ANNUAL REPORT
2011
2
James Hardie Annual Report 2011
CONTENTS
SECTION 1
01 About Us
01 Results at a Glance
02 Chairman’s Report
03 CEO’s Report
04 CFO’s Report
07 Asbestos Funding
08 Manufacturing Capacity
09 Summary of Operations
10 USA and Europe Fibre Cement
12 Asia Pacific Fibre Cement
13 Workplace Safety
14 Differentiated Products
15 Sustainability
17 Directors’ Report
SECTION 2
22 Group Management Team
24 Board of Directors
26 Management’s Discussion and Analysis
41 Remuneration Report
63 Corporate Governance Report
74 Consolidated Financial Statements
80 Notes to Consolidated Financial Statements
105 Remuneration to Independent Registered
Public Accounting Firm
105 Selected Quarterly Financial Data
SECTION 3
107 Group Statistics
108 Definitions and Glossary
109 Share/CUFS Information
113 Forward-looking Statements
ABOUT US
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,
trim and soffit lining, internal linings, facades and floor and tile underlay.
We employ around 2,500 people and generated net sales of US$1.2 billion in the
2011 financial year.
RESULTS AT
A GLANCE
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.
In our major market, the United States, the operating
environment remained challenging. According to the US
Census Bureau, single family housing starts, which are a
key driver for our performance, were 446,400 for fiscal year
2011, 7.3% below the prior year and significantly below the
fiscal year 2006 peak of 1.730 million single family starts.
Our Asia Pacific business benefited from a continued
recovery in the Australian residential housing construction
market and the appreciation of Asia Pacific business
currencies against the US dollar boosted earnings and cash
flow. However, increases in mortgage interest rates, along
with the wet weather along the eastern seaboard of Australia
and the end of the government social housing construction
initiative had a subduing effect.
Our financial performance reflects the continuing
challenging operating conditions:
• Total net sales were up 4%, from US$1,124.6 million
to US$1,167.0 million.
• Gross profit decreased 6% from US$416.1 million to
The liability of its members is limited.
US$ $391.9 million.
• Gross profit margin decreased 3.4 percentage points
to 33.6%.
• As a percentage of sales, SG&A expenses declined
1.6 percentage points to 14.9%.
• EBIT excluding asbestos and ASIC expenses decreased
12% to US$184.0 million, compared to US$208.7
million for the prior year. EBIT margin excluding
asbestos and ASIC expenses decreased by 2.8
percentage points to 15.8%.
• Net operating loss moved from a net operating loss
of US$84.9 million in the 2010 financial year to a
net operating loss of US$347.0 million in the 2011
financial year. Net operating profit excluding asbestos,
ASIC expense and tax adjustments decreased 12% to
US$116.7 million.
• Diluted earnings per share excluding asbestos, ASIC
expenses and tax adjustments decreased 12% from
US30.5 cents to US26.7 cents.
James Hardie Annual Report 2011
11
10
09
08
07
1,167.0
1,124.6
1,202.6
1,468.8
1,542.9
11
10
09
08
07
192.7
205.3
156.9
207.5
318.9
11
10
09
08
07
Net Sales
(Millions of US dollars)
EBIT 1
(Millions of US dollars)
EBIT Margin 1
(%)
11
10
09
08
07
255.6
267.0
213.3
264.0
369.6
11
10
09
08
07
(256.4)
132.5
79.3
117.3
222.2
11
10
09
08
07
1
20.6
17.1
15.3
18.1
26.6
11
10
09
08
07
Return on Capital Employed 1
(%)
11
10
09
08
07
50.3
50.5
26.1
38.5
92.1
16.5
18.3
13.0
14.1
20.7
(58.6)
30.3
18.3
25.7
47.6
EBITDA 1
(Millions of US dollars)
Net Operating Profits 1,2
(Millions of US dollars)
Diluted Earnings per Share 1,2
(US cents)
Capital Expenditure
(Millions of US dollars)
(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 income (loss) before taxes
Income tax expense
Net operating 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
2011
$ 814.0
353.0
1,167.0
(775.1)
391.9
(173.4)
(28.0)
(85.8)
104.7
(4.4)
3.7
96.6
(443.6)
$ (347.0)
1,248.0
407.8
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
US$
A$
652
916
US$
A$
635
894
Favourable
(Unfavourable)
% Change
(2)
19
4
(9)
(6)
7
(3)
62
–
(10)
–
–
–
(4)
5
3
2
Unless otherwise stated, graphs and editorial comments throughout this report refer to results from operations excluding:
• For fiscal year 2011 - unfavourable asbestos adjustments of US$85.8 million, AICF SG&A expenses of US$2.2 million, AICF interest income of
US$4.3 million and tax expense related to asbestos adjustments of US$6.9 million.
• 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.
Balance sheet references exclude the net AFFA liability of US$1,016.6 million, US$966.2 million and US$756.6 million at 31 March 2011, 2010 and
2009, respectively.
1 See Definitions on page 108.
2 Fiscal year 2011 includes a charge of US$345.2 million related to the dismissal of RCI’s appeal of the 1999 disputed amended tax assessment and a
charge of US$32.6 million arising from our corporate structure simplification announced on 17 May 2011.
2
James Hardie Annual Report 2011
CHAIRMAN’S
REPORT
11
10
09
08
07
(22.2)
13.2
9.1
13.2
24.0
11
10
09
08
07
0.0
0.0
8.0
27.0
9.0
Return on Shareholders’ Funds 1
(%)
Dividends Paid per Share
(US cents)
From a business point of view, in the past
fiscal year we have continued to perform well
financially and remain positioned for growth.
Our CEO, Louis Gries, and his team have
produced solid cash flow and profit results
despite the prolonged difficult operating
environment, particularly in the USA, and have
continued to make progress on our strategic
priorities including the development of our
senior management team.
