partially offset by an unrealised loss of US$0.4 million resulting from
movements in the fair value of interest rate swap contracts.
inComE Tax
Income tax expense increased from US$19.5 million in fiscal year
2009 to US$66.2 million in fiscal year 2010. The company’s effective
tax rate on earnings excluding asbestos and tax adjustments was
34.4% in fiscal year 2010, compared to 41.4% for fiscal year 2009.
The change in effective tax rate excluding asbestos and tax adjustments
is attributable to changes in the geographic mix of earnings and
expenses, reductions in non-tax deductible expenses and the reversal
of a non-taxable legal provision in operating profit.
The company recorded favourable tax adjustments of US$2.9 million
in fiscal year 2010 compared to unfavourable tax adjustments of
US$7.2 million in fiscal year 2009. The tax adjustments in fiscal years
2010 and 2009 relate to uncertain tax positions.
nET opEraTing (loSS) proFiT
Net operating loss moved from a profit of US$136.3 million in
fiscal year 2009 to a loss of US$84.9 million in fiscal year 2010.
Net operating profit excluding asbestos, ASIC expenses and tax
adjustments increased 32% from US$100.5 million in fiscal year 2009
to US$133.0 million in fiscal year 2010 as shown in the table below.
(US$ millions)
Net operating (loss) profit
Excluding:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Tax expense (benefit) related to asbestos
adjustments
ASIC expenses
Tax adjustments
Net operating profit excluding asbestos,
ASIC expenses and tax adjustments
Fiscal Years Ended 31 March
2010
$ (84.9)
2009
$ 136.3
224.2
2.1
(3.3)
(6.7)
1.1
3.4
(2.9)
(17.4)
0.7
(6.4)
14.8
(48.7)
14.0
7.2
$ 133.0
$ 100.5
Fiscal year 2010 includes a one-time legal provision reversal of
US$7.6 million. See Note 13 to the consolidated financial statements
starting on page 104 of this annual report for further information on the
legal provision reversal.
27
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
liquidiTy and CapiTal rESourCES
The company’s treasury policy regarding liquidity management,
foreign exchange risk management, interest rate risk management
and cash management is administered by its treasury department
and is centralised in Ireland. This policy is reviewed annually and is
designed to ensure that the company has sufficient liquidity to support
its business activities and meet future business requirements in the
countries in which it operates. Counterparty limits are managed by the
treasury department and based upon the counterparty credit rating; total
exposure to any one counterparty is limited to specified amounts that
are approved annually by the Chief Financial Officer.
James Hardie has historically met its working capital needs and
capital expenditure requirements through a combination of cash flow
from operations, credit facilities and other borrowings, proceeds
from the sale of property, plant and equipment and proceeds from
(Millions of US dollars)
Description
Term facilities, can be drawn in US$, variable interest rates based
on LIBOR plus margin, can be repaid and redrawn until June 2010
Term facilities, can be drawn in US$, variable interest rates based
on LIBOR plus margin, can be repaid and redrawn until February 2011
Term facilities, can be drawn in US$, variable interest rates based
on LIBOR plus margin, can be repaid and redrawn until December 2012
Term facilities, can be drawn in US$, variable interest rates based
on LIBOR plus margin, can be repaid and redrawn until February 2013
Total
At 31 March 2010 the company had net debt of US$134.8 million,
a decrease of US$146.8 million from net debt of US$281.6 million
at 31 March 2009.
In December 2009, the company refinanced US$130.0 million in
facilities, which previously had maturity dates in or prior to June 2010.
The maturity date of these new facilities is December 2012. On 16 June
2010, US$161.7 million of the term facilities matured. The company did
not refinance these facilities. Accordingly, amounts outstanding under
these facilities were repaid by using longer-term facilities.
The weighted average remaining term of the total credit facilities at
31 March 2010 was 2.6 years. For all facilities, the interest rate is
calculated two business days prior to the commencement of each draw-
down period based on the US$ London Interbank Offered Rate (LIBOR)
plus the margins of individual lenders and is payable at the end of each
draw-down period. During fiscal year 2010, the company paid US$1.3
million in commitment fees. As of 31 March 2010, US$154.0 million was
drawn under the combined facilities and US$272.7 million was available.
In March 2006, RCI received an amended assessment from the ATO
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.
During fiscal year 2007, the company agreed with the ATO that in
accordance with the ATO Receivables Policy, James Hardie would
28
| JAMES HARDIE | ANNUAL REPORT 2010
the redemption of investments. Seasonal fluctuations in working
capital generally have not had a significant impact on the company’s
short-term or long-term liquidity. The company anticipates that it will
have sufficient funds to meet its planned working capital and other
cash requirements for the next 12 months based on its existing cash
balances, cash available under proposed new credit facilities and
anticipated operating cash flows arising during the year. The company
anticipates that any additional cash requirements will be met from
existing cash, unutilised committed credit facilities, anticipated future
net operating cash flows and proposed new facilities.
Excluding restricted cash, the company had cash and cash equivalents of
US$19.2 million as of 31 March 2010. At that date, the company also had
credit facilities totalling US$426.7 million, of which US$154.0 million
was drawn, leaving US$272.7 million available to be drawn. The credit
facilities are all uncollateralised and consist of the following:
Effective Interest Rate
At 31 March 2010
Total Facility
Principal Drawn
0.86%
$ 161.7
$
95.0
–
–
45.0
130.0
–
–
1.01%
90.0
$ 426.7
59.0
$ 154.0
pay 50% of the total amended assessment being A$184.0 million
(US$148.4 million – converted at the 31 March 2007 spot rate) and
provide a guarantee from JHI SE in favour of the ATO for the remaining
unpaid 50% of the amended assessment, pending the outcome of
the appeal of the amended assessment. The company also agreed to
pay GIC accruing on the unpaid balance of the amended assessment
in arrears on a quarterly basis. Up to 31 March 2010, the company
had paid A$118.6 million (US$108.6 million) of GIC to the ATO. This
amount includes GIC of A$76.7 million (US$70.2 million) paid as part
of the payment of A$184.0 million (US$148.4 million – converted at the
31 March 2007 spot rate) towards the amended assessment in fiscal
year 2007. On 15 April 2010, the company paid an additional amount
of A$2.5 million (US$2.3 million) in GIC related to the quarter ended
31 March 2010.
RCI strongly disputes the amended assessment and is pursuing all
avenues of appeal to contest the ATO’s position in this matter. The
company believes that RCI’s view on its tax position will ultimately
prevail in this matter. As a result, the company has treated all payments
in respect of the amended assessment and the accrued interest
receivable on such payments as of 31 March 2010 as a deposit. It is
the company’s intention to treat any payments to be made at a later date
and accrued interest receivable as a deposit.
The company expects 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 31 March 2010, the
company had not recorded any liability for the amended assessment as
it believes it is more-likely-than-not, based on the technical merits, that
its position will be upheld.
For more information, see Note 14 to the consolidated financial
statements starting on page 105 of this annual report. If the company
is unable to extend its credit facilities, or unable to renew its credit
facilities on terms that are substantially similar to the ones it presently
has, it may experience liquidity issues and may have to reduce its
levels of planned capital expenditures, continue to suspend dividend
payments, or take other measures to conserve cash in order to meet
future cash flow requirements.
As of 31 March 2010, the company’s management believed that it
was in compliance with all restrictive covenants contained in its credit
facility agreements. Under the most restrictive of these covenants,
the company (i) is required to maintain certain ratios of indebtedness
to equity which do not exceed certain maximums, excluding assets,
liabilities and other balance sheet items of the AICF, Amaba, Amaca,
ABN 60 and Marlew Mining Pty Limited, (ii) must maintain a minimum
level of net worth, excluding assets, liabilities and other balance sheet
items of the AICF; for these purposes “net worth” means the sum of
the par value (or value stated in the books of the James Hardie Group)
of the capital stock (but excluding treasury stock and capital stock
subscribed or unissued) of the James Hardie Group, the paid-in capital
and retained earnings of the James Hardie Group and the aggregate
amount of provisions made by the James Hardie Group for asbestos
related liabilities, in each case, as such amounts would be shown in
the consolidated balance sheet of the James Hardie Group if Amaba,
Amaca, ABN 60 and Marlew Mining Pty Limited were not accounted for
as subsidiaries of the company, (iii) must meet or exceed a minimum
ratio of earnings before interest and taxes to net interest charges,
excluding all income, expense and other profit and loss statement
impacts of the AICF, Amaba, Amaca, ABN 60 and Marlew Mining Pty
Limited and (iv) must ensure that no more than 35% of Free Cash Flow
(as defined in the AFFA) in any given Financial Year is contributed to
the AICF on the payment dates under the AFFA in the next following
Financial Year. The limit does not apply to payments of interest to the
AICF. Such limits are consistent with the contractual liabilities of the
Performing Subsidiary and the company under the AFFA.
CaSh Flow
Net operating cash moved from a cash outflow of US$45.2 million in
fiscal year 2009 to a cash inflow of US$183.1 million in fiscal year
2010, primarily due to two significant cash outflows in fiscal year 2009
that did not recur in fiscal year 2010: the ATO settlement payment of
US$101.6 million in settlement of disputes for the years 2002 and 2004
to 2006, and the quarterly instalment payments to the AICF totalling
US$110.0 million. Under the terms of the AFFA, the company was not
required to make a contribution to the AICF during fiscal year 2010. Net
operating cash flow was also favourably affected by a net improvement
in operating results across the business, changes in accrued liabilities
and an increase in accounts payable due to rising levels of inventory.
These favourable movements were partially offset by an increase in
accounts receivable.
Historically, the company has generated cash from operations before
accounting for unusual or discrete large cash outflows. Therefore,
in periods when it does not incur any unusual or discrete large cash
outflows, such as or similar to the ATO settlement during fiscal year
2009, the company expects that net operating cash flow will be the
primary source of liquidity to fund business activities. In periods
where cash flows from operations are insufficient to fund all business
activities, the company expects to rely more significantly on available
credit facilities and other sources of working capital.
Net cash used in investing activities increased from US$26.1 million
in fiscal year 2009 to US$50.5 million in fiscal year 2010 as capital
expenditures increased from the prior year.
Net financing cash moved from a cash inflow of US$25.0 million in
fiscal year 2009 to a cash outflow of US$159.0 million in fiscal year
2010, primarily due to repayment of 364-day facilities of US$93.3
million and a reduction in outstanding term facilities of US$76.7 million
during fiscal year 2010.
Capital Requirements and Resources
James Hardie’s capital requirements consist of expansion, renovation
and maintenance of its production facilities and construction of new
facilities. The company’s 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 the fiscal year ended 31 March 2010, the company met its
capital expenditure requirements through a combination of internal
cash and funds from credit facilities. The company expects to use cash
primarily generated from its operations to fund capital expenditures
and working capital. During fiscal year 2011, the company expects
to spend approximately US$70 million to US$80 million on capital
expenditures, including facility upgrades, equipment to enhance
environmental compliance and capital to implement new fibre cement
technologies. The company plans to fund any cash flow shortfalls that
it may experience due to payments related to the AFFA and payments
made to the ATO under the amended assessment, with future cash flow
surpluses, cash on hand of US$19.2 million at 31 March 2010, and
cash that it anticipates will be available under credit facilities.
Under the terms of the AFFA, the company is required to fund the
AICF on an annual basis, depending on its net operating cash flow.
The initial funding payment of A$184.3 million (US$145.0 million
at the time of payment) was made to the AICF in February 2007 and
annual payments will be made each July. The amounts of these annual
payments are dependent on several factors, including the company’s
free cash flow (as defined in the AFFA), actuarial estimations, actual
claims paid, operating expenses of the AICF and the annual cash flow
cap. No contribution was required to be made under the AFFA in fiscal
year 2008. Further contributions in fiscal year 2009 were made on a
29
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
quarterly basis in July and October 2008 and in January and March
2009, totalling A$118.0 million (inclusive of interest). Under the terms
of the AFFA, the company was not required to make a contribution to
the AICF in fiscal year 2010. The company will make a contribution
to the AICF in fiscal year 2011 of A$72.8 million (US$63.7 million).
Future funding for the AICF continues to be linked under the terms of
the AFFA to the company’s long-term financial success, especially its
ability to generate net operating cash flow.
The company anticipates that its cash flows from operations, net of
estimated payments under the AFFA, will be sufficient to fund its
planned capital expenditure and working capital requirements in the
short-term. If the company does not generate sufficient cash from
operations to fund its planned capital expenditures and working
capital requirements, it believes the cash and cash equivalents of
US$19.2 million at 31 March 2010, and the cash that it anticipates will
be available under credit facilities, will be sufficient to meet any cash
shortfalls during at least the next 12 months.
The company expects to rely primarily on increased market penetration
of its products and increased profitability from a more favourable
product mix to generate cash to fund its long-term growth. Historically,
the company’s products have been well-accepted by the market and its
product mix has changed towards higher-priced, differentiated products
that generate higher margins.
The company has historically reinvested a portion of the cash generated
from its operations to fund additional capital expenditures, including
research and development activities, which it believes have facilitated
greater market penetration and increased profitability. The company’s
ability to meet its long-term liquidity needs, including its long-term
growth plan, is dependent on the continuation of this trend and other
factors discussed here.
In May 2007, the company announced a dividend policy of a payout ratio
of between 50% to 75% of net income before asbestos adjustments,
subject to funding requirements. In November 2008, the company
announced that its Board had decided to omit the interim dividend for
fiscal year 2009 and that it would continue to review the dividend policy,
but that it was likely dividends would be suspended until conditions
improved significantly. On 20 May, 2009, the company announced that it
would omit the year-end dividend for fiscal year 2009 to conserve capital
and that, until such time as market and global economic conditions
improve significantly and the level of uncertainty surrounding future
industry trends as well as company specific contingencies dissipates,
it anticipates that dividends will continue to be suspended in order to
conserve capital. This remains the company’s position.
The company believes its business is affected by general economic
conditions, such as level of employment, consumer confidence,
consumer income, the availability of financing and interest rates
in the United States and in other countries because these factors
affect housing affordability and the level of housing prices. Over the
past several years, the ongoing sub-prime mortgage fallout, rising
unemployment, increased foreclosures, high current inventory of
unsold homes, tighter credit and volatile equity markets have materially
30
| JAMES HARDIE | ANNUAL REPORT 2010
adversely affected the company’s business. The company expects that
business derived from current US forecasts of new housing starts
and renovation and remodel expenditures will result in its operations
generating cash flow sufficient to fund the majority of its planned capital
expenditures. It is possible that a deeper than expected decline in new
housing starts in the United States or in other countries in which the
company manufactures and sells its products would negatively affect
its growth and current levels of revenue and profitability and therefore
decrease the company’s liquidity and ability to generate sufficient cash
from operations to meet its capital requirements.
Pulp and cement are primary ingredients in the company’s fibre cement
formulation, which have been subject to price volatility, affecting its
working capital requirements. The company’s pulp prices are discounted
from a global index, NBSK, which – based on information the company
receives from RISI and other sources – are predicted to increase in
fiscal year 2011 due to increased demand and the effects on supply
of the Chilean earthquake in February 2010. To minimise additional
working capital requirements caused by rising pulp prices, the company
has entered into contracts that discount pulp prices in relation to
various pulp indices over a longer-term and purchases its pulp from
several qualified suppliers in an attempt to mitigate price increases and
supply interruptions.
The company expects its average price for cement to remain relatively
flat compared to fiscal year 2010. The company continues to look for
opportunities to negotiate lower prices with its cement suppliers and
continues to evaluate opportunities to increase its supplier base.
Freight costs decreased in fiscal year 2010 due to shifts in product mix;
however, freight costs increased in the fourth quarter of fiscal year 2010
in response to significantly higher diesel prices amid emerging signs of
recovery in the US economy. The company expects this to continue in
fiscal year 2011.
The collective impact of the foregoing factors, and other factors,
including those identified in Forward-looking Statements on the inside
back cover of this annual report, may materially adversely affect the
company’s ability to generate sufficient cash flows from operations
to meet its short and longer-term capital requirements. The company
believes that it will be able to fund any cash shortfalls for at least the
next 12 months with cash that it anticipates will be available under
its credit facilities and that it will be able to maintain sufficient cash
available under those facilities. Additionally, the company may decide
that it is necessary to continue to suspend dividend payments, scale
back or postpone its expansion plans and/or take other measures to
conserve cash to maintain sufficient capital resources over the short
and longer-term.
Capital Expenditures
The company’s total capital expenditures, including amounts accrued,
for continuing operations for fiscal years 2010 and 2009 were
US$50.5 million and US$26.1 million, respectively.
Significant capital expenditures in fiscal years 2010 and 2009
included expenditures related to a new finishing capability on an
existing product line.
Contractual Obligations
The following table summarises the company’s contractual obligations at 31 March 2010:
(Millions of US dollars)
Asbestos Liability1
Long-Term Debt
Estimated interest payments on Long-Term Debt2
Operating Leases
Purchase Obligations3
Total
Total
$ 1,619.2
154.0
24.1
114.4
0.7
$ 1,912.4
Payments Due
During Fiscal Year Ending 31 March
2012 to 2013
$ N/A
59.0
11.2
31.5
–
$ 101.7
2014 to 2015
$ N/A
–
5.7
28.0
–
$ 33.7
2011
$ N/A
95.0
5.7
17.4
0.7
$ 118.8
Thereafter
$ N/A
–
1.5
37.5
–
$ 39.0
1 The amount of the asbestos liability reflects the terms of the AFFA, which has been calculated by reference to (but is not exclusively based upon)
the most recent actuarial estimate of the projected future asbestos-related cash flows prepared by KPMG Actuaries. The asbestos liability also
includes an allowance for the future claims-handling costs of the AICF. The table above does not include a breakdown of payments due each year
as such amounts are not reasonably estimable. See Note 11 to the consolidated financial statements starting on page 98 for further information
regarding the future obligations under the AFFA.
2 Interest amounts are estimates based on gross debt remaining unchanged from the 31 March 2010 balance and interest rates remaining consistent
with the rates at 31 March 2010. Interest paid includes interest in relation to the company’s debt facilities, as well as the net amount paid relating
to interest rate swap agreements. The interest on debt facilities is variable based on a market rate and includes margins agreed to with the various
lending banks. The interest on interest rate swaps is set at a fixed rate. There are several variables that can affect the amount of interest the
company may pay in future years, including: (i) new debt facilities with rates or margins different from historical rates; (ii) expiration of existing
debt facilities resulting in a change in the average interest rate; (iii) fluctuations in the market interest rate; (iv) new interest rate swap agreements;
and (v) expiration of existing interest rate swap agreements.
3 Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and legally-binding on the company 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.
The table above excludes US$7.7 million of uncertain tax positions as the company is unable to reasonably estimate the ultimate amount or timing
of settlement. See Note 14 to the consolidated financial statements starting on page 105 of this annual report.
See Notes 9 and 13 to the consolidated financial statements starting on pages 96 and 104 of this annual report for further information regarding
long-term debt and operating leases, respectively.
oFF-balanCE ShEET arrangEmEnTS
As of 31 March, 2010 and 2009, the company did not have any material
off-balance sheet arrangements.
inFlaTion
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.
The company does not believe that inflation has had a significant impact
on the results of operations for the fiscal year ended 31 March 2010.
For fiscal years 2010 and 2009, the company’s expenses for research and
development were US$27.1 million and US$23.8 million, respectively.
SEaSonaliTy and quarTErly variabiliTy
The company’s 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
James Hardie views research and development as key to sustaining
its existing market leadership position and expects to continue to
allocate significant funding to this endeavour. Through its investment in
process technology, the company aims to keep reducing its capital and
operating costs, and find new ways to make existing and new products.
31
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
ouTlook
Although new housing construction activity in the US improved in the
fourth quarter of fiscal year 2010, the start of fiscal year 2011 has seen
another decline in US new housing numbers following the expiry of the
government’s housing initiatives on 30 April 2010.
Analysts are now less confident that the US housing market will
improve in fiscal year 2011. Severe challenges remain, including
constrained credit conditions that are restricting the availability of
finance for prospective buyers and developers, a weak employment
market, and a continuing supply of foreclosed homes.
Asia Pacific markets that James Hardie participates in are likely to be
somewhat better in fiscal year 2011 than in fiscal year 2010.
Operating costs are expected to be considerably higher in fiscal year
2011 than in fiscal year 2010, as market demand puts upward pressure
on basic commodity prices.
Despite the challenging environment and higher input costs, the company
will continue to pursue strong financial returns, and, at the same time,
increase spending on long-term product and market initiatives.
CriTiCal aCCounTing poliCiES
The accounting policies affecting James Hardie’s financial condition
and results of operations are more fully described in Note 2 to the
consolidated financial statements starting on page 89 of this annual
report. Certain of the company’s 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 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. The company
considers the following policies to be the most critical in understanding
the judgments that are involved in preparing its consolidated financial
statements and the uncertainties that could have an impact on its results
of operations, financial condition and cash flows.
Accounting for Contingencies
James Hardie accounts for loss contingencies arising from contingent
obligations when the obligations are probable and the amounts are
reasonably estimable. As facts concerning contingencies become
known, the company reassesses its situation and makes appropriate
adjustments to the consolidated financial statements. For additional
information regarding asbestos-related matters, ASIC proceedings,
and Chile litigation, see Notes 11 and 13 to the consolidated financial
statements starting on pages 98 and 104 of this annual report.
32
| JAMES HARDIE | ANNUAL REPORT 2010
Accounting for the AFFA
Prior to 31 March 2007, the company’s consolidated financial
statements included an asbestos provision based on the Original FFA.
In February 2007, the AFFA was approved to provide long-term funding
to the AICF, a special purpose fund that provides compensation for
Australian asbestos-related personal injury and death claims for which
the Former James Hardie Companies are found liable.
The amount of the asbestos liability reflects the terms of the AFFA,
which 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. Based on its assumptions, KPMG
Actuaries arrived at a range of possible total cash flows and proposed
a central estimate which is intended to reflect an expected outcome.
The company views the central estimate as the best estimate for
recording the asbestos liability in the company’s financial statements.
The asbestos liability includes these cash flows as undiscounted and
uninflated on the basis that it is inappropriate to discount or inflate
future cash flows when the timing and amounts of such cash flows
is not fixed or readily determinable.
The asbestos liability also includes an allowance for the future
operating costs of the AICF.
In estimating the potential financial exposure, KPMG Actuaries has 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.
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 is performed as of 31 March each
year. Any changes in the estimate will be reflected as a charge or credit
to the consolidated statements of operations for the year then ended.
Material adverse changes to the actuarial estimate would have an
adverse effect on the company’s business, results of operations and
financial condition.
For additional information regarding the asbestos liability, see Note
11 to the consolidated financial statements starting on page 98 of this
annual report.
Sales Rebates and Discounts
James Hardie records 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.
Accounts Receivable
James Hardie evaluates the collectability of accounts receivable on
an ongoing basis based on historical bad debts, customer credit-
worthiness, current economic trends and changes in customer payment
activity. An allowance for doubtful accounts is provided for known
and estimated bad debts. Although credit losses have historically
been within the company’s expectations, it cannot guarantee that it
will continue to experience the same credit loss rates that it has in the
past. Because the company’s 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 affect
their ability to make payments and result in the need for additional
allowances which would decrease the company’s net sales. For
additional information regarding customer concentration, see Note 17
to the consolidated financial statements on page 114 of this annual
report.
Inventory
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 the
company’s estimate for the future demand for inventory is greater than
actual demand and it fails to reduce manufacturing output accordingly, the
company could be required to record additional inventory reserves, which
would have a negative impact on its gross profit.
Accrued Warranty Reserve
James Hardie has offered and continues to offer various warranties on
its products. In April 2009, the company replaced its 50-year limited
pro-rated warranty with a 30-year limited non-pro-rated warranty for
certain fibre cement siding products in the United States. Because
the company’s fibre 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 the company’s expectations over an
extended period of time. 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 by the company, which includes
the historical relationship of warranty costs to installed product. Based
on this analysis and other factors, the company adjusts the amount
of its warranty provisions as necessary. Although warranty costs
have historically been within calculated estimates, if the company’s
experience is significantly different from its estimates, it could result in
the need for additional reserves.
Accounting for Income Tax
James Hardie recognises deferred tax assets and deferred tax liabilities
for the expected tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported amounts using
enacted tax rates in effect for the year in which it expects the differences
to reverse. The company records a valuation allowance to reduce the
deferred tax assets to the amount that it is more likely than not to
realise. The company must assess whether, and to what extent, it can
recover its deferred tax assets. If full or partial recovery is unlikely,
it must increase its income tax expense by recording a valuation
allowance against the portion of deferred tax assets that it cannot
recover. The company believes that it will recover all of the deferred tax
assets recorded (net of valuation allowance) on its consolidated balance
sheet at 31 March 2010. However, if facts later indicate that it will
be unable to recover all or a portion of its net deferred tax assets, its
income tax expense would increase in the period in which it determines
that recovery is unlikely.
The company evaluates its uncertain tax positions in accordance
with the guidance for accounting for uncertainty in income taxes.
The company believes that its reserve for uncertain tax positions,
including related interest, is adequate. Due to its size 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 it asserts on its income tax returns. The amounts ultimately
paid upon resolution of these matters could be materially different
from the amounts previously included in its income tax expense and
therefore could have a material impact on the company’s tax provision,
net income and cash flows. Positions taken by an entity in its income
tax returns must satisfy a more-likely-than-not recognition threshold,
assuming that the positions will be examined by taxing authorities with
full knowledge of all relevant information, in order for the positions to
be recognised in the consolidated financial statements. Each quarter the
company evaluates the income tax positions taken, or expected to be
taken, to determine whether these positions meet the more-likely-than-
not threshold. The company is required to make subjective judgments
and assumptions regarding its income tax exposures and must consider
a variety of factors, including the current tax statutes and the current
status of audits performed by tax authorities in each tax jurisdiction. To
the extent an uncertain tax position is resolved for an amount that varies
from the recorded estimated liability, the company’s income tax expense
in a given financial statement period could be materially affected.
For additional information, see Note 14 to the consolidated financial
statements starting on page 105 of this annual report.
33
| JAMES HARDIE | ANNUAL REPORT 2010
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
About the terminology used in this annual report
In this annual report, James Hardie may present financial measures, sales
volume terms, financial ratios, and non-US GAAP financial measures
included in the Definitions section of this document starting on this page.
Financial Ratios
Gearing Ratio – Net debt (cash) divided by net debt (cash) plus
shareholders’ equity.
Net interest expense cover – EBIT divided by net interest expense.
The company presents financial measures that it believes are
customarily used by its Australian investors. Specifically, these
financial measures, which are equivalent to or derived from certain US
GAAP measures as explained in the definitions, include “EBIT”, “EBIT
margin”, “Operating profit” and “Net operating profit”. The company
may also present other terms for measuring its sales volume (“million
square feet” or “mmsf” and “thousand square feet” or “msf”); financial
ratios (“Gearing ratio”, “Net interest expense cover”, “Net interest paid
cover”, “Net debt payback”, “Net debt (cash)”); and non-US GAAP
financial measures (“EBIT excluding asbestos and ASIC expenses”,
“EBIT margin excluding asbestos and ASIC expenses”, “Net operating
profit excluding asbestos, ASIC expenses and tax adjustments”,
“Diluted earnings per share excluding asbestos, ASIC expenses and
tax adjustments”, “Operating profit before income taxes excluding
asbestos”, “Effective tax rate excluding asbestos and tax adjustments”,
“EBITDA” and “General corporate costs excluding ASIC expenses and
domicile change related costs”). Unless otherwise stated, results and
comparisons are of the current fiscal year versus the prior fiscal year.
dEFiniTionS
Financial Measures – US GAAP equivalents
EBIT and EBIT margin – EBIT, as used in this document, is
equivalent to the US GAAP measure of operating income. EBIT margin
is defined as EBIT as a percentage of net sales. James Hardie believes
EBIT and EBIT margin to be relevant and useful information as these are
the primary measures used by management to measure the operating
profit or loss of its business. EBIT is one of several metrics used by
management to measure the earnings generated by the company’s
operations, excluding interest and income tax expenses. Additionally,
EBIT is believed to be a primary measure and terminology used by
its Australian investors. EBIT and EBIT margin should be considered
in addition to, but not as a substitute for, other measures of financial
performance reported in accordance with accounting principles
generally accepted in the United States of America. EBIT and EBIT
margin, as the company has defined them, may not be comparable
to similarly titled measures reported by other companies.
Operating profit – is equivalent to the US GAAP measure of income.
Net operating profit – is equivalent to the US GAAP measure of
net income.
Sales Volume
mmsf – million square feet, where a square foot is defined as
a standard square foot of 5/16” thickness.
msf – thousand square feet, where a square foot is defined as
a standard square foot of 5/16” thickness.
Net interest paid cover – EBIT divided by cash paid during the
period for interest, net of amounts capitalised.
Net debt payback – Net debt (cash) divided by cash flow from
operations.
Net debt (cash) – short-term and long-term debt less cash and
cash equivalents.
Non-US GAAP Financial Measures
EBIT and EBIT margin excluding asbestos and ASIC expenses
– EBIT and EBIT margin excluding asbestos and ASIC expenses are not
measures of financial performance under US GAAP and should not be
considered to be more meaningful than EBIT and EBIT margin. James
Hardie has included these financial measures to provide investors with an
alternative method for assessing its operating results in a manner that is
focused on the performance of its ongoing operations and provides useful
information regarding its financial condition and results of operations.
The company uses these non-US GAAP measures for the same purposes.
(Millions of US dollars)
EBIT
Asbestos:
Asbestos adjustments
AICF SG&A expenses
ASIC expenses
EBIT excluding asbestos
and ASIC expenses
Net sales
EBIT margin excluding asbestos
and ASIC expenses
2009
2010
(21.0) $ 173.6
$
224.2
2.1
3.4
(17.4)
0.7
14.0
208.7
$ 1,124.6
170.9
$ 1,202.6
18.6%
14.2%
EBIT and EBIT margin excluding asbestos – EBIT and EBIT
margin excluding asbestos are not measures of financial performance
under US GAAP and should not be considered to be more meaningful
than EBIT and EBIT margin. James Hardie has included these financial
measures to provide investors with an alternative method for assessing
its operating results in a manner that is focused on the performance of
its ongoing operations and provides useful information regarding its
financial condition and results of operations. The company uses these
non-US GAAP measures for the same purposes.
(Millions of US dollars)
EBIT
Asbestos:
Asbestos adjustments
AICF SG&A expenses
EBIT excluding asbestos
Net Sales
EBIT margin excluding asbestos
2009
2010
(21.0) $ 173.6
$
224.2
2.1
205.3
$ 1,124.6
18.3%
(17.4)
0.7
156.9
$ 1,202.6
13.0%
34
| JAMES HARDIE | ANNUAL REPORT 2010
Net operating profit excluding asbestos, ASIC expenses and
tax adjustments – Net operating profit excluding asbestos, ASIC
expenses and tax adjustments is not a measure of financial performance
under US GAAP and should not be considered to be more meaningful
than net income. The company has included this financial measure to
provide investors with an alternative method for assessing its operating
results in a manner that is focused on the performance of its ongoing
operations. The company uses this non-US GAAP measure for the
same purposes.
(Millions of US dollars)
Net operating profit excluding asbestos,
ASIC expenses and tax adjustments
Weighted average common shares
outstanding – Diluted (millions)
Diluted earnings per share excluding
asbestos, ASIC expenses and
tax adjustments (US cents)
2010
2009
$ 133.0
$ 100.5
436.8
434.5
30.5
23.1
(Millions of US dollars)
Net operating (loss) profit
Asbestos:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Tax expense (benefit) related
to asbestos adjustments
ASIC expenses
Tax adjustments
Net operating profit excluding asbestos,
ASIC expenses and tax adjustments
2010
2009
(84.9) $ 136.3
$
224.2
2.1
(3.3)
(6.7)
1.1
3.4
(2.9)
(17.4)
0.7
(6.4)
14.8
(48.7)
14.0
7.2
$
133.0
$ 100.5
Net operating profit excluding asbestos – Net operating profit
excluding asbestos is not a measure of financial performance under
US GAAP and should not be considered to be more meaningful than
net income. The company has included this financial measure to
provide investors with an alternative method for assessing its operating
results in a manner that is focused on the performance of its ongoing
operations. The company uses this non-US GAAP measure for the
same purposes.
(Millions of US dollars)
Net operating (loss) profit
Asbestos:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Tax expense (benefit) related
to asbestos adjustments
Net operating profit excluding asbestos
2010
2009
(84.9) $ 136.3
$
224.2
2.1
(3.3)
(6.7)
(17.4)
0.7
(6.4)
14.8
1.1
$ 132.5
(48.7)
79.3
$
Diluted earnings per share excluding asbestos, ASIC expenses
and tax adjustments – Diluted earnings per share excluding asbestos,
ASIC expenses and tax adjustments is not a measure of financial
performance under US GAAP and should not be considered to be more
meaningful than diluted earnings per share. The company has included
this financial measure to provide investors with an alternative method
for assessing its operating results in a manner that is focused on the
performance of its ongoing operations. The company’s management uses
this non-US GAAP measure for the same purposes.
Diluted earnings per share excluding asbestos – Diluted
earnings per share excluding asbestos is not a measure of financial
performance under US GAAP and should not be considered to be more
meaningful than diluted earnings per share. The company has included
this financial measure to provide investors with an alternative method
for assessing its operating results in a manner that is focused on the
performance of its ongoing operations. The company’s management
uses this non-US GAAP measure for the same purposes.
(Millions of US dollars)
Net operating profit excluding asbestos
Weighted average common shares
outstanding – Diluted (millions)
Diluted earnings per share excluding
asbestos (US cents)
2010
$ 132.5
2009
$ 79.3
436.8
434.4
30.3
18.3
Effective tax rate excluding asbestos and tax adjustments –
Effective tax rate excluding asbestos and tax adjustments is not a measure
of financial performance under US GAAP and should not be considered
to be more meaningful than effective tax rate. The company has included
this financial measure to provide investors with an alternative method
for assessing its operating results in a manner that is focused on the
performance of its ongoing operations. The company’s management uses
this non-US GAAP measure for the same purposes.
2010
(17.4)
0.7
(6.4)
14.8
224.2
2.1
(3.3)
(6.7)
2009
(Millions of US dollars)
Operating profit (loss) before income taxes $ (18.7) $ 155.8
Asbestos:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Operating profit before income taxes
excluding asbestos
Income tax (expense) benefit
Tax expense (benefit) related to
asbestos adjustments
1.1
Tax adjustments
(2.9)
Income tax expense excluding tax adjustments (69.1)
Effective tax rate excluding asbestos
and tax adjustments
$ 197.6
(67.3)
$ 147.5
(19.5)
(48.7)
7.2
(61.0)
35.0%
41.4%
35
| JAMES HARDIE | ANNUAL REPORT 2010
Abbreviations
ADR – American Depositary Receipt
AICF – Asbestos Injuries Compensation Fund
AIM – Annual Information Meeting
AGM – Annual General Meeting
AFFA – Amended and Restated Final Funding Agreement
ASIC – Australian Securities and Investments Commission
ASX – Australian Securities Exchange
ATO – Australian Taxation Office
CEO – Chief Executive Officer
CFO – Chief Financial Officer
CUFS – CHESS Units of Foreign Securities
GIC – General Interest Charge
IRS – US Internal Revenue Service
JHAF – James Hardie Australia Finance Pty Limited
KPMG Actuaries – KPMG Actuaries Pty Limited
LIBOR – London Interbank Offered Rate
NAHB – National Association of Home Builders
NBSK – Northern Bleached Softwood Kraft
NSW – New South Wales
NV – Naamloze Vennootschap
NYSE – New York Stock Exchange
RCI – RCI Pty Limited
SE – Societas Europaea
SEC – United States Securities and Exchange Commission
SG&A – Selling, General & Administrative
US GAAP – US Generally Accepted Accounting Principles
managEmEnT’S
diSCuSSion and analySiS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
EBITDA – is not a measure of financial performance under US GAAP
and should not be considered an alternative to, or more meaningful
than, income from operations, net income or cash flows as defined by
US GAAP or as a measure of profitability or liquidity. Not all companies
calculate EBITDA in the same manner as James Hardie has and,
accordingly, EBITDA may not be comparable with other companies.
The company has included information concerning EBITDA because
it believes 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.
(Millions of US dollars)
EBIT
Depreciation and amortisation
EBITDA
2009
2010
(21.0) $ 173.6
56.4
61.7
$ 230.0
40.7
$
$
EBITDA excluding asbestos and ASIC expenses – EBITDA
excluding asbestos, ASIC expenses and asset impairments is not a
measure of financial performance under US GAAP and should not be
considered an alternative to, or more meaningful than, income from
operations, net income or cash flows as defined by US GAAP or as a
measure of profitability or liquidity. Not all companies calculate EBITDA
in the same manner as James Hardie has and, accordingly, EBITDA may
not be comparable with other companies. The company has included
information concerning EBITDA because it believes 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.
(Millions of US dollars)
EBIT excluding asbestos
and ASIC expenses
Depreciation and amortisation
EBITDA excluding asbestos
and ASIC expenses
2010
2009
$ 208.7
61.7
$ 170.9
56.4
$ 270.4
$ 227.3
EBITDA excluding asbestos – EBITDA excluding asbestos is not a
measure of financial performance under US GAAP and should not be
considered an alternative to, or more meaningful than, income from
operations, net income or cash flows as defined by US GAAP or as a
measure of profitability or liquidity. Not all companies calculate EBITDA
in the same manner as James Hardie has and, accordingly, EBITDA may
not be comparable with other companies. The company has included
information concerning EBITDA because it believes 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.
(Millions of US dollars)
EBIT excluding asbestos
Depreciation and amortisation
EBITDA excluding asbestos
2010
$ 205.3
61.7
$ 267.0
2009
$ 156.9
56.4
$ 213.3
36
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
dirECTorS
For most of fiscal year 2010, James Hardie had a multi-tiered
board structure. Until completion of Stage 1 of the Re-domicile on
19 February 2010, this consisted of a Joint Board, a Supervisory
Board and a Managing Board. Following completion of Stage 1 of the
Re-domicile, the Managing Board remained in place but the Joint Board
ceased to exist and all of its responsibilities were assumed by the
Supervisory Board. Since completion of Stage 2 of the Re-domicile
on 17 June 2010, the company has had a single Board.
At the date of this report the directors are: Michael Hammes
(Chairman), Donald McGauchie (Deputy Chairman), Brian Anderson,
David Dilger, David Harrison, James Osborne, Rudy van der Meer and
Louis Gries (CEO).
Changes in James Hardie Boards between 1 April 2009 and the date
of this report were:
– Mr David Dilger was appointed to the Joint and Supervisory Boards
effective 2 September 2009 (US time);
– Mr Hammes, Mr McGauchie, Mr Anderson, Mr Dilger, Mr Harrison,
Mr Osborne and Mr van der Meer ceased to be members of the Joint
Board on 19 February 2010 when the Joint Board ceased to exist;
and ceased to be members of the Supervisory Board and became
members of the single Board of directors on 17 June 2010 when the
Supervisory Board ceased to exist; and
SigniFiCanT ChangES in STaTE oF aFFairS
On 21 August 2009, shareholders approved Stage 1 of a two-
stage re-domicile proposal (together, the Re-domicile) to move the
company’s corporate domicile from The Netherlands to the Republic
of Ireland (Ireland).