At the same time, we have made excellent
progress on our corporate governance and legacy
issues including resolving the complex issue of
domicile. With your support on 17 June 2010,
we finalised our transformation to an Irish
Societas Europaea company, domiciled in Ireland.
We continue to make progress on resolving our
remaining legacy issues while maintaining our
ongoing responsibilities to contribute to the
asbestos liabilities of former group companies.
Capital Management
On 17 May 2011, after careful consideration and
in seeking a more optimal capital structure, the
Board was pleased to announce the resumption
of the payment of dividends and a more active
approach to capital management. This opportunity
has arisen because of the company’s ability to
generate strong cash flows, thereby reducing
debt levels, despite the continuing challenging
operating environment.
The company has adopted a capital management
policy to distribute between 20% and 30% of
profits after tax, excluding asbestos adjustments,
in the form of ordinary dividends and expects to
resume paying dividends starting with an interim
dividend to be paid following the November 2011
announcement of the company’s second quarter
results.
The more active approach to capital management
will likely see the company buy-back or issue
shares as the company’s needs dictate.
In accordance with this policy, the company also
foreshadowed the acquisition of up to 5% of issued
capital in the twelve months ending May 2012.
AICF
On 9 December 2010, AICF and the former
James Hardie subsidiaries, Amaca, Amaba and
ABN 60 entered into a secured loan facility with
the State Government of New South Wales,
with the support of the Australian Government,
whereby AICF may borrow up to A$320 million.
The standby loan facility will assist the AICF to
meet short-term funding shortfalls, and to continue
to make payments to claimants should contributions
made by James Hardie under the Amended and
Restated Final Funding Agreement (AFFA) be
insufficient to maintain liquidity of the fund.
The provision of the proposed standby loan
facility to the AICF does not reduce the company’s
obligations under the AFFA. The obligation to pay
claimants remains with AICF, and it is anticipated
that its primary source of funding will continue to
be contributions from James Hardie.
The company’s strong cash flow for fiscal year
2011 means that we will contribute approximately
US$51.5 million to the AICF on 1 July 2011. 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.
Shareholder meetings
Our Board and shareholder meetings will
continue to be held in Ireland as we are an Irish
company. We will simulcast our shareholder
meetings so that those shareholders who cannot
attend in person can participate in real time.
Louis Gries, his team, and I will continue to
meet with shareholders on a periodic basis.
Summary
Overall, we believe that we are making good
progress from both an organisational and
operational point of view, while continuing
to focus on our strategic priorities to achieve
success in the medium and longer term.
Michael Hammes
1 Fiscal year 2011 includes a charge of US$345.2 million
related to the dismissal of RCI’s appeal of the 1999
disputed amended tax assessment and a charge of US$32.6
million arising from our corporate structure simplification
announced on 17 May 2011.
James Hardie Annual Report 2011
3
CEO’S
REPORT
11
10
09
08
07
454.8
447.9
521.5
509.6
524.1
11
10
09
08
07
75.1
81.8
68.0
72.0
108.3
Net Sales/Employee
(Thousands of US dollars)
EBIT/Employee1
(Thousands of US dollars)
All our businesses ran well and were profitable in
fiscal year 2011, despite the challenging external
environments.
Although there has been some recovery in the
broader US economy, the US housing construction
market remains constrained by a range of factors,
in particular, by the lack of stability in house
values.
For the full year, net sales increased 4% to
US$1,167.0 million due to the increase in the
average net sales price and an appreciation of
the Asia Pacific currencies against the US dollar.
Gross profit was down 6% to US$391.9 million
and EBIT excluding asbestos and ASIC expenses
was 12% lower, at US$184.0 million, compared
to last year.
USA and Europe Fibre Cement
Operating conditions in the US residential housing
market remained challenging throughout fiscal
year 2011. Housing starts and repair and remodel
activity continued to be weak as factors such as
relatively high levels of unemployment, low levels
of consumer confidence, restricted access to credit
and the supply of foreclosed homes continued to
dampen demand. Additionally, raw material input
costs, particularly pulp, remained high and freight
costs continued to rise.
For fiscal year 2011, USA and Europe Fibre
Cement sales volume was down 4%, reflecting
the flat housing construction market, while net
sales were down 2% to US$814.0 million,
compared to the prior year.
EBIT fell 23% to US$160.3 million, primarily
due to an increase in input costs (mainly pulp
and freight), lower sales volume, unfavourable
cost absorption driven by lower production volume
and higher labour costs per unit manufactured,
partially offset by a higher average net sales price
and reduction in selling, general and administrative
expenses. The EBIT margin was 5.5 percentage
points lower at 19.7%.
Asia Pacific Fibre Cement
During fiscal year 2011, with the exception of
New Zealand, the Asia Pacific businesses have
enjoyed relatively robust operating environments
and have performed strongly. The Australian
business, in particular, performed very well,
growing market share and also increasing sales
of its differentiated Scyon™ branded products.
Net sales increased 19% to US$353.0 million,
compared to US$296.5 million for fiscal year
2010. In Australian dollars, net sales increased
7% due to an increase in sales volume and
average net sales price.
Asia Pacific Fibre Cement EBIT increased 35%
from US$58.7 million in fiscal year 2010 to
US$79.4 million. In Australian dollars, Asia
Pacific Fibre Cement EBIT increased 22% due to
an increase in average net sales price, higher sales
volume, improved manufacturing performance
and lower fixed unit cost of manufacturing as fixed
costs were spread over higher production volume.
Those factors were partially offset by higher input
costs, primarily pulp, and a mechanical failure
in the Philippines facility that temporarily halted
production during the second quarter. The EBIT
margin for the business was 2.7 percentage
points higher at 22.5%.
Outlook
There is little confidence that the US housing
market will improve in fiscal year 2012 with no
substantive evidence emerging that a sustainable
recovery has commenced. As a result, activity
in the US housing market is expected to remain
relatively flat in both the new construction and
repair and remodel segments.