Following this vote, on 19 February 2010, James Hardie completed
its transformation from an NV to an SE registered in The Netherlands
(Stage 1).
poST FiSCal yEar EvEnTS
Re-domicile
On 2 June 2010, shareholders approved Stage 2 of the Re-domicile
to transform James Hardie Industries SE to an Irish SE by moving the
corporate domicile from The Netherlands to Ireland.
Following this vote, on 17 June 2010, the company moved its corporate
domicile to Ireland and became subject to Irish law in addition to
the Council of the European Union’s Regulation on the Statute for a
European Company regulations governing an SE.
Debt Facilities
On 16 June 2010, US$161.7 million of the company’s term facilities
matured, which included US$95.0 million of term facilities that were
outstanding at 31 March 2010. The company did not refinance these
facilities. Accordingly, amounts outstanding under these facilities were
repaid in June 2010 by using longer term facilities.
– Mr Gries, Mr Chenu and Mr Cox ceased to be members of the
Managing Board on 17 June 2010 when the Managing Board ceased to
exist, but continue in their executive roles.
FinanCial poSiTion, ouTlook
and FuTurE nEEdS
Directors’ qualifications, experience, special responsibilities, period in
office and directorships of other publicly listed companies are set out in
the directors’ profiles on pages 18–19 of this annual report.
aTTEndanCE aT mEETingS
Directors’ attendance at James Hardie Board meetings during the
fiscal year ended 31 March 2010 is recorded on page 69, within the
Corporate Governance Report of this annual report.
prinCipal aCTiviTiES
The principal activities of the company during fiscal year 2010 were
the manufacture and marketing of fibre cement products in the USA,
Australia, New Zealand, the Philippines and Europe.
rEviEw and rESulTS oF opEraTionS
A review of the company’s operations during the fiscal year and of the
results of those operations is contained in Management’s Discussion
and Analysis on pages 22–33 of this annual report.
The financial position, outlook and future needs of the company are set
out in Management’s Discussion and Analysis, on pages 22–33 of this
annual report.
dividEndS
No dividends or distributions were recommended by the Board or paid
to shareholders in fiscal year 2010.
The company announced on 20 May 2009 that it would omit a dividend
for fiscal year 2009 to conserve capital and that, until such time as
market and global economic conditions improve significantly and
the level of uncertainty surrounding future industry trends as well
as company specific contingencies dissipates, it is anticipated the
company will continue to omit dividends in order to conserve capital.
On 27 May 2010, the company confirmed that this remains its position.
37
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
EnvironmEnTal rEgulaTionS
and pErFormanCE
rEmunEraTion oF dirECTorS
and SEnior ExECuTivES
Protecting the environment is critical to the way the company does
business, and we continue to seek ways to use materials and energy
more efficiently and to reduce waste and emissions.
The summary of the Board’s remuneration policy and practices between
1 April 2009 and 31 March 2010 is set out within the Remuneration
Report in this annual report starting on page 41.
Our integrated environmental, health and safety management system
includes regular monitoring, auditing and reporting within the
company. The system is designed to continually improve the company’s
performance and systems with training, regular review, improvement
plans and corrective action as priorities.
Irish law does not require the company to produce a remuneration
report or to submit one to shareholders. Similarly, the company is not
required under the ASX Corporate Governance Council Principles and
Recommendations or section 300A of the Corporations Act to submit
a remuneration report to shareholders for a non-binding vote.
However, the company has produced, and submitted for non-binding
shareholder approval, a remuneration report for some years and
currently intends to continue to do so. Taking into consideration
the company’s large Australian shareholder base, the company has
voluntarily elected to provide the information in sections 2 and 8 to 10
of this report, which are intended to provide information similar to that
provided by Australian listed companies in their remuneration reports.
ChangES in dirECTorS’ inTErESTS
in jhi SE SECuriTiES
Changes in directors’ relevant interests in JHI SE securities between
1 April 2009 and 31 March 2010 are set out on page 66, in the
Remuneration Report in this annual report.
The manufacturing and other ancillary activities conducted by the
company are subject to licenses, permits and agreements issued under
environmental laws that apply in each location.
Under the applicable licenses, permits and trade waste agreements,
discharges to water and air and noise emissions are to be maintained
below specified limits.
In addition, dust and odour emissions from sites are regulated by local
government authorities. The company employs dedicated resources
and appropriate management systems at each site to ensure that our
obligations are met. These resources are also employed to secure
improvements in our systems and process.
Solid wastes are removed to licensed landfills. Programs, including
expanded recycling programs, are in place to reduce waste that
presently goes to landfills. Further information about James Hardie’s
approach to the environment is included in pages 15–16 of this
annual report.
CorporaTE govErnanCE
Details of JHI SE’s corporate governance policies and procedures,
including information about the roles, structure and Charters of the
Board Committees, are set out on pages 67–80 of this annual report.
Company SECrETary
The company secretary until 29 June 2010 was Robert Cox. Mr Cox’s
qualifications and experience are set out on page 17 of this annual
report. On 29 June 2010, Marcin Firek became company secretary.
Mr Firek has been employed by James Hardie as Legal Counsel and
Company Secretary – Australia since 2006. Mr Firek is a member of
the Institute of Chartered Secretaries of Australia and has over 13 years
experience in legal practice.
38
| JAMES HARDIE | ANNUAL REPORT 2010
opTionS and rESTriCTEd SToCk uniTS
No options were granted during fiscal year 2010.
The company uses restricted stock units (RSUs) over its CUFS listed on the ASX for its long-term incentive compensation. Details of RSUs granted
to the CEO and senior executives during the fiscal year are set out in the Remuneration Report on page 59 of this annual report. Details of options
exercised and RSUs vested during the fiscal year are set out in Note 15 to the consolidated financial statements, starting on page 109 of this annual
report.
Options changes between 31 March 2010 and 15 June 2010 are set out below. Options changes during the period 1 April 2009 to 31 March 2010
are set out in Note 15 to the consolidated financial statements starting on page 109 of this annual report.
Range of exercise prices
Prices A$
3.09
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.35
8.40
8.53
8.90
9.50
Total
Options
exercised
for equal number
of shares /CUFS
1 April to
15 June 2010
–
–
–
–
(12,489)
–
–
–
–
–
–
–
–
(12,489)
Options
cancelled
1 April to
15 June 2010
–
–
–
–
–
–
–
–
–
(21,475)
–
(19,500)
–
(40,975)
Number of options
outstanding at
15 June 2010
115,140
254,309
1,523,250
93,000
2,626,240
796,500
1,758,250
1,016,000
151,400
2,625,085
1,090,000
2,301,600
40,200
14,390,974
Number of options
outstanding at
31 March 2010
115,140
254,309
1,523,250
93,000
2,638,729
796,500
1,758,250
1,016,000
151,400
2,646,560
1,090,000
2,321,100
40,200
14,444,438
RSU changes between 31 March 2010 and the date of this report are set out below. RSU changes during the period 1 April 2009 to 31 March 2010
are set out in Note 15 to the consolidated financial statements on page 109 of this annual report.
Number of
outstanding RSUs
at 31 March 2010
4,736,721
RSUs
Cancelled
(26,658)
RSUs
Vested
(19,293)
RSUs
Granted
807,457
Number of
outstanding RSUs
at 15 June 2010
5,498,227
39
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
inSuranCE and indEmniFiCaTion
oF dirECTorS and oFFiCErS
Like most publicly-listed companies, JHI SE provides insurance
and indemnities to its directors, officers and senior executives. In
accordance with common commercial practice, the insurance policies
prohibit disclosure of the nature of the insurance cover and the amount
of the premiums.
The company’s Articles of Association provide for indemnification of
any person who is (or keep indemnified any person who was) a Board
director or the company secretary and our employees and any other
person deemed by the Board to be an agent of the company, who
suffers any loss as a result of any action in discharge of their duties,
provided they acted in good faith in carrying out their duties. This
indemnification will generally not be available if the person seeking
indemnification acted with gross negligence or wilful misconduct
in performing their duties.
The company and some of its subsidiaries have provided Deeds
of Access, Insurance and Indemnity to Board directors and senior
executives who are or who have been officers or directors of the
company or its subsidiaries. The indemnities provided are consistent
with the Articles of Association and relevant laws.
audiTorS
The company prepared its annual accounts for fiscal year 2010 in
accordance with Dutch GAAP and US GAAP. Each set of accounts is
audited by an independent registered public accounting firm in the
countries concerned. The independent registered accounting firms have
provided the company with a declaration of their independence.
From fiscal year 2011 onwards, the company will prepare its annual
accounts in Irish GAAP and US GAAP. The annual accounts will also
include a report of an independent accountant.
non-audiT SErviCES
The Audit Committee has approved policies to ensure that all non-audit
services performed by the external auditor, including the amount of
fees payable for each individual service, receives prior approval by the
Audit Committee. Particulars of non-audit service fees paid to JHI SE’s
external auditor, Ernst & Young LLP, for fiscal year 2010 are set out in
Remuneration Disclosures, on page 118 of this annual report.
The Board is satisfied that the provision of these non-audit services by
the auditor during fiscal year 2010 is compatible with the appropriate
standards of independence for auditors applicable to the company
and its auditors. The Board is satisfied, on the basis of the company’s
policies for review and pre-approval of all non-audit services and the
auditor’s statements of their continued independence of the company,
that the provision of these non-audit services by the auditor did not
compromise their independence. This statement has been made in
accordance with advice provided, and a resolution approved, by the
Audit Committee.
oThEr diSCloSurES
Readers are referred to the company’s Form 20-F document which
is filed with the US SEC annually, and which contains additional
disclosures prescribed by the SEC. The Form 20-F filing can be
accessed through the Investor Relations area of the company’s website
(www.jameshardie.com), or obtained from the company’s Corporate
Headquarters in Ireland or Regional Office in Sydney.
Michael Hammes
Chairman
29 June 2010
Louis Gries
Chief Executive Officer
40
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
2010 rEmunEraTion rEporT
This remuneration report explains James Hardie’s approach
to remuneration, and has been adopted by the Board on the
recommendation of the Remuneration Committee.
Sections 1–7 of this report describe the remuneration policy for the
senior executives (which in this report include the members of the
Managing Board and the CEO’s US-based direct reports). Although
we ceased to be a Dutch Societas Europaea company and became an
Irish Societas Europaea company on 17 June 2010, we have prepared a
Dutch annual report for fiscal year 2010 and therefore have included in
section 11 of this report a description of the company’s departures from
the Best Practice Recommendations in the Dutch Code on Corporate
Governance (Dutch Code), and the reasons for these.
Irish law does not require the company to produce a remuneration
report or to submit it to shareholders. Similarly, the company is not
required under the ASX Corporate Governance Council Principles and
Recommendations or section 300A of the Corporations Act to submit
a remuneration report to shareholders for a non-binding vote.
However, the company has produced, and submitted for non-binding
shareholder approval, a remuneration report for some years and currently
intends to continue to do so. Taking into consideration the company’s
large Australian shareholder base, the company has voluntarily elected
to provide the information relating to remuneration of the company’s
senior executives for fiscal year 2010 in sections 2 and 8 to 10 of this
report, which is intended to provide information similar to that provided
by Australian incorporated listed companies in their remuneration reports.
In addition, although also not required under the ASX Corporate
Governance Council Principles and Recommendations or section 300A
of the Corporations Act, the company has voluntarily elected in section
6 of this report to provide shareholders with an outline of the company’s
proposed remuneration framework for fiscal year 2011.
During fiscal year 2010, the Remuneration Committee retained Towers
Watson, formerly called Towers Perrin (in the United States) and
Guerdon Associates (in Australia) as its independent advisers. In
addition, the company retained Hewitt Associates as its compensation
external remuneration advisor.
References in this document to the Managing or Supervisory Board are
references to those Boards of James Hardie as a NV and later a Dutch
Societas Europaea company.
1. approaCh To CEo, SEnior ExECuTivE
and managing board rEmunEraTion
1.1 Objectives
James Hardie’s compensation philosophy is to provide competitive
compensation, compared with US companies, that emphasises
operational excellence and shareholder value creation through long
and short-term incentives which link executive remuneration with
the interests of shareholders and attract, motivate and retain high-
performing executives.
The company’s executive remuneration framework is based on a pay-for-
performance policy that differentiates compensation amounts based on an
evaluation of performance in two basic areas: business and individual.
1.2 Policy
Compensation is managed to align compensation received with
performance achieved relative to peers.
Compensation packages for senior executives comprise fixed salary
benefits (Fixed Remuneration) and variable performance pay, based
on both short-term incentives (STI) and long-term incentives (LTI)
(Variable Remuneration).
The company’s policy is for fixed pay and benefits for senior
executives to be positioned at the market median and total target
direct compensation (comprising salary and target STI and LTI) to be
positioned at the market 75th percentile if stretch target performance
goals are met.
Performance hurdles for target STI and LTI payments are set in the
expectation that the company will deliver results in the top quartile of
its listed US building products peer group companies. If the relevant
performance hurdles are not met, the amount payable under the STI
and LTI targets will be less.
1.3 Setting remuneration packages
Remuneration and individual packages for the CEO and senior
executives are evaluated by the Remuneration Committee annually
to make sure that they continue to achieve the company’s objectives
and are competitive with developments in the market. Changes to
the remuneration framework are recommended by the Remuneration
Committee to the Board from time to time.
The Board makes the final remuneration decisions concerning
remuneration for the CEO and senior executives. The CEO’s
remuneration package is reviewed by the Remuneration Committee,
which recommends any changes to the Board for final approval. The
CEO makes recommendations to the Remuneration Committee on
the remuneration packages of the senior executives, which in turn
makes recommendations to the Board. Remuneration decisions are
based on the company’s remuneration policy and framework, and take
into account the individual’s competencies, skills and performance;
the specific roles and responsibilities of the relevant position; advice
received by the Remuneration Committee from external independent
compensation advisers; and other practices specific to the markets in
which the company operates and countries in which the executive is
based, or was based prior to any relocation.
41
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Each year the Remuneration Committee reviews and approves a list
of peer group companies which it uses for comparison purposes in
setting remuneration (Fixed and Variable Remuneration at target and
at maximum as well as actual payouts for Variable Remuneration) for
the CEO and the company’s senior executives. As the company’s main
business and most of its senior executives are in the US, the peer
group used by the company is US listed companies exposed to the US
housing market.
At the end of fiscal year 2010 the Remuneration Committee
commissioned Towers Watson to conduct a comprehensive
benchmarking survey of the compensation positioning of the CEO,
senior executives and the next level of management. That review
indicated that the CEO’s Variable Remuneration had fallen below the
Board’s target levels and recommended an increase in his STI and LTI
targets, which will apply in fiscal year 2011. However, it is expected
that further adjustments will need to be applied to the CEO’s LTI target
levels beyond fiscal year 2011 in order to bring his total target Variable
Remuneration in line with the Board’s policy. That review also indicated
that senior executive Fixed Remuneration is around the Board’s market
median target levels and therefore most of the company’s senior
management, including the CEO, will not receive any base salary
increases for fiscal year 2011 in the absence of a change in the scope
of their role.
1.4 Senior executives
The remuneration policy for senior executives is the same irrespective
of whether they were or were not members of the Managing Board. For
the purpose of this report, the company will report the remuneration
details of the following senior executives:
Senior executives:
– Louis Gries, Chief Executive Officer and Chairman of the
Managing Board1
– Russell Chenu, Chief Financial Officer and member of the
Managing Board2
– Robert Cox, General Counsel and member of the Managing Board3
– Mark Fisher, Executive General Manager – International4
– Nigel Rigby, Executive General Manager – USA5
1.5 Stock ownership guidelines
The Remuneration Committee believes that senior executives should
hold James Hardie stock to further align their interests with those of the
company’s shareholders. The company has adopted stock ownership
guidelines for the senior executives which require them to accumulate
the following holdings in the company over a period of five years from
1 April 2009:
Position
Chief Executive Officer
Chief Financial Officer and General Counsel
Other senior executives
Multiple of base salary
3x
1.5x
1x
Until the guideline has been achieved, a senior executive is required to
retain at least 75% of shares obtained under the company’s long-term
equity incentive plans, by exercising of options or vesting of restricted
stock units (RSUs) (net of taxes and other costs).
Even after the guideline has been achieved, senior executives will be
required to retain at least 25% of stock obtained under the company’s
long-term equity incentive plans by exercising of options or vesting of
RSUs (net of taxes and other costs).
Details of the company’s policy regarding employees hedging James
Hardie shares or grants under various equity incentive plans are
set out on page 74 of the Corporate Governance Report within this
annual report.
1 From 1 April 2009 to 17 June 2010 Louis Gries was Chairman of the Managing Board. Mr Gries remains an executive employed by the company.
2 From 1 April 2009 to 17 June 2010 Russell Chenu was a member of the Managing Board. Mr Chenu remains an executive employed by the company.
3 From 1 April 2009 to 17 June 2010 Robert Cox was a member of the Managing Board. Mr Cox remains an executive employed by the company.
4 From 1 April 2009 to the beginning of 2010 Mark Fisher was Vice President – Research and Development.
5 From 1 April 2009 to the beginning of 2010 Nigel Rigby was Vice President – General Manager Eastern Division.
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| JAMES HARDIE | ANNUAL REPORT 2010
2. STruCTurE and ovErviEw oF rEmunEraTion paCkagES
The proportions of the Fixed and Variable Remuneration components of James Hardie’s remuneration packages, based on actual remuneration
received for performance in fiscal year 2010, are shown in the following table:
Fixed
Remuneration1
Salary, Non-cash
Benefits, Superannuation,
401(k) etc
%
Senior executives, including Managing Board
18
Louis Gries
46
Russell Chenu
26
Robert Cox
25
Mark Fisher
24
Nigel Rigby
1 See section 4 of this report.
Variable Remuneration
STI
Incentive2
%
21
10
19
23
24
Equity (RSUs)3
%
Scorecard LTI4
%
Total Variable
%
43
31
40
36
36
18
13
15
16
16
82
54
74
75
76
2 See section 3 of this report. This includes short-term incentive paid in Performance Shares to current senior executives under the Executive
Incentive Plan in June 2010 for performance in fiscal year 2010.
3 See section 3 of this report. This includes long-term incentive paid under the Long Term Incentive Plan with Relative TSR RSUs granted in
September and December 2009 and Executive Incentive Program RSUs granted May 2010 for performance in fiscal year 2010. This amount
includes the actual value received in respect of fiscal year 2010 rather than the value used for accounting purposes.
4 See section 3 of this report. This includes awards of Scorecard LTI under the Long Term Incentive Plan granted in June 2010. This amount
includes the actual value received in respect of fiscal year 2010 rather than the value used for accounting purposes.
3. variablE rEmunEraTion in FiSCal yEar 2010
3.1 Overview of Variable Remuneration in fiscal year 2010
Senior executives are eligible to participate in one or more incentive plans containing Variable Remuneration. Eligibility for inclusion in a plan
does not guarantee participation in any future year and participation of any division/business unit in a plan is at the discretion of the CEO. Variable
remuneration is at risk and consists of STIs and LTIs earned by meeting or exceeding specified performance goals. The company’s Variable
Remuneration incentive plans for senior executives in fiscal year 2010 are set out below:
Duration
Plan Name
Short-term incentive
(1–3 years)
Executive Incentive Plan
Form of Incentive
Performance Shares
Further Details
Section 3.3.1(b) below
RSUs with vesting deferred for
two years and subject to the
Scorecard (Executive Incentive
Program RSUs)
Sections 3.2 and 3.3.1(c) below
Section 3.3.1(d) below
Section 3.3.2(a) below
Section 3.2 and 3.3.2(b) below
Individual Performance Plan (IP Plan)
Performance Shares
Long-term incentive
(3–5 years)
Long Term Incentive Plan (LTIP)
1 TSR refers to Total Shareholder Return.
RSUs with relative TSR1
performance hurdles
(Relative TSR RSUs)
Cash payment based on share
price performance and subject to
the Scorecard (Scorecard LTI)
43
| JAMES HARDIE | ANNUAL REPORT 2010
directors’
report
reMUNerAtioN report
(coNtiNUed)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
3.2 Scorecard
In fiscal year 2010 the Board introduced a Scorecard as a component of
some of its Variable Remuneration plans to ensure management focus
on financial, strategic, business, customer and people components
important to long-term creation of shareholder value. The Scorecard
reflects a number of key objectives and the outcomes the Board expects
to see achieved in these components. Although most of the components
in the Scorecard have quantitative targets, the company has not allocated
a specific weight to any of the components and the final Scorecard
assessment will involve an element of judgment by the Board. The Board
may also give different weights to different components when weighing
Executive Incentive Program and Scorecard LTI results. Individual senior
executives may receive different ratings depending on their contribution
to achieving the Scorecard components. The Board will monitor progress
against the Scorecard annually.
The Scorecard will be applied to Executive Incentive Program RSUs
(granted after one year as a result of short-term performance, but
deferred for two more years for final assessment) and Scorecard LTI
(a cash payment three years from the grant date directly tied to the
company’s share price).
When the Scorecard for fiscal year 2010 LTI grants is applied at the
conclusion of fiscal year 2012, senior executives may receive all, some,
or none of their awards under these plans. The Scorecard can only
be applied by the Board to exercise negative discretion. It cannot be
applied to enhance the maximum reward that can be received.
The primary components of the Scorecard for fiscal year 2010, and
the reasons the Board considers these components are appropriate, are
set out below. An overview of management’s performance in fiscal year
2010 against the measures in the Scorecard is set out in section 5.4
of this report. Further details of the Scorecard, including the method
of measurement, historical performance against the proposed measures
and the Board’s expectations, were set out in the 2009 Notice of
Meetings.
Measure
Reasons
US Primary
Demand Growth
US Product Mix
Shift
US Zero to
Landfill
A key strategy for the company is to maximise
its market share growth/retention of the exterior
cladding market for new housing starts and for
repair and remodel segments, which it does by
growing fibre cement’s share of the exterior siding
market and by maintaining the company’s share of
the fibre cement category.
The company aims to maintain its leadership position
across the fibre cement category of the exterior siding
market by developing new products/marketing/
manufacturing approaches that will result in an
improved mix of our products and gross margins.
This measure is a primary contributor to the
company’s environmental goals and improving
material yield will reduce manufacturing costs. In
addition, achieving important environmental, social
and governance (ESG) goals reduces risk.
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| JAMES HARDIE | ANNUAL REPORT 2010
Safety
Legacy Issues
Strategic
Positioning
Managing
During the
Downturn
Talent
Management/
Development
Safety of company employees is an essential
ESG measure.
Resolution of these issues is a fundamental
component of the company’s ESG goals, paving
the way to lower risk and more certainty for
all stakeholders.
Developing and, as appropriate, implementing,
alternative strategic actions for sustainable growth
beyond the company’s traditional markets will create
shareholder value through increased profits and
diversification for lower risk.
With the US building materials industry continuing
to experience a downturn unprecedented in the
past 60 years, managing the company through this
time so it can emerge at the end of this period in
as strong or stronger competitive position in the
overall industry is crucial.
Improving management development and capability
is important to the company’s future growth.
The Board is committed to providing a clear explanation of the rationale
for the final assessment of performance under the Scorecard at the
conclusion of fiscal year 2012.
3.3 Details of Variable Remuneration components
in fiscal year 2010
3.3.1 Short-term incentives
The STI target for senior executives, other than the CFO, is allocated
80% towards corporate goals (under the Executive Incentive Plan) and
20% towards individual goals (under the IP Plan).
STI target is determined as a percentage of base salary. The STI target
for senior executives was:
Position
Chief Executive Officer
Chief Financial Officer
General Counsel
Other senior executives
STI Target as percentage
of base salary
100%
33%
65%
55%
In addition to this STI target, for fiscal year 2010, the Board decided to
also transfer 40% of each senior executive’s LTI target to the STI target
under the Executive Incentive Plan.
All short-term incentives for current senior executives in fiscal
year 2010 were paid in a form of James Hardie shares, being
either Performance Shares (for Executive Incentive Plan and
IP Plan performance) or Executive Incentive Program RSUs.
(a) Executive Incentive Plan overview
The Executive Incentive Plan rewards managers based on their
performance against EBIT goals adopted at the start of each fiscal year.
EBIT goals for fiscal year 2010 were derived internally based on the
prevailing business environment and outlook. The targets were then
reviewed by the Remuneration Committee before final approval by the
Board. Similarly, the final results achieved under the Executive Incentive
Program were reviewed by the Remuneration Committee before final
approval by the Board.
Senior executives had different EBIT goals depending on their function
and location:
– Corporate senior executives, including Managing Board directors,
had a goal based on consolidated group EBIT result in US$, indexed
depending on changes to housing starts over the performance period,
excluding legacy costs; and
– US and Asia Pacific senior executives had a goal based on the EBIT
of their business in US$ and A$ respectively, also indexed depending
on changes to housing starts over the performance period.
Senior executives could earn between 0% and 200% of their STI target
and 0 and 300% of their LTI transferred to STI, based on the payout
schedule below:
Executive Incentive Plan payout schedule
)
t
e
g
r
a
T
f
o
%
(
t
u
o
y
a
P
300
250
200
150
100
50
0
70 80 90 100 110 120 130 140 150 160
Performance (% of Plan)
LTI transferred to STI
payout capped at 300%
(refer section 3.3.1c)
STI payout capped at 200%
(refer section 3.3.1b)
(b) Executive Incentive Plan – Performance Shares
80% of STI target for senior executives other than the CFO was allocated to the Executive Incentive Plan and payable in Performance Shares based
on the company’s average closing price on the 10 business days preceding the grant date. The maximum payout was capped at 200% of target STI.
Since US executives are required to pay State and Federal income taxes on the day their bonus is paid, the grant of performance shares was made
based on the net amount payable to senior executives. Sale of these shares is subject to the company’s insider trading policy and the shares issued
are not subject to any further vesting or restriction conditions.
Grants of performance shares were calculated as follows:
STI target
x
80%1
x
Gross payout
based on
performance
against EBIT
goal
–
Tax payable
on gross
payout
=
Corporate
component
of STI
received in
Performance
Shares
1 Amount of STI target allocated to the Executive Incentive Plan
Board’s assessment of Executive Incentive Plan
The Executive Incentive Plan rewards directly-measurable performance. Indexing the goal for housing starts protects the company against windfall
payments if housing starts are greater than anticipated and provides appropriate incentive opportunities if housing starts are lower than anticipated.
Setting different EBIT goals depending on the senior executive’s responsibilities is intended to ensure that their incentive is tied to factors within
their control.
(c) Executive Incentive Plan – transfer of 40% of LTI to STI
In the 2009 Remuneration Report the Board described its continued concerns about the lack of stability in the US housing market. To deal with
this the Board decided to maintain a focus on shorter term results by continuing to transfer some of the LTI target to the Executive Incentive Plan.
However, the proportion of LTI target transferred was reduced from the 70% in fiscal year 2009 to 40% in fiscal year 2010. In addition, in order to
ensure that this focus did not come at the expense of longer term outcomes, the Board introduced a new mechanism, the Scorecard (described in
section 3.2 above), to allow it to assess each senior executive against the company’s long-term objectives set out in the Scorecard, and consider
how each senior executive has contributed to the company’s performance against those objectives. Senior executives were granted Executive
Incentive Program RSUs in June 2010. Depending on the Board’s rating of an executive under the Scorecard, between 0% and 100% of these RSUs
granted in June 2010 will vest in June 2012.
45
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Because the Scorecard judgment applied in June 2012 may reduce the potential award, the maximum for out-performance has increased on a
straight line basis from 200% of target in fiscal year 2009 to 300% of target. In effect, the Scorecard applies a “claw-back” principle to ensure
short-term results in fiscal year 2010 are not obtained at the expense of long-term sustainability.
All other elements of the Executive Incentive Program RSUs in fiscal year 2010 were the same as in fiscal year 2009.
Calculation of the Executive Incentive Program RSUs granted at the end of fiscal year 2010 is described below:
LTI target
x
40%1
x
Payout
based on
performance
against 2010
EBIT goal
=
Value granted
in Executive
Incentive
Program
RSUs
x
Scorecard
rating
in 2012
(0–100%)
=
Executive
Incentive
Program
RSUs vesting
1 Amount of LTI target received as Executive Incentive Program RSUs
Board’s assessment of the transfer of LTI to the STI Executive Incentive Plan
The Board believes that the transfer of 40% of LTI to STI under the Executive Incentive Program RSUs combined with the Scorecard is an
appropriate incentive vehicle in the current market because it:
– requires management to focus on the continuing short-term challenges of the current economic downturn;
– aligns management with shareholders because the reward vehicle is based on share price;
– focuses on long-term results over the three year performance period;
– focuses management on sustainable long-term value creation;
– avoids a mechanistic formula with outcomes based on market movements rather than management action; and
– allows the collective judgment of the independent directors to “claw-back” some or all of the potential value based on a number of long-term
objectives identified by the Board as being able to affect longer-term outcomes in the currently prevailing uncertain economic environment.
(d) Individual Performance Plan (IP Plan) – Performance Shares
In fiscal year 2010, 20% of STI target for senior executives other than the CFO was allocated to the IP Plan (which is part of the Executive Incentive
Plan for the senior executives) and payable in Performance Shares based on the company’s average closing price on the 10 business days preceding
the grant date. The maximum payout was capped at 150% of STI target.
Senior executives who participated in the Executive Incentive Plan were assessed on their individual performance based on the IP Plan.
The IP Plan links financial rewards to senior executives achieving specific individual objectives that have benefited the company and contributed
to shareholder value. These objectives were developed in consultation with, and approved, by the Board and Remuneration Committee. Senior
executives are given a performance rating based on a review of how they performed against their individual objectives. Rewards are based on this
performance rating as recommended by the Remuneration Committee and approved by the Board at the end of the fiscal year.
Since US executives are required to pay State and Federal income taxes on the day their bonus is paid, the grant of performance shares was made
based on the net amount payable to senior executives. Sale of these shares is subject to the company’s insider trading policy and the shares are not
subject to any further vesting or restriction conditions.
Final grants of performance shares at the end of fiscal year 2010 were calculated as follows:
STI target
x
20%1
x
Performance
rating
multiple or
fraction
–
Tax payable
on gross
payout
=
Individual
component
of STI
received in
Performance
Shares
1 Amount of STI target under the individual component (IP Plan).
Board’s assessment of the IP Plan
The IP Plan measures and rewards strategic, financial and individual objectives which are not directly captured by the corporate component of the
Executive Incentive Plan.
46
| JAMES HARDIE | ANNUAL REPORT 2010
3.3.2 Long-term incentives
As described in 3.2.1(c) above, 40% of the LTI target for senior
executives in fiscal year 2010 was allocated as grants of RSUs based on
the company’s performance under the Executive Incentive Plan during
fiscal year 2010. The remaining 60% of the LTI target was allocated
as grants of RSUs based on the company’s total shareholder return
(Relative TSR RSUs) relative to its peers and grants of cash-settled
awards based on the company’s stock price performance and the
Scorecard (Scorecard LTI).
The company’s long-term incentive programs have a maximum payout
of 300% of the LTI target.
(a) Relative TSR RSUs
30% of LTI target for senior executives in fiscal year 2010 was allocated
as grants of Relative TSR RSUs.
The peer group for the Relative TSR RSUs is companies exposed to the
US housing market. This peer group was reviewed and approved by the
Remuneration Committee during the year. The Board and Remuneration
Committee believe that US companies form a more appropriate peer
group than ASX listed companies as they are exposed to the same
macro factors in the US housing market as the company faces. The
names of the companies comprising the peer group for each grant of
Relative TSR RSUs are set out in section 7 of this Remuneration Report.
The company’s relative TSR performance will be measured against the
peer group over a 3 to 5 year period from grant date, with testing after
the third year, and then every six months during, until the end of year 5,
based on the following schedule:
Performance against
Peer Group
< 50th Percentile
50th Percentile
51st – 74th Percentile
≥75th Percentile
% of Relative TSR
RSUs vested
0%
33%
Sliding Scale
100%
Board’s assessment of the Relative TSR RSU component
of Long Term Incentive Plan
The Board considered whether re-testing is appropriate for Relative TSR
RSUs, given some investors prefer a single test for relative performance
measures. The Board concluded that re-testing is appropriate in the
company’s circumstances because the company’s share price is subject
to substantial short-term fluctuations relating to public comment
and disclosures on a number of legacy issues facing the company,
including asbestos-related matters, and believes that senior executives
should be given the same opportunity as shareholders, who may elect
to delay disposing of their equity interests when affected by short-term
factors. Further volatility may also be experienced in the aftermath of
the currently prevailing uncertain economic environment. In addition,
this approach extends the motivational potential of the Relative
TSR RSUs from three to five years, so is more effective from a cost-
benefit perspective.
(b) Scorecard LTI
30% of LTI target for senior executives in fiscal year 2010 was allocated
as grants of Scorecard LTI awards.
Scorecard LTI was described in the 2009 Remuneration Report and first
introduced in fiscal year 2010. Scorecard LTI is a cash-settled award
with the final payout based on the company’s share price performance
over the three years from the grant date and a senior executive’s
Scorecard rating.
At the start of the three-year performance period, the company will
calculate the number of shares the senior executives could have
acquired if they received a maximum payout on the Scorecard LTI
on that date. At the end of the three-year performance period, senior
executives will be assessed by the Board under the Scorecard.
Depending on each senior executive’s rating under the Scorecard,
between 0% and 100% of these awards will vest in June 2012. The
executive will receive a cash payment based on the company’s share
price at the end of the period multiplied by the number of shares they
could have acquired at the start of the performance period, adjusted
downward in accord with the senior executive’s Scorecard rating.
Board assessment of Scorecard LTI
The Board introduced Scorecard LTI because it considered that a
reward that focused on longer-term strategic and operational goals
was essential, given that specific longer-term financial objectives
cannot be set in the currently prevailing uncertain economic
environment. Ensuring that the rewards value is tied to share price
provides alignment with shareholder outcomes. Moreover, payment in
cash allows flexibility to apply the reward across different countries,
while providing executives with liquidity to pay tax at a time that
coincides with vesting of shares (via the RSU programs).
(c) Long term incentives below senior executive level
In fiscal year 2010, selected employees other than senior executives
received equity-based long-term incentives in the form of RSUs
under the 2001 JHI SE Equity Incentive Plan (2001 Plan). This helps
align the interests of employees with shareholders. Award levels are
determined based on the Remuneration Committee’s review of local
market standards and the individual’s responsibility, performance and
potential to enhance shareholder value. Unlike the RSUs granted to
senior executives, these RSUs generally vest at the rate of 25% on the
1st anniversary of the grant, 25% on the 2nd anniversary date and 50%
on the 3rd anniversary date.
Board’s assessment of 2001 Plan
The majority of participants in the 2001 Plan are US employees.
Senior executives named in this report did not receive RSUs under
the 2001 Plan. The RSUs granted to other employees under the 2001
Plan follow normal and customary US grant guidelines and market
practice and have no performance hurdles. The Board is satisfied that
this practice is necessary to attract and retain US employees and is
particularly effective in the current environment for the conservation
of the company’s capital.
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| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
3.4 Variable Remuneration paid in fiscal year 2010
Details of the Variable Remuneration, including the percentage of the maximum Variable Remuneration awarded to or forfeited by senior executives
for performance in fiscal year 2010 are set out below. Both Relative TSR RSUs and Scorecard LTI granted for performance in fiscal year 2010 are not
included in the table as they are granted on a dollar value determined by the Remuneration Committee and would only be forfeited during fiscal year
2010 in limited circumstances, all of which involve the employee ceasing employment. All amounts shown in this table relating to fiscal year 2010
were paid or granted in June 2010.
Senior executives, including Managing Board
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
STI1
Awarded
%
Forfeited
%
STI transferred from LTI2
Forfeited
Awarded
%
%
100
100
92
100
100
0
0
8
0
0
100
100
100
100
100
0
0
0
0
0
1 Awarded = % of fiscal year 2010 STI maximum actually paid. Forfeited = % of fiscal year 2010 STI maximum foregone. These amounts were paid
as grants of Performance Shares under the Executive Incentive Plan and IP Plan to current senior executives. These amounts do not include the
Executive Incentive Program RSUs granted following the transfer of LTI to STI. The after-tax value earned by for performance was granted in the
form of Performance Shares to senior executives in June 2010.
2 Awarded = % of fiscal year 2010 transfer of LTI to STI maximum which actually paid. Forfeited = % of fiscal year 2010 transfer of LTI to STI which
was foregone. The value earned for performance in fiscal year 2010 was granted in the form of Executive Incentive Program RSUs in June 2010.
3.5 Variable Remuneration payable in future years
Details of the value of the Variable Remuneration for fiscal year 2010 that may be paid to senior executives over future years are set out below. The
minimum amount payable is nil in all cases. The maximum amount payable will depend on the share price at time of vesting, and is therefore not
possible to determine. The table below is based on the fair value of the RSUs and Scorecard LTI according to US GAAP accounting standards.
(US dollars)
Scorecard LTI1
Executive Incentive Program RSUs2
Relative TSR RSUs3
2011
2012
20134
2011
2012
20134
2011
2012
20134
Senior executives, including Managing Board
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
894,207
173,874
248,390
149,034
149,034
891,764
173,399
247,711
148,627
148,627
200,341
38,955
55,650
33,390
33,390
870,588 1,072,846
208,609
169,281
298,012
241,830
178,806
145,097
178,806
145,097
199,327
38,758
55,368
32,221
32,221
1,416,390
275,409
393,442
229,851
229,851
730,464
142,034
202,906
120,739
120,739
274,444
53,360
76,234
45,740
45,740
1 Represents annual SG&A expense for Scorecard LTI granted in June 2010 for performance in fiscal year 2010. The final value of the Scorecard LTI
is based on the company’s share price and the senior executive’s Scorecard rating at the time of vesting. Since neither the Scorecard rating nor the
JHI SE share price in years 2011, 2012 or 2013 are known at this time, this table assumes a common Scorecard rating for all executives, and no
changes to the share price.
2 Represents annual SG&A expense for the Executive Incentive Program RSUs granted in June 2010 for performance in fiscal year 2010, with fair
market value estimated using the Black Scholes option-pricing model.
3 Represents annual SG&A expense for the Relative TSR RSUs granted in September and December 2009 with fair market value estimated using
the Monte Carlo option-pricing method.
4 There will be no accounting charge for fiscal year 2010 LTI grants after fiscal year 2013.
48
| JAMES HARDIE | ANNUAL REPORT 2010
4. FixEd rEmunEraTion in FiSCal yEar 2010
JHX Total Return Index vs US housing starts1
Fixed Remuneration comprises base salaries, non-cash benefits,
defined contribution retirement plan and superannuation.
4.1 Base salaries
James Hardie provides base salaries to attract and retain senior
executives who are critical to the company’s long-term success. The
base salary provides a guaranteed level of income that recognises the
market value of the position and internal equities between roles, and the
individual’s capability, experience and performance. Base pay for senior
executives is positioned around the market median for positions of
similar responsibility. Base salaries are reviewed by the Remuneration
Committee each year, although increases are not automatic.