Operating costs are expected to be considerably
higher in fiscal year 2012, particularly pulp and
freight. As the broader US economy has begun
to recover, the costs for these basic commodities
have risen, while the housing market has remained
flat. Costs are expected to rise without any
meaningful improvement in demand and, hence,
sales volumes.
The Asia Pacific markets that James Hardie
participates in are likely to be somewhat softer
in fiscal year 2012. In Australia, higher mortgage
interest rates, along with the cessation of
government social housing programs, continue
to dampen activity and housing starts for fiscal
year 2012 are expected to be lower than in 2011.
Despite this we do have good momentum in our
Australian business and the product leadership
strategy for our differentiated Scyon™ branded
products has been executed extremely well.
In the Philippines, domestic demand continues
to provide a robust operating environment, while
in New Zealand, activity remains extremely weak
with housing starts falling to historic lows.
Focus for fiscal year 2012
Execution of our growth strategy will remain the
key focus for fiscal year 2012.
As the US housing market is likely to remain flat,
the emphasis will be on optimising manufacturing
efficiencies, while still driving strategic initiatives
that have proven to be successful, such as
ColorPlus® and the repair and remodel segment.
We will continue to invest heavily in product
development and market initiatives, concentrating
on those areas that have gained traction and are
delivering strong financial returns, with the aim to
strengthen our overall market position.
In summary, we are facing another challenging
year, with increased pressure from both higher
input costs and the weak US housing market, but
we are confident that we will continue to generate
above industry average returns and growth.
Louis Gries
1 See definitions on page 108.
4
CFO’S
REPORT
James Hardie Annual Report 2011
11
10
09
08
07
62.9
61.7
56.4
56.5
50.7
11
10
09
08
07
436.7
65.1
68.2
81.9
91.1
Depreciation and Amortisation
(Millions of US dollars)
Income Tax Expense 1
(Millions of US dollars)
Our 2011 fiscal year results were a reflection of
the very weak US housing market, partially offset
by the strong performance from the Asia Pacific
businesses. We also benefited from stronger Asia
Pacific currencies.
Against this background, the businesses
performed well, enabling the company to generate
strong cash flow. This allowed us to achieve a
further reduction in debt, putting us in a very
strong financial position, and enabling us to
commence a more active approach to capital
management in the 2012 fiscal year.
On 17 May 2011, the company announced that
it had adopted a capital management policy
to distribute between 20% and 30% of profits
after tax in the form of ordinary dividends. In
accordance with this policy, the company also
announced that it will seek to acquire up to 5%
of the company’s issued capital via an on-market
share buyback during the next 12 months.
The company expects to resume paying dividends
starting with an interim dividend to be paid
following the November 2011 announcement
of the company’s second quarter results.
To facilitate the ability to access and distribute
surplus earnings and cash flows, the company
has commenced an internal reorganisation
involving the simplification of the company’s
corporate structure. As part of this reorganisation,
the company has incurred a tax charge of
US$32.6 million, which was included in the
fiscal year 2011 accounts but will be paid in
fiscal year 2012.
Consolidated results
For fiscal year 2011, we recorded a net operating
loss of US$347.0 million, compared to a net
operating loss of US$84.9 million last year.
This result reflects a non-cash charge of
US$345.2 million recognised in the second
quarter of fiscal year 2011 for taxes, penalties and
interest following RCI Pty Ltd’s (RCI) loss
on appeal in the Australian Federal Court
against an Australian Taxation Office amended
assessment relating to fiscal year 1999.
The results also include a charge of US$32.6
million arising from our corporate structure
simplification and an unfavourable asbestos
adjustment of US$85.8 million, which was
primarily attributable to movements in the value
of the Australian dollar against the US dollar.
Excluding asbestos, ASIC expenses, and tax
adjustments, we recorded a US$116.7 million
profit, a 12% decrease on last year’s profit of
US$133.0 million.
Financial results
EBIT excluding asbestos and ASIC expenses was
12% lower at US$184.0 million for fiscal year 2011.
General corporate costs for fiscal year 2011 were
37% lower at US$26.9 million, primarily as a
result of US$10.3 million recovered from third
parties in respect of prior period ASIC expenses.
Our net interest expense of US$8.7 million
for the year was higher than the prior year’s
US$7.3 million.
Our effective tax rate excluding asbestos and
tax adjustments for fiscal year 2011 was 31.1%,
versus 34.4% for the prior year. The lower tax rate
is attributable to changes in the geographic mix
of earnings and expenses, and reductions in
non-tax deductible expenses.
Net operating cash flow declined US$35.9
million from US$183.1 million in the prior year
to US$147.2 million for the 2011 fiscal year.
Net operating cash flow included a contribution
of US$63.7 million to AICF on 1 July 2010,
compared with nil the prior year.
Excluding the contribution to AICF, net operating
cash flow was US$210.9 million for fiscal year
2011, an increase of 15% from US$183.1 million
in the prior year. The increase in net operating
cash flow was primarily due to reductions in
trade receivables during the 2011 fiscal year,
partially offset by a decline in earnings from
operations relative to the prior year and payment
of US$18.6 million for taxes on re-domicile from
The Netherlands to Ireland.
At US$50.3 million, capital expenditure was
slightly down from US$50.5 million in the prior
year, and included further investment in areas
such as our differentiated product range and
developing our supply chain capacity.
Our debt position improved, with net debt down
to US$40.4 million at the end of March 2011,
a decrease of US$94.4 million compared to
31 March 2010. At the end of the fiscal year we
had US$279.6 million of cash and unutilised
facilities.
In June 2010 we retired US$161.7 million of debt
facilities when they matured. The company replaced
term facilities in the amount of US$45.0 million that
matured in February 2011 with new term facilities
totaling US$100.0 million. US$50.0 million of these
facilities mature in September 2012 and US$50.0
million of these facilities mature in February 2014.
At 31 March 2011, no amounts were outstanding
under these new term facilities.
At 31 March 2011, the weighted average remaining
term of our total credit facilities of US$320.0
million was 1.9 years, compared to 2.6 years at
31 March 2010.
1 Fiscal year 2011 includes a charge of US$345.2 million
related to the dismissal of RCI’s appeal of the 1999 disputed
amended tax assessment and a charge of US$32.6 million
arising from our corporate structure simplification announced
on 17 May 2011.
James Hardie Annual Report 2011
5
11
10
09
08
07
31.1
34.4
41.4
37.9
32.5
11
10
09
08
07
8.7
7.3
9.4
8.3
6.5
11
10
09
08
07
24.0
28.1
16.7
25.4
49.1
Effective Income Tax Rate 1
(%)
Net Interest Expense
(Millions of US dollars)
Net Interest Expense Cover 1
(Times)
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
2011
2010
$ 59.0
– –
$ 59.0
$ 3.7
9.1
0.6
3.0
2.2
18.6
$ 40.4
$ 154.0
$ 154.0
$ 0.7
14.6
0.9
1.8
1.2
19.2
$ 134.8
As at 31 March
2011
$ –
59.0 –
–
$ 59.0
2010
$ 95.0
59.0
$ 154.0
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
2011
$ 39.5
9.9
0.9
$ 50.3
2010
$ 40.6
6.7
3.2
$ 50.5
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
2011
1.0584
1.3643
0.9676
1.3151
2011
$ 705.3
161.5
174.9
0.8
(108.8)
$ 933.7
2010
1.1749
1.4740
1.0919
1.4088
2010
$ 708.2
149.1
455.6
0.8
(113.7)
$1,200.0
814.0
USA and Europe Fibre Cement
752.0
USA and Europe Fibre Cement
160.3
USA and Europe Fibre Cement
353.0
Asia Pacific Fibre Cement
235.0
Asia Pacific Fibre Cement
79.4
Asia Pacific Fibre Cement
14.4
Research and Development
EBIT for R&D was a loss of 20.1
Net Sales
(Millions of US dollars)
Total Identifiable Assets
(Millions of US dollars)
EBIT
(Millions of US dollars)
6
James Hardie Annual Report 2011
CFO’S REPORT
(CONTINUED)
11
10
09
08
07
11.6
4.5
11.5
12.5
12.5
11
10
09
08
07
3.2
10.9
24.0
22.7
12.8
Working Capital to Net Sales
(%)
Gearing Ratio
(%)
Our debt service capacity indicators remained
strong:
• net interest expense cover of 24.0 times;
• net interest paid cover of 22.9 times; and
• net debt payback of 0.2 years.
In summary, although volumes were down,
especially in the US, all the businesses
performed well and we continued to generate
solid financial returns and strong cash flow.
This allowed us to achieve a further reduction
in debt, putting us in a very strong financial
position, and enabling us to commence a more
active approach to capital management.
We continue to make progress on our remaining
legacy issues and the company is in sound
financial condition, given the challenging
conditions in which our businesses have
been operating.
Russell Chenu
A$-US$ exchange rate
Our results continued to be significantly
influenced by movements in the A$-US$ exchange
rate. For the year ended 31 March 2011, the
Australian dollar appreciated against the US dollar
by 13%, compared to a 33% appreciation in the
prior year. This affects the translation of results
and corporate costs that we incur in Australian
dollars, particularly the asbestos liability and
Asia Pacific business’ earnings.
The impact of foreign currency exchange
movements on the asbestos liability, for the
full year based on the updated actuarial estimate
as of 31 March 2011, was a movement of
US$107.3 million. For the full year, Asia Pacific
Fibre Cement EBIT increased 35%, of which 13%
was attributed to appreciation of the Asia Pacific
business’ currencies compared to the US dollar.
Asbestos funding
In accordance with our obligations as defined in
the AFFA, James Hardie will make a contribution
of approximately US$51.5 million to the AICF on
1 July 2011.
On 7 December 2010, the NSW and Australian
Governments announced that a standby loan
facility of up to A$320 million for the AICF had
been formalised. The agreement has now been
executed and all substantive conditions precedent
to draw down have been resolved. There are
no amounts outstanding under the standby
loan facility and the facility does not reduce
the company’s obligations under the AFFA.
The obligation to pay claimants remains with
AICF, and it is anticipated that its primary source
of funding will continue to be contributions
from James Hardie.
Legacy issues
During the year, we continued to make progress
in resolving the company’s legacy issues.
On 17 June 2010, following shareholder approval,
we resolved the complex issue of domicile and
finalised our transformation to an Irish Societas
Europaea company, domiciled in Ireland.
In September 2010, the Federal Court of Australia
dismissed our initial appeal against the ATO’s
Objection Decision in the 1999 Amended
Assessment issued to RCI, a wholly-owned
subsidiary of James Hardie Industries SE. RCI
strongly disputes the amended assessment and
pursued an appeal which was heard in May 2011
before the Full Court of the Federal Court of
Australia. A decision is awaited.
In relation to ASIC proceedings, on 17 December
2010, the New South Wales Court of Appeal
dismissed the company’s appeal against Justice
Gzell’s judgment and ASIC’s cross appeals
against the appellants. On 6 May 2011, the Court
of Appeal rendered judgment in the exonerations,
penalty and cost matter for certain former officers.
ASIC subsequently filed applications for special
leave to the High Court appealing from the Court
of Appeal’s judgment in favour of the former
directors’ appeals. Certain former officers also
filed special leave applications to the High Court.
The High Court granted ASIC’s application for
special leave on 13 May 2011. The High Court
also granted the special leave applications for
one of the former executives, and the other former
executive withdrew his application.
Key performance ratios
Key performance ratios for fiscal year 2011:
• decrease in diluted earnings per share, from
US30.3 cents to (58.6) cents;
• return on shareholders funds of (22.2%);
• increase in return on capital employed, from
17.1% last year to 20.6%; and
• decrease in EBIT margin, from 18.3% to 16.5%.