4.2 Non-cash benefits
James Hardie’s executives may receive non-cash benefits such as cost
of living allowance, medical and life insurance benefits, car allowances,
membership of executive wellness programs, long service leave and tax
services to prepare their income tax returns if they are required to lodge
returns in multiple countries.
4.3 Retirement plans/superannuation
In every country in which it operates, the company offers employees
access to pension, superannuation or individual retirement savings
plans consistent with the laws of the respective country.
5. link bETwEEn rEmunEraTion poliCy and
Company pErFormanCE in FiSCal yEar 2010
5.1 Board assessment of performance
The Remuneration Committee reviewed and discussed with the Audit
Committee both the EBIT goals set at the start of fiscal year 2010, and
the results against the EBIT goals at the end of fiscal year 2010, before
recommending these goals for approval by the Board.
5.2 Actual performance
James Hardie’s five year EBIT in US$ terms (excluding asbestos)
and five-year A$ total shareholder return (including dividends)
mapped against changes in US housing starts are shown in the
following graphs:
Five year EBIT (ex reported adjustments)
(Millions of US dollars)
10
09
08
07
06
205.3
156.9
207.5
318.9
280.7
JHX Total Return Index
US Housing Starts
180
140
100
60
20
5
0
0
2
h
c
r
a
M
1
3
t
a
d
e
s
a
b
e
R
x
e
d
n
I
31 March
2005
31 March
2006
31 March
2007
31 March
2008
31 March
2009
31 March
2010
Fiscal Year End
Graph compiled by Mercer (Australia) Pty Ltd using publicly available data
5.3 Market conditions
Note: Mercer (Australia) Pty Ltd provides no opinion on the veracity of the data
As shown in the table at section 2 on page 43, a significant proportion
of the remuneration for senior executives is Variable Remuneration,
which is at risk. The company’s remuneration arrangements aim to
ensure a link between the performance of the company and bonuses
paid and equity awarded.
As expected, the company continued to be affected by the ongoing
economic downturn in our major market, the US housing market,
where housing starts in the United States reached a seasonally-adjusted
annual rate of 531,000 units in March 2010, significantly below the
January 2006 peak of 1.823 million annualised starts.
In the face of this downturn in the US housing market over the past
14 quarters, the company’s USA and Europe Fibre Cement business
continued to outperform the broader housing market for fiscal year
2010, with revenue down 11% and sales volume down 15% from
fiscal year 2009. At the same time, the USA and Europe Fibre Cement
business was still able to improve realised unit revenue and deliver
an EBIT margin of 25.2% for fiscal year 2010 compared with 21.4%
in fiscal year 2009. The USA and Europe Fibre Cement business still
accounted for approximately 75% of total company EBIT and 74% of
total company sales in fiscal year 2010.
1 Graph compiled by Mercer (Australia) Pty Ltd using publicly
available data. Note: Mercer (Australia) Pty Ltd provides no opinion
on the veracity of the data.
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dirECTorS’
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rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
These results were achieved mainly through:
– the successful execution of the company’s primary demand growth
strategies to achieve further market penetration at the expense
of alternative materials such as wood and vinyl, driving stronger
volume; and
– its continued success in introducing higher margin products (such
as the ColorPlus® collection of products), driving stronger revenue.
Australia, New Zealand and The Philippines experienced a rebound
in housing approvals towards the end of the fiscal year and the Asia
Pacific business recorded accelerating sales revenue.
The relative success of the company in fiscal year 2010 and prior
years can be seen in its strong relative share price performance in
fiscal year 2010.
5.4 Performance linkage with Remuneration Policy
The design of the Executive Incentive Plan and the targets for fiscal
year 2010 provided a framework for management to be rewarded for
the company’s strong relative performance during fiscal year 2010.
The initial fiscal year 2010 EBIT target was set assuming 588,000
addressable new starts for the US business (which comprises all US
housing starts excluding multi-family high rise). This target was set
based on assumptions around agreed metrics for contribution dollars
per housing start, market position, repair and remodel performance and
fixed spending.
Actual US new addressable starts during fiscal year 2010 were slightly
higher than expected at 648,856, which meant that the target EBIT for
the Managing Board and US senior executives was indexed upwards.
An increase in Asia Pacific housing starts also contributed to an increase
in the Asia Pacific and Managing Board target EBIT. Despite the higher
indexed EBIT target, all targets were exceeded. The actual results for each
of the EBIT goals were: US 164%, Asia Pacific 123% and Managing
Board 203%. In accordance with the terms of the Executive Incentive
Plan, STI payouts were capped at 200% for the Performance Share
payments and 300% for Executive Incentive Program RSUs.
Because of the high level of payout in fiscal year 2010, the Board
requested additional review of the composition of the EBIT result,
to understand whether the payout was significantly affected by outside
factors (such as lower than anticipated pulp, freight and energy input
costs). The result of that review indicated that even if all of those lower
than anticipated factors contributing to the STI result were removed,
the STI payouts would still all have been at the maximum number
for members of the Managing Board and US senior executives.
The Remuneration Committee also reviews the company’s performance
relative to its peer group based on a range of comparable ratios
to confirm that management has performed at the top quartile level
compared to its US peers expected by the Board. The company
was above the 75th percentile of its US peer group in all measures
considered by the Board.
The Remuneration Committee and Board believe that the company’s
continued out-performance of the market in fiscal year 2010 through the
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| JAMES HARDIE | ANNUAL REPORT 2010
current overall economic environment and the continued deterioration in
the US housing market reflects well on the strategies set and implemented
by management and is superior to the results delivered by most of its US
peers. Particularly pleasing was the company’s ability to increase EBIT
and EBIT margin in a market with declining sales and volumes.
The Remuneration Committee also reviewed the company’s and
management’s performance under the Scorecard, and the following
positive results were achieved in fiscal year 2010:
Measure
Starting Point
US Primary
Demand Growth
(PDG)
PDG for the last three fiscal years is as follows:
FY 10
FY 09
FY 08
6.1%
3.0%
5.2%
US Product Mix
Shift
This has focused primarily on
ColorPlus penetration.
US Zero to
Landfill (ZTL)
Safety
FY10 results are commercial in confidence
but exceeded FY09-07 results.
In the past three years the company has made
significant progress in reducing the amount of
materials sent to landfill.
The incident rate (IR) and severity rate (SR) over
the last three fiscal years were as follows:
FY 10
FY 09
FY 08
IR
1.7
4.7
3.8
SR
37
54
45
Strategic
Positioning
Legacy Issues
The Group remains highly dependent upon the
US fibre cement exterior cladding business.
The company’s Re-domicile to Ireland was
completed in June 2010. Remaining inherited
legacy issues are ASIC proceedings, tax issues
and managing the company’s obligations under
the AFFA.
Managing
During the
Economic Crisis
At the end of FY10, total credit facilities
were US$426.7 million and net debt was
US$134.8 million.
Talent
Management/
Development
The company has a strong management team
which has delivered superior results over the
past three years.
The remuneration paid to senior executives in fiscal year 2010 reflects
this out-performance compared to its US peers and demonstrates an
appropriate link between the company’s remuneration policy and company
performance. The Board and Remuneration Committee continue to believe
that the structure of the remuneration framework to motivate management
to successfully address the challenging US housing industry conditions
in fiscal year 2010 by shifting 40% of senior executives’ LTI target to STI
target, payable in two-year vesting Executive Incentive Program RSUs to
promote alignment between senior executives and shareholders,
has been an important element in the substantial increase of
shareholder value in fiscal year 2010.
6. rEmunEraTion For FiSCal yEar 2011
6.1 Overview of remuneration for fiscal year 2011
Following their review of the existing remuneration framework, the
Remuneration Committee and Board resolved to continue with the
remuneration framework of the last two years, with a number of
adjustments as described in this section.
The following Variable Remuneration incentive plans are in place for
fiscal year 2011:
Duration Plan Name
Form of Incentive
Short-term
incentive
(1-3 years)
Cash
Executive
Incentive Plan
RSUs with vesting
deferred for two years
and subject to Scorecard
(Executive Incentive
Program RSUs)
Cash
Individual
Performance
Plan (IP Plan)
Long-term
incentive
(3-5 years)
Long Term
Incentive Plan
(LTIP)
RSUs with relative TSR
performance hurdles
(Relative TSR RSUs)
Cash payment based on
share price performance
and subject to Scorecard
(Scorecard LTI)
Further
Details
Section
6.3.1(a)
below
Section
6.3.1(b)
below
Section
6.3.1(c)
below
Section
6.3.2(a)
below
Section
6.3.2(b)
below
6.2 Summary of changes to compensation
for fiscal year 2011
Although the overall remuneration framework in fiscal years 2010 and
2011 is substantially the same, the Board has approved a number of
changes to the underlying performance measures as described below.
The Board believes that as the US housing market starts to recover, the
company is well positioned to use its strong capital and market position
to drive significant growth in shareholder value. The remuneration
framework adopted by the company in fiscal years 2009 and 2010 was
designed to sustain the company through an unpredictable economic
downturn. Although significant uncertainty remains, the Board believes
that the remuneration framework for fiscal year 2011 should ensure that
that company is prepared for any market recovery.
James Hardie’s long-term objective involves continued primary demand
growth, which requires it to grow fibre cement’s share of the exterior
cladding market and maintain the company’s share of the fibre cement
category. Achieving this objective over a sustained period of time will
result in substantial growth in the business.
The Board believes that it is important that this growth does not come at
the expense of short and medium-term profitability. Two changes have
been made to the company’s STI and LTI plans to provide appropriate
incentives to senior executives to balance the growth components of the
company’s plans without sacrificing short to medium-term profitability.
These are:
– revising the STI performance target so that it is based on a matrix of
earnings vs growth above market; and
– changing the payout schedule for the Executive Incentive Program
RSUs to provide incentives for senior executives to make the
substantial improvements required to attain the company’s objective.
No changes will be made to the components or operation of the
Scorecard in fiscal year 2011.
6.3 Details of Variable components in fiscal year 2011
6.3.1 FY 2011 Short-term incentive
The STI target for senior executives, other than the CFO, is allocated
80% towards corporate goals (under the Executive Incentive Plan) and
20% towards individual goals (under the IP Plan). The STI target will be
paid in cash.
For fiscal year 2011, the Board has decided to continue to transfer
40% of each senior executive’s LTI target to the STI target under the
Executive Incentive Plan. The Executive Incentive Plan component
will be paid in RSUs with a two-year vesting period and subject to the
negative discretion exercisable by the Board under the Scorecard.
(a) Executive Incentive Plan – Cash
80% of STI target for senior executives other than the CFO is allocated
to the Executive Incentive Plan. The maximum payout is 300% of the
target.
For fiscal year 2011, the Board has introduced a new performance
target measure for awards under Executive Incentive Plan payable in
cash. The purpose of this new performance hurdle is to ensure that as
management increases its top line growth focus, it does not do so at
the expense of short to medium-term returns. The Executive Incentive
Plan for fiscal year 2011 is designed to encourage senior executives
to effectively balance growth and returns.
On the recommendation of the Remuneration Committee, the Board
has approved a ‘Payout Matrix’ which will be used to determine the
amount of reward under the Executive Incentive Plan. A separate Payout
Matrix has been approved by the Remuneration Committee for the
individual business units.
Senior executives will be subject to a different Payout Matrix depending
on their function and location:
– Corporate senior executives, including the CEO, have a goal based
on the consolidated result for all business units; and
– US senior executives have a goal based on the Payout Matrix for
the US business.
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| JAMES HARDIE | ANNUAL REPORT 2010
The Executive Incentive Program RSUs will have the following
payout slope:
Executive Incentive Program RSUs payout schedule
)
t
e
g
r
a
T
f
o
%
(
t
u
o
y
a
P
300
250
200
150
100
50
0
70
80
90
100
120
Performance (% of Plan)
110
130
140
Before the Executive Incentive Program RSUs vest in 2013, the Board
will assess each senior executive against the long-term objectives set
out in the Scorecard and consider how each of them has contributed
to the company’s performance against those objectives. Depending on
each senior executive’s rating under the Scorecard, between 0% and
100% of their Executive Incentive Program RSUs will vest. In effect,
the Scorecard applies a “claw-back” principle to ensure short-term
results in fiscal year 2011 are not obtained at the expense of long-term
sustainability.
All other elements of the Executive Incentive Program RSUs in fiscal
year 2011 will be the same as in fiscal year 2010.
directors’
report
reMUNerAtioN report
(coNtiNUed)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
To achieve strong rewards, management will be required to grow both
earnings (Return Measure) and generate sales growth substantially
above market (Growth Measure). Strong returns on one measure at the
expense of the other measure may result in lower, or nil, reward.
The Board will have discretion to change the payout under the Payout
Matrix if growth relative to market is below expectations and the
Board determines that the reason for such performance is outside
management’s control or as a result of a management decision
endorsed by the Board given an assessment of market circumstances
at the time.
Board Assessment of Executive Incentive Plan
The Board believes that revised targets for the Executive Incentive Plan
are appropriate because they:
– provide management with an incentive towards achieving the overall
corporate goals;
– balance growth with returns;
– recognise the need to flexibly respond to strategic opportunities
depending on our markets’ ability to recover from the currently
prevailing uncertain economic environment.
(b) Executive Incentive Plan – Executive Incentive
Program RSUs
It is currently intended that there will be no changes to the operation of
Executive Incentive Program RSUs, although the payout slope forming
the performance hurdle will change. The company intends to continue
to transfer 40% of LTI target for senior executives to an STI target, with
an award based on fiscal year 2011 performance payable in two-year
deferred RSUs subject to the Scorecard and vesting in May or June
2013. The maximum payout will remain at 300% of target.
The retention of the 40% transfer of target LTI to STI reflects the Board’s
continued concerns about the lack of stability in the US housing market
as well as emphasising continued profitability as the company seeks
to attain its primary demand growth objectives. The EBIT performance
targets for the Executive Incentive Program RSUs are derived from
fiscal year 2010 performance and the performance matrix for fiscal year
2011 used as a basis for short term incentive (STI) payouts that sets
acceptable standards for various combinations of volume growth and
earnings and have been reviewed by the Remuneration Committee and
the Board.
Achievement of a target payout in Executive Incentive Program RSUs
will require improvement on performance for fiscal year 2010, indexed
to housing starts.
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| JAMES HARDIE | ANNUAL REPORT 2010
Calculation of the Executive Incentive Plan RSUs at the end of fiscal year 2011 is described below:
LTI target
x
40%1
x
Payout
based on
performance
against 2011
EBIT goal
=
Value granted
in Executive
Incentive
Program
RSUs
x
Scorecard
Rating
in 2013
(0–100%)
=
Executive
Incentive
Program
RSUs vesting
1 Amount of LTI target received as Executive Incentive Program RSUs in the absence of long-term quantitative financial measures
Board Assessment
The Board believes that Executive Incentive Program RSUs and the
Scorecard are an appropriate incentive vehicle in the current market
because they:
– provide an incentive to ensure that the primary demand growth
objective is not achieved at the expense of short and medium-term
shareholder returns in the form of EBIT;
– align management with shareholders because the reward vehicle
is based on share price;
– focus on long-term results over the three year performance period;
– focus management on sustainable long-term value creation;
– recognise that quantifying a specific long-term financial outcome
requirement is not yet possible in the current market;
– avoid a mechanistic formula with outcomes based on market
movements rather than management action; and
– allow the collective judgment of the independent directors to
“claw-back” some or all of the potential value based on a number of
long-term objectives identified by the Board as being able to affect
longer-term outcomes in uncertain economic times.
(c) Individual Performance Plan (IP Plan)
20% of STI target for senior executives is allocated to the IP Plan. The
maximum payout is capped at 150% of target STI. Other than paying
awards under the IP Plan in cash rather than Performance Shares, it is
currently intended that there will be no changes to the operation of the
IP Plan for fiscal year 2011.
6.3.2 Long-term incentive
(a) Relative TSR RSUs
It is currently intended that there will be no changes to the operation
of Relative TSR RSUs, although following a review of the peer group
conducted by the company’s independent advisors, Towers Watson,
the Remuneration Committee and Board adopted their recommendation
to add seven companies to the peer group list. The companies added
to the peer group for fiscal year 2011 are set out in the 2010 Notice of
Meeting.
The Board considered whether re-testing continued to be appropriate
for Relative TSR RSUs, and determined that it is, given short-term price
fluctuations in the price of the company’s shares.
The maximum that can be received will remain at 300% of the LTI target
allocated to Relative TSR RSUs.
(b) Scorecard LTI
It is currently intended that there will be no changes in the operation
of Scorecard LTI. At the start of the three-year performance period,
the company will calculate the number of shares the senior executives
could have acquired if they received a maximum payout on the
Scorecard LTI on that date. At the end of the three-year performance
period, senior executives will be assessed against the Scorecard and
may forfeit a proportion of their Scorecard LTI based on their rating.
The executive will receive a cash payment based on the company’s
share price at the end of the period multiplied by the number of shares
they could have acquired at the start of the performance period and the
senior executive’s Scorecard rating.
The maximum that can be received will remain at 300% of the LTI target
allocated to Scorecard LTI.
Board assessment
The Board considered a reward that focused on longer-term strategic
and operational goals is essential, given that appropriate longer-term
financial objectives cannot be set in the current uncertain housing
market. Linking the rewards value to share price ensures alignment with
shareholder outcomes. Payment in the form of cash allows flexibility to
apply the reward across different countries, while providing executives
with liquidity to pay tax at a time that coincides with vesting of shares
(via the RSU programs). This feature will make it less likely that
executives are compelled to sell stock to meet tax or other obligations,
and supports senior executives being able to satisfy the company’s
executive stock ownership guidelines, further enhancing shareholder
alignment.
Further details of the Relative TSR RSUs and Executive Incentive
Program RSUs to be granted under the Executive Incentive Plan
for fiscal year 2011 will be set out in the 2010 Notice of Meeting.
6.4 Fixed Remuneration for fiscal year 2011
The Board has currently determined that and most of the company’s
senior management, including the CEO, will not receive base salary
increases in fiscal year 2011 in the absence of a change in the scope
of their roles. This follows a benchmarking survey which indicated
that senior management is generally adequately compensated on base
salary based on the company’s pay philosophy. The Board feels that it
is appropriate that senior executives have a significant portion of their
compensation
“at risk”.
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dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
7. kEy TErmS oF ouTSTanding EquiTy granTS
2001 JHI SE Equity Incentive Plan
(Options)
Offered to
Vesting schedule
Annual option grants made in December 2001, 2002, 2003, 2004 and 2005, November 2007 and
December 2007.
Off-cycle grants made to senior US executives on 19 October 2001 in exchange for the termination
of shadow stock awards, previously granted in November 2000, and to new employees in March 2007.
Senior executives, not Managing Board directors.
25% of options vest on the 1st anniversary of the grant, 25% vest on the 2nd anniversary date and
50% vest on the 3rd anniversary date.
Expiry date
10th anniversary of each grant.
2001 Plan (Restricted Stock Units
(RSUs))
Annual grants made December 2008 and 2009. The grant vehicle changed from options to RSUs
in 2008.
Offered to
Vesting schedule
Senior employees other than senior executives.
25% of RSUs vest on the 1st anniversary of the grant, 25% vest on the 2nd anniversary date and 50%
vest on the 3rd anniversary date.
Expiry date
RSUs convert to shares on vesting.
2005 Managing Board Transitional
Stock Option Plan (MBTSOP)
Options granted on 22 November 2005.
Offered to
Performance period
Re-testing
Exercise period
Performance condition
Vesting criteria
Managing Board directors.
22 November 2005 to 22 November 2008.
Yes, on the last Business Day of each six-month period following the 3rd anniversary and before the
5th anniversary.
Until November 2015.
TSR compared to a peer group of companies in the S&P/ASX 200 Index on the grant date excluding the
companies in the 200 Financials and 200 A-REIT GICS sector indices.
– 0% vesting if TSR below 50th percentile of peer group.
– 50% vesting if TSR at 50th percentile of peer group.
– Between 50th and 75th percentiles, vesting on a straight line basis.
– 100% vesting if TSR is at least 75th percentile of peer group.
Vesting to date
No options have vested to date.
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| JAMES HARDIE | ANNUAL REPORT 2010
James Hardie Industries Long
Term Incentive Plan 2006 (LTIP)
Option Grants
Options granted on 21 November 2006 and 29 August 2007. Grants were divided into two tranches:
Return on Capital Employed (ROCE) and Total Shareholder Return (TSR).
Offered to
Performance period
Re-testing
Exercise period
Performance condition
Vesting criteria
Managing Board directors.
Three years to five years from the grant date.
Yes, for the TSR tranche only, on the last Business Day of each six-month period following the 3rd
Anniversary and before the 5th Anniversary.
Until five years from the grant date.
For the ROCE tranche:
ROCE performance against the following global peer group of building materials companies in US,
Europe and Asia Pacific specialising in building materials: Boral Limited, Valspar Corporation, Hanson
plc, Rinker Group Limited (2006 grant only), Weyerhaeuser, Lafarge SA, CSR Limited, Cemex SA de CV,
Nichiha Corp, Fletcher Building Limited, Martin Marietta Materials Inc, Saint Gobain, Eagle Materials
Inc, Texas Industries, Wienerberger AG, Lousiana-Pacific Corporation, Florida Rock Industries Inc,
CRH plc, USG Corporation, Vulcan Materials Co and The Siam Cement Plc.
For the TSR tranche:
TSR performance against a peer group of comparable companies in the S&P/ASX 100 at the time of
grant excluding financial institutions, insurance companies, property trusts, oil and gas producers and
mining companies, and adjusted to account for additions and deletions to S&P/ASX 100 during the
relevant period.
For the ROCE tranche:
– 0% vesting if ROCE below 60th percentile of peer group.
– 50% vesting if ROCE at 60th percentile of peer group.
– Between the 60th and 85th percentiles, vesting on a straight line basis.
– 100% vesting if ROCE is at 85th percentile of peer group.
For the TSR tranche:
– 0% vesting if TSR below 50th percentile of peer group.
– 50% vesting if TSR at 50th percentile of peer group.
– Between 50th and 75th percentiles, vesting on a straight line basis.
– 100% vesting if TSR is at 75th percentile of peer group.
Vesting to date
To date, the 2006 grant ROCE tranche options have vested 100% and the 2006 TSR tranche options
have vested 60%. No options have been exercised.
2001 JHI SE Equity Incentive
Plan Deferred Bonus Program
(Restricted Stock Units (RSUs))
Offered to
RSU exercise price
Vesting schedule
Expiry date
One-off grant of RSUs to senior executives made 17 June 2008.
Grant to CEO made 15 September 2008 under James Hardie Industries Long Term Incentive Plan 2006.
Senior executives.
Nil.
100% vest on the 2nd anniversary of the grant.
On vesting, the RSUs convert into shares granted on a one-for-one basis.
55
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dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
James Hardie Industries Long
Term Incentive Plan 2006 Relative
TSR RSUs (Restricted Stock Units
(RSUs))
Offered to
Performance period
Re-testing
Exercise period
Performance condition
Vesting criteria
RSU exercise price
Expiry date
James Hardie Industries Long
Term Incentive Plan 2006
Executive Incentive Program RSUs
(Restricted Stock Units (RSUs))
Relative TSR RSUs granted September and December 2008 and September and December 2009.
Senior executives and Managing Board directors.
Three years to five years from the grant date.
Yes, on the last Business Day of each six month period following three years from grant date and before
five years from grant date.
Until five years from the grant date.
TSR performance hurdle compared to the following peer group of companies: Acuity Brands, Inc., Eagle
Materials, Inc, Headwaters, Inc, Lennox International, Inc, Louisiana-Pacific Corp., Martin Marietta
Materials, Inc, Masco Corporation, MDU Resources Group, Inc, Mueller Water Products, Inc, NCI
Building Systems, Inc, Owens Corning, Quanex Building Products Corp., Sherwin Williams, Simpson
Manufacturing Co., Texas Industries, Inc, Trex, USG, Valmont Industries, Valspar Corporation, Vulcan
Materials and Watsco, Inc.
– 0% vesting if TSR below 50th percentile of peer group.
– 33% vesting if TSR at 50th percentile of peer group.
– Between 50th and 75th percentile, vesting is on a straight line basis.
– 100% vesting if TSR is at 75th percentile of peer group.
Not applicable.
On vesting, the RSUs convert into shares granted on a one-for-one basis.
Executive Incentive Program RSUs granted in May 2009 and June 2010.
Offered to
Senior executives and Managing Board directors.
Option Exercise Price
Nil.
Vesting schedule
(2009 grant only)
Vesting schedule
(2010 grant only)
Expiry date
James Hardie Industries Long
Term Incentive Plan 2006
Scorecard LTI (Awards)
Offered to
Option Exercise Price
Performance period
Payment schedule
100% vest on the 2nd anniversary of the grant.
A proportion will vest on the 2nd anniversary of the grant depending on each senior executive’s
Scorecard rating between 0 and 100.
On vesting, the RSUs convert into shares granted on a one-for-one basis.
Cash-settled Awards granted June 2009.
Senior executives and Managing Board directors.
Nil.
Three years from the grant date.
A cash payment based on the company’s share price at the end of the performance period multiplied
by the number of shares that could have been acquired at the start of the performance period and the
senior executive’s Scorecard rating.
A proportion of the payment will be payable on the 3rd anniversary of the grant depending on each
senior executive’s Scorecard rating between 0 and 100.
Expiry date
On vesting, the RSUs convert into shares granted on a one-for-one basis.
Details of equity incentive plans that expired during fiscal year 2010 are provided in Note 15 to the consolidated financial statements starting on
page 109 of this annual report.
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| JAMES HARDIE | ANNUAL REPORT 2010
8. REMUNERATION TABLES FOR SENIOR EXECUTIVES
8.1 Total remuneration for senior executives for the years ended 31 March 2010 and 2009
Details of the remuneration of the senior executives, including the Managing Board directors in fiscal year 2010, as determined in accordance with
US GAAP, are set out below:
(US dollars)
Primary
Post-
employment
Bonuses1
Non-cash
Benefits2
Super-
annuation
and 401(k)
Benefits
Equity
Other
Relocation
Allowances,
Expatriate
LTI and Benefits, and
Other Non-
Equity
recurring4
Awards3
Total
863,448
Base Pay
Name
Senior executives, including Managing Board
Louis Gries
Fiscal year 2010
Fiscal year 2009
Russell Chenu
Fiscal year 2010
Fiscal year 2009
Robert Cox
Fiscal year 2010
Fiscal year 2009
Mark Fisher
Fiscal year 2010
Fiscal year 2009
Nigel Rigby
Fiscal year 2010
Fiscal year 2009
397,558
340,433
384,169
340,433
450,000
444,808
738,463
676,719
$ 936,860 $ 1,688,832 $ 471,208
268,008
1,215,876
$ 12,999 $ 3,744,250
2,146,279
19,872
$ 174,510 $ 7,028,659
4,685,157
171,674
320,148
216,453
83,728
40,983
245,699
339,300
74,721
14,354
382,303
273,670
33,098
35,961
66,462
60,025
14,700
–
12,842
14,014
607,122
296,514
185,971
148,366
2,001,894
1,439,060
606,351
79,575
156,807
308,583
1,548,278
1,186,620
536,472
328,408
–
–
–
–
1,348,884
992,486
1,364,969
967,478
406,711
273,670
24,228
24,967
–
–
536,472
328,408
1 Bonuses in respect of each fiscal year are paid in June of the following fiscal year. The amounts in fiscal years 2010 and 2009 include all incentive
amounts accrued for in respect of each fiscal year, pursuant to the terms of the applicable plans. In addition, since the amount reported each year
is an estimated accrual, fiscal year 2010’s bonus amounts include any adjustments to the 2009 bonus amounts previously reported to the extent
necessary to reflect the actual bonus paid. Current senior executives were paid fiscal year 2010 bonuses after tax in performance shares.
Refer section 3 for a summary of the terms of our Variable Compensation plans.
2 Includes the aggregate amount of all non-cash benefits received by the executive in the year indicated. Examples of non-cash benefits that may be
received by our executives include medical and life insurance benefits, car allowances, membership in executive wellness programs, long service
leave, and tax services.
3 Includes grants of Scorecard LTI awards and Relative TSR and Executive Incentive Program RSUs. Scorecard LTI awards are liability-classified
awards that are remeasured and include an amount based on changes to a company’s stock price over each reporting period. Equity awards are
valued using either the Black-Scholes pricing model or the Monte Carlo pricing method, depending on the plan under which the equity awards
were issued. The fair value of equity awards granted are included in compensation over the period in which the equity awards vest.
4 Other non-recurring benefits include cash paid in lieu of vacation accrued, as permitted under our US vacation policy and California law.
57
| JAMES HARDIE | ANNUAL REPORT 2010
directors’
report
reMUNerAtioN report
(coNtiNUed)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
8.2 Equity Holdings for the years ended 31 March 2010 and 2009
(a) Options
Details of the changes to equity holdings of senior executives, including the Managing Board directors in fiscal year 2010, are set out below:
Exercise
Price
Grant per right
(A$)
Date
Holding
at
1 April
2009
Name
Senior executives, including Managing Board
Louis Gries
Total
Value at
Grant1
(US$)
Value at
Exercise
per right2
Weighted
Value at Holding Average
Fair
Value
2010 per right4
at
per right3 31 March
(US$)
Lapse
Granted
Vested Exercised
(US$) Lapsed
19 Oct 015
19 Oct 015
17 Dec 015
3 Dec 026
5 Dec 035
22 Nov 056
21 Nov 067
21 Nov 067
29 Aug 077
29 Aug 077
Russell Chenu 22 Feb 055
22 Nov 056
21 Nov 067
21 Nov 067
29 Aug 077
29 Aug 077
–
19 Oct 01
17 Dec 01
3 Dec 02
5 Dec 03
14 Dec 04
1 Dec 05
21 Nov 06
10 Dec 07
17 Dec 01
3 Dec 02
5 Dec 03
14 Dec 04
1 Dec 05
21 Nov 06
10 Dec 07
Robert Cox
Mark Fisher
Nigel Rigby
40,174
175,023
324,347
325,000
325,000
200,874
437,539
324,347
325,000
325,000
3.1321
3.0921
5.0586
6.4490
7.0500
8.5300 1,000,000 1,000,000 2,152,500
8.4000
8.4000
7.8300
7.8300
6.3000
8.5300
8.4000
8.4000
7.8300
7.8300
–
3.0921
5.0586
6.4490
7.0500
5.9900
8.9000
8.4000
6.3800
5.0586
6.4490
7.0500
5.9900
8.9000
8.4000
6.3800
71,732 200,874
168,321 437,539
137,296 324,347
210,633 325,000
338,975 325,000
–
888,100 415,000
415,000
381,000 1,131,570 228,600
–
445,000
965,650
–
437,000 1,302,260
93,000
107,973
93,000
–
193,725
90,000
65,000
139,100
65,000
36,000
178,200
60,000
–
130,200
68,000
–
178,800
66,000
–
–
–
92,113
35,436
92,113
68,283
28,904
68,283
47,959
74,000
74,000
137,676 132,000
132,000
180,000
183,276 180,000
386,137 190,000
190,000
291,069 158,500
158,500
275,064 138,889
277,778
8,467
20,003
20,003
17,499
27,000
27,000
33,000
34,419
33,000
183,276 180,000
180,000
386,137 190,000
190,000
291,069 158,500
158,500
275,084 138,889
277,778
415,000
381,000
445,000
437,000
93,000
90,000
65,000
60,000
68,000
66,000
–
92,113
68,283
74,000
132,000
180,000
190,000
158,500
277,778
20,003
27,000
33,000
180,000
190,000
158,500
277,778
200,874
437,539
324,347
–
–
–
–
–
–
–
–
–
–
–
–
–
–
92,113
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.98
2.11
3.05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.06
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 325,000
– 325,000
– 1,000,000
– 415,000
– 381,000
– 445,000
– 437,000
93,000
–
90,000
–
65,000
–
60,000
–
68,000
–
66,000
–
–
–
–
–
68,283
–
–
74,000
– 132,000
– 180,000
– 190,000
– 158,500
– 277,778
20,003
27,000
33,000
180,000
190,000
158,500
– 277,778
0.3571
0.3847
0.4233
0.6481
1.0430
2.1525
2.1400
2.9700
2.1700
2.9800
1.1610
2.1525
2.1400
2.9700
2.1700
2.9800
–
0.3847
0.4233
0.6481
1.0430
1.0182
2.0323
1.8364
0.9903
0.4233
0.6481
1.0430
1.0182
2.0323
1.8364
0.9903
1 Total Value at Grant = Weighted Average Fair Value per right multiplied by number of rights granted.
2 Value at Exercise/right = Market Value of a share of the company’s stock at Exercise less the Exercise price per right.
3 Value at Lapse/right = Market Value of a share of the company’s stock at Lapse less the Exercise price per right.
4 Weighted Average Fair Value per right is estimated on the date of grant using the Black-Scholes option pricing model or Monte Carlo
option pricing method, depending on the plan the options were issued under.
5 Options granted under 2001 JHI SE Equity Incentive Plan. See section 7, page 54 for summary of key terms of options granted.
6 Options granted under 2005 Managing Board Transitional Stock Option Plan. See section 7, page 54 for summary of key terms of options granted.
7 Options granted under James Hardie Industries Long-Term Incentive Plan 2006 (LTIP). See section 7, page 54 for summary of key terms of options
granted.
58
| JAMES HARDIE | ANNUAL REPORT 2010
(b) RSUs
Details of the changes to equity holdings of senior executives, including the Managing Board directors in fiscal year 2010, are set out below:
Name
Senior executives, including Managing Board
Louis Gries
Holding
at
1 April
2009
201,324
558,708
–
–
–
108,637
–
–
–
155,196
–
–
–
36,066
116,948
–
–
–
36,066
116,948
–
–
–
Grant
Date
15 Sep 088
15 Sep 089
29 May 09
15 Sep 099
11 Dec 099
15 Sep 089
29 May 09
15 Sep 09
11 Dec 099
15 Sep 089
29 May 09
15 Sep 099
11 Dec 099
17 Jun 0810
17 Dec 089
29 May 09
15 Sep 099
11 Dec 099
17 Jun 0810
17 Dec 089
29 May 09
15 Sep 099
11 Dec 099
Total
Value at
Grant
(US$)
746,107
1,592,318
2,100,892
1,653,696
670,317
309,615
408,506
321,552
130,339
442,309
583,583
459,360
186,197
144,625
268,980
334,232
275,616
111,717
144,625
268,980
334,232
275,616
111,716
Granted
201,324
558,708
487,446
234,900
81,746
108,637
94,781
45,675
15,895
155,196
135,402
65,250
22,707
36,066
116,948
77,548
39,150
13,624
36,066
116,948
77,548
39,150
13,624
Holding
at
31 March
2010
Weighted
Average
Fair
Value
per unit
Vested
Lapsed
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
201,324
558,708
487,446
234,900
81,746
108,637
94,781
45,675
15,895
155,196
135,402
65,250
22,707
36,066
116,948
77,548
39,150
13,624
36,066
116,948
77,548
39,150
13,624
3.7060
2.8500
3.3650
5.0100
6.9100
2.8500
3.3650
5.0100
6.9100
2.8500
3.3650
5.0100
6.9100
4.0100
2.3000
3.3650
5.0100
6.9100
4.0100
2.3000
3.3650
5.0100
6.9100
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
8 Bonus RSUs granted under Deferred Bonus Program and LTIP. See section 7, page 54 for key terms of Deferred Bonus RSUs.
9 Relative TSR RSUs granted under LTIP. See section 7, page 54 for key terms of Relative TSR RSUs.
10 Deferred Bonus RSUs granted under Deferred Bonus Program and 2001 JHI SE Equity Incentive Plan. See section 7, page 54 for key terms
of Deferred Bonus RSUs.
59
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(c) Scorecard LTI
Changes in senior executives’, including the Managing Board directors in fiscal year 2010, grants of awards of Scorecard LTIs between 1 April 2009
and 31 March 2010 are set out below:
Name
Senior executives, including Managing Board
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
Grant
Date
21 Jun 09
21 Jun 09
21 Jun 09
21 Jun 09
21 Jun 09
Granted
Vested
Lapsed
483,294
93,974
134,248
80,549
80,549
–
–
–
–
–
–
–
–
–
–
Holding
at
31 March
2010
483,294
93,974
134,248
80,549
80,549
See sections 3.2 and 3.3.2(b) on pages 44 and 47, respectively, for more information about Scorecard LTI.
8.3 Senior executive’s relevant interests in JHI SE
Changes in senior executives’, including the Managing Board directors in fiscal year 2010, relevant interests in JHI SE securities between 1 April
2009 and 31 March 2010 are set out below:
CUFS at
1 April 2009
CUFS at
31 March 2010
Options at
1 April 2009
Options at
31 March 2010
RSUs at
1 April 2009
RSUs at
31 March 2010
Senior executives, including Managing Board
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
127,675
25,000
–
–
–
259,875
35,000
–
29,519
–
3,867,544
442,000
–
1,172,674
886,281
3,328,000
442,000
–
1,080,561
886,281
760,032
108,637
155,916
153,014
153,014
1,564,124
264,988
378,555
283,336
283,336
8.4 Loans
The company did not grant loans to senior executives during fiscal year 2010. There are no loans outstanding to senior executives.
60
| JAMES HARDIE | ANNUAL REPORT 2010
9. EmploymEnT ConTraCTS
Remuneration and other terms of employment for the CEO, CFO and General Counsel and certain other senior executives are formalised in
employment contracts. The main elements of these contracts are set out below.
9.1 CEO’s employment contract
Details of the terms of the CEO’s employment contract are as follows:
Components
Length of contract
Base salary
Short-term incentive
Long-term incentive
Defined Contribution Plan
Resignation
Termination by James Hardie
Post-termination Consulting
Details
Initially a three-year term, commencing 10 February 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
renewal date, that it does not want the term to renew.
US$950,000 for fiscal year 2010 and 2011. Salary reviewed annually by the Board and there will be no base salary
increase for fiscal year 2011.
Annual STI target is 125% of annual base salary for fiscal year 2011. The quantum of STI target is reviewed
annually by the Board in May.
The Remuneration Committee recommends the company’s and CEO’s performance objectives, and the performance
against these objectives, to the Board for approval. The CEO’s short-term incentive is calculated under the Executive
Incentive Plan and the Individual Performance Plan.
On the approval of shareholders, stock options or other equity incentive will be granted each year. The
recommended number of options or other form of equity to be granted will be appropriate for this level of executive
in the US. For fiscal year 2011, the LTI target will be US$2.8 million.
The CEO may participate in the US 401(k) defined contribution plan up to the annual US Internal Revenue Service
(IRS) limit. The company will match the CEO’s contributions into the plan up to the annual IRS limit.
The CEO may cease employment with the company by providing written notice. If the CEO retires with the approval
of the Board then his unvested restricted stock units and awards will not be forfeited and will be held until the next
test date.
The company may terminate the CEO’s employment for cause or not for cause. If the company terminates the
CEO’s 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 CEO’s annual base salary at the time of termination; and
(b) amount equivalent to 1.5 times the CEO’s average STI actually paid in up to the previous three fiscal years
as CEO; and
(c) continuation of health and medical benefits at the company’s expense for the remaining term of the agreement
and the consulting agreement referenced below.