James Hardie Annual Report 2011
7
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
Asbestos liability valuations
Source: KPMG Actuaries
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
31 March
2011
Fund update
As of 31 March 2011, the AICF had cash
and investment assets of A$59.9 million
(US$61.9 million).
James Hardie will make a contribution of
A$48.9 million (US$51.5 million) to the AICF
on 1 July 2011. This amount represents 35% of
the company’s free cash flow for fiscal year 2011,
as defined by the AFFA.
The 2011 payment will take James Hardie’s total
contributions to the AICF to A$424 million since
the beginning of 2007.
James Hardie has been contributing A$500,000
a year for 10 years, since 2007, towards medical
research into the prevention, treatment and cure
of asbestos diseases, and A$75,000 a year for
10 years, since 2007, for an education program
to inform home renovators of the risks associated
with asbestos.
Standby loan facility for the AICF
On 9 December 2010, AICF, Amaca, Amaba and
ABN 60 entered into a secured loan facility and
related agreements (the Facility) with the State
Government of New South Wales, Australia whereby
AICF may borrow, subject to certain conditions, up
to an aggregate amount of A$320 million, with the
support of the Australian Government which will
provide up to A$160 million. In accordance with
the terms of the Facility, drawings under the Facility
may only be used by the AICF to fund the payment
of asbestos claims and certain operating and legal
costs of AICF, Amaca, Amaba and ABN 60.
This development followed the 23 April 2009
announcement by the AICF that its Board had
determined, at the time, 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.
The term of the Facility expires on 1 November
2030, at which time all amounts outstanding
under the Facility become due and payable.
As of 29 June 2011, all substantive conditions
precedent to drawdown of the Facility have been
satisfied with only procedural matters remaining.
There are no amounts outstanding under the
Facility. Further, from the time of signing through
29 June 2011, there have not been any drawings
on the Facility by the AICF.
Any drawings, repayments, or payments of accrued
interest under the Facility by the AICF will not
impact James Hardie’s net operating cash flow as
defined in the AFFA, on which annual contributions
Asbestos liability valuations*
remitted by the company to the AICF are based.
* Source: KPMG Actuaries
James Hardie Industries SE and its wholly-owned
subsidiaries are not a party to, guarantor of, or
security provider in respect of the Facility.
Annual actuarial assessment
KPMG Actuarial 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 each quarter with its quarterly
results releases. The more detailed information
contained in the annual actuarial report is made
public each year, in accordance with the AFFA.
All of the annual actuarial reports are available
in the Investor Relations area of the James Hardie
website (www.jameshardie.com.au).
Updated actuarial assessment
James Hardie received an updated actuarial
report from KPMG Actuarial at 31 March 2011,
which showed the discounted central estimate
of the asbestos liability decreased from A$1.537
billion at 31 March 2010 to A$1.478 billion at
31 March 2011.
The decrease in the discounted central estimate
of A$59.1 million is primarily due to a reduction
in the projected future number of claims to be
reported and the average claim settlement size
of claims for a number of disease types.
The graph above shows the undiscounted range
that KPMG Actuarial has 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 value of these asbestos-related assets and
liabilities in James Hardie’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 the
balance sheet date.
For the year from 31 March 2010 to 31 March
2011, the Australian dollar appreciated against the
US dollar by 13%. As a result of this appreciation,
James Hardie recorded an unfavourable asbestos
adjustment of US$85.8 million for fiscal year 2011.
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.
The net AFFA liability increased from US$966.2
million at 31 March 2010 to US$1,016.6 million
at 31 March 2011.
Claims data2
The number of new claims filed, 494 for the year
ended 31 March 2011, was lower than new claims
of 535 in the prior year, and below actuarial
expectations.
The number of claims settled of 459 for the year
ended 31 March 2011, was lower than claims
settled of 540 in the prior year.
The average claim settlement of A$204,000 for
the full year ended 31 March 2011 was A$13,000
higher than the prior year but below the actuarial
expectations.
Asbestos claims paid of A$100.6 million for year
ended 31 March 2011, was lower than the actuarial
expectation of A$117.1 million.
Legal costs were higher, at A$9.3 million, than the
actuarial expectation of A$6.2 million. Insurance
claims and cross claim recoveries increased to
A$24.2 million. This led to total net claims costs
of A$76.4 million, lower than the previous
estimates from KPMG Actuarial (A$99.8 million)
and also the prior year (A$86.3 million).
1 In each financial year, the Annual Payment is limited such
that it 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 of the company’s
Consolidated Financial Statements.
8
James Hardie Annual Report 2011
MANUFACTURING
CAPACITY
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
DUBLIN
LONDON
AMSTERDAM
SOUTHAMPTON
PARIS
TACOMA
RENO
MISSION VIEJO
FONTANA
CHICAGO
PERU
BLANDON
PULASKI
SUMMERVILLE
WAXAHACHIE
CLEBURNE
PLANT CITY
HONG KONG
MANILA
PERTH
ADELAIDE
MELBOURNE
BRISBANE
SYDNEY
CHRISTCHURCH
AUCKLAND
James Hardie
Manufacturing Operations
James Hardie
Manufacturing Operations -
production suspended 2
James Hardie Sales Office
Distribution Hub
Corporate Headquarters
MANUFACTURING CAPACITy – FIBRE CEMENT BUIlDING PRODUCTS
Plant location
United States 2
Asia Pacific
Existing design capacity/
year (mmsf)1
3,390
520
Average Number
of Employees
1,629
709
MANUFACTURING CAPACITy – FIBRE REINFORCED CONCRETE PIPES
Plant location
Brisbane, Australia
Design capacity/year
(Thousand tons3 )
50
Average Number
of Employees
59
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”
medium density product at a targeted operating speed. Annual design
capacity is not necessarily reflective of our actual capacity utilisation
rates for our fibre cement plants by region. Annual capacity utilisation
is affected by factors such as demand, product mix, batch size, plant
availability and production speeds and is usually less than annual design
capacity. We manufacture products of varying thicknesses and density.
Fiscal year 2011 capacity utilisation based on our annual design capacity,
for our fibre cement building products plants was an average of 43%
and 75% in the United States and Asia Pacific, respectively. As indicated
above, annual design capacity is based on management’s estimates. No
accepted industry standard exists for the calculation of our fibre cement
manufacturing facility design and utilisation capacities.
2 We suspended production at our Blandon, (Pennsylvania), Summerville,
(South Carolina) and Fontana, (California) plants in November 2007,
November 2008 and December 2008, respectively.
3 Pipe and column capacity is measured in tons rather than million
square feet.
James Hardie Annual Report 2011
9
SUMMARY OF
OPERATIONS
USA AND EUROPE FIBRE CEMENT
ASIA PACIFIC FIBRE CEMENT
Results
• Net sales decreased 2% from US$828.1 million
to US$814.0 million.
• Sales volume decreased 4% from 1,303.7
million square feet to 1,248.0 million square
feet. Average net sales price increased 3%
from US$635 per thousand square feet to
US$652 per thousand square feet.
• Gross profit decreased 16% and gross profit
margin decreased by 5.6 percentage points.
• EBIT decreased 23% from US$208.5 million
to US$160.3 million and EBIT margin was 5.5
percentage points lower at 19.7%.
Trading conditions
• According to the US Census Bureau, single
family housing starts, which are a key driver for
the company’s performance, were 446,400 for
fiscal year 2011, 7.3% below the prior year and
significantly below the fiscal year 2006 peak of
1.730 million single family starts.
• For fiscal year 2011, the average Northern
Bleached Softwood Kraft (NBSK) pulp price
was US$978 per ton, up 30.4% compared to
US$750 per ton for the prior year.
• Similarly, freight costs in the US were higher
for fiscal year 2011 compared to the prior year.
Freight costs rose due to higher truck rates
attributed to flatbed truck supply constraints
(as the broader US economy recovers), higher
fuel costs and product mix shifts.
• Notwithstanding improved affordability,
increasing levels of household formation and
falling inventories of new and existing houses
for sale, a recovery in the sector continues to
be inhibited by a combination of factors such
as relatively low levels of consumer confidence,
limited access to credit for prospective home
buyers, falling housing values and the continued
supply of foreclosed properties.
Results1
• Net sales increased 19% from US$296.5
million to US$353.0 million. Net sales in
Australian dollars increased 7%.
• Sales volume increased 5% from 389.6 million
square feet to 407.8 million square feet.
Average net sales price increased 2% from
A$894 per thousand square feet to A$916 per
thousand square feet.
• Gross profit increased 30%. The higher
value of the Asia Pacific business’ currencies
against the US dollar accounted for 13% of the
increase. Gross profit margin increased by 2.8
percentage points.
• EBIT increased 35% from US$58.7 million
to US$79.4 million and EBIT margin was 2.7
percentage points higher at 22.5%.
Trading conditions
• In Australia, increases in mortgage interest
rates, along with wet weather along the eastern
seaboard and the end of the government
social housing construction initiative, had a
subduing effect upon the Australian residential
housing construction market. For the fiscal
year 2011, the Australian Bureau of Statistics
(ABS) reported a 3% increase in total dwellings
approved compared to the prior year, with
detached housing approvals down 10%.
• In New Zealand, the business faced continued
challenges as business and consumer
confidence fell during fiscal year 2011 and
subsequently the construction of residential
houses fell to historically low levels. The
business has also had to contend with
increased competition from imported products.
• In the Philippines, sales volume was slightly
down for fiscal year 2011 when compared to
the prior year. Improved sales of differentiated
products and relatively strong underlying
market conditions during fiscal year 2011 were
partially offset by a mechanical failure at our
Manila plant during the second quarter.
Outlook
Housing starts in the US continue to be weak
as factors such as relatively high levels of
unemployment, low levels of consumer confidence,
restricted access to credit, the supply of foreclosed
homes and the lack of stability in house values
continue to constrain demand in the housing
market.
Input costs are also expected to remain high in
fiscal year 2012 with pulp prices forecast to remain
at or above US$1,000 per ton. Freight costs in
the US are expected to rise reflecting supply
constraints for trucks, as the broader economy
improves, and the higher cost of fuel.
Activity in the US residential housing sector
is expected to remain relatively flat in both the
construction and the repair and remodel segments
in fiscal year 2012.
In the Asia Pacific region, increases in mortgage
interest rates in Australia have continued to
dampen activity in the sector, although the
market is expected to remain relatively robust
in fiscal year 2012. In the Philippines, domestic
demand continues to provide a strong operating
environment. In New Zealand, housing activity is
likely to remain subdued as housing construction
reaches historic lows in response to weak
consumer and business confidence.
Despite the continuing challenging environment
and higher input costs, the company will continue
to pursue strong financial returns, and increase
spending on long-term product and market
initiatives.
1 Includes cement pipes results.
10
James Hardie Annual Report 2011
USA AND EUROPE
FIBRE CEMENT
11
10
09
08
07
652
635
609
600
583
11
10
09
08
07
160.3
208.5
199.3
235.2
353.1
11
10
09
08
07
19.7
25.2
21.4
20.1
27.3
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
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.
• The repair and remodeling segment now
accounts for a significant proportion of our
sales volume and we have identified significant
opportunity for further growth.
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 fibreglass 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:
• deliver primary demand growth;
• continue to shift to a higher value product mix;
• increase manufacturing efficiency; and
• build the operational strength and flexibility to
deliver and sustain earnings in a low demand
environment and increase output should a
stronger than expected recovery eventuate.
Products
Our products are typically sold as planks or
panels with a variety of patterned profiles and
finishes. Planks are used for external siding while
panels 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 California2,
Florida, Washington, Illinois, Pennsylvania2,
South Carolina2, Nevada and Virginia. We also
have a Research and Development Centre adjacent
to 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
• Our fibre cement products exhibit superior
resistance to the damaging effects of moisture,
fire, impact and termites compared to wood
and wood-based products, which has enabled
us to gain a competitive advantage over
competing products.