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 the CEO maintains the company’s non-compete and confidentiality agreements
and executes a release of claims following the effective date of termination. Under the consulting agreement, the
CEO will receive the annual base salary and annual target incentive in exchange for this consulting and non-
compete. Under the terms of equity incentive grants made to the CEO under the MBTSOP and LTIP, the CEO’s
outstanding options will not expire during any post-termination consulting period. This arrangement is a standard
arrangement for US executives and the Board considers that it is an appropriate restraint for Mr Gries given his
intimate involvement in developing the company’s fibre cement business in the United States over the past 19 years.
61
| JAMES HARDIE | ANNUAL REPORT 2010
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
9.2 CFO’s employment contract
Details of the CFO’s employment contract are as follows:
Components
Length of contract
Base salary
Short-term incentive
Long-term incentive
Superannuation/pension
Other
Resignation or Termination
Redundancy or diminution
Details
Fixed period concluding 5 October 2012.
A$874,058 for fiscal year 2010. Salary reviewed annually by the Board.
Annual STI target is 33% of annual base salary as set out in the CFO’s employment contract, based on
personal goals. The CFO does not participate in the Executive Incentive Program for his short-term incentive,
other than the arrangement where some of the CFO’s LTI target is transferred to STI in the form of Executive Incentive
Program RSUs.
Stock options or other long-term equity with performance hurdles will be granted each year. The recommended
value of equity to be granted will be equivalent to at least US$350,000. If the CFO ceases employment with the
company, a pro-rata amount of each tranche of the CFO’s unvested options or other form of equity will expire on
the date employment ceases, calculated based on the formula D=Cx(A/B), where A is the number of months from
the date employment ceases to the first testing or vesting date, B is the number of months from the date of grant
until the first testing or vesting date and C is the total number of options or other form of equity granted in the
relevant tranche. The remaining unvested/unexercised options or other form of equity will continue as if the CFO
remained employed by the company until the first testing or vesting date, at which point any options or other form
of equity that do not vest at that time will also lapse.
The company will contribute A$50,000 to the CFO’s nominated superannuation/pension fund.
The CFO receives an additional benefit of approximately A$30,000.
The company or CFO may cease the CFO’s employment with the company by providing three months’ notice
in writing.
If the position of CFO is determined to be redundant or subject to a material diminution in status, duties or
responsibility of the role, 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.
9.3 General Counsel’s employment contract
Details of the General Counsel’s employment contract are as follows:
Components
Length of contract
Base salary
Short-term incentive
Long-term incentive
Resignation
Termination by James Hardie
Post-termination Consulting
Details
Indefinite.
US$450,000 for fiscal year 2010 and 2011. Salary reviewed annually by the Board and there will be no base salary
increase for fiscal year 2011.
Annual STI target is 65% of annual base salary as set out in the General Counsel’s employment contract.
The General Counsel’s short-term incentive is calculated under the Executive Incentive Plan (which includes the
IP Plan).
Stock options or other long-term equity with performance hurdles will be granted each year. The recommended
value of equity to be granted will be equivalent to at least US$500,000.
The General Counsel may cease employment with the company by providing 30 days’ written notice.
The company may terminate the General Counsel’s employment for cause or not for cause. If the company
terminates the employment, not for cause, or the General Counsel terminates his employment “for good reason”,
the company may request the General Counsel to consult to the company for two years as set out below. No other
termination payment is payable.
Depending on the reasons for termination, the company may request the General Counsel, and the General Counsel
will agree, to consult to the company for two years upon termination, as long as he signs and complies with 1) a
consulting agreement, which will require him to maintain non-compete and confidentiality obligations to the company,
and 2) a release of claims in a form acceptable to the company. In exchange for the consulting agreement, the company
shall pay the General Counsel’s annual base salary as of the termination date for each year of consulting.
62
| JAMES HARDIE | ANNUAL REPORT 2010
9.4 Benefits contained in contracts for CEO, CFO and General Counsel
In fiscal year 2010, and until we moved our corporate domicile to Ireland, the CEO, CFO and General Counsel were on international assignment in
The Netherlands. During the time of their international assignment, the employment contracts for the CEO, CFO and General Counsel also specified
the following benefits:
Components
International Assignment
Other
Details
Additional benefits due to international assignment: housing allowance, expatriate goods and services allowance,
moving and storage.
Tax Equalisation: The company covers the extra personal tax burden imposed by residency in The Netherlands.
Tax Advice: The company will pay the costs of filing income tax returns to the required countries.
Health, Welfare and Vacation Benefits: Eligible to receive all health, welfare and vacation benefits offered to
all US employees, or similar benefits. Are also eligible to participate in the company’s executive health and wellness
program.
Business Expenses: Entitled to receive reimbursement for all reasonable and necessary travel and other
business expenses incurred or paid for in connection with the performance of their services under their
employment agreements.
Automobile: The company will either purchase or lease an automobile for business and personal use, or, in the
alternative, they will be entitled to an automobile equivalent to the level of vehicle they could receive in the US.
9.5 Other senior executives’ employment contracts
Details of employment contracts for current senior executives are as follows:
Components
Length of contract
Base salary
Short-term incentive
Long-term incentive
Defined Contribution Plan
Resignation
Termination by James Hardie
Post-termination Consulting
Other
Details
Indefinite.
Base salary is subject to Remuneration Committee approval and reviewed annually.
An annual STI target is set at a percentage of the senior executive’s salary. The STI target is between 55% and 65%
and reviewed annually.
Upon the approval of the Board, grants of Scorecard LTI awards and Relative TSR and Executive Incentive Plan
RSUs have been made under the LTIP plan.
US senior executives may participate in the US 401(k) defined contribution plan up to the annual IRS limit. The
company will match the senior executive’s contributions into the plan up to the annual IRS limit.
The senior executive may cease employment with the company by providing 30 days’ written notice.
The company may terminate the senior executive’s employment for cause or not for cause. Other than the post-
termination consulting arrangement discussed below for a termination without cause or a resignation for good
reason, no other termination payments are payable.
Depending on the senior executive’s individual contract, and the reasons for termination, the company may request
the senior executive, and the senior executive will agree, to consult to the company for two years upon termination,
as long as they sign and comply with 1) a consulting agreement, which will require them to maintain non-compete
and confidentiality obligations to the company, and 2) a release of claims in a form acceptable to the company. In
exchange for the consulting agreement, the company shall pay the senior executive’s annual base salary as of the
termination date for each year of consulting.
Health, Welfare and Vacation Benefits: Eligible to receive all health, welfare and vacation benefits offered to
all US employees and also eligible to participate in the company’s executive health and wellness program.
Business Expenses: The senior executives are entitled to receive reimbursement for all reasonable and
necessary travel and other business expenses incurred or paid in connection with the performance of services
under their employment.
Automobile: The company will either lease an automobile for business and personal use by the senior executive, or,
in the alternative, the executive will be entitled to an automobile lease allowance not to exceed US$750 per month.
63
| JAMES HARDIE | ANNUAL REPORT 2010
10.2 Board Accumulation Policy
Non-executive directors are expected to accumulate a minimum of 1.5
times (and two times for the Chairman) their total base remuneration
(excluding Board Committee fees) in JHI SE shares (either personally,
in the name of their spouse, or through a personal superannuation or
pension plan) over a reasonable time following their appointment. The
Remuneration Committee monitors non-executive directors’ progress
against this policy on a periodic basis.
10.3 Supervisory Board Share Plan
Under the Supervisory Board Share Plan 2006 (SBSP), non-executive
directors can elect to receive some of their annual fees in JHI SE
shares. The SBSP was last approved at the 2007 AGM. The SBSP is
one of the vehicles non-executive directors can use to achieve their
target shareholding under the Board Accumulation Policy. Although a
number of directors used the SBSP to acquire shares during fiscal year
2010, the company anticipates that the complexity of the four different
jurisdictions in which the company’s individual directors are resident
means that in the future most directors are likely to acquire shares in
the company directly on the ASX or NYSE.
JHI SE shares received under the SBSP can be either be acquired on
market or new shares issued by the company. Where shares are issued,
the price is the average of the market closing prices at which the shares
were quoted on the ASX during the five business days preceding the
day of issue. Where the shares are acquired on market, the price is the
purchase price.
The SBSP does not include a performance condition because the
amounts applied to acquire shares under the SBSP are from the annual
fees earned by the non-executive directors.
10.4 Director retirement benefits
The company does not provide any benefits for non-executive Board
directors upon termination of employment.
dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
10. rEmunEraTion For board
non-ExECuTivE dirECTorS
Fees paid to non-executive directors are determined by the Board,
with the advice of the Remuneration Committee’s independent external
remuneration advisers, within the maximum total amount approved
by shareholders from time to time. The current aggregate fee pool of
US$1,500,000 was approved by shareholders in 2006.
Additional Board fees are not paid to executive Board directors.
10.1 Remuneration structure
Non-executive directors are paid a base fee for service on the Board.
Additional fees are paid to the person occupying the positions of
Chairman, Deputy Chairman and Board Committee Chairman and
to members of the Due Diligence Committee.
During fiscal year 2010, the Remuneration Committee reviewed
non-executive directors’ fees, using market data and taking into
consideration the level of fees paid to chairmen and directors
of companies with similar size, complexity of operations and
responsibilities, and workload requirements. As a result of the review,
the Remuneration Committee recommended increasing all non-
executive director fees by 5%, effective 1 April 2010.
The fees paid in fiscal year 2010, and payable in fiscal year 2011, are:
(US dollars)
Role
Chairman
Deputy Chairman
Board member
Audit Committee Chairman
Remuneration or Nominating and
Governance Committee Chairman
Fiscal
2010
$300,000
$175,000
$130,000
$20,000
Fiscal
2011
$315,000
$183,750
$136,500
$20,000
$10,000
$10,000
During fiscal year 2009, the Board formed the Due Diligence Committee,
comprised of representatives from the Board and management. This
committee was formed to assist the Board with reviewing and considering
alternative proposals to move the company’s domicile.
Non-executive directors who attended meetings of the Due Diligence
Committee received fees of US$1,500 per meeting, and the Chairman
received fees of $3,000 per meeting, in addition to their base fees. The
Due Diligence Committee met five times in fiscal year 2010.
As the focus of the Board is on the long-term direction and well-being
of James Hardie, there is no direct link between non-executive directors’
remuneration and the short-term results of the company.
No non-executive director has been granted options, restricted stock
units or performance rights. In fiscal year 2010, some non-executive
directors have received some of their fees in James Hardie shares in
accordance with the Supervisory Board Share Plan described below.
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10.5 Total remuneration for non-executive directors for the years ended 31 March 2010 and 2009
The table below sets out the remuneration for those directors who served on the Board during the fiscal years ended 31 March 2010 and 2009:
(US dollars)
Name
Non-executive directors
Michael Hammes
Fiscal year 2010
Fiscal year 2009
Donald McGauchie
Fiscal year 2010
Fiscal year 2009
Brian Anderson
Fiscal year 2010
Fiscal year 2009
David Dilger 4
Fiscal year 2010
Fiscal year 2009
David Harrison 5
Fiscal year 2010
Fiscal year 2009
James Osborne 6
Fiscal year 2010
Fiscal year 2009
Rudy van der Meer
Fiscal year 2010
Fiscal year 2009
Primary
Directors’ Fees1
Equity
JHI SE Stock2
Other Benefits3
Total
$ 221,000
222,500
$ 85,000
21,250
$ 10,641
3,988
$ 316,641
247,738
185,000
185,000
155,000
155,000
75,000
N/A
130,000
105,537
127,500
6,333
120,000
60,000
–
–
10,000
–
–
N/A
10,000
–
10,000
–
10,000
60,000
2,428
11,627
8,290
1,300
1,784
N/A
10,000
4,178
990
–
–
14,407
187,428
196,627
173,290
156,300
76,784
N/A
150,000
109,715
138,490
6,333
130,000
134,407
1 Amount includes base, Chairman, Deputy Chairman, Committee Chairman and Due Diligence Committee attendance fees.
2 The actual amount spent by each Board member was determined after deducting applicable Dutch taxes from this amount. The number of JHI SE
shares acquired was determined by dividing the amount of participation in the SBSP by the market purchase price.
3 Other Benefits includes the cost of non-executive directors’ fiscal compliance in The Netherlands.
4 Mr Dilger was appointed to the company’s Joint and Supervisory Boards effective 2 September 2009.
5 Mr Harrison was appointed to the company’s Joint and Supervisory Boards effective 19 May 2008.
6 Mr Osborne was appointed to the company’s Joint and Supervisory Boards effective 12 March 2009.
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dirECTorS’
rEporT
rEmunEraTion rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
10.6 Non-Executive directors’ relevant interests in JHI SE
Changes in non-executive directors’ relevant interests in JHI SE securities between 1 April 2009 and 31 March 2010 are set out below:
Number of
Shares/CUFS
at date of
becoming
director
Number of
Shares/CUFS
at 1 April 20091
21,4643
15,3724
6,124
–
10,0005
–
16,355
N/A
N/A
N/A
–
N/A
N/A
N/A
On market
purchases
–
5,000
–
25,000
–
–
Shares/CUFS
at date of
resignation
SBSP2
Number of
Shares/CUFS at
31 March 2010
11,383
–
1,511
–
2,384
2,551
935
N/A
N/A
N/A
N/A
N/A
N/A
N/A
32,847
20,372
7,635
25,000
12,384
2,551
17,290
Non-executive directors
Michael Hammes
Donald McGauchie
Brian Anderson
David Dilger
David Harrison
James Osborne
Rudy van der Meer
1 Shares were purchased under SBSP in fiscal year 2008 and 2009 as follows: 42,508 shares on 14 March 2008 at an average price of
A$5.7352 and 17,550 shares on 13 March 2009 at an average price of A$3.7254.
2 Shares purchased under SBSP in fiscal year 2010 as follows: 9,432 shares on 26 June 2009 at an average price of A$4.28, 5,098 shares
on 15 September 2009 at an average price of A$7.09, 2,019 shares on 15 December 2009 at an average price of A$8.25 and 2,215 shares
on 11 March 2010 at an average price of A$7.68.
3 9,000 shares/CUFS held as ADRs.
4 6,000 shares held for the McGauchie Superannuation Fund.
5 Held as ADRs.
Only non-executive directors are entitled to participate in the SBSP.
11. duTCh CorporaTE govErnanCE CodE
Under the Dutch Code on Corporate Governance (the Dutch Code)
published by the Dutch Corporate Governance Committee (the
Tabaksblat Committee) in 2003, as amended by Government Decree of
10 December 2009, listed Dutch companies are obliged to explain their
corporate governance structure in a separate section of their annual
report. The corporate governance section of this report on pages 67–80
states that where the company has not completely applied the best
practice provisions of the Dutch Code relating to remuneration matters,
such information will be provided in this report.
Best Practice Provision II.1.1 of the Dutch Code stipulates that
Managing Directors shall be appointed for a maximum period of four
years. Our CEO has been appointed for a period of six years.
Best Practice Provision II.2.7 of the Dutch Code provides that neither
the exercise price nor the other conditions regarding options granted
to Managing Board directors may be modified during the term of the
options, except as prompted by structural changes relating to shares
or the company in accordance with established market practice. James
Hardie may modify the term of the options as specified in the LTIP or
employment agreement with a Managing Board director upon departure
of the employee of other circumstances described in the LTIP.
individual basis, taking into account home country practice and the
Managing Board director’s specific situation. Consistent with Mr Gries’
prior employment agreement when he acted as the company’s Chief
Operating Officer, Mr Gries’ current contract specifies that in the event
of a termination without cause or for good reason, he will receive 1.5
times his annual base salary and 1.5 times his average annual bonus in
addition to a two-year consulting contract, as long as he maintains the
company’s non-compete and confidentiality agreements.
Best Practice Provision III.7.1 of the Dutch Code provides that members
of the Supervisory Board shall not be granted shares by way of
remuneration. Although our members of the Board who were members
of the Supervisory Board in fiscal year 2010 are not granted shares by
way of remuneration, the guideline contained in the Stock Accumulation
Policy provides guidance that they should accumulate 1.5 times their
annual base board fees in share ownership. We believe this practice is
to the benefit of the company and is common practice in Australia and
the United States.
This report is made in accordance with a resolution of the members
of the Board.
Best Practice Provision II.2.8 of the Dutch Code provides that a
severance payment to a Managing Board director shall not exceed
one time the amount of the fixed salary. In contracts with Managing
Board directors, the severance payments are agreed upon on an
Michael Hammes
Chairman
Approved 29 June 2010
Louis Gries
Chief Executive Officer
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CorporaTE
govErnanCE rEporT
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
These Corporate Governance Principles describe the corporate
governance arrangements that have been followed by James Hardie
from the commencement of the fiscal year 2010 and contain an
overview of our corporate governance framework, developed and
approved by the Nominating and Governance Committee and, on
its recommendation, adopted by the Board in June 2010.
On 19 February 2010, we completed Stage 1 of a proposal to move
our corporate domicile from The Netherlands to Ireland, in a transaction
designed to transform James Hardie Industries NV into an Irish
Societas Europea company, and James Hardie Industries NV became
James Hardie Industries SE, incorporated under the laws of The
Netherlands. On 17 June 2010 we completed Stage 2 of the proposal
and as a result James Hardie Industries SE moved its corporate seat
to Ireland (together, the Re-domicile).
Where applicable, these Corporate Governance Principles indicate
the changes in the company’s governance arrangements as a result of
implementing the Re-domicile. References to the Board are references
to the Supervisory Board prior to completion of the Re-domicile, and
to the single Board following completion of the Re-domicile.
These Corporate Governance Principles, as well as our Articles of
Association, Board and Board Committee charters and key company
policies, as updated from time to time, are available from the Investor
Relations area of our website (www.jameshardie.com) or by requesting
a printed copy from the company secretary at the company’s head office
at 2nd Floor, Europa House, Harcourt Centre, Harcourt Street, Dublin 2,
Republic of Ireland.
1. CorporaTE govErnanCE aT jamES hardiE
1.1 OVERVIEW
James Hardie operates under the regulatory requirements of numerous
jurisdictions and organisations, including the ASX, ASIC, the NYSE,
the US SEC and various other rulemaking bodies.
In addition, prior to completing Stage 2 of the Re-domicile, we were
also subject to the jurisdiction of the Dutch Authority Financial Markets
and the Dutch Corporate Governance Code (the Dutch Code). Since
completing Stage 2 of the Re-domicile, James Hardie is no longer
subject to the regulatory requirements of the Dutch Authority Financial
Markets and the Dutch Code and is instead subject to the regulatory
requirements of the Irish Takeover Panel.
James Hardie’s corporate governance framework is reviewed
regularly and updated as appropriate to reflect what we believe is in
our and our stakeholders’ interests, changes in law and current best
practices. An important part of the Board’s review of the Re-domicile
involved spending a significant time to ensure that the company’s
governance framework following the Re-domicile to Ireland met the
company’s needs.
2. board STruCTurE
2.1 NUMBER OF BOARDS
During the entire fiscal year 2010, James Hardie had a multi-tiered
board structure. Until completion of Stage 1 of the Re-domicile on 19
February 2010 this consisted of a Joint Board, a Supervisory Board and
a Managing Board. Following completion of Stage 1 of the Re-domicile,
the Managing Board remained in place but the Joint Board ceased to
exist and all of its responsibilities were assumed by the Supervisory
Board. Since completion of Stage 2 of the Re-domicile on 17 June
2010, the company has had a single Board.
The responsibilities of our Board/s and Board Committees are
formalised in charters and our Articles of Association, which set out the
responsibilities of the Board/s and Board Committees. These charters
and our Articles of Association also identify the matters reserved to the
Board or Board Committees and the matters reserved to the Managing
Board or the CEO as applicable.
2.2 SINGLE BOARD
The single Board has been in place since completion of the Re-domicile
on 17 June 2010 and comprises seven non-executive directors and the
CEO. The Board must have no less than three and not more than twelve
directors, as determined by the Board.
Board directors may be elected by our shareholders at general
meetings, or by the Board if there is a vacancy. The Board and our
shareholders have the right to nominate candidates for the Board. Board
directors may be dismissed by our shareholders at a general meeting.
Irish law provides that the Board is responsible for the management and
operation of James Hardie. The Board can, and has, delegated authority
to the CEO to manage the corporation within specified authority levels.
The Board has also reserved certain matters to itself, including:
– appointing, removing and assessing the performance and
remuneration of the CEO and CFO;
– succession planning for the Board and senior management and
defining the company’s management structure and responsibilities;
– approving the overall strategy for the company, including the
three year business plan and annual operating and capital
expenditure budgets;
– convening and monitoring the operation of shareholder
meetings and approving matters to be submitted to shareholders
for their consideration;
– approving annual and periodic reports, results announcements,
media releases and notices of shareholder meetings;
– approving the dividend policy and interim dividends and making
recommendations to shareholders regarding the annual dividend;
Our corporate governance framework incorporates a number of
processes and policies designed to provide the Board with appropriate
assurance about the operations and governance of the company and
thereby protect shareholder value. Further details of these processes
and policies are set out in this report.
– reviewing the authority levels of the CEO and management;
– approving the remuneration framework for the company;
– overseeing corporate governance matters for the company;
– approving corporate-level company policies;
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(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
– considering management’s recommendations on various matters
which are above the authority levels delegated to the CEO or
management; and
– any other matter which the Board considers ought to be approved
by the Board.
The full list of those matters reserved to the Board are formalised
in our Board charter, which is available on our website
(www.jameshardie.com, select Investor Relations, Corporate
Governance, then Board Structure).
In discharging its duties, the Board aims to take into account the
interests of James Hardie, its enterprise (including the interests of
its employees), shareholders, other stakeholders and other parties
involved in or with James Hardie.
2.3 SUPERVISORY BOARD
The Supervisory Board was in operation for all of fiscal year 2010
and until completion of the Re-domicile on 17 June 2010, when it
was replaced by the single Board.
The Supervisory Board comprised only non-executive directors,
with at least two members or a higher number as determined by the
Supervisory Board.
Supervisory Board directors were appointed by our shareholders at a
general meeting, or by the Supervisory Board if there was a vacancy.
The Supervisory Board and our shareholders had the right to nominate
candidates for the Supervisory Board. Supervisory Board directors
could be dismissed by our shareholders at a general meeting.
The Supervisory Board supervised and provided advice to the
Managing Board, and was responsible for, amongst other matters:
– nominating Managing Board directors for election by shareholders;
– appointing and removing the CEO and the Chairman of the
Managing Board;
– approving Managing Board decisions relating to specified matters
or above agreed thresholds;
– approving the strategic plan and annual budget proposed by the
Managing Board;
– approving the annual financial accounts;
– supervising the policy and actions of the Managing Board;
– supervising the general course of affairs of James Hardie and the
business it operates; and
– approving issues of new shares.
Following completion of Stage 1 of the Re-domicile and the abolition of
the Joint Board, the Supervisory Board also became responsible for the
following matters previously reserved solely to the Joint Board as well
as those matters where responsibility was previously shared with the
Supervisory Board:
– approving declaration of dividends;
– approving any share buy-back programs and cancelling the shares
bought back;
– approving any significant changes in the identity or nature of
the company;
– approving the strategy set by the Managing Board;
– monitoring company performance; and
– maintaining effective external disclosure policies and procedures.
2.4 MANAGING BOARD
The Managing Board was in operation for all of fiscal year 2010 and
until completion of the Re-domicile on 17 June 2010. It comprised
only executive directors, with at least two members or such higher
number as determined by the Supervisory Board. The Managing Board
directors were appointed by our shareholders at a general meeting.
The Supervisory Board could appoint interim members to the Managing
Board if there was a vacancy on the Managing Board. The Supervisory
Board and our shareholders could nominate candidates for the
Managing Board.
The Supervisory Board appointed one Managing Board director as its
Chairman and one member as its CEO. Throughout the period until the
Managing Board ceased to exist, our current CEO occupied both roles.
Managing Board directors could be dismissed by our shareholders at a
general meeting and suspended at any time by the Supervisory Board.
The Managing Board was accountable to the Supervisory Board, the
Joint Board (while it was in operation) and to the shareholders for
the performance of its duties, and was responsible for the day-to-day
management of the company, including:
– administering the company’s general affairs, operations and finance;
– preparing a strategic plan and budget setting out operational and
financial objectives, implementation strategy and parameters for
the company for the next three years, for approval by the Joint and
Supervisory Boards;
– ensuring the implementation of the company’s strategic plan;
– preparing quarterly and annual accounts, management reports and
related media releases;
– monitoring the company’s compliance with all relevant legislation
and regulations and managing the risks associated with the
company’s activities;
– reporting and discussing the company’s internal risk management
and control systems with the Supervisory Board and the Audit
Committee; and
– representing, entering into and performing agreements on behalf
of the company.
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2.5 JOINT BOARD
The Joint Board was in operation for part of fiscal year 2010 until
it ceased to exist on completion of Stage 1 of the Re-domicile on
19 February 2010, when its responsibilities were assumed by the
Supervisory Board.
The Joint Board comprised 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
included all of the Supervisory Board directors as well as our CEO.
The Joint Board was allocated specific tasks under the Articles of
Association but was primarily a forum for communication between the
Managing Board and Supervisory Board. It was responsible, in some
cases jointly with the Supervisory Board, for:
– supervising the general course of affairs of James Hardie;
– approving declaration of dividends;
– approving any share buy-back programs and cancelling the
shares bought back;
– approving issues of new shares;
– approving any significant changes in the identity or nature of
the company;
– approving the strategy set by the Managing Board;
– monitoring company performance; and
– maintaining effective external disclosure policies and procedures.
The core responsibility of the Joint Board was to oversee the general
course of affairs of the company by exercising business judgment in the
best interests of the company and its stakeholders.
3. opEraTion oF ThE board
3.1 BOARD MEETINGS
The Board meets at least four times a year or whenever the Chairman or
three or more members have requested a meeting.
While the Supervisory Board was in operation, meetings were generally
held at the company’s offices in The Netherlands. At each physical
meeting, the Board met in executive session without management
present for at least part of the meeting. The Board was also able to pass
resolutions by written consent.
During fiscal year 2010, the Managing Board met regularly and
the majority of its meetings were held at the company’s offices in
The Netherlands.
On 29 June 2010, the single Board held its first meeting in Ireland.
The company intends to hold the majority of its subsequent Board
meetings, at which key decisions affecting it are made, in Ireland.
Attendance at Board and Board Committee meetings during the year ended 31 March 2010
The number of Board and Board Committee meetings held, and each director’s attendance during the fiscal year, is set out below:
Name
Joint
Michael Hammes
Donald McGauchie
Brian Anderson
David Dilger
David Harrison
James Osborne
Rudy van der Meer
Louis Gries
Russell Chenu
Robert Cox
H
7
7
7
4
7
7
7
7
7
7
A
7
7
7
4
7
7
7
7
7
7
BOARD
Supervisory
A
H
8
8
8
8
8
8
5
5
8
8
8
8
8
8
–
–
–
–
–
–
Managing
A
H
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
32
32
32
32
32
Audit
H
2
–
5
2
5
4
–
–
–
–
A
2
–
5
2
5
4
–
–
–
–
BOARD COMMITTEE
Nominating
and
Governance
A
H
1
1
4
4
–
–
–
–
3
3
1
1
4
4
–
–
–
–
–
–
Remuneration
A
8
8
7
–
8
–
–
–
–
–
H
8
8
8
–
8
–
–
–
–
–
Due
Diligence
A
H
4
5
–
–
5
5
–
–
–
–
5
5
–
–
5
5
5
5
5
5
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CorporaTE
govErnanCE rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
3.2 DIRECTOR qUALIFICATIONS
Directors have skills, qualifications, experience and expertise which
assist the Board to fulfill its responsibilities and assist the company
to create shareholder value. The skills, qualifications, experience and
relevant expertise of each director, and his or her term of appointment,
are summarised on pages 18–19 of this annual report and also appear
in the Investor Relations area of our website (www.jameshardie.com).
Directors must be able to devote a sufficient amount of time to prepare
for, and effectively participate in, Board and Board Committee meetings.
The Nominating and Governance Committee reviews the other
commitments of Board members each year.
3.3 SUCCESSION PLANNING
The Board, together with the Nominating and Governance Committee,
has developed, and periodically reviews with the CEO, management
succession plans, policies and procedures for our CEO and other
senior executives.
Board renewal has been a priority for the Board and Nominating and
Governance Committee during recent years. A number of changes
occurred in the composition of the Board during the fiscal year.
In the lead up to implementing the Re-domicile, the Board, together
with the Nominating and Governance Committee, considered the
desired composition of the Board, including the right number, mix of
skills, qualifications, experience, expertise and geographic location
of its directors, to maximise the effectiveness of the Board following
completion of the Re-domicile. As a result of this review, two Irish-
based directors were appointed to the Board. The Board will continue to
review and evaluate the desired profile of the Board and expects that an
additional European-based director may be appointed in the future.
3.4 RETIREMENT AND TENURE POLICY
During fiscal year 2010, the company adhered to the recommendation
of the Dutch Code which limited the tenure of Supervisory Board
directors to twelve years (unless the Supervisory Board determined
that it would be in the best interests of the company for a director to
serve longer than this period). There was no tenure policy for Managing
Board directors. Following completion of the Re-domicile, the company
is no longer subject to the Dutch Code.
None of our current directors has served for more than seven years
and the company has elected not to adopt a retirement and tenure
policy following completion of the Re-domicile. The length of tenure
of individual Board directors will be considered as part of the Board’s
decision making process when considering whether a director should
be recommended by the Board for re-election.
3.5 BOARD EVALUATION
The Nominating and Governance Committee supervises the director
evaluation process and makes recommendations to the Board. During
fiscal year 2010, a purpose-designed survey was used by directors
to self-assess the operation of the Supervisory Board and each Board
Committee, and the results were reviewed and discussed by the
Nominating and Governance Committee and the Supervisory Board.
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| JAMES HARDIE | ANNUAL REPORT 2010
The Chairman discussed with each Supervisory Board director, and the
Deputy Chairman discussed with the Chairman, his performance and
contribution to the effectiveness of the Board. Following completion of
Stage 2 of the Re-domicile, the Nominating and Governance Committee
and the Board will continue to discuss annually the performance of
the CEO and the CEO’s direct reports, and the Chairman provides that
feedback to the CEO. The CEO uses the feedback as part of an annual
review of his direct reports.
3.6 DIRECTOR RE-ELECTION
No director (other than the CEO) shall hold office for a continuous
period of more than three years, or past the end of the third annual
general meeting (AGM) following his or her appointment, whichever
is longer, without submitting him or herself for re-election. A person
appointed to the Board to fill a vacancy must submit him or herself for
re-election at the next AGM.
Directors are not automatically nominated for re-election at the end
of their term. Nomination for re-election is based on their individual
performance and the company’s needs. The Nominating and
Governance Committee and the Board discuss in detail the performance
of each director due to stand for re-election at the next AGM before
deciding whether to recommend their re-election.
Because the company is a European SE company, the CEO is required
to stand for re-election every six years as long as he remains as the
CEO. The company believes this policy is appropriate (having regard
to Australian practice under the rules of the ASX) as it supports the
continuity of management performance.
3.7 INDEPENDENCE
The company requires the majority of directors on the Board and
Board Committees, as well as the Chairman of the Board and Board
Committees, to 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.
Each year the Board, together with the Nominating and Governance
Committee, assesses each Board director and his or her responses to
a lengthy questionnaire on matters relevant to his or her independence
according to the rules and regulations of the Dutch Code (up until
completion of the Re-domicile), the NYSE and SEC as well as the
Corporate Governance Council Principles and Recommendations
published by the ASX Corporate Governance Council (the Principles
and Recommendations). Following this assessment, the Board has
determined that each Board director is independent.
All directors are expected to bring their independent views and
judgment to the Board and Board Committees and must declare
any potential or actual conflicts of interest. The Board has not set
materiality thresholds for assessing independence and considers all
relationships on a case-by-case basis, considering the materiality
of the relationship and the rules and regulations of the applicable
exchange or regulatory body.
The Board considered the following specific matters prior to
determining that each director was independent:
– Brian Anderson is a director of Pulte Homes, a home builder in the
United States. Pulte Homes does not buy any James Hardie products
directly from the company, although it does buy a small amount of
James Hardie products through the company’s customers;
– Rudy van der Meer is a member of the Supervisory Board of ING Bank
Nederland N.V. and ING Verzekeringen (Insurance) Nederland N.V..
Entities in the ING Group provide financial services to the company. In
each case those entities were providing these services to the company
prior to Mr van der Meer becoming a Board director; and
3.11 CHAIRMAN
The Board appoints one of its members as the Chairman. The Chairman
must be an independent, non-executive director. The Chairman appoints
the Deputy Chairman. The Chairman co-ordinates the Board’s duties
and responsibilities and acts as the main contact with the CEO.
The Chairman:
– provides leadership to the Board;
– chairs Board and shareholder meetings;
– facilitates Board discussion;
– monitors, evaluates and assesses the performance of the company’s
– David Dilger is a director of a number of James Hardie’s subsidiaries
and receives director’s fees for such service approved by the Board.
Board and Board Committees; and
– is a member of all Board Committees.
Any transactions mentioned above were conducted on an arms-length
basis and in accordance with normal terms and conditions and were not
material to any of the companies listed above or to James Hardie. Each
of these relationships, other than Mr Dilger’s service as a director of a
number of James Hardie’s subsidiaries, existed and was disclosed before
the person in question became a Board director. It is not considered that
these directors had any influence over these transactions.
3.8 ORIENTATION
The company has an orientation program for new directors, which was
reviewed and updated during the fiscal year. The program includes an
overview of the company’s governance arrangements and directors’ duties
in The Netherlands, the United States and Australia, plant and market
tours to impart relevant industry knowledge, briefings on the company’s
risk management and control framework, financial results and key risks
and issues, and meeting other Board directors, the CEO and members
of management. New directors are provided with orientation materials
including relevant corporate documents and policies and are expected
to complete the entire orientation process within six months of their
appointment. Following completion of the Re-domicile, this program will
also include details of James Hardie’s governance arrangements and an
overview of directors’ duties in Ireland.
3.9 BOARD CONTINUING DEVELOPMENT
The company operates within a complex industry, geographical and
regulatory framework. The company regularly schedules time at
physical Board meetings to develop the Board’s understanding of the
company’s operations and regulatory environment, including updates
on topical developments from management and external experts.
A yearly plant and market tour forms an important part of the Board’s
continuing development.
3.10 LETTER OF APPOINTMENT
Each incoming Board director receives a letter of appointment setting
out the key terms and conditions of his or her appointment and the
company’s expectations of them in that role. The company does not
provide any benefits for non-executive directors upon termination of
their appointment.
The Chairman may not also be the Chairman of the Audit Committee.
The current Chairman is Mr Hammes and the current Deputy Chairman
is Mr McGauchie.
3.12 REMUNERATION
A detailed description of the company’s remuneration policies for
directors and executives, and the link to performance, is set out in the
Remuneration Report within the Directors’ Report on pages 41–66 of
this annual report.
3.13 INDEMNIFICATION
The company’s Articles of Association provide for indemnification of
any person who is (or keep indemnified any person who was) a Board
director or the company secretary and our employees and any other
person deemed by the Board to be an agent of the company, who
suffers any loss as a result of any action in discharge of their duties,
provided they acted in good faith in carrying out their duties. This
indemnification will generally not be available if the person seeking
indemnification acted with gross negligence or willful misconduct in
performing their duties.
The company and some of its subsidiaries have provided Deeds
of Access, Insurance and Indemnity to Board directors and senior
executives who are officers or directors of the company or its
subsidiaries. The indemnities provided are consistent with the Articles
of Association and relevant laws.
3.14 EVALUATION OF MANAGEMENT
At least once a year, the CEO, the Remuneration Committee and
the Board review the performance of each member of the Group
Management Team against agreed performance measures. This
discussion occurs at a different meeting to that which discusses
management succession planning. The CEO uses this feedback to
assist in the annual review of members of the Group Management
Team. This process was followed during the fiscal year.
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3.15 INFORMATION FOR THE BOARD
Board directors receive timely and necessary information to allow them
to fulfill their duties, including access to senior executives if required.
The Nominating and Governance Committee periodically reviews the
format, timeliness and content of information provided to the Board.
In discharging their duties, Board directors were provided with direct
access to senior executives and outside advisors and auditors. The
Board, Board Committees and individual directors may all seek
independent professional advice at the company’s expense for the
proper performance of their duties.
The Board has regular discussions with the CEO and (while the
company was domiciled in The Netherlands the Managing Board) on
the company’s strategy and performance, including two sessions each
year where Board members formally review the company’s strategy and
progress. The Board has also scheduled an annual calendar of topics to
be covered to assist it to properly discharge all of its responsibilities.
Board directors receive a copy of all Board Committee papers for
physical meetings and may attend any Board Committee meeting,
whether or not they are members of the Board Committee. Board
directors also receive the minutes which record each Board Committee’s
deliberations and findings, as well as oral reports from each Board
Committee Chairman. Whilst the company was domiciled in The
Netherlands, the Board also received and reviewed the minutes of
each Managing Board meeting.
3.16 DELEGATION TO THE CEO
The Board has delegated to the CEO the power to manage the business
of the company to achieve the mission statements and corporate goals
approved by the Board from time to time. This delegation is subject
to a specified monetary cap for a range of matters, above which Board
approval is required.
4. board CommiTTEES
The Board Committees are generally committees of the Board and
comprise the Audit Committee, the Nominating and Governance
Committee and the Remuneration Committee. The Board Committee
charters are available from the Investor Relations area of our website
(www.jameshardie.com).
Each Board Committee meets at least quarterly and has scheduled an
annual calendar of meeting and discussion topics to assist it to properly
discharge all of its responsibilities. The Board may also form ad hoc
committees from time to time. During fiscal year 2009 the Board formed
the Due Diligence Committee (discussed in more detail in section
4.4 on page 73) to review management’s progress in formulating the
Re-domicile proposal. This committee continued to meet during fiscal
year 2010.
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4.1 AUDIT COMMITTEE
The Audit Committee oversees the adequacy and effectiveness of the
company’s accounting and financial policies and controls. The key
aspects of the terms of reference followed by our Audit Committee are
set out in this report. The Audit Committee meets at least quarterly in
separate executive sessions with the external auditor and internal auditor.
Currently, the members of the Audit Committee are Mr Anderson
(Chairman), Mr Hammes, Mr Harrison and Mr Dilger.
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
of the Audit Committee shall be an “audit committee financial expert”
as determined by the Nominating and Governance Committee and
the Board in accordance with the SEC rules. These may be the same
person. The Nominating and Governance Committee and the Board
have determined that Mr Anderson, Mr Harrison and Mr Dilger are
“audit committee financial experts”.
Under the NYSE listing standards that apply to US 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 the simultaneous service will not impair the
ability of this member to effectively serve on the listed company’s audit
committee. Although we are not bound by this provision, we follow it
voluntarily. Currently, none of our directors serve on the audit committee
of three or more public companies in addition to our audit committee.