• 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).
Progress towards our strategy
During the year:
• Our differentiated ColorPlus® product range
continued to increase its penetration rate.
• In 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, putting all
the US businesses as well as manufacturing
and logistics under the management of Nigel
Rigby, Executive General Manager - USA; and
research and development, engineering 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 remodel market segment, which
now represents a significant proportion of
our US sales mix.
Our focus included re-launching the Preferred
Remodeler 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 increasing
manufacturing efficiency.
1 Excluding impairments.
2 Production at the Pennsylvania, South Carolina and California
plants was suspended in November 2007, November 2008 and
December 2008, respectively.
James Hardie Annual Report 2011
11
DESPITE THE CONTINUING CHALLENGING ENVIRONMENT,
WE WILL CONTINUE TO PURSUE STRONG FINANCIAL
RETURNS, AND INCREASE SPENDING ON LONG TERM
PRODUCT AND MARKETING INITIATIVES
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 %
Average Number of employees
2011
814.0
160.3
752.0
1,248.0
652
19.7
1,629
2010
828.1
208.5
780.8
1,303.7
635
25.2
1,508
2009
929.3
199.3
772.6
1,526.6
609
21.4
1,631
2008
1,170.5
235.2
846.4
1,951.2
600
20.1
1,924
2007
1,291.2
353.1
910.0
2,216.2
583
27.3
2,120
1 Excluding impairments.
12
James Hardie Annual Report 2011
ASIA PACIFIC
FIBRE CEMENT
WE CONTINUE TO FOCUS ON OUR THREE MAIN
STRATEGIC INITIATIVES OF PRIMARY DEMAND
GROWTH, PRODUCT MIX SHIFT AND INCREASING
MANUFACTURING EFFICIENCY
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, fascias and fences. 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 distributor/hardware stores and
timber yards. In the Philippines, a network of
thousands of small to medium size dealer outlets
sell our fibre cement products to consumers,
builders and real estate developers.
Our strategy
Asia Pacific Fibre Cement shares our global
strategy to:
• deliver primary demand growth;
• continue to shift to a higher value product mix;
• increase manufacturing efficiency; and
Progress towards our strategy
During the year:
• We focused on four primary areas including
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.
• build the operational strength and flexibility to
deliver and sustain earnings in a low demand
environment and increase output should a
stronger than expected recovery eventuate.
• In New Zealand, sales of differentiated
products also grew in fiscal year 2011,
with Linea™ weatherboard and Axon panel
significant drivers of this growth.
• In the Philippines, sales of ceilings and wall
systems increased during the year despite
the impact of a mechanical failure that halted
production during the second quarter.
2007
251.7
39.4
199.3
390.8
842
15.7
845
2010
296.5
58.7
216.9
389.6
894
19.8
755
11
10
09
08
07
2009
273.3
47.1
167.9
390.6
879
17.2
809
2008
298.3
50.3
218.3
398.2
862
16.9
834
22.5
19.8
17.2
16.9
15.7
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 average employees
2011
353.0
79.4
235.0
407.8
916
22.5
768
11
10
09
08
07
79.4
58.7
47.1
50.3
39.4
Asia Pacific EBIT
(Millions of US dollars)
Asia Pacific EBIT Margin
(%)
James Hardie Annual Report 2011
13
WORKPLACE
SAFETY
James Hardie is committed to sustaining a
safe working environment and has set safety
objectives to:
• improving areas where people and machines
interact, including standardised procedures
and regular audits for all equipment; and
• 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 the Board will use to
determine payments to senior executives under
the company’s long-term incentive plan.
SAFETY PERFORMANCE IN FISCAL YEAR 2011
USA and Europe Fibre Cement
The USA and Europe Fibre Cement business
recorded 23 incidents in fiscal year 2011 and for the
second consecutive year, its incident and severity
rates were below the safety goals of “2 and 20”.
The continued achievement of the safety goals in
fiscal year 2011 were supported by:
• building on safety culture through greater
observation and training and regular data
collection, analysis and feedback.
Asia Pacific Fibre Cement
The Asia Pacific Fibre Cement business recorded
16 incidents in fiscal year 2011, a 28% reduction
in the number of incidents compared to fiscal
year 2010.
For the first time, its incident and severity rates were
below the safety goals of “2 and 20” for a full year.
The significant safety improvements in fiscal
year 2011 were achieved by emphasising the
leading indicators of near-miss reports and hazard
identification. By doing so, the region’s businesses
broadened safety participation and ownership and
created momentum in core safety programs.
The key safety initiatives identified for fiscal year
2012 will focus on:
• continuing to identify leading indicators and
• expanding the use of high-visibility clothing
the major drivers of incidents;
at US manufacturing plants;
• continuing to develop and evaluate core safety
• standardised guarding and lockout graphics
programs;
By continuing to develop the safety culture
and enhancing systems that effectively
identify, evaluate, prevent and control
hazards, the business is working to sustain
the gains achieved in safety.
Safety results
USA and Europe Fibre Cement
• Incident rate 1.7
• Severity rate 18.4
Asia Pacific Fibre Cement
• Incident rate 1.9
• Severity rate 19.5
Global Safety
• Incident rate 1.7
• Severity rate 18.8
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 employee 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).
in all plants;
• increased emphasis on near-miss and hazard
identification and reporting; and
• improved transparency following the
implementation of monthly dashboard reports
to ensure safety reporting is consistent across
plants and successes can be replicated.
Three key safety initiatives have been identified
for fiscal year 2012 focusing on:
• ensuring factory air is safe for employees,
including real time dust monitoring and
periodic personal sampling;
• identifying active hazard and unsafe behaviour;
• addressing ergonomic issues and behaviour
such as incorrect manual handling;
• leveraging “fresh eyes” by organising inspections
by people from different plants or work areas;
and
• developing best-in-class safety areas in each
plant and holding region-wide Safety Days to
enable replication.