The Audit Committee provides advice and assistance to the Board in
fulfilling its responsibilities and, amongst other matters:
– overseeing the company’s financial reporting process and reports
on the results of its activities to the Board;
– reviewing with management and the external auditor the company’s
annual and quarterly financial statements and reports to shareholders;
– discussing earnings releases as well as information and earnings
guidance provided to analysts;
– reviewing and assessing the company’s risk management policies
and procedures;
– having general oversight of the appointment and provision of all
external audit services to the company, the remuneration paid to
the external auditor, and the performance of the company’s internal
audit function;
– reviewing the adequacy and effectiveness of the company’s internal
compliance and control procedures;
– reviewing the company’s compliance with legal and regulatory
requirements; and
– establishing procedures for complaints regarding accounting, internal
accounting controls and auditing matters, including any complaints
from the company’s Ethics Hotline.
Conflicts of interest
The Audit Committee oversees the company’s Code of Business
Conduct and Ethics policy and other business-related conflict of
interest issues as they arise.
Reporting
The Audit Committee will inform the 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 company’s risk management systems,
the performance and independence of the external auditor, or the
performance of the internal audit function.
4.2 NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee is responsible for:
– identifying and recommending to the Board individuals qualified
to become Board directors;
– overseeing the evaluation of the Board and senior management;
– assessing the independence of each Board director;
– reviewing the conduct of the general meetings; and
– performing a leadership role in shaping the company’s corporate
governance policies.
The current members of the Nominating and Governance Committee
are Mr McGauchie (Chairman), Mr Hammes, Mr van der Meer and
Mr Osborne.
4.3 REMUNERATION COMMITTEE
The Remuneration Committee oversees the company’s overall
remuneration structure, policies and programs; assesses whether the
company’s remuneration structure establishes appropriate incentives for
management and employees; and approves any significant changes in
the company’s remuneration structure, policies and programs. It also:
– administers and makes recommendations on the company’s incentive
compensation and equity-based remuneration plans;
– reviews the remuneration of Board directors;
– reviews the remuneration framework for the company; and
– makes recommendations to the Board on the company’s
recruitment, retention and termination policies and procedures
for senior management.
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 (the Exchange Act), and “outside
directors” for purposes of Section 162(m) of the US Internal
Revenue Code.
Further details on the role of the Remuneration Committee are disclosed
in the Remuneration Report within the Directors’ Report on pages
41–66 of this annual report.
The current members of the Remuneration Committee are Mr Harrison
(Chairman), Mr Anderson, Mr Hammes, Mr McGauchie and Mr Dilger.
4.4 DUE DILIGENCE COMMITTEE
During fiscal year 2009, the Board formed the Due Diligence
Committee, comprising representatives from the Supervisory Board
together with the Managing Board and a representative of the company’s
management. This committee was formed to assist the Board with
reviewing and considering alternative proposals to move the company’s
domicile by co-ordinating and overseeing implementation of the due
diligence process and reporting back to the Boards regarding the
conduct of this process.
The purpose of the due diligence process was to assist in ensuring
that the Explanatory Memorandum and Notices of Meeting (Meeting
Materials) prepared in connection with the Re-domicile proposal
were accurate and complete in all material respects and contained all
required information.
The due diligence and verification process undertaken by the Due
Diligence Committee culminated in a report to the Board on the due
diligence process undertaken and its results, including recommending
that the Meeting Materials for the Re-domicile proposal be submitted
to shareholders.
5. poliCiES and proCESSES
As noted at the start of this report, we have a number of policies
that address key aspects of our corporate governance. Our key
policies cover:
– Code of Business Conduct and Ethics;
– Ethics Hotline;
– Continuous Disclosure and Market Communication; and
– Insider Trading.
Copies of all these policies are available in the Investor Relations area
of our website (www.jameshardie.com).
5.1 CODE OF BUSINESS CONDUCT AND ETHICS
We seek to maintain high standards of integrity and we are committed
to ensuring that James Hardie conducts its business in accordance
with high standards of ethical behaviour. We require our employees
to comply with the spirit and the letter of all laws and other statutory
requirements governing the conduct of James Hardie’s activities in each
country in which we operate. Our Code of Business Conduct and Ethics
applies to all of our employees and directors. The Code of Business
Conduct and Ethics covers many aspects of company policy that govern
compliance with legal and other responsibilities to stakeholders. All
directors and company employees worldwide are reminded annually of
the existence of the Code and asked to confirm that they have read it.
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5.2 COMPLAINTS/ETHICS HOTLINE
Our Code of Business Conduct and Ethics policy provides employees
with advice about who they should contact if they have information
or questions regarding violations of the policy. James Hardie has a
telephone Ethics Hotline operated by an independent external provider
which allows employees to report anonymously any concerns. All
company employees worldwide are reminded annually of the existence
of the Ethics Hotline.
All complaints, whether to the Ethics Hotline or otherwise, are initially
reported directly to the General Counsel and director of internal audit
(except in cases where the complaint refers to one of them). The most
serious complaints are referred immediately to the Chairmen of the
Audit Committee and Board; less serious complaints are reported to the
Audit Committee on a quarterly basis and at different levels of detail,
depending on the nature of the complaint.
Interested parties who have a concern about James Hardie’s conduct,
including accounting, internal accounting controls or audit matters,
may communicate directly with the company’s Chairman (or Presiding
Director for NYSE purposes), Deputy Chairman, Board directors as
a group, the Chairman of the Audit Committee or Audit Committee
members. These communications may be confidential or anonymous,
and may be submitted in writing to the Company Secretary at the
company’s head office at Second Floor, Europa House, Harcourt Centre,
Harcourt Street, Dublin 2, Republic of Ireland, or submitted by phone
at Telephone +353 (0)1 411 6924. All concerns will be forwarded to the
appropriate Board directors for their review and will be simultaneously
reviewed and addressed by our General Counsel in the same way that
other concerns are addressed. Our Code of Business Conduct and
Ethics policy, which is described above, prohibits any employee from
retaliating or taking any adverse action against anyone for raising or
helping to resolve a concern about integrity.
5.3 CONTINUOUS DISCLOSURE AND MARKET
COMMUNICATION
We strive to comply with all relevant disclosure laws and listing rules
in Australia (ASX and ASIC) and the United States (SEC and NYSE).
Our Continuous Disclosure and Market Communication Policy aims
to ensure timely communications so that investors can readily:
– understand James Hardie’s strategy and assess the quality of
its management;
– examine James Hardie’s financial position and the strength of its
growth prospects; and
– receive any news or information that might reasonably be expected to
materially affect the price or market for James Hardie securities.
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The CEO is responsible for ensuring the company complies with our
continuous disclosure obligations. A Disclosure Committee comprising
the CEO, CFO, General Counsel and the Vice President – Investor and
Media Relations is responsible for all decisions regarding our market
disclosure obligations outside of the company’s normal financial
reporting calendar. For our quarterly and annual results releases, the
CEO and CFO are supported by the Financial Statements Disclosure
Committee, which provides assurance regarding our compliance with
reporting processes and controls. The CEO, CFO and General Counsel
discuss with the Audit Committee any issues arising out of meetings of
the Financial Statements Disclosure Committee that affect the quarterly
and annual results releases. The Audit Committee reviewed the
company’s disclosure practices under the Continuous Disclosure and
Market Communication policy during the fiscal year.
5.4 SHARE TRADING
All company employees and directors are subject to our Insider Trading
Policy. Company employees and directors may only buy or sell the
company’s securities within four weeks beginning two days after the
announcement of quarterly or full year results, or another period
designated by the Board for this purpose, provided they are not in
possession of material non-public price-sensitive information. There
are additional restrictions on trading for designated senior employees
and directors, including a requirement that they receive prior clearance
from the company’s compliance officer before trading or pledging their
shares by taking out a margin loan over them, and a general prohibition
on hedging or selling any shares or options for shortswing profit.
Company employees who are not designated employees may hedge
vested options or shares, provided they notify the company.
The Board recognises that it is the individual responsibility of each
James Hardie director and employee to ensure he or she complies with
the spirit and the letter of insider trading laws and that notification to
the compliance officer in no way implies approval of any transaction.
6. riSk managEmEnT
6.1 OVERALL RESPONSIBILITY
The Audit Committee has oversight of the company’s risk management
policies, procedures and controls. The Audit Committee reviews,
monitors and discusses these matters with the CEO, CFO and General
Counsel. The Audit Committee, CEO, CFO and General Counsel report
periodically to the Board on the company’s risk management policies,
processes and controls.
The Audit Committee is supported in its oversight role by the policies
put in place by management to oversee and manage material business
risks, as well as the roles played by the Risk Management Committee
(described in detail in section 6.4 below) and internal and external audit
functions. The internal and external audit functions are separate from
and independent of each other and each has a direct reporting line to
the Audit Committee.
6.2 OBJECTIVE
The company considers that a sound framework of risk management
policies, procedures and controls produces a system of risk oversight,
risk management and internal control that is fundamental to good
corporate governance and creation of shareholder value. The objective
of the company’s risk management policies, procedures and controls
is to ensure that:
– our risk management systems are effective;
– our 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.
Risk management does not involve avoiding all risks. The company’s
risk management policies seek to strike a balance between ensuring
that the company continues to generate financial returns and
simultaneously manages risks appropriately by setting appropriate
strategies and objectives.
6.3 POLICIES FOR MANAGEMENT OF MATERIAL
BUSINESS RISKS
Management has put in place a number of key policies, processes
and independent controls to provide assurance as to the integrity of
our systems of internal control and risk management. In addition to
the measures described elsewhere in this report, the more significant
policies, processes or controls adopted by the company for oversight
and management of material business risks are:
– quarterly meetings of the Risk Management Committee to assess the
key strategic, operations, reporting and compliance risks facing the
company, the level of risk and the processes implemented to manage
each of these key risks over the upcoming twelve months;
– quarterly reporting to the Audit Committee of the Risk Management
Committee’s conclusions regarding the key strategic, operations,
reporting and compliance risks facing the company;
– an Enterprise Risk Management process, which involves developing
contingency plans for the key risks facing the company and its
assumptions in its three year strategic plans and beyond;
– a planning process involving the preparation of three-year strategic
plans and a rolling twelve month forecast;
– annual budgeting and monthly reporting to monitor performance;
– an internal audit department with a reporting line direct to the
Chairman of the Audit Committee;
– increased monitoring of the company’s liquidity and status of
renewals of finance facilities;
– maintaining an appropriate insurance program;
– maintaining policies and procedures in relation to treasury
operations, including the use of financial derivatives;
– issuing and revising standards and procedures in relation to
environmental and health and safety matters;
– implementing and maintaining training programs in relation to legal
issues such as trade practices/antitrust, trade secrecy, and intellectual
property protection;
– issuing procedures requiring significant capital and recurring
expenditure to be approved at the appropriate levels; and
– documenting detailed accounting policies, procedures and guidance
for the group in a single group finance manual.
A summary of these policies, processes and controls is available in the
Investor Relations area of our website (www.jameshardie.com).
Another example of the company’s approach to managing significant
business risks is the establishment of the Due Diligence Committee,
which was formed to oversee the formulation of the company’s
Re-domicile proposal.
During the fiscal year, the Audit Committee, and through it the Board,
received a number of reports on the operation and effectiveness of
the policies, processes and controls described in this section. This
included a review of the company’s current compliance programs
and disclosure controls and processes, how they compare with
best practices and the steps proposed by management to continue
cultivating the company’s risk management culture.
6.4 RISK MANAGEMENT COMMITTEE
The Risk Management Committee, which reviews and monitors the
risks facing the company, is the primary management forum for risk
assessment and risk management in the company. This role is more
formally documented in the company’s Risk Management Committee
charter. The Risk Management Committee comprises a cross-functional
group of employees and reports quarterly to both the CEO, CFO,
General Counsel and Audit Committee on the procedures in place
for identifying, monitoring, managing and reporting on the principal
strategic, operational, financial and legal risks facing the company. The
Risk Management Committee also oversees the company’s Enterprise
Risk Management process.
6.5 INTERNAL AUDIT
The director of internal audit heads the internal audit department.
The internal audit charter sets out the independence of the internal
audit department, its scope of work, responsibilities and audit plan.
The internal audit department’s workplan is approved annually by the
Audit Committee. The director of internal audit reports to the Chairman
of the Audit Committee and meets quarterly with the Audit Committee
and Board in executive sessions.
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6.9 INTERNAL CONTROLS AND SOX 404
Each fiscal year, the members of the Group Management Team, and key
members of the company’s business and corporate functions, complete
an internal control certificate that seeks to confirm that adequate internal
controls are in place and are operating effectively, and evaluate any
failings and weaknesses.
6.10 MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule
13a-15(f) of the Exchange Act. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls become inadequate
because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial
reporting as of 31 March 2010. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control – Integrated
Framework. Based on our assessment using those criteria, we
concluded that our internal control over financial reporting was
effective as of 31 March 2010.
The effectiveness of our internal control over financial reporting
as of 31 March 2010 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in their
report which appears on the following page.
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6.6 EXTERNAL AUDIT
The external auditor reviews each quarterly and half-year results
announcement and audits the full year results. The external auditor
attends each meeting of the Audit Committee, including an executive
session where only members of the Audit Committee and Board
directors are present. The Audit Committee has approved policies to
ensure that all non-audit services performed by the external auditor,
including the amount of fees payable for those services, receive prior
approval. The Audit Committee also reviews the remuneration paid
to the external auditor and makes recommendations to the Board
regarding the maximum compensation to be paid to the external auditor.
6.7 FINANCIAL STATEMENTS DISCLOSURE COMMITTEE
The Financial Statements Disclosure Committee is a management
committee comprising senior finance, accounting, compliance,
legal, tax, treasury and investor relations executives in the company,
which meets with the CEO, CFO and General Counsel prior to the
Board’s consideration of any quarterly or annual results. The Financial
Statements Disclosure Committee is a forum for the CEO, CFO and
General Counsel to discuss, and, on the basis of those discussions,
report to the Audit Committee, about a range of risk management
procedures, policies and controls, covering the draft results materials,
business unit financial performance and the current status of legal,
tax, treasury, accounting, compliance, internal audit, complaints and
disclosure control matters.
6.8 CEO AND CFO CERTIFICATION OF FINANCIAL REPORTS
Under SEC rules and the company’s internal control arrangements,
our CEO and CFO provide certain certifications with respect to our
full year financial statements, disclosure controls and procedures and
internal controls over financial reporting. These certifications are more
comprehensive and detailed than those required under the Australian
Corporations Act and are considered appropriate given that the
company’s financial reports are prepared in accordance with US GAAP.
The Board in turn receives quarterly assurance from the Financial
Statements Disclosure Committee relating to the company’s disclosure
controls and procedures and internal controls over financial reporting.
This assurance is supported by written quarterly and annual sub-
certifications from the general managers and chief financial officers of
each business unit, the director treasury and the corporate controller
and the annual certifications from the Group Management Team.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of James Hardie Industries SE:
We have audited James Hardie Industries SE and Subsidiaries’ internal control over financial reporting as of March 31, 2010, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). James Hardie Industries SE’s management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, James Hardie Industries SE maintained, in all material respects, effective internal control over financial reporting as of March 31,
2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of James Hardie Industries SE and subsidiaries as of March 31, 2010 and 2009, and the related statements of operations, and
changes in shareholders’ deficit and cash flows for the years ended March 31, 2010 and 2009, and our report dated May 27, 2010 expressed
an unqualified opinion thereon.
Orange County, California
May 27, 2010
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6.11 STATEMENT ON RISK MANAGEMENT AND CONTROL
James Hardie has designed its internal risk management and control
systems to provide reasonable (but not absolute) assurance to ensure
compliance with regulatory matters and to safeguard reliability of the
financial reporting and its disclosures. Having assessed our internal
risk management and control systems, the CEO and CFO believe that:
– the risk management and control systems provide reasonable
assurance that this annual report does not contain any material
inaccuracies; and
– no material failings in the risk management and control systems
were discovered in our fiscal year 2010.
This statement is not a statement in accordance with the requirements
of Section 404 of the US Sarbanes-Oxley Act. Our analysis of our
internal risk management and control systems for purposes of the
Dutch Code is different from the report that we are required to prepare
in the United States pursuant to Section 404 of the Sarbanes-Oxley Act.
6.12 LIMITATIONS OF CONTROL SYSTEMS
Despite the steps outlined above, our management does not expect that
our internal risk management and control systems will prevent or detect
all error and all fraud. No matter how well it is designed and operated,
a control system 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 override of 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 policies or procedures.
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7. SharEholdErS’ parTiCipaTion
7.1 LISTING INFORMATION
For most of fiscal year 2010, James Hardie was an NV incorporated
under Dutch law. On 19 February 2010, following the completion of
Stage 1 of the Re-domicile, James Hardie transformed from a Dutch NV
company to a Dutch SE company named James Hardie Industries SE.
On 17 June 2010, the company moved its corporate domicile to Ireland.
James Hardie securities trade as CUFS on the ASX and as ADSs (which
reference American Depositary Shares) on the NYSE.
7.2 ANNUAL INFORMATION MEETING (AIM)
Recognising that most shareholders were not able to attend the AGM
in The Netherlands, we conducted our 2009 AIM in Australia to allow
shareholders to review the items of business and other matters to be
considered and voted on at the AGM. Shareholders were able to appoint
representatives to attend the AIM on their behalf and ask questions.
Beginning in 2010, we will hold our AGM in Dublin, and will simulcast
this meeting to a venue in Sydney so that Australian shareholders
can attend a meeting together and ask questions of the Board and
external auditor.
We distribute with our Notice of Meetings (for annual meetings) a
question form which shareholders can use to submit questions in
advance of the meetings. Shareholders can also ask questions relevant
to the business of the meeting during the meeting.
For those shareholders unable to attend, the annual meetings
are broadcast live over the internet in the Investor Relations area
of the website (www.jameshardie.com). The webcast remains on
the company’s website until the next annual meeting so it can be
replayed later if desired.
7.3 ANNUAL GENERAL MEETING (AGM)
The 2009 AGM was held in The Netherlands within seven days of the
AIM. Beginning fiscal year 2011, the AGM will be held in Ireland.
Each shareholder (other than an ADS holder) has the right to:
– attend the AGM either in person or by proxy;
– speak at the AGM; and
– exercise voting rights, including at the AGM subject to their
instructions on the Voting Instruction Form.
While ADS holders cannot vote directly, ADS holders can direct the
voting of their underlying shares through the ADS depositary.
The external auditor attends the AGM and is available to
answer questions.
7.4 COMMUNICATION
We are committed to communicating effectively with our shareholders
through a program that includes:
Where these instances related to the remuneration of Supervisory, Joint
or Managing Board directors they are described in the Remuneration
Report on pages 41–66 of this annual report.
– making management briefings and presentations accessible via a live
webcast and/or teleconference following the release of quarterly and
annual results;
– audio webcasts of other management briefings and webcasts of the
annual shareholder meeting;
– a comprehensive Investor Relations website that displays all
company announcements and notices (promptly after they have
been cleared by the ASX), and major management and investor road
show presentations;
– site visits and briefings on strategy for investment analysts;
– an email alert service to advise shareholders and other interested
parties of announcements and other events; and
– equality of access for shareholders and investment analysts to
briefings, presentations and meetings.
7.5 INVESTOR WEBSITE
We have a dedicated section on corporate governance as part of
the Investor Relations area of our website (www.jameshardie.com).
Information on this section of the website is progressively updated and
expanded to ensure it presents the most up-to-date information on our
corporate governance structure. Except where stated, the contents of the
website are not incorporated into this annual report.
8. ComplianCE wiTh CorporaTE
govErnanCE rEquirEmEnTS
8.1 DUTCH CORPORATE GOVERNANCE CODE (DUTCH CODE)
For fiscal year 2010, the Dutch Code applied to James Hardie because
it was a Dutch public limited liability company. Under the Dutch
Code, listed Dutch companies are obliged to explain their corporate
governance structure in a separate section of their annual report. Listed
Dutch companies must indicate expressly to what extent they apply the
best practice provisions contained in the Dutch Code and, if they do
not, why and to what extent they do not apply them.
Under the Dutch Code, not applying a specific best practice provision is
not in itself considered objectionable by the Dutch Code, and may well be
justified because of particular circumstances relevant to James Hardie.
Whilst the Dutch Code applied to James Hardie, its corporate
governance structure and compliance with the Dutch Code was the joint
responsibility of the Managing Board and the Supervisory Board, which
were accountable for this to shareholders at the AGM.
James Hardie complied with almost all of the principles and best
practice provisions contained in the Dutch Code and, in accordance
with the requirements of the Dutch Code, this document describes
instances where James Hardie did not fully comply with the letter of a
principle or best practice provision contained in the Dutch Code and
the reasons why.
Following the completion of the Re-domicile, the Dutch Code no longer
applies to James Hardie. In fiscal year 2011, we became subject to the
regulatory requirements of the Irish Takeover Panel. The Combined
Code on Corporate Governance as published by the Financial Reporting
Council in the UK will not apply to us unless our shares become quoted
on the Irish Stock Exchange or the London Stock Exchange.
8.2 ASX PRINCIPLES AND RECOMMENDATIONS
Listed Australian companies are encouraged to comply with the
Principles and Recommendations. Except where otherwise stated, the
company has complied with the Principles and Recommendations for
the entire period described in this annual report.
For the benefit of Australian holders, the Investor Relations area of our
website (www.jameshardie.com) contains more detail about the ways in
which we comply with the Principles and Recommendations.
As an Irish-domiciled company, James Hardie Industries SE will
continue to comply with the Principles and Recommendations as its
general policy and will continue to explain any departures from those
Principles and Recommendations in its annual report.
8.3 NYSE CORPORATE GOVERNANCE RULES
In accordance with the NYSE corporate governance standards, listed
companies that are foreign private issuers (which includes James
Hardie) are permitted to follow home-country practice in lieu of the
provisions of the corporate governance rules contained in Section 303A
of the Listed Company Manual, except that foreign private issuers are
required to comply with Section 303A.06, Section 303A.11 and Section
303A.12(b) and (c), each of which is discussed below.
Section 303A.06 requires that all listed companies have an Audit
Committee that satisfies the requirements of Rule 10A-3 under the
Exchange Act.
Section 303A.11 provides that listed foreign private issuers must
disclose any significant ways in which their corporate governance
practices differ from those followed by US companies under the NYSE
listing standards.
Section 303A.12(b) provides that each listed company’s CEO must
promptly notify the NYSE in writing after any executive officer of the
listed company becomes aware of any material non-compliance with
any applicable provisions of Section 303A. Section 303A.12(c) provides
that each listed company must submit an executed written affirmation
annually to the NYSE about its compliance with the NYSE’s corporate
governance listing standards and an interim written affirmation to the
NYSE as and when required by the interim written affirmation form
specified by the NYSE.
79
| JAMES HARDIE | ANNUAL REPORT 2010
CorporaTE
govErnanCE rEporT
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
James Hardie presently complies with the mandatory NYSE listing
standards and many of the non-compulsory standards including, for
example, the requirement that a majority of our directors meet the
independence requirements of the NYSE. In accordance with Section
303A.11, we disclose in this report, and in our annual report on
Form 20-F that is filed with the SEC, any significant ways in which
our corporate governance practices differ from those followed by US
companies under the NYSE listing standards. Our annual report on
Form 20-F is available from the Investor Relations area of our website
(www.jameshardie.com) or from our corporate offices, the addresses
of which are shown on page 124 of this annual report.
Two ways in which our corporate governance practices differ
significantly from those followed by US domestic companies under
NYSE listing standards should be noted:
– In the US, an audit committee of a public company is required to
be directly responsible for appointing the company’s independent
registered public accounting firm. Under Dutch law, the independent
registered public accounting firm is appointed by the shareholders or,
in the absence of such an appointment, by the Supervisory Board and
then the Managing Board. Under Irish law, the independent registered
public accounting firm is appointed by the shareholders where
there is a new appointment, otherwise the appointment is deemed
to continue unless the firm retires, is asked to retire or is unable to
perform their duties; and
– NYSE rules require each issuer to have an audit committee,
a compensation committee (equivalent to a remuneration committee)
and a nominating committee composed entirely of independent
directors. As a foreign private issuer, we do not have to comply
with this requirement. In our case, the Board Committee charters
reflect Australian and Irish practices, in that we have a majority
of independent directors on these committees, unless a higher
number is mandatory. Notwithstanding this difference, our Board has
determined that 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 SEC and the NYSE.
As an Irish-domiciled company, James Hardie will also continue to
follow the NYSE corporate governance standards for listed companies
that are foreign private issuers.
8.4 ANTI-TAKEOVER PROTECTIONS AND CONTROL OVER
THE COMPANY
Until completion of the Re-domicile on 17 June 2010, the company
was not formally subject to the takeover laws that applied to listed
companies incorporated in Australia or in The Netherlands. However,
Article 49 of our Articles of Association was incorporated to provide
shareholders with similar protections in the event of a potential change
of control to those provided to shareholders in Australian listed
companies under the Australian Corporations Act.
80
| JAMES HARDIE | ANNUAL REPORT 2010
The purpose of Article 49 was to ensure that:
– the acquisition of control over CUFS or shares takes place in an
efficient, competitive and informed market;
– each shareholder and CUFS holder and the Managing Board, Joint
Board and Supervisory Board:
i.
ii.
know the identity of any person who proposes to acquire a
substantial interest in the company;
are given reasonable time to consider a proposal to acquire
a substantial interest in the company; and
iii. are given enough information to assess the merits of a proposal
to acquire a substantial interest in the company; and
– as far as practicable, the shareholders and CUFS holders all have
a reasonable and equal opportunity to participate in any benefits
accruing through a proposal to acquire a substantial interest in
the company.
Following completion of the Re-domicile, the company has become
subject to Irish takeover laws, and under ASX rules, the provisions set
out in Article 49 have ceased to apply. The Irish Takeover Rules are built
on several General Principles, the text of which is set out below. Also,
the takeover threshold is set at 30%, meaning that a person (or persons
acting in concert) who acquire more than 30% of voting rights must
make a mandatory cash bid for all of the shares in the company:
– All holders of the securities of an offeree of the same class must be
afforded equivalent treatment; moreover, if person acquires control of
a company, the other holders of securities must be protected.
– The holders of the securities of an offeree must have sufficient time
and information to enable them to reach a properly informed decision
on the offer; where it advises the holders of securities, the board of
the offeree must give its views on the effects of implementation of the
offer on employment, considerations of employment and the locations
of the offeree’s places of business.
– The board of an offeree must act in the interest of the company as a
whole and must not deny the holders of securities the opportunity to
decide on the merits of the offer.
– False markets must not be created in the securities of the offeree, of
the offeror or of any other company concerned by the offer in such
a way that the rise or fall of the prices of the securities becomes
artificial and the normal functioning of the markets is distorted.
– An offeror must announce an offer only after ensuring that he or she
can pay in full any cash consideration, if such is offered, and after
taking all reasonable measures to secure the implementation of any
other type of consideration.
– An offeree must not be hindered in the conduct of its affairs for longer
than is reasonable by any offer for its securities.
– A substantial acquisition of securities (whether such acquisition is to
be effected by one transaction or a series of transactions) shall take
place only at an acceptable speed and shall be subject to adequate
and timely disclosure.
rEporT oF indEpEndEnT
rEgiSTErEd publiC
aCCounTing Firm
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
ThE board oF dirECTorS and SharEholdErS
oF jamES hardiE induSTriES SE
We have audited the accompanying consolidated balance sheets of James Hardie Industries SE and Subsidiaries (formerly “James Hardie Industries
N.V. and Subsidiaries”) as of March 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ deficit, and
cash flows for the years then ended. 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 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of James Hardie
Industries SE and Subsidiaries at March 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), James Hardie
Industries SE’s internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 27, 2010 expressed an unqualified
opinion thereon.
Orange County, California
27 May 2010
FINANCIAL STATEMENTS
81
| JAMES HARDIE | ANNUAL REPORT 2010
ConSolidaTEd
balanCE ShEETS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Notes
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Restricted cash and cash equivalents – Asbestos
Restricted short-term investments – Asbestos
Accounts and other receivables, net of allowance for doubtful accounts
of $2.3 million (A$2.5 million) and $1.4 million (A$2.0 million)
as of 31 March 2010 and 31 March 2009, respectively
Inventories
Prepaid expenses and other current assets
Insurance receivable – Asbestos
Workers’ compensation – Asbestos
Deferred income taxes
Deferred income taxes – Asbestos
Total current assets
Restricted cash and cash equivalents
Property, plant and equipment, net
Insurance receivable – Asbestos
Workers’ compensation – Asbestos
Deferred income taxes
Deferred income taxes – Asbestos
Deposit with Australian Taxation Office
Other assets
Total assets
3
4
11
11
5
6
11
11
14
11
4
7
11
11
14
11
14
liabiliTiES and SharEholdErS’ dEFiCiT
Current liabilities:
Accounts payable and accrued liabilities
Short-term debt
Current portion of long-term debt
Accrued payroll and employee benefits
Accrued product warranties
Income taxes payable
Asbestos liability
Workers’ compensation – Asbestos
Other liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Accrued product warranties
Asbestos liability
Workers’ compensation – Asbestos
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ deficit:
Common stock, Euro 0.59 par value, 2.0 billion shares authorised;
434,524,879 shares issued at 31 March 2010 and
432,263,720 shares issued at 31 March 2009
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
8
9
10
14
11
11
9
14
10
11
11
13
18
(Millions of US dollars)
31 March
2010
2009
$
19.2
0.6
44.5
13.3
$
42.4
0.3
45.4
52.9
(Millions of Australian dollars)
31 March
2010
(Unaudited)
21.0
A$
0.7
48.6
14.5
A$
2009
(Unaudited)
61.7
0.4
66.1
77.0
155.0
149.1
25.6
16.7
0.1
24.0
16.4
464.5
4.7
710.6
185.1
98.8
3.2
420.0
247.2
44.7
$ 2,178.8
$
100.9
–
95.0
42.1
6.7
34.9
106.7
0.1
27.7
414.1
59.0
113.5
18.2
1,512.5
98.8
80.6
$ 2,296.7
111.4
128.9
20.4
12.6
0.6
25.5
12.3
452.7
5.0
700.8
149.0
73.8
2.1
333.2
173.5
1.6
$ 1,891.7
$
89.1
93.3
–
35.5
7.4
1.4
78.2
0.6
9.5
315.0
230.7
93.8
17.5
1,206.3
73.8
63.3
$ 2,000.4
169.2
162.8
28.0
18.2
0.1
26.2
17.9
507.2
5.1
775.9
202.1
107.9
3.5
458.6
269.9
48.8
A$ 2,379.0
A$ 110.2
–
103.7
46.0
7.3
38.1
116.5
0.1
30.2
452.1
64.4
123.9
19.9
1,651.5
107.9
88.0
A$ 2,507.7
162.1
187.6
29.7
18.3
0.9
37.1
17.9
658.8
7.3
1,019.8
216.9
107.4
3.1
484.8
252.5
2.3
A$ 2,752.9
A$
129.7
135.8
–
51.7
10.8
2.0
113.8
0.9
13.8
458.5
335.7
136.5
25.5
1,755.4
107.4
92.1
A$ 2,911.1
221.1
39.5
(437.7)
59.2
(117.9)
$ 2,178.8
219.2
22.7
(352.8)
2.2
(108.7)
$ 1,891.7
The accompanying notes are an integral part of these consolidated financial statements.
82
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
ConSolidaTEd
STaTEmEnTS
oF opEraTionS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(US$)
(Millions of US dollars, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expenses
Impairment charges
Asbestos adjustments
Operating (loss) income
Interest expense
Interest income
Other income (expense)
(Loss) income before income taxes
Income tax expense
Net (loss) income
Net (loss) income per share – basic
Net (loss) income per share – diluted
Weighted average common shares outstanding (Millions):
Basic
Diluted
Notes
17
7
11
11,12
17
14
2
2
2010
$ 1,124.6
(708.5)
416.1
Years Ended 31 March
2009
$ 1,202.6
(813.8)
388.8
2008
$ 1,468.8
(938.8)
530.0
(185.8)
(27.1)
–
(224.2)
(21.0)
(7.7)
3.7
6.3
(18.7)
(66.2)
(84.9)
(0.20)
(0.20)
433.1
433.1
$
$
$
(208.8)
(23.8)
–
17.4
173.6
(11.2)
8.2
(14.8)
155.8
(19.5)
136.3
0.32
0.31
432.3
434.5
$
$
$
(228.2)
(27.3)
(71.0)
(240.1)
(36.6)
(11.1)
12.2
–
(35.5)
(36.1)
(71.6)
(0.16)
(0.16)
455.0
455.0
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
83
| JAMES HARDIE | ANNUAL REPORT 2010
ConSolidaTEd
STaTEmEnTS
oF opEraTionS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(A$) UNAUDITED
(Millions of Australian dollars, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expenses
Impairment charges
Asbestos adjustments
Operating (loss) income
Interest expense
Interest income
Other income (expense)
(Loss) income before income taxes
Income tax expense
Net (loss) income
Net (loss) income per share – basic
Net (loss) income per share – diluted
Weighted average common shares outstanding (Millions):
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
2010
A$ 1,321.3
(832.4)
488.9
Years Ended 31 March
2009
A$ 1,515.3
(1,025.4)
489.9
2008
A$ 1,689.6
(1,079.9)
609.7
(218.3)
(31.8)
–
(263.4)
(24.6)
(9.0)
4.3
7.4
(21.9)
(77.8)
(99.7)
(0.23)
(0.23)
433.1
433.1
(263.1)
(30.0)
–
21.9
218.7
(14.1)
10.3
(18.6)
196.3
(24.6)
171.7
A$
A$
0.40
0.40
432.3
434.5
(262.5)
(31.4)
(81.7)
(276.2)
(42.1)
(12.8)
14.0
–
(40.9)
(41.5)
(82.4)
(0.18)
(0.18)
455.0
455.0
A$
A$
A$
A$
A$
A$
84
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
ConSolidaTEd
STaTEmEnTS
oF CaSh FlowS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(US$)
(Millions of US dollars, except per share data)
Years Ended 31 March
2009
2010
2008
(84.9)
$ 136.3
$
(71.6)
$
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortisation
Deferred income taxes
Pension cost
Stock-based compensation
Asbestos adjustments
Tax benefit from stock options exercised
Other-than-temporary impairment on investments
Impairment charges
Other
Changes in operating assets and liabilities:
Restricted cash and cash equivalents
Restricted short-term investments
Payment to the AICF
Accounts and other receivable
Inventories
Prepaid expenses and other assets
Insurance receivable – Asbestos
Accounts payable and accrued liabilities
Asbestos liability
Deposit with Australian Taxation Office
ATO settlement payment
Other accrued liabilities
Net cash provided by (used in) operating activities
61.7
19.2
0.1
7.7
224.2
(0.9)
–
–
–
14.9
54.4
–
(30.1)
(12.2)
(48.1)
14.4
35.4
(91.0)
(29.3)
–
47.6
$ 183.1
Cash flows from investing activities
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from issuance of shares
Tax benefit from stock options exercised
Treasury stock purchased
Dividends paid
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Components of cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents at end of period
$
$
(50.5)
(50.5)
$
–
(93.3)
274.0
(350.7)
10.1
0.9
–
–
$ (159.0)
$
$
3.2
(23.2)
42.4
19.2
$ 13.1
6.1
19.2
$
56.4
(58.2)
0.7
7.2
(17.4)
–
14.8
–
–
69.0
–
(110.0)
6.6
40.3
5.7
16.5
(11.4)
(91.1)
(9.9)
(101.6)
0.9
(45.2)
(26.1)
(26.1)
$
$
$
$ 128.8
(125.5)
431.6
(375.4)
0.1
–
–
(34.6)
25.0
$
$
$
$
$
53.3
7.0
35.4
42.4
8.9
33.5
42.4
56.5
(54.0)
1.0
7.7
240.1
–
–
71.0
(3.4)
44.7
–
–
39.6
(26.6)
4.9
16.7
2.6
(67.0)
(9.7)
–
66.8
$ 319.3
$
$
$
$
$
$
$
$
(38.5)
(38.5)
7.0
–
69.5
–
3.3
–
(208.0)
(126.2)
(254.4)
(25.1)
1.3
34.1
35.4
21.6
13.8
35.4
Supplemental disclosure of cash flow activities
Cash paid during the year for interest, net of amounts capitalised
Cash paid during the year for income taxes, net
The accompanying notes are an integral part of these consolidated financial statements.
$
$
7.4
48.5
$
$
7.8
23.2
$
$
12.8
70.4
FINANCIAL STATEMENTS
85
| JAMES HARDIE | ANNUAL REPORT 2010
ConSolidaTEd
STaTEmEnTS
oF CaSh FlowS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(A$) UNAUDITED
(Millions of Australian dollars, except per share data)
Years Ended 31 March
2009
2010
2008
(99.7)
A$ 171.7
A$
(82.4)
A$
Cash flows from operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortisation
Deferred income taxes
Pension cost
Stock-based compensation
Asbestos adjustments
Tax benefit from stock options exercised
Other-than-temporary impairment on investments
Impairment charges
Other
Changes in operating assets and liabilities:
Restricted cash and cash equivalents
Restricted short-term investments
Payment to the AICF
Accounts and other receivable
Inventories
Prepaid expenses and other assets
Insurance receivable – Asbestos
Accounts payable and accrued liabilities
Asbestos liability
Deposit with Australian Taxation Office
ATO settlement payment
Other accrued liabilities
Net cash provided by (used in) operating activities
72.5
22.6
0.1
9.0
263.4
(1.1)
–
–
–
17.5
63.9
–
(35.4)
(14.3)
(56.5)
16.9
41.6
(106.9)
(34.4)
–
55.9
A$ 215.1
71.1
(73.3)
0.9
9.1
(21.9)
–
18.6
–
–
86.9
–
(138.6)
8.3
50.8
7.2
20.8
(14.4)
(114.8)
(12.5)
(128.0)
1.1
(57.0)
A$
65.0
(62.1)
1.2
8.9
276.2
–
–
81.7
(3.9)
51.4
–
–
45.6
(30.6)
5.6
19.2
3.0
(77.1)
(11.2)
–
76.8
A$ 367.3
Cash flows from investing activities
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from issuance of shares
Tax benefit from stock options exercised
Treasury stock purchased
Dividends paid
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Components of cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Cash and cash equivalents at end of period
A$ (59.3)
A$ (59.3)
A$
A$
(32.9)
(32.9)
A$
A$
(44.3)
(44.3)
A$
–
(109.6)
321.9
(412.0)
11.9
1.1
–
–
A$ (186.7)
(9.8)
(40.7)
61.7
A$ 21.0
A$ 14.3
6.7
A$ 21.0
A$ 162.3
(158.1)
543.8
(473.0)
0.1
–
–
(43.6)
31.5
A$
81.5
23.1
38.6
61.7
13.0
48.7
61.7
A$
A$
A$
A$
8.1
–
79.9
–
3.8
–
(239.3)
(145.2)
A$ (292.7)
(34.0)
(3.7)
42.3
38.6
23.6
15.0
38.6
14.7
81.0
A$
A$
A$
A$
A$
Supplemental disclosure of cash flow activities
Cash paid during the year for interest, net of amounts capitalised
Cash paid during the year for income taxes, net
A$
8.5
A$ 57.0
A$
A$
9.8
29.2
The accompanying notes are an integral part of these consolidated financial statements.
86
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
ConSolidaTEd
STaTEmEnTS oF ChangES
in SharEholdErS’ dEFiCiT
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(Millions of US dollars)
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Total
$ 251.8
$ 180.2
$
(178.7)
$
–
$
5.4 $ 258.7
Balances as of 31 March 2007
Comprehensive loss:
Net loss
Pension and post-retirement benefit adjustments
Unrealised loss on investments
Foreign currency translation gain
Other comprehensive income
Total comprehensive loss
Adoption of uncertainty in income taxes
Stock-based compensation
Stock options exercised
Dividends paid
Treasury stock purchased
Treasury stock retired
Balances as of 31 March 2008
Comprehensive income:
Net income
Pension and post-retirement benefit adjustments
Unrealised gain on investments
Foreign currency translation loss
Other comprehensive loss
Total comprehensive income
Stock-based compensation
Tax benefit from stock options exercised
Stock options exercised
Dividends paid
Treasury stock retired
Balances as of 31 March 2009
Comprehensive income:
Net loss
Pension and post-retirement benefit adjustments
Unrealised gain on investments
Foreign currency translation gain
Other comprehensive income
Total comprehensive loss
Stock-based compensation
Tax benefit from stock options exercised
Stock options exercised
Balances as of 31 March 2010
–
–
–
–
–
–
–
–
–
(208.0)
204.0
$ (4.0)
–
–
–
–
–
–
–
–
–
4.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
–
(32.6)
$ 219.7
–
7.7
2.8
–
–
(171.4)
19.3
$
$
–
–
–
–
–
–
–
–
–
–
(71.6)
–
–
–
–
(78.0)
–
–
(126.2)
–
–
(454.5)
136.3
–
–
–
–
–
–
–
–
(0.5)
$ 219.2
7.2
(0.4)
0.1
–
(3.5)
22.7
$
–
–
–
(34.6)
–
(352.8)
$
$
–
–
–
–
–
–
–
–
–
–
(84.9)
–
–
–
–
–
–
1.9
$ 221.1
7.7
0.9
8.2
39.5
$
–
–
–
(437.7)
$
–
–
–
–
$
–
0.6
(4.4)
15.3
11.5
(71.6)
0.6
(4.4)
15.3
11.5
(60.1)
(78.0)
7.7
3.3
(126.2)
(208.0)
–
16.9 $ (202.6)
–
–
–
–
–
–
–
0.7
4.4
(19.8)
(14.7)
136.3
0.7
4.4
(19.8)
(14.7)
121.6
7.2
(0.4)
0.1
(34.6)
–
2.2 $ (108.7)
–
–
–
–
–
–
(0.2)
1.2
56.0
57.0
(84.9)
(0.2)
1.2
56.0
57.0
(27.9)
7.7
0.9
10.1
59.2 $ (117.9)
–
–
–
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
87
| JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
1. baCkground and baSiS oF prESEnTaTion
Nature of Operations
The Company manufactures and sells fibre cement building products
for interior and exterior building construction applications primarily in
the United States, Australia, New Zealand, the Philippines and Europe.
Background
On 2 July 1998, ABN 60 000 009 263 Pty Ltd, formerly James Hardie
Industries Limited (“JHIL”), then a public company organised under
the laws of Australia and listed on the Australian Stock Exchange,
announced a plan of reorganisation and capital restructuring (the
“1998 Reorganisation”). 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 16
October 1998, JHIL’s shareholders approved the 1998 Reorganisation.
Effective as of 1 November 1998, JHIL contributed its fibre 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 Reorganisation, JHIL and
its non-transferring subsidiaries retained certain unrelated assets
and liabilities.
On 24 July 2001, JHIL announced a further plan of reorganisation
and capital restructuring (the “2001 Reorganisation”). Completion of
the 2001 Reorganisation occurred on 19 October 2001. In connection
with the 2001 Reorganisation, 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 Reorganisation, JHI NV controlled the same
assets and liabilities as JHIL controlled immediately prior to the
2001 Reorganisation.
On 21 August 2009, JHI NV shareholders approved a plan (“Proposal”)
to transform the Company into a Societas Europaea (“SE”) (Stage
1 of the Proposal) and, subsequently, change its domicile from The
Netherlands to the Republic of Ireland (Stage 2 of the Proposal). On
19 February 2010, the Company completed Stage 1 of the Proposal and
was transformed from a Dutch “NV” company to a Dutch “SE” Company
and now operates under the name of James Hardie Industries Societas
Europaea (“JHI SE”).
Previously deconsolidated entities have been consolidated beginning
31 March 2007 as part of the process of accounting for certain asbestos
liabilities. Upon shareholder approval of the Amended and Restated
Final Funding Agreement on 7 February 2007 (the “Amended FFA”),
the Asbestos Injuries Compensation Fund (the “AICF”) was deemed a
special purpose entity and, as such, it was consolidated with the results
for JHI SE. See Note 2 and Note 11 for additional information.
Basis of Presentation
The consolidated financial statements represent the financial position,
results of operations and cash flows of JHI SE and its wholly-owned
subsidiaries and special purpose entity, collectively referred to as
either the “Company” or “James Hardie” and “JHI SE”, together with
its subsidiaries as of the time relevant to the applicable reference, the
“James Hardie Group,” unless the context indicates otherwise.
The consolidated balance sheets, statements of operations and
statements of cash flows of the Company have been presented with
accompanying Australian dollar (A$) convenience translations as the
majority of the Company’s shareholder base is Australian. These A$
convenience translations are not prepared in accordance with US GAAP
and have not been audited. The exchange rates used to calculate the
convenience translations are as follows:
(US$1 = A$)
Assets and liabilities
Statements of operations
Cash flows – beginning cash
Cash flows – ending cash
Cash flows – current
period movements
2010
1.0919
1.1749
1.4552
1.0919
31 March
2009
1.4552
1.2600
1.0903
1.4552
2008
1.0903
1.1503
1.2395
1.0903
1.1749
1.2600
1.1503
88
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
2. Summary oF SigniFiCanT
aCCounTing poliCiES
Reclassifications
Certain prior year balances have been reclassified to conform to
the current year presentation. The reclassifications do not impact
shareholders’ deficit.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property, plant and
equipment of businesses acquired are recorded at their estimated
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:
Accounting Principles
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 and special purpose entities are consolidated and all
significant intercompany transactions and balances are eliminated.
Buildings
Building improvements
Manufacturing machinery
General equipment
Computer equipment, software, and software development
Office furniture and equipment
Years
40
5 to 10
20
5 to 10
3 to 7
3 to 10
Use of Estimates
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.
The costs of additions and improvements are capitalised, while
maintenance and repair costs are expensed as incurred. Interest is
capitalised in connection with the construction of major facilities.
Capitalised interest is recorded as part of the asset to which it relates
and is amortised 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.
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 recognised in income currently.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents relate to amounts subject to letters
of credit with insurance companies which restrict the cash from use for
general corporate purposes.
Inventories
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, labour and applied factory
overhead. On a regular basis, the Company evaluates its inventory
balances for excess quantities and obsolescence by analysing demand,
inventory on hand, sales levels and other information. Based on these
evaluations, inventory costs are written down, if necessary.
The Company accrues for all asset retirement obligations in the period
in which the liability is incurred. The initial measurement of an asset
retirement obligation is based upon the present value of estimated cost
and a related long-lived asset retirement cost is capitalised as part of
the asset’s carrying value and allocated to expense over the asset’s
useful life.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and
purchased intangibles subject to amortisation 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 recognised by the amount by which the carrying amount of the asset
exceeds the fair value of the assets.
FINANCIAL STATEMENTS
89
| JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Environmental Remediation Expenditures
Environmental remediation expenditures that relate to current operations
are expensed or capitalised, 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.
Revenue Recognition
The Company recognises 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 in 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.
Depreciation and Amortisation
The Company records depreciation and amortisation under both
cost of goods sold and selling, general and administrative expenses,
depending on the asset’s business use. All depreciation and
amortisation related to plant building, machinery and equipment
is recorded in cost of goods sold.
Advertising
The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising expense was
US$9.1 million, US$9.9 million and US$11.9 million during the years
ended 31 March 2010, 2009 and 2008, respectively.
Accrued Product Warranties
An accrual for estimated future warranty costs is recorded based on an
analysis by the Company, which includes the historical relationship of
warranty costs to installed product.
Income Taxes
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred income taxes are recognised 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 recognised 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 realised.
Interest and penalties related to uncertain tax positions are recognised
in income tax expense.
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 from 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 realise 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, 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 recognised in income when the transactions being
hedged are recognised. The ineffective portion of these hedges is
recognised in income currently. Changes in the fair value of derivative
instruments designated as fair value hedges are recognised 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 recognised in income. The Company does not
use derivatives for trading purposes.
Stock-based Compensation
The Company recognised stock-based compensation expense (included
in selling, general and administrative expense) of US$9.3 million,
US$7.2 million and US$7.7 million for the years ended 31 March 2010,
2009 and 2008, respectively. Included in stock-based compensation
expense for the year ended 31 March 2010 is an expense of US$1.6
million related to liability-classified awards.
90
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Earnings Per Share
The Company discloses basic and diluted earnings per share (“EPS”).
Basic EPS is calculated using net 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 (loss)
income per share are as follows:
Years Ended 31 March
(Millions of shares)
Basic common shares outstanding
Dilutive effect of stock awards
Diluted common shares outstanding
2010
433.1
–
433.1
2009
432.3
2.2
434.5
2008
455.0
–
455.0
(US dollars)
2010
Net (loss) income per share – basic $ (0.20)
Net (loss) income per share – diluted $ (0.20)
2009
2008
$ 0.32 $ (0.16)
$ 0.31 $ (0.16)
Potential common shares of 13.7 million, 19.0 million and 10.4 million
for the years ended 31 March 2010, 2009 and 2008, respectively,
have been excluded from the calculation of diluted common shares
outstanding because the effect of their inclusion would be anti-dilutive.
Unless they are anti-dilutive, restricted stock units (“RSUs”) which
vest solely based on continued employment are considered to be
outstanding as of their issuance date for purposes of computing diluted
EPS and are included in the calculation of diluted EPS using the
Treasury Method. Once these RSUs vest, they are included in the basic
EPS calculation on a weighted-average basis.
RSUs which vest based on performance or market conditions are
considered contingent shares. At each reporting date prior to the end
of the contingency period, the Company determines the number of
contingently issuable shares to include in the diluted EPS, as the
number of shares that would be issuable under the terms of the RSU
arrangement, if the end of the reporting period were the end of the
contingency period. Once these RSUs vest, they are included in the
basic EPS calculation on a weighted-average basis.
Asbestos
At 31 March 2006, the Company recorded an asbestos provision
based on the estimated economic impact of the Original Final Funding
Agreement (“Original FFA”) entered into on 1 December 2005. The
amount of the net asbestos provision of US$715.6 million was based
on the terms of the Original FFA, which included an actuarial estimate
prepared by KPMG Actuaries as of 31 March 2006 of the projected
future cash outflows, undiscounted and uninflated, and the anticipated
tax deduction arising from Australian legislation which came into force
on 6 April 2006. The amount represented the net economic impact
that the Company was prepared to assume as a result of its voluntary
funding of the asbestos liability which was under negotiation with
various parties.
In February 2007, the shareholders approved the Amended FFA
entered into on 21 November 2006 to provide long-term funding to the
Asbestos Injuries Compensation Fund (“AICF”), a special purpose fund
that provides compensation for Australian-related personal injuries for
which certain former subsidiary companies of James Hardie in Australia
(being Amaca Pty Ltd (“Amaca”), Amaba Pty Ltd (“Amaba”) and ABN
60 Pty Limited (“ABN 60”) (collectively, the “Former James Hardie
Companies”)) are found liable.
Amaca and Amaba separated from the James Hardie Group in February
2001. ABN 60 separated from the James Hardie Group in March 2003.
Upon shareholder approval of the Amended FFA in February 2007,
shares in the Former James Hardie Companies were transferred to the
AICF. The AICF manages Australian asbestos-related personal injury
claims made against the Former James Hardie Companies and makes
compensation payments in respect of those proven claims.
AICF
In February 2007, the shareholders approved a proposal pursuant
to which the Company provides long-term funding to the AICF. The
Company owns 100% of James Hardie 117 Pty Ltd (the “Performing
Subsidiary”) that funds the AICF subject to the provisions of the
Amended FFA. The Company appoints three of the AICF directors and
the NSW Government appoints two of the AICF directors.
Under the terms of the Amended FFA, the Performing Subsidiary
has an obligation to make payments to the AICF on an annual basis,
depending on the Company’s net operating cash flow. The amounts of
these annual payments are dependent on several factors, including the
Company’s free cash flow (as defined in the Amended FFA), actuarial
estimations, actual claims paid, operating expenses of the AICF and the
annual cash flow cap. JHI SE guarantees the Performing Subsidiary’s
obligation. As a result, the Company considers it to be the primary
beneficiary of the AICF.
FINANCIAL STATEMENTS
91
| JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
The Company’s interest in the AICF is considered variable because
the potential impact on the Company will vary based upon the
annual actuarial assessments obtained by the AICF with respect
to asbestos-related personal injury claims against the Former
James Hardie Companies.
Although the Company has no legal ownership in the AICF, the
Company consolidates the AICF due to its pecuniary and contractual
interests in the AICF as a result of the funding arrangements outlined
in the Amended FFA. The Company’s consolidation of the AICF resulted
in a separate recognition of the asbestos liability and certain other
items including the related Australian income tax benefit. Among other
items, the Company recorded a deferred tax asset for the anticipated tax
benefit related to asbestos liabilities and a corresponding increase in
the asbestos liability. As stated in “Deferred Income Taxes” below, the
Performing Subsidiary is able to claim a tax deduction for contributions
to the asbestos fund. For the year ended 31 March 2007, the Company
classified the expense related to the increase of the asbestos liability as
asbestos adjustments and the Company classified the benefit related to
the recording of the related deferred tax asset as an income tax benefit
(expense) on its consolidated statements of operations.
For the year ended 31 March 2010, the Company did not provide
financial or other support to the AICF that it was not previously
contractually required to provide. Future funding for the AICF continues
to be linked under the terms of the Amended FFA to the Company’s
long-term financial success, specifically the Company’s ability to
generate net operating cash flow.
The AICF has operating costs that are claims related and non-claims
related. Claims related costs incurred by the AICF are treated as
reductions to the accrued asbestos liability balances previously
reflected in the consolidated balance sheets. Non-claims related
operating costs incurred by the AICF are expensed as incurred in
the line item Selling, general and administrative expenses in the
consolidated statements of operations. The AICF earns interest on
its cash and cash equivalents and on its short-term investments;
these amounts are included in the line item Interest income in the
consolidated statements of operations.
See Asbestos-Related Assets and Liabilities below and Note 11 –
Asbestos for further details on the related assets and liabilities recorded
in the Company’s consolidated balance sheet under the terms of the
Amended FFA.
Asbestos-Related Assets and Liabilities
The Company has recorded on its consolidated balance sheets certain
assets and liabilities under the terms of the Amended FFA. These items
are Australian dollar-denominated and are subject to translation into US
dollars at each reporting date. These assets and liabilities are referred to
by the Company as Asbestos-Related Assets and Liabilities and include:
Asbestos Liability
The amount of the asbestos liability reflects the terms of the Amended
FFA, which 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. Based on their assumptions,
they arrived at a range of possible total cash flows and proposed a
central estimate which is intended to reflect an expected outcome. The
Company views the central estimate as the basis for recording the
asbestos liability in the Company’s financial statements, which under
US GAAP, it considers the best estimate. The asbestos liability includes
these cash flows as undiscounted and uninflated on the basis that it is
inappropriate to discount or inflate future cash flows when the timing
and amounts of such cash flows are not fixed or readily determinable.
Adjustments in the asbestos liability due to changes in the actuarial
estimate of projected future cash flows and changes in the estimate
of future operating costs of the AICF are reflected in the consolidated
statements of operations during the period in which they occur. Claims
paid by the AICF and claims-handling costs incurred by the AICF are
treated as reductions in the accrued balances previously reflected in the
consolidated balance sheets.
Insurance Receivable
There are various insurance policies and insurance companies with
exposure to the asbestos claims. The insurance receivable determined
by KPMG Actuaries reflects the recoveries expected from all such
policies based on the expected pattern of claims against such policies
less an allowance for credit risk based on credit agency ratings.
The insurance receivable generally includes these cash flows as
undiscounted and uninflated on the basis that it is inappropriate to
discount or inflate future cash flows when the timing and amounts of
such cash flows are not fixed or readily determinable. The Company
only records insurance receivables that it deems to be probable.
Included in insurance receivable is US$12.5 million recorded on a
discounted basis because the timing of the recoveries has been agreed
with the insurer.
Adjustments in insurance receivable due to changes in the actuarial
estimate, or changes in the Company’s assessment of recoverability are
reflected in the consolidated statements of operations during the period
in which they occur. Insurance recoveries are treated as a reduction in
the insurance receivable balance.
92
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Workers’ Compensation
Workers’ compensation claims are claims made by former employees
of the Former James Hardie Companies. Such past, current and future
reported claims were insured with various insurance companies and
the various Australian State-based workers’ compensation schemes
(collectively “workers’ compensation schemes or policies”). An estimate
of the liability related to workers’ compensation claims is prepared
by KPMG Actuaries as part of the annual actuarial assessment. This
estimate contains two components, amounts that will be met by a
workers’ compensation scheme or policy, and amounts that will be met
by the Former James Hardie Companies.
The portion of the estimate that is expected to be met by the Former
James Hardie Companies is included as part of the Asbestos Liability.
Adjustments to this estimate are reflected in the consolidated
statements of operations during the period in which they occur.
The portion of the estimate that is expected to be met by the workers’
compensation schemes or policies of the Former James Hardie
Companies is recorded by the Company as a workers’ compensation
liability. Since these amounts are expected to be paid by the workers’
compensation schemes or policies, the Company records an equivalent
workers’ compensation receivable.
Adjustments to the workers’ compensation liability result in an
equal adjustment in the workers’ compensation receivable recorded
by the Company and have no effect on the consolidated statements
of operations.
Asbestos-Related Research and Education Contributions
The Company agreed to fund asbestos-related research and education
initiatives for a period of 10 years, beginning in fiscal year 2007. The
liabilities related to these agreements are included in “Other Liabilities”
on the consolidated balance sheets.
Restricted Cash and Cash Equivalents
Cash and cash equivalents of the AICF are reflected as restricted
assets, as the use of these assets is restricted to the settlement of
asbestos claims and payment of the operating costs of the AICF. The
Company classifies these amounts as a current asset on the face of the
consolidated balance sheet since they are highly liquid.
Restricted Short-Term Investments
Short-term investments consist of highly liquid investments held in
the custody of major financial institutions. All short-term investments
are classified as available for sale and are recorded at market value
using the specific identification method. Unrealised gains and losses
on the market value of these investments are included as a separate
component of accumulated other comprehensive income. Realised
gains and losses on short-term investments are recognised in Other
Income on the consolidated statement of operations.
AICF – Other Assets and Liabilities
Other assets and liabilities of the AICF, including fixed assets, trade
receivables and payables are included on the consolidated balance
sheets under the appropriate captions and their use is restricted to the
operations of the AICF.
Deferred Income Taxes
The Performing Subsidiary is able to claim a taxation deduction for
its contributions to the AICF over a five-year period from the date of
contribution. Consequently, a deferred tax asset has been recognised
equivalent to the anticipated tax benefit over the life of the Amended
FFA. The current portion of the deferred tax asset represents Australian
tax benefits that will be available to the Company during the subsequent
twelve months.
Adjustments are made to the deferred income tax asset as adjustments
to the asbestos-related assets and liabilities are recorded.
Foreign Currency Translation
The asbestos-related assets and liabilities are denominated in
Australian dollars and thus the reported values of these asbestos-
related assets and liabilities in the Company’s consolidated balance
sheets in US dollars are subject to adjustment depending on the
closing exchange rate between the two currencies at the balance sheet
date. The effect of foreign exchange rate movements between these
currencies is included in Asbestos Adjustments in the consolidated
statements of operations.
Recent Accounting Pronouncements
In March 2008, the FASB issued authoritative guidance that changed
the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about
how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for and how
derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. The adoption
of this authoritative guidance did not result in a material impact to the
Company’s consolidated financial position, results of operations or
cash flows.
In June 2008, the FASB issued authoritative guidance that clarified
that share-based payment awards that entitle their holders to receive
non-forfeitable dividends before vesting should be considered
participating securities. As participating securities, these instruments
should be included in the calculation of basic earnings per share.
This authoritative guidance is effective for financial statements issued
for fiscal years beginning after 15 December 2008, as well as interim
periods in those years. The adoption did not result in a material impact
to the Company’s consolidated financial position, results of operations
or cash flows.
FINANCIAL STATEMENTS
93
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noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
In April 2009, the FASB expanded disclosure requirements for interim
reporting periods to include disclosures about the fair value of financial
instruments held by the Company. The Company adopted this statement
effective for its first quarter of fiscal 2010, which has resulted in the
disclosure of fair values attributable to debt instruments included in
Note 12.
Effective for the Company’s second quarter of fiscal 2010, the
Company adopted the FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles which only
affected the specific references to US GAAP literature in the notes to
the consolidated financial statements. There was no impact on the
Company’s results of operations, financial condition or liquidity.
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 when acquired.
Cash and cash equivalents consist of the following components:
(Millions of US dollars)
Cash at bank and on hand
Short-term deposits
Total cash and cash equivalents
31 March
2010
13.1
6.1
19.2
$
$
2009
8.9
33.5
42.4
$
$
4. rESTriCTEd CaSh and CaSh EquivalEnTS
Included in restricted cash and cash equivalents is
US$5.3 million related to an insurance policy as of 31 March 2010
and 2009, respectively.
5. aCCounTS and oThEr rECEivablES
Accounts and notes receivable consist of the following components:
(Millions of US dollars)
Trade receivables
Other receivables and advances
Allowance for doubtful accounts
Total accounts and other receivables
31 March
2010
$ 122.8
34.5
(2.3)
$ 155.0
$
2009
96.6
16.2
(1.4)
$ 111.4
The collectability of accounts receivable, consisting mainly of trade
receivables, is reviewed on an ongoing basis. An allowance for doubtful
accounts is provided for known and estimated bad debts by analysing
specific customer accounts and assessing the risk of uncollectability
based on insolvency, disputes or other collection issue.
The following are changes in the allowance for doubtful accounts:
(Millions of US dollars)
Balance at beginning of period
Charged to expense
Costs and deductions
Balance at end of period
6. invEnToriES
31 March
2010
1.4
0.9
–
2.3
$
$
2009
2.0
0.4
(1.0)
1.4
$
$
Inventories consist of the following components:
(Millions of US dollars)
Finished goods
Work-in-process
Raw materials and supplies
Provision for obsolete finished goods
and raw materials
Total inventories
$
31 March
2010
99.8
4.8
52.0
$
2009
82.5
4.7
48.9
(7.5)
$ 149.1
(7.2)
$ 128.9
94
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FINANCIAL STATEMENTS
7. propErTy, planT and EquipmEnT
Property, plant and equipment consist of the following components:
(Millions of US dollars)
Balance at 31 March 2008:
Cost
Accumulated depreciation
Net book value
Changes in net book value:
Capital expenditures
Depreciation
Other movements
Foreign currency translation adjustments
Total changes
Balance at 31 March 2009:
Cost
Accumulated depreciation
Net book value
Changes in net book value:
Capital expenditures
Depreciation
Other movements
Foreign currency translation adjustments
Total changes
Balance at 31 March 2010:
Cost
Accumulated depreciation
Net book value
Land
Buildings
$ 17.2
–
17.2
$ 208.9
(52.0)
156.9
0.8
–
–
–
0.8
3.4
(9.4)
–
–
(6.0)
Machinery
and
Equipment
$ 840.5
(340.6)
499.9
52.7
(47.0)
(0.2)
(25.1)
(19.6)
Construction
in Progress1
Total
$
82.4
–
82.4
$ 1,149.0
(392.6)
756.4
(30.8)
–
–
–
(30.8)
26.1
(56.4)
(0.2)
(25.1)
(55.6)
18.0
–
$ 18.0
212.3
(61.4)
$ 150.9
867.9
(387.6)
$ 480.3
51.6
–
51.6
$
1,149.8
(449.0)
700.8
$
0.1
–
–
–
0.1
3.6
(9.7)
–
–
(6.1)
30.0
(52.0)
20.7
21.0
19.7
16.8
–
(20.7)
–
(3.9)
50.5
(61.7)
–
21.0
9.8
18.1
–
$ 18.1
215.9
(71.1)
$ 144.8
939.6
(439.6)
$ 500.0
47.7
–
47.7
$
1,221.3
(510.7)
710.6
$
1 Construction in progress consists of plant expansions and upgrades.
FINANCIAL STATEMENTS
95
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noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Interest related to the construction of major facilities is capitalised and
included in the cost of the asset to which it relates. Interest capitalised
was US$0.2 million, US$0.1 million and US$0.6 million for the years
ended 31 March 2010, 2009 and 2008, respectively. Depreciation
expense was US$61.7 million, US$56.4 million and US$56.5 million
for the years ended 31 March 2010, 2009 and 2008, respectively.
Included in property, plant and equipment are restricted assets of the
AICF with a net book value of US$2.3 million and US$0.8 million as of
31 March 2010 and 2009, respectively.
Asset Impairments
The Company recorded an asset impairment charge of US$32.4 million
in the year ended 31 March 2008 in its USA and Europe Fibre Cement
segment related to the suspension of production at its Blandon,
Pennsylvania plant in the United States. The impaired assets include
buildings and machinery, which were reduced to their estimated fair
value based on valuation methods including quoted market prices and
discounted future cash flows. These assets are being held for use by
the Company.
The Company recorded an asset impairment charge of US$25.4 million
in the year ended 31 March 2008 in its USA and Europe Fibre Cement
segment, related to the closure of its Plant City, Florida Hardie Pipe
plant. The impaired assets include buildings and machinery, which
were reduced to their estimated fair value based on valuation methods
including quoted market prices and discounted future cash flows.
These assets are being held for use by the Company.
The Company recorded an asset impairment charge of US$13.2 million
in the year ended 31 March 2008 related to buildings and machinery
utilised to produce materials for the Company’s products. This asset
impairment was recorded in its USA and Europe Fibre Cement segment.
The impaired assets were reduced to their estimated fair value based
on valuation methods including quoted market prices and discounted
future cash flows. These assets are being held for use by the Company.
8. aCCounTS payablE and aCCruEd liabiliTiES
Accounts payable and accrued liabilities consist of the
following components:
31 March
(Millions of US dollars)
2010
$ 71.3
Trade creditors
29.6
Other creditors and accruals
Total accounts payable and accrued liabilities $ 100.9
2009
$ 44.4
44.7
$ 89.1
9. ShorT and long-TErm dEbT
Debt consists of the following components:
(Millions of US dollars)
Short-term debt
Current portion of long-term debt
Long-term debt
Total debt
31 March
$
2010
–
95.0 –
59.0
$ 154.0
2009
93.3
$
230.7
$ 324.0
The weighted average interest rate on the Company’s total debt was
0.92% and 1.48% at 31 March 2010 and 2009, respectively.
At 31 March 2010, the Company’s credit facilities consisted of:
Description
(US$ millions)
Effective
Interest Rate
Total
Facility
Principal
Drawn
Term facilities, can be drawn in US$,
variable interest rates based on
LIBOR plus margin, can be repaid
and redrawn until June 2010
0.86% $ 161.7
$
95.0
Term facilities, can be drawn in US$,
variable interest rates based on
LIBOR plus margin, can be repaid
and redrawn until February 2011
Term facilities, can be drawn in US$,
variable interest rates based on
LIBOR plus margin, can be repaid
and redrawn until December 2012
–
45.0
–
130.0
–
–
Term facilities, can be drawn in US$,
variable interest rates based on
LIBOR plus margin, can be repaid
and redrawn until February 2013
Total
1.01%
90.0
$ 426.7
59.0
$ 154.0
96
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
For all facilities, the interest rate is calculated two business days prior
to 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. At 31
March 2010, there was US$154.0 million drawn under the combined
facilities and US$272.7 million was unutilised and available.
In December 2009, the Company refinanced US$130.0 million in
facilities, which previously had maturity dates on or prior to June
2010. The maturity date of these new facilities is in December 2012.
At 31 March 2010, the Company held US$161.7 million of term
facilities that will mature in June 2010. The weighted average term
of all debt facilities is 2.6 years at 31 March 2010.
At 31 March 2010, the Company was in compliance with all restrictive
debt covenants contained in its credit facility agreements. Under the
most restrictive of these covenants, the Company (i) is required to
maintain certain ratios of indebtedness to equity which do not exceed
certain maximums, excluding assets, liabilities and other balance sheet
items of the AICF, Amaba, Amaca, ABN 60 and Marlew Mining Pty
Limited, (ii) must maintain a minimum level of net worth, excluding
assets, liabilities and other balance sheet items of the AICF; for these
purposes “net worth” means the sum of the par value (or value stated
in the books of the James Hardie Group) of the capital stock (but
excluding treasury stock and capital stock subscribed or unissued) of
the James Hardie Group, the paid in capital and retained earnings of the
James Hardie Group and the aggregate amount of provisions made by
the James Hardie Group for asbestos related liabilities, in each case,
as such amounts would be shown in the consolidated balance sheet of
the James Hardie Group if Amaba, Amaca, ABN 60 and Marlew Mining
Pty Limited were not accounted for as subsidiaries of the Company, (iii)
must meet or exceed a minimum ratio of earnings before interest and
taxes to net interest charges, excluding all income, expense and other
profit and loss statement impacts of the AICF, Amaba, Amaca, ABN 60
and Marlew Mining Pty Limited and (iv) must ensure that no more than
35% of Free Cash Flow (as defined in the Amended FFA) in any given
Financial Year is contributed to the AICF on the payment dates under
the Amended FFA in the next following Financial Year. The limit does
not apply to payments of interest to the AICF. Such limits are consistent
with the contractual liabilities of the Performing Subsidiary and the
Company under the Amended FFA.
10. produCT warranTiES
James Hardie has offered and continues to offer various warranties on
its products. In April 2009, the company replaced its 50-year limited
pro-rated warranty with a 30-year limited non-pro-rated warranty for
certain fibre cement siding products in the United States. A typical
warranty program requires the Company to 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 a trend
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 is adjusted as necessary. While the Company’s
warranty costs have historically been within its calculated estimates, it
is possible that future warranty costs could differ from 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 products, which are no
longer manufactured in the United States. On 14 February 2002, the
Company signed the Settlement Agreement for all product, warranty
and property related liability claims associated with these 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 US$1.2 million and
US$1.9 million as of 31 March 2010 and 2009, respectively.
The following are the changes in the product warranty provision:
Years Ended 31 March
2009
2010
(Millions of US dollars)
Balance at beginning of period
8.1
Accruals for product warranties
Settlements made in cash or in kind
(8.4)
Foreign currency translation adjustments 0.3
Balance at end of period
2008
$ 24.9 $ 17.7 $ 15.2
10.2
(7.9)
0.2
$ 24.9 $ 24.9 $ 17.7
14.6
(7.1)
(0.3)
FINANCIAL STATEMENTS
97
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noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
11. aSbESToS
The Amended FFA to provide long-term funding to the AICF was approved by shareholders in February 2007. The accounting policies utilised by
the Company to account for the Amended FFA are described in Note 2, Summary of Significant Accounting Policies.
Asbestos Adjustments
The asbestos adjustments included in the consolidated statements of operations comprise the following:
(Millions of US dollars)
Change in estimates:
Change in actuarial estimate – asbestos liability
Change in actuarial estimate – insurance receivable
Change in estimate – AICF claims-handling costs
Change in estimate – other
Subtotal – Change in estimates
(Loss) gain on foreign currency exchange
Total Asbestos Adjustments
$
2010
(3.8)
1.9
(1.4)
–
(3.3)
(220.9)
(224.2)
$
Years Ended 31 March
2009
$
$
(180.9)
19.8
(1.2)
–
(162.3)
179.7
17.4
2008
(175.0)
27.4
(6.5)
1.2
(152.9)
(87.2)
(240.1)
$
$
Asbestos-Related Assets and Liabilities
Under the terms of the Amended FFA, the Company has included on its consolidated balance sheets certain asbestos-related assets and liabilities.
These amounts are detailed in the table below, and the net total of these asbestos-related assets and liabilities is referred to by the Company as the
“Net Amended FFA Liability”.
31 March
$
2010
(106.7)
(1,512.5)
(1,619.2)
$
2009
(78.2)
(1,206.3)
(1,284.5)
16.7
185.1
201.8
0.1
98.8
(0.1)
(98.8)
–
16.4
420.0
436.4
16.5
(1.7)
12.6
149.0
161.6
0.6
73.8
(0.6)
(73.8)
–
12.3
333.2
345.5
22.8
(2.0)
(756.6)
98.3
(658.3)
(Millions of US dollars)
Asbestos liability – current
Asbestos liability – non-current
Asbestos liability – Total
Insurance receivable – current
Insurance receivable – non-current
Insurance receivable – Total
Workers’ compensation asset – current
Workers’ compensation asset – non-current
Workers’ compensation liability – current
Workers’ compensation liability – non-current
Workers’ compensation – Total
Deferred income taxes – current
Deferred income taxes – non-current
Deferred income taxes – Total
Income tax payable
Other net liabilities
Net Amended FFA liability
Restricted cash and cash equivalents and restricted short-term investment assets of the AICF
Unfunded Net Amended FFA liability
(966.2)
57.8
(908.4)
$
$
98
| JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Asbestos Liability
The amount of the asbestos liability reflects the terms of the Amended FFA, which has been calculated by reference to (but is not exclusively based
upon) the most recent actuarial estimate of the projected future asbestos-related cash flows prepared by KPMG Actuaries. The asbestos liability also
includes an allowance for the future claims-handling costs of the AICF. The Company receives an updated actuarial estimate as of 31 March each
year. The last actuarial assessment was performed as of 31 March 2010.
The changes in the asbestos liability for the year ended 31 March 2010 are detailed in the table below:
Asbestos liability – 31 March 2009
Asbestos claims paid1
AICF claims-handling costs incurred1
Change in actuarial estimate2
Change in estimate of AICF claims-handling costs2
Loss on foreign currency exchange
Asbestos liability – 31 March 2010
A$
Millions
(1,869.2)
103.2
3.6
(4.1)
(1.5)
A$ to US$
rate
1.4552
1.1749
1.1749
1.0919
1.0919
(1,768.0)
1.0919
US$
Millions
(1,284.5)
87.8
3.1
(3.8)
(1.4)
(420.4)
(1,619.2)
Insurance Receivable – Asbestos
The changes in the insurance receivable for the year ended 31 March 2010 are detailed in the table below:
Insurance receivable – 31 March 2009
Insurance recoveries1
Change in actuarial estimate2
Gain on foreign currency exchange
Insurance receivable – 31 March 2010
A$
Millions
235.2
(16.9)
2.0
A$ to US$
rate
1.4552
1.1749
1.0919
220.3
1.0919
Deferred Income Taxes – Asbestos
The changes in the deferred income taxes – asbestos for the year ended 31 March 2010 are detailed in the table below:
Deferred tax assets – 31 March 2009
Amounts offset against income tax payable1
Impact of other asbestos adjustments1
Gain on foreign currency exchange
Deferred tax assets – 31 March 2010
A$
Millions
502.7
(17.9)
(8.3)
A$ to US$
rate
1.4552
1.1749
1.1749
476.5
1.0919
US$
Millions
161.6
(14.4)
1.8
52.8
201.8
US$
Millions
345.5
(15.3)
(7.0)
113.2
436.4
1 The average exchange rate for the period is used to convert the Australian dollar amount to US dollars based on the assumption that these
transactions occurred evenly throughout the period.
2 The spot exchange rate at 31 March 2010 is used to convert the Australian dollar amount to US dollars as the adjustment to the estimate was
made on that date.
FINANCIAL STATEMENTS
99
| JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Income Taxes Payable
A portion of the deferred income tax asset is applied against the Company’s income tax payable. At 31 March 2010 and 2009, this amount was
US$15.3 million and US$8.8 million, respectively. During the year ended 31 March 2010, there was a US$6.6 million favourable effect of foreign
currency exchange.
Other Net Liabilities
Other net liabilities include a provision for asbestos-related education and medical research contributions of US$2.6 million and US$2.2 million
at 31 March 2010 and 2009, respectively. Also included in other net liabilities are the other assets and liabilities of the AICF including trade
receivables, prepayments, fixed assets, trade payables and accruals.
These other assets and liabilities of the AICF were a net asset of US$0.9 million and US$0.2 million at 31 March 2010 and 2009, respectively.
During the year ended 31 March 2010, there was a US$0.6 million unfavourable effect of foreign currency exchange on the other net liabilities.
Restricted Cash and Short-term Investments of the AICF
Cash and cash equivalents and short-term investments of the AICF are reflected as restricted assets as these assets are restricted for use in the
settlement of asbestos claims and payment of the operating costs of the AICF. During the year ended 31 March 2010, the AICF sold US$61.1 million
(A$71.8 million) of its short-term investments. The sale of investments for the year ended 31 March 2010 resulted in the Company recording a
realised gain of US$6.7 million (A$7.9 million) in the line item Other Income.
At 31 March 2010, the Company revalued the AICF’s remaining short-term investments available-for-sale resulting in a positive mark-to-market fair
value adjustment of US$1.2 million (A$1.4 million). This appreciation in the value of the investments was recorded as an unrealised gain in Other
Comprehensive Income.
The changes in the restricted cash and short-term investments of the AICF for the year ended 31 March 2010 are detailed in the table below:
Restricted cash and cash equivalents and restricted short-term
investments – 31 March 2009
Asbestos claims paid1
AICF operating costs paid – claims-handling1
AICF operating costs paid – non claims-handling1
Insurance recoveries1
Interest and investment income1
Unrealised gain on investments1
Gain on investments1
Other1
Gain on foreign currency exchange
Restricted cash and cash equivalents and restricted short-term
investments – 31 March 2010
A$
Millions
A$ to US$
rate
US$
Millions
143.1
(103.2)
(3.6)
(2.5)
16.9
3.9
1.4
7.9
(0.8)
1.4552
1.1749
1.1749
1.1749
1.1749
1.1749
1.1749
1.1749
1.1749
98.3
(87.8)
(3.1)
(2.1)
14.4
3.3
1.2
6.7
(0.7)
27.6
63.1
1.0919
57.8
1 The average exchange rate for the period is used to convert the Australian dollar amount to US dollars based on the assumption that these
transactions occurred evenly throughout the period.
100 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Actuarial Study; Claims Estimate
The AICF commissioned an updated actuarial study of potential
asbestos-related liabilities as of 31 March 2010. Based on KPMG
Actuaries’ assumptions, KPMG Actuaries arrived at a range of possible
total cash flows and proposed a central estimate which is intended to
reflect an expected outcome. The Company views the central estimate
as the basis for recording the asbestos liability in the Company’s
financial statements, which under US GAAP, it considers the best
estimate. Based on the results of these studies, it is estimated that the
discounted (but inflated) value of the central estimate for claims against
the Former James Hardie Companies was approximately A$1.5 billion
(US$1.4 billion). The undiscounted (but inflated) value of the central
estimate of the asbestos-related liabilities of Amaca and Amaba as
determined by KPMG Actuaries was approximately A$2.9 billion
(US$2.7 billion). Actual liabilities of those companies for such claims
could vary, perhaps materially, from the central estimate described
above. The asbestos liability includes projected future cash flows as
undiscounted and uninflated on the basis that it is inappropriate to
discount or inflate future cash flows when the timing and amounts
of such cash flows is not fixed or readily determinable.
The asbestos liability has been revised to reflect the most recent
actuarial estimate prepared by KPMG Actuaries as of 31 March
2010 and to adjust for payments made to claimants during the year
then ended.
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 a plaintiff claims exposure, the alleged disease type
and the jurisdiction in which the action is 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.
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.
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 defence 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, the Company believes that it is likely to be able to partially
recover losses from various insurance carriers. As of 31 March 2010,
KPMG Actuaries’ undiscounted central estimate of asbestos-related
liabilities was A$2.9 billion (US$2.7 billion). This undiscounted (but
inflated) central estimate is net of expected insurance recoveries of
A$434.9 million (US$398.3 million) after making a general credit risk
allowance for insurance carriers for A$61.5 million (US$56.3 million)
and an allowance for A$77.7 million (US$71.2 million) of “by claim”
or subrogation recoveries from other third parties. The Company has
not netted the insurance receivable against the asbestos liability on its
consolidated balance sheets.
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 (but inflated) central estimates
could be in a range of A$1.0 billion (US$0.9 billion) to A$2.4 billion
(US$2.2 billion). The undiscounted, but inflated, estimates could
be in a range of A$1.8 billion (US$1.6 billion) to A$5.1 billion
(US$4.7 billion), as of 31 March 2010. The actual cost of the liabilities
could be outside of that range depending on the results of actual
experience relative to the assumptions made. One of the critical
assumptions is the estimated peak year of mesothelioma disease claims
which is targeted for 2010/2011. Potential variation in this estimate
has an impact much greater than the other sensitivities. If the peak year
occurs five years later, in 2015/2016, the discounted central estimate
could increase by approximately 50%.
Claims Data
The AICF provides compensation payments for Australian asbestos-
related personal injury claims against the Former James Hardie
Companies. The claims data in this section are only reflective of these
Australian asbestos-related personal injury claims against the Former
James Hardie Companies.
FINANCIAL STATEMENTS
101 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
The following table shows the activity related to the numbers of open claims, new claims and closed claims during each of the past five years and
the average settlement per settled claim and case closed:
Number of open claims at beginning of period
Number of new claims
Number of closed claims
Number of open claims at end of period
Average settlement amount per settled claim
Average settlement amount per case closed
Average settlement amount per settled claim
Average settlement amount per case closed
2010
534
535
540
529
A$ 190,627
A$ 171,917
US$ 162,250
US$ 146,325
2009
523
607
596
534
A$ 190,638
A$ 168,248
US$ 151,300
US$ 133,530
For the Years Ended 31 March
2008
490
552
519
523
A$ 147,349
A$ 126,340
US$ 128,096
US$ 109,832
2007
564
463
537
490
A$ 166,164
A$ 128,723
US$ 127,163
US$ 98,510
20061
712
346
502
556
A$ 151,883
A$ 122,535
US$ 114,318
US$ 92,229
1 Information includes claims data for only 11 months ended 28 February 2006. Claims data for the 12 months ended 31 March 2006 were not
available at the time the Company’s financial statements were prepared.
Under the terms of the Amended FFA, the Company has obtained rights of access to actuarial information produced for the AICF by the actuary
appointed by the AICF (the “Approved Actuary”). The Company’s future disclosures with respect to claims statistics are 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 Amended FFA) to audit or
otherwise require independent verification of such information or the methodologies to be adopted by the Approved Actuary. As such, the Company
will need to rely on the accuracy and completeness of the information and analysis of the Approved Actuary when making future disclosures with
respect to claims statistics.
102 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
12. Fair valuE mEaSurEmEnTS
Assets and liabilities of the Company that are carried at fair value are
classified in one of the following three categories:
Level 1 Quoted market prices in active markets for identical assets
and liabilities that the Company has the ability to access at the
measurement date;
Level 2 Observable market-based inputs or unobservable inputs that
are corroborated by market data for the asset or liability at the
measurement date;
Level 3 Unobservable inputs that are not corroborated by market data
used when there is minimal market activity for the asset or
liability at the measurement date.
Fair value measurements of assets and liabilities are assigned a level
within the fair value hierarchy based on the lowest level of any input
that is significant to the fair value measurement in its entirety.
The Company’s financial instruments consist primarily of cash and
cash equivalents, restricted cash and cash equivalents, restricted short-
term investments, trade receivables, trade payables, debt and interest
rate swaps.
Cash and cash equivalents, Restricted cash and cash equivalents,
Trade receivables and Trade payables – These items are recorded in the
financial statements at historical cost. The historical cost basis for these
amounts is estimated to approximate their respective fair values due to
the short maturity of these instruments.
Restricted short-term investments – Restricted short-term investments
are recorded in the financial statements at fair value. The fair value of
restricted short-term investments is based on quoted market prices.
Changes in fair value are recorded, net of tax, as other comprehensive
income and included as a component in shareholders’ deficit. Restricted
short-term investments are held and managed by the AICF and are
reported at their fair value. At 31 March 2009, the Company determined
that these investments were other-than-temporarily impaired due to
the current economic environment, the length of time the fair value
of the assets were less than cost and the extent of the discount of the
fair value compared to the cost of the assets. The Company recorded
an unrealised gain on these restricted short-term investments of
US$1.2 million for the year ended 31 March 2010. This unrealised
gain is included as a separate component of accumulated other
comprehensive income.
Debt – Debt is generally recorded in the financial statements at
historical cost. The carrying value of debt provided under the
Company’s credit facilities approximates fair value since the interest
rates charged under these credit facilities are tied directly to market
rates and fluctuate as market rates change.
Interest Rate Swaps – Interest rate swaps are recorded in the financial
statements at fair value. Changes in fair value are recorded in the
statement of operations in Other Income. At 31 March 2010, the
Company had interest rate swap contracts with a total principal of
US$200.0 million. For all of these interest rate swap contracts, the
Company has agreed to pay fixed interest rates while receiving a
floating interest rate. The purpose of holding these interest rate swap
contracts is to protect against upward movements in US$ LIBOR and
the associated interest the Company pays on its external credit facilities.
At 31 March 2010 the weighted average fixed interest rate of these
contracts is 2.40% and the weighted average remaining life is
3.6 years. These contracts have a fair value of US$2.4 million, which is
included in Accounts Payable. For the year ended 31 March 2010, The
Company included in Other Income an unrealised loss on interest rate
swaps of US$0.4 million. Included in Interest Expense is a realised loss
on settlements of interest rate swap contracts of US$2.5 million for the
year ended 31 March 2010.
The following table sets forth by level within the fair value hierarchy, the
Company’s financial assets and liabilities that were accounted for at fair
value on a recurring basis at 31 March 2010 according to the valuation
techniques the Company used to determine their fair values.
(Millions of US Dollars)
Assets
Cash and cash equivalents
Restricted cash and cash equivalents
Restricted short-term investments
Total Assets
Liabilities
Interest rate swap contracts
Total Liabilities
Fair Value at
31 March 2010
$
$
19.2
49.8
13.3
82.3
2.4
2.4
$
Level 1
19.2
49.8
13.3
82.3
–
–
$
$
$
Fair Value Measurements
Using Inputs Considered as
Level 2
$
$
–
–
–
–
2.4
$ 2.4
Level 3
$
$
$
–
–
–
–
–
–
FINANCIAL STATEMENTS
103 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
13. CommiTmEnT and ConTingEnCiES
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, the ASIC proceedings and income taxes as described in
these financial statements, individually or in the aggregate, have a
material adverse effect on its consolidated financial position, results
of operations or cash flows.
ASIC Proceedings
In February 2007, the Australian Securities and Investments
Commission (“ASIC”) commenced civil proceedings in the Supreme
Court of New South Wales (the “Court”) against the Company, ABN
60 and ten then-present or former officers and directors of the James
Hardie Group. While the subject matter of the allegations varies between
individual defendants, the allegations against the Company are confined
to alleged contraventions of provisions of the Australian Corporations
Act/Law relating to continuous disclosure, a director’s duty of care and
diligence, and engaging in misleading or deceptive conduct in respect
of a security.
The Company defended each of the allegations made by ASIC and the
orders sought against it in the proceedings, as did the other former
directors and officers of the Company.
The proceedings commenced on 29 September 2008 before his Honour
Justice Gzell. On 23 April 2009, Justice Gzell issued judgment against
the Company and the ten former officers and directors of the Company.
All defendants other than two lodged appeals against Justice Gzell’s
judgments, and ASIC responded by lodging cross appeals against the
appellants. The appeals lodged by the former directors and officers were
heard in April 2010 and the appeal lodged by the Company was heard
in May 2010. A final judgment has not been rendered.
Depending upon the outcome of the appeals and cross-appeals, further
or different findings may be made as to the liability of each defendant-
appellant, any banning orders, fines payable, and as to the costs of
the appeal and the first instance proceedings that the Company may
become liable for either in respect of its own appeal or the appeals
of other defendants-appellants under indemnities. As with the first
instance proceedings, the Company has agreed to pay a portion of
the costs of bringing and defending appeals, with the remaining costs
being met by third parties. The Company notes that other recoveries
may be available, including as a result of successful appeals or
repayments by former directors and officers in accordance with the
terms of their indemnities.
It is the Company’s policy to expense legal costs as incurred. Losses
and expenses arising from the ASIC proceedings could have a material
adverse effect on the Company’s financial position, liquidity, results of
operations and cash flows.
As a result of the above uncertainties, it is not presently possible for
the Company to estimate the amount or range of amounts, including
costs that it might become liable to pay as a consequence of the appeal
proceedings. Accordingly, as of 31 March 2010, the Company has not
recorded any related loss reserves.
Chile Litigation
On 24 April 2009, a trial court in Santiago, Chile awarded the then
equivalent of US$13.4 million in damages against the former James
Hardie Chilean entity now known as Compañía Industrial El Volcán S.A.
(“El Volcan”) in civil litigation brought by Industria Cementa Limitada
(“Cementa”) in 2007.
Cementa, a fibre cement manufacturer in Chile, commenced anti-trust
proceedings in 2003 against the former James Hardie Chilean entity
alleging that it had engaged in predatory pricing, by selling products
below cost when it entered the Chilean market, in breach of the relevant
anti-trust laws in Chile. Quimel also joined the proceedings.
As these actions existed prior to James Hardie’s sale of its Chilean
business in July 2005, the Company had agreed to indemnify the buyer,
El Volcan, subject to certain conditions and limitations, for damages or
penalties awarded against FC Volcan in relation to such proceedings.
After the anti-trust proceedings concluded in 2006, Cementa, in 2007,
brought a separate civil action against FC Volcan claiming that Cementa
had suffered damages, allegedly as a result of predatory pricing.
Electrónica Quimel S.A. (“Quimel”) also filed a separate civil action
against FC Volcan in 2007 claiming that it had suffered damages,
allegedly as a result of predatory pricing. On 23 June 2009, the Chilean
trial court dismissed the claim filed by Quimel against FC Volcan.
On 30 December 2009, the Company entered into a settlement agreement
with El Volcan resolving all outstanding issues between the parties
relating to the sale of the former James Hardie Chilean entity to El Volcan
in July 2005. Under the settlement agreement, James Hardie will have
no further obligation to defend or indemnify El Volcan in the antitrust
proceedings commenced by Cementa or Quimel. El Volcan will now be
responsible for its own defence of the antitrust proceedings, including
payment of any final judgments rendered on appeal. El Volcan will also be
required to defend and indemnify James Hardie against any future claims
by third parties related to the management or business of the former
James Hardie Chilean entity, including any future antitrust allegations.
The terms and conditions of the settlement remain confidential. All
amounts owed by the Company under the terms of the settlement
were paid in full on 31 December 2009. As a result, the amount of the
Company’s provision in excess of the settlement amount was reversed,
resulting in a gain of US$7.6 million included in the consolidated
statements of operations for the year ended 31 March 2010.
104 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Environmental and Legal
The operations of the Company, like those of other companies engaged
in similar businesses, are subject to a number of 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.
Operating Leases
As the lessee, the Company principally enters into property, building
and equipment leases. The following are future minimum lease
payments for non-cancellable operating leases having a remaining term
in excess of one year at 31 March 2010:
Years ending 31 March:
2011
2012
2013
2014
2015
Thereafter
Total
$
(Millions of US dollars)
17.4
16.4
15.1
14.1
13.9
37.5
$ 114.4
Rental expense amounted to US$13.2 million, US$14.5 million
and US$10.2 million for the years ended 31 March 2010, 2009 and
2008, respectively.
Capital Commitments
Commitments for the acquisition of plant and equipment and other
purchase obligations, primarily in the United States, contracted for but
not recognised as liabilities and generally payable within one year, were
US$0.7 million at 31 March 2010.
14. inComE TaxES
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)
benefit consists of the following components:
(Loss) income from operations
before income taxes:
Domestic1
Foreign
Total (loss) income before
income taxes
Income tax (expense) benefit:
Current:
Domestic1
Foreign
Current income tax
(expense) benefit
Deferred:
Domestic1
Foreign
Deferred income tax
benefit (expense)
Total income tax expense
Years Ended 31 March
2009
2010
2008
$ 12.8
(31.5)
$
24.6
131.2
$
80.1
(115.6)
$ (18.7) $ 155.8
$
(35.5)
$
0.6
(137.7)
$
(0.1) $
37.4
(7.1)
(102.1)
(137.1)
37.3
(109.2)
(0.9)
71.8
(0.1)
(56.7)
(0.2)
73.3
70.9
$ (66.2) $
(56.8)
(19.5)
73.1
(36.1)
$
1 Since JHI SE is a Dutch parent holding company, domestic represents
The Netherlands.
FINANCIAL STATEMENTS
105 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Income tax (expense) benefit 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) benefit is reconciled to the tax at the statutory rates as follows:
(Millions of US dollars)
Income tax benefit (expense) at statutory tax rates
US state income taxes, net of the federal benefit
Asbestos – effect of foreign exchange
Benefit from Dutch financial risk reserve regime
Expenses not deductible
Non-assessable items
Losses not available for carryforward
Change in reserves
Taxes on foreign income
State amended returns and audit
Other permanent items
Total income tax (expense) benefit
Effective tax rate
Deferred tax balances consist of the following components:
(Millions of US dollars)
Deferred tax assets:
Asbestos liability
Other provisions and accruals
Net operating loss carryforwards
Capital loss carryforwards
Taxes on intellectual property transfer
Prepayments
Foreign currency movements
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant and equipment
Accrued interest income
Foreign currency movements
Total deferred tax liabilities
Net deferred tax assets
2010
$8.3
(3.7)
(66.4)
3.2
(3.7)
2.0
(0.6)
(2.2)
(1.6)
(2.2)
0.7
(66.2)
354.0%
$
Years Ended 31 March
2009
$(47.0)
(2.9)
51.2
1.8
(7.8)
1.6
(4.1)
(13.4)
(2.7)
3.0
0.8
(19.5)
12.5%
$
$
2008
$7.8
(1.9)
(27.5)
7.3
(3.2)
2.7
(1.4)
(18.5)
(2.1)
–
0.7
(36.1)
101.7%
2009
345.5
28.5
10.8
22.8
3.6
4.2
6.6
2.1
424.1
(31.7)
392.4
(105.7)
(7.5)
–
(113.2)
279.2
$
31 March
$
2010
$ 436.6
37.4
9.9
30.4
–
2.8
–
0.2
517.3
(39.2)
478.1
(115.7)
(12.0)
(0.3)
(128.0)
$ 350.1
106 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
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 realised. The Company has established a valuation
allowance pertaining to all of its Australian and European capital loss
carry-forwards. The valuation allowance increased by US$7.5 million
during fiscal year 2010 due to foreign currency movements.
At 31 March 2010, the Company had Australian tax loss carry-forwards
of approximately US$3.0 million that will never expire.
At 31 March 2010, the Company had US$101.3 million in Australian
capital loss carry-forwards which will never expire. At 31 March 2010,
the Company had a 100% valuation allowance against the Australian
capital loss carry-forwards.
At 31 March 2010, the Company had European tax loss carry-forwards
of approximately US$32.8 million that are available to offset future
taxable income, of which US$22.3 million will never expire. Carry-
forwards of US$10.5 million will expire in fiscal 2019. At 31 March
2010, the Company had a 100% valuation allowance against the
European tax loss carry-forwards.
In determining the need for and the amount of a valuation allowance
in respect of the Company’s asbestos related deferred tax asset,
management reviewed the relevant empirical evidence, including the
current and past core earnings of the Australian business and forecast
earnings of the Australian business considering current trends.
Although realisation of the deferred tax asset will occur over the life
of the Amended FFA, which extends beyond the forecast period for
the Australian business, Australia provides an unlimited carry-forward
period for tax losses. Based upon managements’ review, the Company
believes that it is more likely than not that the Company will realise
its asbestos related deferred tax asset and that no valuation allowance
is necessary as of 31 March 2010. In the future, based on review of
the empirical evidence by management at that time, if management
determines that realisation of its asbestos related deferred tax asset is
not more likely than not, the Company may need to provide a valuation
allowance to reduce the carrying value of the asbestos related deferred
tax asset to its realisable value.
At 31 March 2010, the undistributed earnings of non-Dutch
subsidiaries approximated US$790.4 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.
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 recognises a tax benefit during the
period in which the Company determines that the liability is no longer
necessary. The Company records additional tax expense in the period
in which it determines that the recorded tax liability is less than the
ultimate assessment it expects.
In fiscal years 2010, 2009 and 2008, the Company recorded an income
tax expense of US$2.2 million, an income tax benefit of US$3.0 million
and nil, respectively, as a result of the finalisation of certain tax audits
(whereby certain matters were settled), the expiration of the statute of
limitations related to certain tax positions and adjustments to income
tax balances based on the filing of amended income tax returns, which
give rise to the benefit recorded by the Company.
The Company or its subsidiaries files income tax returns in various
jurisdictions including the United States, The Netherlands, Australia and
the Republic of Ireland. The Company is no longer subject to US federal
examinations by US Internal Revenue Service (“IRS”) for tax years prior
to tax year 2007. The Company is no longer subject to examinations by
The Netherlands tax authority, for tax years prior to tax year 2005. The
Company is no longer subject to Australian federal examinations by the
Australian Taxation Office (“ATO”) for tax years prior to tax year 2007.
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 1 February 2006. The
amended treaty provides, among other things, 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 organisational and operational structure
to satisfy the requirements of the amended treaty and believes that it
is 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 requirements, the Company may not qualify for treaty benefits
and 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 for calendar year 2008 and subsequent periods.
The Company believes that it is more likely than not that it is in
compliance and should continue qualifying for treaty benefits.
Therefore, the Company believes that the requirements for recording a
liability have not been met and therefore it has not recorded any liability
at 31 March 2010 for the treaty benefits.
ATO – 1999 Disputed Amended Assessment
In March 2006, RCI Pty Ltd (“RCI”), a wholly-owned subsidiary of the
Company, received an amended assessment from the ATO with respect
to RCI’s income tax return for the year ended 31 March 1999. The
amended assessment related to the amount of net capital gains arising
as a result of an internal corporate restructure carried out in 1998 and
was issued pursuant to the discretion granted to the Commissioner of
Taxation under Part IVA of the Income Tax Assessment Act 1936. The
amended assessment issued to RCI was for a total of A$412.0 million.
However, after subsequent remissions of general interest charges
(“GIC”) by the ATO the total was changed to A$368.0 million,
comprising primary tax after allowable credits, penalties, and GIC.
FINANCIAL STATEMENTS
107 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
During fiscal year 2007, RCI agreed with the ATO that in accordance
with the ATO Receivable Policy, RCI would pay 50% of the total
amended assessment being A$184.0 million (US$152.5 million), and
provide a guarantee from James Hardie Industries SE (formerly James
Hardie Industries N.V.) in favour of the ATO for the remaining unpaid
50% of the amended assessment, pending outcome of the appeal
of the amended assessment. RCI also agreed to pay GIC accruing
on the unpaid balance of the amended assessment in arrears on a
quarterly basis.
On 30 May 2007, the ATO issued a Notice of Decision disallowing
RCI’s objection to the amended assessment (“Objection Decision”).
On 11 July 2007, RCI filed an application appealing the Objection
Decision and the matter was heard before the Federal Court of Australia
in September 2009. Judgment was reserved and a decision is awaited.
The Company believes that it is more-likely-than-not that the tax
position reported in RCI’s tax return for the 1999 fiscal year will be
upheld on appeal. Therefore, the Company has not recorded any
liability at 31 March 2010 for the amended assessment.
The Company expects that amounts paid in respect of the amended
assessment will be recovered by RCI (with interest) at the time RCI is
successful in its appeal against the amended assessment. As a result, the
Company has treated all payments in respect of the amended assessment
that have been made up through 31 March 2010 and related accrued
interest receivable as a deposit, and it is the Company’s intention to
treat any payments to be made at a later date as a deposit. At 31 March
2010 and 2009, this deposit totalled US$247.2 (A$269.9 million) and
US$173.5 million (A$252.5 million), respectively.
Included in other non-current liabilities are taxes payable on
accrued interest of US$43.0 and US$27.3 at 31 March 2010 and
2009, respectively.
ATO Settlement
As announced on 12 December 2008, the Company and the ATO
reached an agreement that finalised tax audits being conducted by
the ATO on the Company’s Australian income tax returns for the years
ended 31 March 2002 and 31 March 2004 through 31 March 2006
and settled all outstanding issues arising from these tax audits. With
the exception of the assessment in respect of RCI for the 1999 financial
year, the settlement concluded ATO audit activities for all years prior to
the year ended 31 March 2007.
The agreed settlement, made without concessions or admissions of
liability by either the Company or the ATO, required the Company
to pay an amount of US$101.6 million (A$153.0 million) in
December 2008.
Dutch Exit Tax
In connection with implementing Stage 1 of the Company’s proposal to
re-domicile its corporate seat from The Netherlands to the Republic of
Ireland, the Company incurred a tax liability that arose from: (i) a capital
gain on the transfer of its intellectual property from The Netherlands
to a newly-formed James Hardie entity located in Bermuda and tax
resident in the Republic of Ireland and (ii) the exit from the Dutch
Financial Risk Reserve regime.
The Dutch Tax Authority (the “DTA”) reviewed the Company’s assessed
fair value of the intellectual property as performed by a third party
valuation firm. Based on the DTA’s review, the Company incurred a
capital gain and Dutch exit tax liability of US$40.8 million. The charge
has been deferred and included in non-current Other Assets on the
Company’s consolidated balance sheet as of 31 March 2010 and will be
amortised on a straight-line basis over the remaining useful life of the
intellectual property.
Unrecognised Tax Benefits
A reconciliation of the beginning and ending amount of unrecognised
tax benefits and interest and penalties are as follows:
Unrecognised
tax benefits
$ 39.0
1.3
16.0
5.6
$ 61.9
1.7
(US$ millions)
Balance at 1 April 2007
Additions for tax positions of the current year
Additions for tax positions of prior year
Foreign currency translation adjustment
Balance at 31 March 2008
Additions for tax positions of the current year
Additions (deletions) for tax positions
37.3
of prior year
(72.0)
Settlements paid during the current period
(16.6)
Foreign currency translation adjustment
$ 12.3
Balance at 31 March 2009
Additions for tax positions of the current year
1.2
Additions (deletions) for tax positions of prior year 4.4
Other reductions for the tax positions
of prior periods
Foreign currency translation adjustment
Balance at 31 March 2010
(10.2)
–
7.7
$
Interest and
Penalties
$ 39.7
–
1.8
5.5
$ 47.0
–
(14.3)
(39.6)
(9.1)
$ (16.0)
–
(4.1)
(0.6)
(6.2)
$ (26.9)
As of 31 March 2010, the total amount of unrecognised tax benefits and
the total amount of interest and penalties accrued related to unrecognised
tax benefits that, if recognised, would affect the effective tax rate is
US$7.7 million and an expense of US$26.9 million, respectively.
108 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
The Company recognises penalties and interest accrued related to
unrecognised tax benefits in income tax expense. During the year ended
31 March 2010 and 2009, the total amount of interest and penalties
recognised in tax expense as a benefit was US$4.7 million and
US$14.3 million, respectively.
The liabilities associated with uncertain tax benefits are included in other
non-current liabilities on the Company’s consolidated balance sheet.
A number of years may lapse before an uncertain tax position is
audited and ultimately settled. It is difficult to predict the ultimate
outcome or the timing of resolution for uncertain tax positions. It is
reasonably possible that the amount of unrecognised tax benefits
could significantly increase or decrease within the next twelve months.
These changes could result from the settlement of ongoing litigation,
the completion of ongoing examinations, the expiration of the statute
of limitations, or other circumstances. At this time, an estimate of the
range of the reasonably possible change cannot be made.
On 1 April 2007, the Company adopted a new accounting standard
for uncertainty in income taxes. This standard clarified the accounting
for uncertainty in income taxes recognised in an enterprise’s financial
statements. The adoption of this standard resulted in the reduction of the
Company’s consolidated beginning retained earnings of US$78.0 million.
As of the adoption date, the Company had US$39.0 million of gross
unrecognised tax benefits that, if recognised, would affect the effective tax
rate. As of the adoption date, the Company’s opening accrual for interest
and penalties was US$39.7 million.
15. SToCk-baSEd CompEnSaTion
At 31 March 2010, the Company had the following equity award
plans: the Executive Share Purchase Plan; the JHI SE 2001 Equity
Incentive Plan; the 2005 Managing Board Transition Stock Option
Plan; the Long-Term Incentive Plan 2006 as amended in 2009 and
the Supervisory Board Share Plan 2006.
Compensation expense arising from equity-based award grants as
estimated using pricing models was US$7.7 million, US$7.2 million,
US$7.7 million for the years ended 31 March 2010, 2009 and 2008,
respectively. As of 31 March 2010, the unrecorded deferred stock-based
compensation balance related to equity awards was US$8.9 million after
estimated forfeitures and will be recognised over an estimated weighted
average amortisation period of 2.4 years.
JHI SE 2001 Equity Incentive Plan
Under the JHI SE 2001 Equity Incentive Plan (the “2001 Equity
Incentive Plan”), the Company can grant equity 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 such as restricted stock units. The 2001
Equity Incentive Plan was approved by the Company’s shareholders and
the Joint Board subject to implementation of the consummation of the
2001 Reorganisation. The Company is authorised to issue 45,077,100
shares under the 2001 Equity Incentive Plan.
On 19 October 2001 (the grant date), JHI NV granted 5,468,829
options to purchase shares of the Company’s common stock under 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. As of 31 March 2010, 115,140 options were outstanding
and exercisable with an exercise price of A$3.78. The options will
expire in November 2010.
Under the 2001 Equity Incentive Plan, additional grants have been made
at fair market value to management and other employees of the Company.
Each option confers the right to subscribe for one ordinary share in the
capital of JHI SE. 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.
The following table summarises the additional stock option grants:
Share Grant Date
December 2001
December 2002
December 2003
December 2004
February 2005
December 2005
March 2006
November 2006
March 2007
March 2007
December 2007
Original Exercise Price
5.65
6.66
7.05
5.99
6.30
8.90
9.50
8.40
8.90
8.35
6.38
Number of Options Granted
4,248,417
4,037,000
6,179,583
5,391,100
273,000
5,224,100
40,200
3,499,490
179,500
151,400
5,031,310
Option Expiration Date
December 2011
December 2012
December 2013
December 2014
February 2015
December 2015
March 2016
November 2016
March 2017
March 2017
December 2017
FINANCIAL STATEMENTS
109 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
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 prices 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.
Under the 2001 Equity Incentive Plan, the Company granted 278,569
and 1,690,711 restricted shares of common stock to its employees in
the years ended 31 March 2010 and 2009, respectively. These restricted
shares may not be sold, transferred, assigned, pledged or otherwise
encumbered so long as such shares remain restricted. The Company
determines the conditions or restrictions of any restricted stock
awards, which may include requirements of continued employment,
individual performance or the Company’s financial performance or other
criteria. At 31 March 2010, there were 1,416,339 restricted stock units
outstanding under this plan.
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 shares that may be issued and outstanding or subject
to outstanding options under this plan without further shareholder
approval is 1,320,000 shares. There were 1,090,000 and 1,320,000
options outstanding at 31 March 2010 and 2009, respectively, under
this plan.
On 22 November 2005, 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 to the Managing Board directors under
the Managing Board Transitional Stock Option Plan. 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, rights issues and capital reconstructions.
50% of these options become exercisable on the first business day
on or after 22 November 2008 if the total shareholder returns (“TSR”)
(essentially its dividend yield and common stock performance) from
22 November 2005 to that date were 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 22 November 2008 and 22 November
2010, the Company will reapply the vesting criteria to those options on
that business day.
Long-Term Incentive Plan
At the 2006 Annual General Meeting, the Company’s shareholders
approved the establishment of a Long-Term Incentive Plan (“LTIP”) to
provide incentives to members of the Company’s Managing Board and
to certain members of its management (“Executives”). The shareholders
also approved, in accordance with certain LTIP rules, the issue of
options in the Company to members of the Company’s Managing Board
and to Executives. At the Company’s 2008 Annual General Meeting, the
shareholders amended the LTIP to also allow restricted stock units to be
granted under the LTIP.
In November 2006 and August 2007, 1,132,000 and 1,016,000 options
were granted to the members of the Managing Board, respectively,
under the LTIP. The vesting of these equity awards are subject to
‘performance hurdles’ as outlined in the LTIP rules. Unexercised options
expire 10 years from the date of issue.
In September 2008, December 2008, May 2009, September 2009
and December 2009, 1,023,865, 545,757, 1,066,595, 522,000 and
181,656 restricted stock units, respectively, were granted under the
LTIP to members of the Company’s Managing Board and to senior
members of management. These restricted shares may not be sold,
transferred, assigned, pledged or otherwise encumbered so long as
such shares remain restricted. The Company determines the conditions
or restrictions of any restricted stock awards, which may include
requirements of continued employment, individual performance or the
Company’s financial performance or other criteria. Restricted stock units
expire on exercise, vesting or as set out in the LTIP rules.
At 31 March 2010, there were 1,937,000 options and 3,320,382
restricted stock units outstanding under this plan.
Supervisory Board Share Plan 2006
At the 2006 Annual General Meeting, the Company’s shareholders
approved the replacement of its Supervisory Board Share Plan with a
new plan called the Supervisory Board Share Plan 2006 (“SBSP 2006”).
Participation by members of the Supervisory Board in the SBSP 2006
is not mandatory. The SBSP 2006 allows the Company to issue new
shares or acquire shares on the market on behalf of the participant. The
total remuneration of a Supervisory Board member will take into account
any participation in the SBSP 2006 and shares under the SBSP 2006.
At 31 March 2010, 98,106 shares had been acquired under this plan.
110 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Stock Options
The following table summarises all of the Company’s stock options available for grant and the movement in all of the Company’s outstanding
options during the noted period:
Balance at 31 March 2008
Newly Authorised
Exercised
Forfeited
Forfeitures available for re-grant
Balance at 31 March 2009
Exercised
Forfeited
Forfeitures available for re-grant
Balance at 31 March 2010
Outstanding Options
Number
22,190,237
Weighted Average
Exercise Price
7.29
Shares Available for Grant
15,564,294
4,291,230
(25,000)
(3,892,309)
18,272,928
(2,058,275)
(1,770,215)
14,444,438
3,892,309
23,747,833
1,540,215
25,288,048
5.99
7.34
7.28
5.51
7.97
7.44
The Company’s stock based-compensation expense is the estimated fair value of options granted over the periods in which the stock options vest.
The Company estimates the fair value of each option grant on the date of grant using either the Black-Scholes option-pricing model or a binomial
lattice model that incorporates a Monte Carlo Simulation (the “Monte Carlo method”).
There were no stock options granted during the years 31 March 2010 and 2009. For the year ended 31 March 2008, the Company granted
5,031,310 stock options under the 2001 Equity Incentive Plan. For the year ended 31 March 2008, the Company granted 1,016,000 stock options
under the LTIP.
The following table includes the weighted average assumptions and weighted average fair values used for stock option grants valued using
the Black-Scholes option-pricing model during the year ended 31 March 2008:
Dividend yield
Expected volatility
Risk free interest rate
Expected life in years
Weighted average fair value at grant date (A$)
Number of stock options
5.0%
30.0%
3.4%
4.4
1.13
5,031,310
The following table includes the weighted average assumptions and weighted average fair values used for stock option grants valued using
a binomial lattice model that incorporates the Monte Carlo method during the year ended 31 March 2008:
Dividend yield
Expected volatility
Risk free interest rate
Weighted average fair value at grant date (A$)
Number of stock options
5.0%
32.1%
4.2%
3.14
1,016,000
The total intrinsic value of stock options exercised was A$4.7 million, nil and A$1.2 million for the years ended 31 March 2010, 2009
and 2008, respectively.
The weighted average grant-date fair value of stock options granted was A$1.47 per share during the year ended 31 March 2008.
Windfall tax benefits realised in the United States from stock options exercised and included in cash flows from financing activities in the
consolidated statements of cash flows were US$0.9 million, nil and nil for the years ended 31 March 2010, 2009 and 2008, respectively.
FINANCIAL STATEMENTS
111 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
The following table summarises outstanding and exercisable options as of 31 March 2010:
(In Australian dollars)
Exercise
Price
3.09
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.35
8.40
8.53
8.90
9.50
Total
Number
115,140
254,309
1,523,250
93,000
2,638,729
796,500
1,758,250
1,016,000
151,400
2,646,560
1,090,000
2,321,100
40,200
14,444,438
Options Outstanding
Weighted
Average
Remaining
Life (in Years)
0.6
1.7
4.7
4.9
7.7
2.7
3.7
7.4
7.0
6.6
5.7
5.7
5.9
6.6
Weighted
Average
Exercise
Price
A$ 3.09
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.35
8.40
8.53
8.90
9.50
A$ 7.44
A$
Aggregate
Intrinsic
Value
480,134
559,480
1,934,528
89,280
2,322,082
645,165
369,233
–
–
–
–
–
–
A$ 6,399,902
Options Exercisable
Weighted
Average
Exercise
Price
A$ 3.09 A$
5.06
5.99
6.30
6.38
6.45
7.05
0.00
8.35
8.40
0.00
8.90
9.50
Aggregate
Intrinsic
Value
480,134
559,836
1,934,528
89,280
971,047
645,165
369,233
–
–
–
–
–
–
A$ 6.83 A$ 5,049,223
Number
115,140
254,309
1,523,250
93,000
1,103,462
796,500
1,758,250
–
151,400
2,470,160
–
2,321,100
40,200
10,626,771
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value based on stock options with an exercise price less
than the Company’s closing stock price of A$7.26 as of 31 March 2010, which would have been received by the option holders had those option
holders exercised their options as of that date.
Restricted Stock
The Company estimates the value of restricted stock issued and recognises this estimated value as compensation expense over the periods in which
the restricted stock vests.
The following table summarises all of the Company’s restricted stock activity during the noted period:
Weighted Average
(In Australian dollars)
Non-vested at 31 March 2008
Granted
Vested
Forfeited
Non-vested at 31 March 2009
Granted
Vested
Forfeited
Non-vested at 31 March 2010
Shares
–
3,260,333
(24,052)
(245,220)
2,991,061
2,048,820
(208,884)
(94,276)
4,736,721
Grant Date Fair Value
–
A$
3.98
3.85
4.40
3.95
5.38
3.85
4.32
4.57
A$
A$
Restricted Stock – service vesting
The Company granted restricted stock units with a service vesting condition to employees as follows:
Grant Date
17 June 2008
15 September 2008
17 December 2008
29 May 2009
7 December 2009
Equity Award Plan
2001 Equity Incentive Plan
Long-Term Incentive Plan
2001 Equity Incentive Plan
Long-Term Incentive Plan
2001 Equity Incentive Plan
Restricted Stock Units Granted
698,440
201,324
992,271
1,066,595
278,569
3,237,199
The fair value of each restricted stock unit (service vesting) is equal to the market value of the Company’s common stock on the date of grant,
adjusted for the fair value of dividends as the restricted stock holder is not entitled to dividends over the vesting period.
112 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
The following table includes the assumptions used for restricted stock grants (service vesting) valued during the years ended 31 March 2010 and 2009:
Dividend yield (per annum)1
Risk free interest rate1
Expected life in years
JHX stock price at grant date (A$)
Number of restricted stock units
2010
$
07 Dec 2009
0.00
n/a
3.0
8.30
278,569
$
29 May 2009
0.00
n/a
2.0
4.31
1,066,595
17 Dec 2008
0.10
$
1.3%
3.0
3.85
992,271
2009
15 Sep 2008
0.20
$
1.8%
2.0
4.98
201,324
17 Jun 2008
0.20
$
2.9%
2.0
4.93
698,440
1 The risk free rate for the grants in fiscal year 2010 are not applicable as the assumed dividend yield is nil.
Restricted Stock – market condition
Under the terms of the LTIP, the Company granted 703,656 and 1,368,298 restricted stock units (market condition) to members of the Company’s
Managing Board and senior managers during the years ended 31 March 2010 and 2009, respectively. The vesting of these restricted stock units
is subject to a market condition as outlined in the LITP rules.
The fair value of each of these restricted stock units (market condition) granted under the LTIP is estimated using a binomial lattice model that
incorporates a Monte Carlo Simulation (the “Monte Carlo method”).
The following table includes the assumptions used for restricted stock grants (market condition) valued during the years ended 31 March:
Expected volatility
Risk free interest rate
Expected life in years
JHX stock price at grant date (A$)
Number of restricted stock units
2010
2009
11 Dec 2009
49.9%
2.1%
3.0
8.20
181,656
15 Sep 2009
42.1%
2.5%
3.0
7.04
522,000
17 Dec 2008
37.6%
1.3%
3.0
3.85
545,757
15 Sep 2008
34.9%
2.6%
3.0
4.98
822,541
Scorecard LTI – Cash Settled Units
Under the terms of the LTIP, the Company granted awards equivalent to 1,089,265 and nil Scorecard LTI units during the years ended 31 March
2010 and 2009, respectively, that provide recipients a cash incentive based on JHI SE’s common stock price on the vesting date. The vesting of
awards is measured on individual performance conditions based on certain performance measures. Compensation expense recognised for awards
are based on the fair market value of JHI SE’s common stock on the date of grant and recorded as a liability. The liability is adjusted for subsequent
changes in JHI SE’s common stock price at each balance sheet date.
Cash Settled Units
The Company granted 35,741 and nil cash settled units (service vesting) to employees during the years ended 31 March 2010 and 2009,
respectively, under the 2001 Equity Incentive Plan. Compensation expense recognised for awards are based on the fair market value of JHI SE’s
common stock on the date of grant and recorded as a liability. The liability is adjusted for subsequent changes in JHI SE’s common stock price
at each balance sheet date.
The total compensation cost related to liability classified awards for the years ended 31 March 2010 and 2009 was US$1.6 million and nil, respectively.
FINANCIAL STATEMENTS
113 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
16. SharE rEpurChaSE program
On 15 August 2007, the Company announced a share repurchase
program of up to 10% of the Company’s issued capital, approximately
46.8 million shares. The Company repurchased nil, nil and 35.7 million
shares of common stock during the years ended 31 March 2010,
2009 and 2008, respectively. The shares repurchased during the
year ended 31 March 2008 had an aggregate cost of A$236.4 million
(US$208.0 million) and the average price paid per share of common
stock was A$6.62 (US$5.83). The US dollar amounts were determined
using the weighted average spot rates for the days on which shares
were purchased. The Company officially cancelled 35.0 million shares
on 31 March 2008. On 27 March 2009, the Company cancelled the
remaining 0.7 million shares held in treasury. The Company ceased
the share repurchase program on 20 August 2008.
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 Managing Board of Directors. USA and Europe Fibre
Cement manufactures fibre cement interior linings, exterior siding
and related accessories products in the United States; these products
are sold in the United States, Canada and Europe. Asia Pacific Fibre
Cement includes all fibre cement manufactured in Australia, New
Zealand and the Philippines and sold in Australia, New Zealand, Asia,
the Middle East, and various Pacific Islands. Research and Development
represents the cost incurred by the research and development centres.
The Company’s operating segments are strategic operating units
that are managed separately due to their different products and/or
geographical location. On 1 April 2008, the Company realigned its
operating segments by combining the previously reported segments
of USA Fibre Cement and Other into one operating segment, USA and
Europe Fibre Cement. On 22 May 2008, the Company ceased operation
of its pipe business in the United States.
114 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
Operating Segments
The following are the Company’s operating segments and geographical information:
(Millions of US dollars)
USA & Europe Fibre Cement
Asia Pacific Fibre Cement
Worldwide total
(Millions of US dollars)
USA & Europe Fibre Cement2,3
Asia Pacific Fibre Cement2
Research and Development2
Segments total
General Corporate4
Total operating (loss) income
Net interest (expense) income5
Other income (expense)
Worldwide total
(Millions of US dollars)
USA & Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development
Segments total
General Corporate6,7
Worldwide total
Geographic Areas
(Millions of US dollars)
USA
Australia
New Zealand
Other Countries
Worldwide total
(Millions of US dollars)
USA
Australia
New Zealand
Other Countries
Segments total
General Corporate6,7
Worldwide total
Net Sales to Customers1
Years Ended 31 March
$
2010
828.1
296.5
$ 1,124.6
2009
929.3
273.3
1,202.6
$
$
2008
$ 1,170.5
298.3
$ 1,468.8
(Loss) Income Before Income Taxes
Years Ended 31 March
2010
208.5
58.7
(19.0)
248.2
(269.2)
(21.0)
(4.0)
6.3
(18.7)
$
$
$
$
2009
199.3
47.1
(18.9)
227.5
(53.9)
173.6
(3.0)
(14.8)
155.8
2008
235.2
50.3
(18.1)
267.4
(304.0)
(36.6)
1.1
–
(35.5)
$
$
Total Identifiable Assets
31 March
$
2010
780.8
216.9
14.2
1,011.9
1,166.9
$ 2,178.8
$
2009
765.6
167.9
12.2
945.7
946.0
$ 1,891.7
Net Sales to Customers1
Years Ended 31 March
$
2010
808.9
214.3
50.6
50.8
$ 1,124.6
2009
912.2
193.2
50.0
47.2
1,202.6
$
$
2008
$ 1,153.1
198.6
67.3
49.8
$ 1,468.8
Total Identifiable Assets
31 March
$
2010
783.6
131.6
49.8
46.9
1,011.9
1,166.9
$ 2,178.8
$
2009
767.4
99.8
27.1
51.4
945.7
946.0
$ 1,891.7
FINANCIAL STATEMENTS
115 | JAMES HARDIE | ANNUAL REPORT 2010
noTES To ConSolidaTEd
FinanCial STaTEmEnTS
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
1 Export sales and inter-segmental sales are not significant.
2 Research and development costs of US$10.4 million, US$8.0 million and US$7.7 million in fiscal years 2010, 2009 and 2008, respectively, were
expensed in the USA and Europe Fibre Cement segment. Research and development costs of US$1.0 million, US$1.2 million and US$1.6 million
in fiscal years 2010, 2009 and 2008, respectively, were expensed in the Asia Pacific Fibre Cement segment. Research and development costs of
US$15.7 million, US$14.4 million and US$18.0 million in fiscal years 2010, 2009 and 2008, respectively, were expensed in the Research and
Development segment. The Research and Development segment also included selling, general and administrative expenses of US$3.3 million,
US$4.5 million and US$0.1 million in fiscal years 2010, 2009 and 2008, respectively.
Research and development expenditures are expensed as incurred and in total amounted to US$27.1 million, US$23.8 million and US$27.3 million
for the years ended 31 March 2010, 2009 and 2008, respectively.
3 Included in USA and Europe Fibre Cement for the year ended 31 March 2008 are asset impairment charges of US$71.0 million.
4 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. Included in General Corporate for the year ended
31 March 2010 are unfavourable asbestos adjustments of US$224.2 million, AICF SG&A expenses of US$2.1 million and ASIC expenses of
US$3.4 million. Included in General Corporate for the year ended 31 March 2009 are favourable asbestos adjustments of US$17.4 million, AICF
SG&A expenses of US$0.7 million and ASIC expenses of US$14.0 million. Included in General Corporate for the year ended 31 March 2008 are
unfavourable asbestos adjustments of US$240.1 million, AICF SG&A expenses of US$4.0 million and ASIC expenses of US$5.5 million.
5 The Company does not report net interest expense for each operating segment as operating segments are not held directly accountable for interest
expense. Included in net interest (expense) income is AICF interest income of US$3.3 million, US$6.4 million and US$9.4 million in fiscal years
2010, 2009 and 2008, respectively. See Note 11.
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 income taxes. All deferred income taxes are included in General Corporate.
7 Asbestos-related assets at 31 March 2010 and 2009 are US$797.7 million and US$681.0 million, respectively, and are included in the General
Corporate segment.
Concentrations of Risk
The distribution channels for the Company’s fibre 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 in one or all of the past three fiscal years.
These three customers’ accounts receivable represented 37% and 35% of the Company’s trade accounts receivable at 31 March 2010 and 2009,
respectively. The following are gross sales generated by these three customers, which are all from the USA and Europe Fibre Cement segment:
(Millions of US dollars)
2010
Customer A
Customer B
Customer C
$ 224.4
144.5
93.2
$ 462.1
Years Ended 31 March
2009
2008
%
20.0
12.8
8.3
$ 277.1
149.6
46.8
$ 473.5
%
23.0
12.4
3.9
$ 431.3
167.3
108.2
$ 706.8
%
27.9
10.8
7.0
Approximately 28% of the Company’s fiscal year 2010 net sales 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.
116 | JAMES HARDIE | ANNUAL REPORT 2010
FINANCIAL STATEMENTS
18. aCCumulaTEd oThEr
ComprEhEnSivE inComE
Accumulated other comprehensive income consists of the
following components:
(Millions of US dollars)
Pension and post-retirement
benefit adjustments
Unrealised gain on restricted
short-term investments
Foreign currency translation adjustments
Total accumulated other
comprehensive income
31 March
2010
2009
$
(1.6)
$ (1.4)
1.2 –
59.6
3.6
$ 59.2
$ 2.2
19. rE-domiCilE
On 21 August 2009, JHI NV shareholders approved Stage 1 of a two-
stage plan to transform the Company into a Dutch Societas Europaea
(SE) (Stage 1) and, subsequently, change its corporate domicile from
the Netherlands to the Republic of Ireland (Stage 2). On 19 February
2010, the Company completed Stage 1 of the proposal and was
transformed from a Dutch “NV” company to a Dutch “SE” Company
and now operates under the name of James Hardie Industries Societas
Europaea (SE).
On 17 March 2010 (US time), the Company filed with the US Securities
and Exchange Commission (“SEC”) a Registration Statement on Form
F-4 including a draft Explanatory Memorandum outlining Stage 2 of the
Proposal which will transform the Company from a Dutch SE to an Irish
SE by moving the Company’s corporate domicile from The Netherlands
to the Republic of Ireland.
On 21 April 2010 (US time), following SEC review of the Registration
Statement and formal Board approval of the change in corporate
domicile, the final Explanatory Memorandum for Stage 2 was submitted
to the SEC and the ASX with a filing date of 22 April 2010.
For additional information on and implementation timing of Stage 2
of the Proposal, readers are referred to the Company’s Explanatory
Memorandum, which was filed with the SEC on 22 April 2010 (File
No. 333-165531).
FINANCIAL STATEMENTS
117 | JAMES HARDIE | ANNUAL REPORT 2010
Audit Committee Pre-Approval Policies and Procedures
In accordance with the company’s Audit Committee’s policy and the
requirements of the law, all services provided by the independent
registered public accounting firm 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
the company asks the 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. James Hardie obtains these services from other
service providers as needed.
rEmunEraTion
diSCloSurES
(unaudiTEd, noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
rEmunEraTion oF indEpEndEnT
rEgiSTErEd publiC aCCounTing Firm
In December 2007, James Hardie’s Audit Committee and Supervisory
Board undertook a competitive bid process to evaluate the alternatives
for the company’s independent registered public accounting firm in the
interest of good corporate governance. At the company’s 2008 AGM,
shareholders ratified a resolution of the Supervisory Board to approve
the engagement of Ernst & Young LLP as James Hardie’s independent
registered public accounting firm for the year commencing 1 April 2008.
Fees paid to the independent registered public accounting firm for
services provided for fiscal years 2010, 2009 and 2008 were as follows:
(Millions of US dollars)
Audit Fees1
Audit-Related Fees2
Tax Fees3
Fiscal Years Ended 31 March
2008
2009
$ 4.2
2.4
–
–
4.9
–
2010
$ 2.5 $
–
–
1 Audit Fees include the aggregate fees for professional services
rendered by the independent registered public accounting firm.
Professional services include the audit of annual financial statements
and services that are normally provided in connection with statutory
and regulatory filings. During fiscal year ended 31 March 2008, total
audit fees includes fees for Sarbanes-Oxley compliance testing of
US$2.0 million, US$0.8 million of which related to Sarbanes-Oxley
compliance testing performed for fiscal year 2007, but paid in fiscal
year 2008. In addition, during fiscal year ended 31 March 2008, total
audit fees includes fees for statutory reporting of US$0.8 million,
US$0.4 million of which related to statutory reporting fees performed
for fiscal year 2007, but paid in fiscal year 2008.
2 Audit-Related Fees include the aggregate fees billed for assurance
and related services rendered by the independent registered public
accounting firm. The independent registered public accounting firm
did not engage any temporary employees to conduct any portion
of the audit of the financial statements for the fiscal years ended
31 March 2010, 2009 and 2008.
3 Tax Fees include the aggregate fees billed for tax compliance, tax
advice and tax planning services rendered by the independent
registered public accounting firm.
118 | JAMES HARDIE | ANNUAL REPORT 2010
SElECTEd quarTErly
FinanCial daTa
(unaudiTEd, noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(Millions of US dollars)
Net sales
Cost of goods sold
Gross profit
Operating (loss) income
Interest expense
Interest income
Other income (expense)
(Loss) income from operations
before income taxes
Income tax (expense) benefit
Net (loss) income
Net income per share -
basic
Net income per share -
diluted
Year Ended 31 March 2010
By quarter
First
$ 284.5
(174.1)
110.4
(57.1)
(1.5)
0.8
4.8
Second
Fourth
Third
$ 304.2 $ 261.0 $ 274.9
(183.5)
(164.3)
91.4
96.7
11.8
25.1
(2.9)
(1.8)
0.8
1.0
0.3
2.2
(186.6)
117.6
(0.8)
(1.5)
1.1
(1.0)
Year Ended 31 March 2009
By Quarter
First
Second
$ 365.0 $ 341.9
(228.7)
113.2
192.2
(2.3)
2.6
–
(241.0)
124.0
22.9
(2.6)
1.5
–
Third
Fourth
$ 254.4 $ 241.3
(172.1)
69.2
(160.4)
(3.8)
2.7
(14.8)
(172.0)
82.4
118.9
(2.5)
1.4
–
(53.0)
(24.9)
10.0
(12.3)
$ (77.9) $ (19.6) $ 14.9 $ (2.3)
26.5
(11.6)
(2.2)
(17.4)
21.8
(20.4)
192.5
(39.0)
$ 1.4 $ 153.5
117.8
(6.8)
(176.3)
46.7
$ 111.0 $ (129.6)
$ (0.18) $ (0.05) $ 0.03
$ 0.01
$ – $ 0.36 $ 0.26 $ (0.30)
(0.18)
(0.05)
0.03
0.01
–
0.35
0.26
0.30
119 | JAMES HARDIE | ANNUAL REPORT 2010
group
STaTiSTiCS
(unaudiTEd, noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
(Millions of US dollars)
Profit and Loss Account
Net Sales
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Worldwide total
Operating Income
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development
Segments total
General Corporate
Asbestos adjustments
Total operating (loss) income
Net interest (expense) income
Other income (expense)
(Loss) income from operations before income taxes
(Loss) income tax (expense) benefit
(Loss) income from operations
Dividends paid
Balance Sheet
Net current assets
Total assets
Long-term debt1
Shareholders’ (deficit) equity
Other Statistics
Number of employees:
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development
Corporate
Total from continuing operations
Number of shareholders
Weighted average number of common shares outstanding:
Basic
Diluted
Capital expenditures
Depreciation and amortisation2
Dividends paid per share3
Basic (loss) earnings per share4
Diluted (loss) earnings per share5
Gearing ratio6
2010
2009
2008
2007
2006
$
$
$
$
$
$
$
$
$
$
$
$
828.1
296.5
$ 1,124.6
$ 208.5
58.7
(19.0)
248.2
(45.0)
(224.2)
(21.0)
(4.0)
6.3
(18.7)
(66.2)
(84.9)
–
$
$
$
$
50.4
2,178.8
154.0
(117.9)
1,647
725
105
34
2,511
12,411
433.1
433.1
50.5
61.7
–
(19.6¢)
(19.6¢)
10.9%
$
$
929.3
273.3
1,202.6
$ 1,170.5
298.3
1,468.8
$
$ 1,291.2
251.7
$ 1,542.9
$ 1,246.7
241.8
$ 1,488.5
199.3
47.1
(18.9)
227.5
(71.3)
17.4
173.6
(3.0)
(14.8)
155.8
(19.5)
136.3
34.6
$
$
$
235.2
50.3
(18.1)
267.4
(63.9)
(240.1)
(36.6)
1.1
–
(35.5)
(36.1)
(71.6)
126.2
$ 353.1 $
39.4
(17.1)
375.4
(56.5)
(405.5)
(86.6)
(6.5)
–
(93.1)
243.9
150.8 $
42.1 $
$
$
316.1
41.7
(15.7)
342.1
(61.4)
(715.6)
(434.9)
(0.2)
–
(435.1)
(71.6)
(506.7)
45.9
137.7
1,891.7
230.7
(108.7)
$
183.7
$ 2,179.9
174.5
$
(202.6)
$
259.0 $
$
150.8
$ 2,128.1 $ 1,445.4
121.7
$
94.9
$
105.0 $
258.7 $
1,368
784
106
48
2,306
12,786
432.3
434.5
26.1
56.4
8.0¢
31.5¢
31.4¢
24.0%
1,889
834
111
48
2,882
14,012
455.0
455.0
38.5
56.5
27.0¢
(15.7¢)
(15.7¢)
22.7%
$
$
1,958
835
101
50
2,944
14,776
464.6
466.4
92.1 $
50.7 $
$
$
9.0¢
32.5¢
32.3¢
12.8%
2,281
854
118
50
3,303
14,679
461.7
461.7
162.8
45.3
10.0¢
(110.0¢)
(110.0¢)
(1.6)%
Notes:
1 Includes current portion of long term debt. The US$ notes were repaid on 8 May 2006.
2 Information for depreciation and amortisation is for continuing operations only.
3 Dividends paid divided by the weighted average number of ordinary and employee shares on issue during the year.
4 Income (loss) from continuing operations divided by the weighted average number of ordinary and employee shares on issue during the year.
5 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 that would have been outstanding if the dilutive potential common shares, such as options, had been issued.
6 Borrowings less cash (net debt) divided by net debt plus total shareholders’ equity.
120 | JAMES HARDIE | ANNUAL REPORT 2010
SharE/CuFS inFormaTion
(noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
James Hardie Industries SE voting rights:
As of 15 June 2010 James Hardie Industries SE had on issue 434,916,592 CHESS Units of Foreign Securities (CUFS) issued over 434,916,592
ordinary shares held by CHESS Depositary Nominees Pty Ltd (CDN) on behalf of 12,411 CUFS holders. Each ordinary share carries the right to one
vote. CUFS holders can direct CDN how to vote the ordinary shares on a one vote per CUFS basis. Options carry no voting rights.
James Hardie Industries SE distribution schedule as at 15 June 2010:
Size of Holding Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Totals
CUFS
Options
Holders
5,216
5,423
1,028
666
78
12,411
Holdings
2,492,719
13,127,202
7,330,375
15,286,431
396,679,865
434,916,592
Holders
–
19
23
83
28
153
Holdings
–
43,791
182,685
3,151,923
11,012,575
14,390,974
Based on the closing price of A$7.04 on 15 June 2010, 334 CUFS holders held less than a marketable parcel.
James Hardie Industries SE substantial CUFS holders as at 15 June 2010:
Holdings shown below are as disclosed in substantial holding notices lodged with the ASX.
Shareholder
Schroder Investment Management Australia Limited
Commonwealth Bank of Australia
FMR LLC and FIL Limited
National Australia Bank Limited Group
UBS Nominees Pty Ltd and its related bodies corporate
Baillie Gifford & Co
Shares
Beneficially Owned
31,024,755
30,986,692
29,347,020
28,198,184
24,743,787
22,325,859
Percentage
of Shares
Outstanding
7.14%
7.13%
6.75%
6.49%
5.70%
5.14%
James Hardie Industries SE 20 largest registered CUFS holders and their holdings as at 15 June 2010:
Name
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited
Cogent Nominees Pty Limited
UBS Nominees Pty Ltd
J P Morgan Nominees Australia
Tasman Asset Management Ltd
AMP Life Limited
Madingley Nominees Pty Ltd
Queensland Investment Corporation
ARGO Investments Limited
UBS Nominees Pty Ltd
UBS Private Clients Australia Nominees Pty Ltd
Mr G G Cross
Millenium Pty Limited
Mirrabooka Investments Limited
Carlton Hotel Limited
Mount Margaret Pty Limited
Total:
Note
1
1
1
1
1
1
1
1
1
CUFS
Holdings
100,578,693
97,386,349
82,342,840
44,066,523
14,587,240
13,970,044
7,538,357
5,917,626
5,304,790
2,257,128
2,049,008
1,683,938
1,469,000
1,346,267
1,295,286
919,842
900,000
660,000
625,362
612,683
385,510,976
%
23.13
22.39
18.93
10.13
3.35
3.21
1.73
1.36
1.22
0.52
0.47
0.39
0.34
0.31
0.30
0.21
0.21
0.15
0.14
0.14
88.64
Position
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1 Entities which hold interests in the CUFS solely as a nominee or trustee for another person may have those interests disregarded for the purposes
of the takeover and substantial share/CUFS holder provisions contained in the Articles of Association of the company. Those nominees may hold
CUFS for holders which include the substantial shareholders named above.
121 | JAMES HARDIE | ANNUAL REPORT 2010
SharE/CuFS inFormaTion
(noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
CompoSiTion oF our SharEholdEr baSE
42.03%
0-1,000
43.69%
1,001-5,000
8.28%
5,001-10,000
5.37%
10,001 and over
0.63%
100,001 and over
66.15%
Australia
12.59%
North America
15.25%
UK and Europe
5.74%
Asia
0.27%
Other
Size of Holding Range
Distribution of issued capital by geography
Analysis based on Top100 extract of share register at 31 May 2010
James Hardie Industries SE share/CUFS buy-back
The company currently does not have a share buy-back program underway.
major announCEmEnTS
James Hardie informs the ASX and the SEC of matters that might have a material effect on the company’s share price. As soon as possible after
we receive acknowledgement from the ASX, we post announcements on our website. Following is a list of the major announcements made during
2010 fiscal year. Complete announcements are available on our website at www.jameshardie.com (select Investor Relations, then News).
Calendar 2009
15 April 2009
23 April 2009
24 April 2009
28 April 2009
20 May 2009
15 June 2009
23 June 2009
24 June 2009
26 June 2009
17 August 2009
James Hardie announced that the Appeals Division of the US IRS had signed a settlement agreement with the company’s
subsidiaries in which the IRS conceded the government’s position in full with regard to its assertion in the Notice of Proposed
Amendment, received by the company on 23 June 2008, that the company did not qualify for benefits under the United States-
Netherlands Tax Treaty for the calendar years 2006 and 2007.
James Hardie and the NSW Government were today advised by the AICF that its Board has determined that it is reasonably
foreseeable that, within two years, the available assets of the AICF are likely to be insufficient to fund the payment of all
reasonably foreseeable liabilities. The advice was contained in a notice issued by the AICF under the AFFA.
Justice Gzell issued his judgment yesterday in the civil proceedings commenced by ASIC in February 2007 in the Supreme Court
of NSW against the company, a former related entity James Hardie Industries Limited (JHIL) and ten former directors and officers.
James Hardie announced that on 24 April 2009 a trial court in Santiago, Chile awarded the equivalent of US$13.4 million
against Fibrocementos Volcan Limitada (the former James Hardie Chilean entity), in civil litigation brought by Industria
Cementa Limitada (“Cementa”) in 2007. FC Volcan is appealing the decision to the Santiago Court of Appeal.
Results for Q4 and full year FY09: James Hardie announced a US$7.2 million net operating profit, excluding asbestos,
ASIC expenses, asset impairments and tax adjustments, for the quarter ended 31 March 2009, a decrease of 57% compared to
the same period of the prior year. For the quarter, net operating loss including asbestos, ASIC expenses, asset impairments and
tax adjustments was US$129.6 million (mainly due to the change in the actuarial estimate of the company’s asbestos liability),
compared to US$146.9 million for the same quarter of the prior year.
Full year net operating profit excluding asbestos, ASIC expenses, asset impairments and tax adjustments, decreased 44%
to US$96.9 million from US$173.8 million. Including asbestos, ASIC expenses, asset impairments and tax adjustments,
net operating profit increased from a loss of US$71.6 million to a profit of US$136.3 million.
In response to media and market enquiries regarding the review of its domicile, James Hardie said that, while there had been
a narrowing of alternatives, the review was on-going and the company was not in a position at this stage to announce the
outcome of the review.
James Hardie announced that it would hold its 2009 AGM in The Netherlands on 21 August 2009. The AGM will be preceded
by an Annual Information Meeting in Sydney on 18 August 2009. The AGM will consider amendments to the remuneration
framework for the company’s Managing Board. The proposed remuneration framework will also apply to the members of the
company’s Senior Leadership Team.
James Hardie announced that its directors have determined to seek shareholder approval for a two-stage plan to transform
James Hardie into a Societas Europaea (SE), a relatively new form of European corporation (Stage1), and then move its
corporate domicile from The Netherlands to Ireland (Stage 2).
James Hardie announced that it has filed its annual report on form 20-F for fiscal year 2009 with the US SEC.
In advance of the 21 August 2009 EGM to consider Stage 1 of the Proposal to transform James Hardie into a SE, and then
move its corporate domicile from The Netherlands to Ireland, James Hardie provided an update on regulatory and other matters
relating to the Proposal.
122 | JAMES HARDIE | ANNUAL REPORT 2010
Calendar 2009 (continued)
18 August 2009
Results for Q1 FY10: James Hardie announced a US$41.6 million net operating profit, excluding asbestos, ASIC expenses and
tax adjustments, for the quarter ended 30 June 2009, an increase of 4% compared to the same period of the prior year. For the
first quarter, net operating loss including asbestos, ASIC expenses and tax adjustments was US$77.9 million, compared to a
profit of US$1.4 million for the same quarter of the prior year. Included in the current period result are unfavourable asbestos
adjustments of US$119.8 million, solely attributable to the movement in the A$/US$ exchange rate, from US$0.6872 at
31 March 2009 to US$0.8126 at 30 June 2009.
Justice Gzell delivered his judgment on exoneration, penalties and costs in the civil proceedings commenced by ASIC in
February 2007 in the Supreme Court of NSW against the company, JHIL and ten former directors and officers.
20 August 2009
3 September 2009 The Supervisory Board of James Hardie Industries appointed David Dilger to the company’s Supervisory and Joint Boards
effective 2 September 2009 (US time).
22 September 2009 James Hardie advised that it has received a statement of no objection from the Australian Federal Treasurer, Wayne Swan,
confirming his approval for the company to proceed with the corporate restructure connected with its proposal to transform
James Hardie into a Societas Europaea (SE) (Stage 1), and move its corporate domicile from The Netherlands to Ireland
(Stage 2). A copy of the Treasurer’s announcement was attached, along with the company’s letter to the Foreign Investment
Review Board (FIRB) dated 14 September 2009.
23 September 2009 James Hardie lodged an appeal against the declarations and orders made against it by Justice Gzell on 27 August 2009 in the
civil proceedings commenced by ASIC in February 2007 in the Supreme Court of NSW against the company, a former related
entity, JHIL, and ten former directors and officers.
In response to extensive media coverage about a potential shortfall in the asbestos compensation fund established in 2007,
James Hardie repeated its commitment to the agreement negotiated between it, the AICF and NSW Government.
26 October 2009
7 November 2009 James Hardie acknowledged the loan facility of up to A$320 million to be made available to the AICF and reconfirmed its
commitment to the AFFA.
23 November 2009 Results for Q2 FY10: James Hardie announced a US$37.6 million net operating profit, excluding asbestos, ASIC expenses
and tax adjustments, for the quarter ended 30 September 2009. This represents an increase of 4% compared to the
corresponding quarter of the prior year. The net operating result including asbestos, ASIC expenses and tax adjustments was
a loss of US$19.6 million, compared to a profit of US$153.5 million for the same quarter of the prior year.
Calendar 2010
11 February 2010 Results for Q3 FY10: James Hardie announced a US$29.8 million net operating profit, excluding asbestos, ASIC expenses and
20 February 2010
18 March 2010
tax adjustments, for the quarter ended 31 December 2009, an increase of 66% compared to the corresponding quarter of the
prior year. The net operating result including asbestos, ASIC expenses and tax adjustments was a profit of US$14.9 million,
compared to a profit of US$111.0 million for the corresponding quarter of the prior year.
James Hardie announced that it had finalised the first stage of its previously announced two-stage plan (the Proposal)
to transform James Hardie into a Societas Europaea company (SE) (Stage 1) and move its corporate domicile from The
Netherlands to Ireland (Stage 2).
James Hardie announced that it has filed with the US SEC and the ASX a Registration Statement on Form F-4 including
a draft Explanatory Memorandum outlining Stage 2 of its previously announced two-stage plan to transform to a Societas
Europaea company and move its corporate domicile from The Netherlands to Ireland.
Annual Meeting
The 2010 Annual General Meeting of CUFS holders of James Hardie
Industries SE will be held in Dublin, Ireland, at 8.00am on Thursday,
12 August 2010 and simultaneously broadcast to a meeting in Sydney,
Australia, at 5.00pm (Sydney time) on Thursday, 12 August 2010. Details
of the venues for both meetings are set out in the Notice of Meeting 2010.
Calendar 2011*
Feb
FY11 Quarter 3 and nine months results announcement and
management presentation
End of JHI SE Fiscal Year 2011
FY11 Quarter 4 and full year results announcement and
management presentation
31 Mar
May
Calendar 2010*
31 Mar
27 May
30 Jun
12 Aug
End of JHI SE Fiscal Year 2010
FY10 Quarter 4 and full year results announcement and
management presentation
2010 annual report released
FY11 Quarter 1 results announcement and management
presentation
*Future dates are indicative only and may change
10 Aug Direction Forms close 4.00pm Sydney time for Annual
12 Aug
15 Nov
General Meeting
Annual General Meeting, Dublin and Sydney
FY11 Quarter 2 and half year results announcement and
management presentation
123 | JAMES HARDIE | ANNUAL REPORT 2010
SharE/CuFS inFormaTion
(noT Forming parT oF ThE
ConSolidaTEd FinanCial STaTEmEnTS)
(ConTinuEd)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
Stock Exchange Listings
James Hardie Industries SE’s securities are listed on the Australian and
New York Stock Exchanges.
Disclosure
James Hardie aims to ensure the widest possible disclosure of its
activities, using:
Australia: Australian Securities Exchange Limited
James Hardie Industries SE shares are listed on the
ASX in the form of CHESS Units of Foreign Securities
(or CUFS). CUFS represent beneficial ownership of JHI
SE shares, the legal ownership of which is held by CHESS
Depositary Nominees Pty Ltd. JHI SE CUFS trade under
the code JHX.
New York: New York Stock Exchange Inc
In the United States, five JHI SE NV CUFS equal one Bank
of New York Mellon-issued American Depositary Receipt
(or ADR) and trade on the New York Stock Exchange under
the code JHX.
All enquiries and correspondence regarding ADRs should be referred to
The Bank of New York Mellon, which can be contacted via the website
www.adrbny.com or contact:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
Telephone within USA: 1-888-BNY-ADRs
Telephone outside USA: 201-680-6825
Email: shrrelations@bnymellon.com
Share/CUFS registry
JHI SE’s registry is managed by Computershare Investor Services
Pty Limited. All enquiries and correspondence regarding holdings
should be directed to:
Computershare Investor Services Pty Ltd
Level 4, 60 Carrington Street, Sydney NSW 2000, Australia
or GPO Box 2975, Melbourne VIC 3001, Australia
Telephone within Australia: 1300 855 080
Telephone outside Australia: (61 3) 9415 4000
Facsimile: (61 3) 9473 2500
Email: web.queries@computershare.com.au
Website: www.computershare.com
Payment of dividends and other cash distributions
to share/CUFS holders
Dividends and other cash distributions can be paid by electronic funds
transfer to an Australian bank account or by cheque. To participate in
the electronic service, contact Computershare at the above address.
On 20 May, 2009, the company announced that it would omit the
year-end dividend for fiscal year 2009 to conserve capital and that,
until such time as market and global economic conditions improve
significantly and the level of uncertainty surrounding future industry
trends as well as company specific contingencies dissipates, it
anticipates that dividends will continue to be suspended in order
to conserve capital. This remains the company’s position.
124 | JAMES HARDIE | ANNUAL REPORT 2010
– quarterly results and management presentations;
– webcasting and conference call facilities that make quarterly results
available to all security holders;
– extensive disclosure of financial results as well as detailed
explanations about the key performance drivers; and
– prompt postings on our website of announcements, results and
information about other material events.
Along with these announcements, the Investor Relations area of our
website (www.jameshardie.com) contains media releases, results
briefings, management presentations and past annual reports. There
are also areas where visitors can register to receive email alerts of key
events or announcements. Our formal Disclosure Policy is contained in
the Corporate Governance area of the website.
Annual Report
Security holders must advise the share registry if they want to receive
a printed copy of the annual report. The annual report can be read on,
and downloaded from, the Investor Relations area of our website at
www.jameshardie.com
Addresses
Corporate Headquarters
Second Floor, Europa House, Harcourt Centre
Harcourt Street, Dublin 2, Ireland
Telephone: (+353) 1 411 6924
Facsimile: (+353) 1 479 1128
Investor Relations
Level 3, 22 Pitt Street, Sydney NSW 2000, Australia
Telephone: (+61 2) 8274 5246
Facsimile: (+61 2) 8274 5218
Email: investor.relations@jameshardie.com.au
USA Chicago Regional Office
231 South LaSalle Street, 20th Floor, Suite 2000
Chicago, IL 60604
Telephone: (+1 800) 348 1811
Facsimile: (+1 312) 419 2976
USA Mission Viejo Regional Office
26300 La Alameda, Suite 400, Mission Viejo, CA 92691 USA
Telephone: (+1 949) 348 1800
Facsimile: (+1 949) 348 4534
Australian Regional Office
Level 3, 22 Pitt Street, Sydney NSW 2000, Australia
Telephone (+61 2) 8274 5239
Facsimile: (+61 2) 8274 5217
Place of Incorporation
James Hardie Industries SE, ARBN 097 829 895, is incorporated in
Ireland, with registered office at Second Floor, Europa House, Harcourt
Centre, Harcourt Street, Dublin 2, Ireland and registered number
485719. The liability of its members is limited.
Independent Registered Public Accounting Firm
Ernst & Young LLP
San Diego, California USA
™ and ® denote a trademark or registered mark of James Hardie
Technology Limited, which may be registered in certain jurisdictions.
Forward-looking Statements
This annual report contains forward-looking statements. James Hardie
may from time to time make forward-looking statements in its periodic
reports filed with or furnished to the SEC, on Forms 20-F and 6-K,
in its annual reports to shareholders, in offering circulars, invitation
memoranda and prospectuses, in media releases and other written
materials and in oral statements made by the company’s officers, directors
or employees to analysts, institutional investors, existing and potential
lenders, representatives of the media and others. Statements that are not
historical facts are forward-looking statements and such forward-looking
statements are statements made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
Examples of forward-looking statements include:
– statements about our future performance;
– projections of our results of operations or financial condition;
– statements regarding our plans, objectives or goals, including
those relating to strategies, initiatives, competition, acquisitions,
dispositions and/or our products;
– expectations concerning the costs associated with the suspension
or closure of operations at any of our plants and future plans with
respect to any such plants;
– expectations that our credit facilities will be extended or renewed;
– expectations concerning dividend payments;
– statements concerning our corporate and tax domiciles and potential
changes to them, including potential tax charges;
– statements regarding tax liabilities and related audits, reviews
and proceedings;
– statements as to the possible consequences of proceedings
brought against us and certain of our former directors and officers
by the ASIC;
– expectations about the timing and amount of contributions to
the AICF, a special purpose fund for the compensation of proven
Australian asbestos-related personal injury and death claims;
– expectations concerning indemnification obligations;
– statements about product or environmental liabilities; and
– statements about economic conditions, such as the levels of
new home construction, unemployment levels, the availability of
mortgages and other financing, mortgage and other interest rates,
housing affordability and supply, the levels of foreclosures and home
resales, currency exchange rates and consumer confidence.
Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,”
“target,” “estimate,” “project,” “predict,” “forecast,” “guideline,”
“aim,” “will,” “should,” “likely,” “continue” and similar expressions
are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements. Readers are cautioned
not to place undue reliance on these forward-looking statements and
all such forward-looking statements are qualified in their entirety by
reference to the following cautionary statements.
Forward-looking statements are based on our current expectations,
estimates and assumptions and because forward-looking statements
address future results, events and conditions, they, by their very
nature, involve inherent risks and uncertainties, many of which are
unforeseeable and beyond our control. Such known and unknown
risks, uncertainties and other factors may cause our actual results,
performance or other achievements to differ materially from the
anticipated results, performance or achievements expressed, projected
or implied by these forward-looking statements. These factors, some of
which are discussed under “Key Information – Risk Factors” beginning
on page 6 of the Form 20-F filed with the US Securities and Exchange
Commission on 30 June 2010 (US time), include, but are not limited
to: all matters relating to or arising out of the prior manufacture of
products that contained asbestos by current and former James Hardie
subsidiaries; required contributions to the AICF, any shortfall in the
AICF and the effect of currency exchange rate movements on the
amount recorded in our financial statements as an asbestos liability;
proposed governmental loan facility to the AICF; compliance with and
changes in tax laws and treatments; competition and product pricing in
the markets in which we operate; seasonal fluctuations in the demand
for our products; 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; the potential that
competitors could copy our products; reliance on a small number of
customers; a customer’s inability to pay; compliance with and changes
in environmental and health and safety laws; risks of conducting
business internationally; compliance with and changes in laws and
regulations; the effect of the transfer of our corporate domicile from
The Netherlands to Ireland to become an Irish SE including employee
relations, changes in corporate governance, potential tax benefits
and the effect of any negative publicity; currency exchange risks; the
concentration of our customer base on large format retail customers,
distributors and dealers; the effect of natural disasters; changes in our
key management personnel; inherent limitations on internal controls;
use of accounting estimates; and all other risks identified in our reports
filed with Australian, Irish and US securities agencies and exchanges
(as appropriate). We caution you that the foregoing list of factors is
not exhaustive 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
and are statements of our current expectations concerning future
results, events and conditions.
CORPORATE OFFICES
Corporate Headquarters
Second Floor, Europa House
Harcourt Centre
Harcourt Street, Dublin 2, Ireland
Telephone (+353) 1 411 6924
Facsimile (+353) 1 479 1128
USA Chicago Regional Office
231 South LaSalle Street, 20th Floor
Suite 2000
Chicago, IL 60604
Telephone (+1 800) 348 1811
Facsimile (+1 312) 419 2976
USA Mission Viejo Regional Office
26300 La Alameda, Suite 400
Mission Viejo, California 92691
United States of America
Telephone +1 (949) 348 1800
Facsimile +1 (949) 348 4534
Australian Regional Office
Level 3, 22 Pitt Street
Sydney NSW 2000, Australia
Telephone +61 (2) 8274 5239
Facsimile +61 (2) 8274 5217
BUSINESS UNIT OFFICES
AUSTRALIA
James Hardie Building Products
10 Colquhoun Street
Rosehill, 2142, NSW, Australia
Facsimile 1800 818 819
www.jameshardie.com.au
Ask James Hardie™
Telephone 13 1103
James Hardie FRC Pipes
46 Randle Road
Meeandah, 4008
Queensland, Australia
Telephone 1800 659 850
Facsimile 1800 639 908
www.jameshardie.com.au
EUROPE
James Hardie Building Products
Atrium, 8th Floor
Strawinskylaan 3077
1077ZX Amsterdam, Netherlands
Telephone +31 (0) 20 301 6750
Facsimile +31 (0) 20 642 5357
www.jameshardieeu.com
Customer Toll Free Service Help Line
within UK – 0800 068 3103
Customer Toll Free Service Help Line
within France – 0800 903 069
NEW ZEALAND
James Hardie Building Products
50 O’Rorke Road
Penrose, Auckland
New Zealand
Telephone +64 (9) 579 9919
Facsimile +64 (9) 525 4810
www.jameshardie.co.nz
Ask James Hardie™ Helpline
Toll Free 0800 808 868
PHILIPPINES
James Hardie Building Products
Barangay San Isidro
Cabuyao, Laguna, 4025
Philippines
Telephone +63 (2) 897 8131
Facsimile +63 (2) 895 2994
www.jameshardie.com.ph
NORTH AMERICA
James Hardie Building Products
26300 La Alameda, Suite 400
Mission Viejo
California 92691
United States of America
Telephone +1 (949) 348 1800
Facsimile +1 (949) 367 0185
www.jameshardie.com
Customer Service 1 (866) 4HARDIE