A lower incident rate and severity rate is
normally regarded as an indicator of a plant
that is safer for employees.
1 More information about the Scorecard is contained in the
Remuneration Report in this annual report.
14
James Hardie Annual Report 2011
DIFFERENTIATED
PRODUCTS
with ease of installation in mind, while still
providing heavy-duty performance and includes
cladding, weatherboard, trim and flooring. Thick
and versatile, Scyon™ Axent™ trim is ideal for
edge treatment around windows and is the easy
way to add finishing touches to internal and
external corners and is pre-primed for fast paint
application. Scyon™ Secura™ interior and exterior
flooring is the easiest way to get protection
against moisture damage in all interior and
exterior floors and is fast and simple to install.
To strengthen our differentiated product range
in Australia, a new premium service product,
ACCEL™, has been launched to architects,
builders and distributors. Completely interactive,
ACCEL™ makes it easier to create smart design,
building and ordering solutions, determine actual
quantities and costs associated with a building
project and gain access to a whole world of
up-to-date information and priority technical
support, helping save time and money.
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 new and refined existing products
and processes as a result of its proprietary
product formulation and process technology.
Introducing differentiated products and
improving the way we do things is one of
the core components of our global business
strategy and is supported by our significant
investment in research and development activities.
In fiscal year 2011, we spent US$31.2 million
or approximately 2.7% of total net sales, on
research and development activities.
In the United States, the focus in fiscal year
2011 was on driving strategic initiatives and
reducing costs. In response to the housing
and economic slowdown we have grown our
presence in the repair and remodeling and non-
metro market segments and we have continued
to drive our Job Pack program, a packaging
and distribution initiative where James Hardie®
products are delivered to a job site in
customised house lots.
Additionally we have maintained our focus
on delivering superior-performance, low-
maintenance, non-combustible fibre cement
products. The HardieZone™ System, which was
created specifically for two climate conditions:
HZ5® products for freezing, wet climates and
HZ10® products for climates with a combination
of hot, humid or high moisture condition, is
the seventh generation of James Hardie siding
products innovation.
To achieve the ultimate in performance with
HardieZone™ products, we have enhanced
the quality of the ColorPlus® technology finish.
This proprietary process involves applying
consistent, multiple coats of paint that was
created especially for the demands climate
places on a home’s exterior. The end result is
a consistent, durable, low-maintenance long-
lasting and fade-resistant finish.
ColourPlus® technology also compliments our
Artisan® Exterior Design and HardieTrim® product
range that offers superior quality and durability.
Artisan® Premium Lap Siding creates deep
shadow lines and offers the traditional design
aesthetics of cedar with the renowned durability
of James Hardie products. HardieTrim® boards
are all engineered for climate, so you get the right
siding for your home no matter how harsh the
climate is and provide unmatched durability and
offer a variety of possibilities for trim, gables,
corners, fascia, windows, doors, column wraps,
rakes, friezes, decorative trim and other non-
structural architectural elements.
In Australia the advanced lightweight cement
composite Scyon™ continues to perform very
strongly. The Scyon™ product range was created
11
10
09
08
07
31.2
30.4
28.3
27.4
30.0
Research and Development
Expenditure
(Millions of US dollars)
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$3.2 million, US$3.3 million,
US$4.5 million, US$0.1 million, and US$4.1 million for
the years ended 31 March 2011, 2010, 2009, 2008 and
2007 respectively.
James Hardie Annual Report 2011
15
SUSTAINABILITY
SINCE 1999, JAMES HARDIE HAS NOT ONLY
FOCUSSED ITS MANUFACTURING OPERATIONS
ON REDUCING, REUSING AND RECYCLING, BUT
ALSO ON SUSTAINABLE CONSTRUCTION AND
INDUSTRY EDUCATION INITIATIVES
James Hardie completed its first cradle to
gate life cycle analysis assessment in 1999.
Since then, it has not only focussed its
manufacturing operations on the three Rs of
sustainability – reduce, reuse and recycle –
but also on sustainable construction and
industry education initiatives.
Reduce
James Hardie products include a number
of low toxicity and environmentally benign
materials which are comparatively low in
embodied energy. Cement, a key ingredient
in James Hardie’s fibre cement products, is
the largest contributor of embodied energy.
By working with cement industry partners and
exploring opportunities for energy conservation,
James Hardie is adapting its processes and
formulas to reduce the impact of cement.
Raw material inputs are not the only way that
James Hardie is trying to reduce impact. Part
of James Hardie’s whole-of-business initiative
for increasing manufacturing efficiency
focuses on eliminating waste and improving
material yield. Addressing manufacturing
yields is therefore another key step in reducing
environmental impact and James Hardie is
making good progress in this area.
Our Australian plants are registered under the
national Energy Efficiency Opportunities Act
2006 and James Hardie has implemented a
number of initiatives aligned with the goals of
the Energy Efficiency Opportunities program. At
all production sites energy usage is compared
with production output to monitor and, ultimately
improve, energy usage efficiency. The quantity
and cause of reject product is also analysed, with
focus on waste reduction in order to save energy
wasted making off-spec product and prevent raw
material wastage containing embodied energy.
While yield improvement efforts are taking place
at all plants, this focus has helped the Australian
Meeandah pipes plant make significant progress
in reducing its production of reject pipes.
A reduction in energy use has also been achieved.
For example, lengthy steam reticulation lines,
which fed steam to the Australian-based Rosehill
site, have now been replaced with two new
boilers located adjacent to the plant. This has
reduced steam transmission losses saving 4,000
GJ of steam worth nearly A$30,000 per year. In
addition, reducing compressed air leakages and
replacing motors with energy efficient motors
has saved 3,188 GJ of energy per year.
Reuse
During manufacturing, James Hardie attempts
to reuse as much waste product as is practical.
At all locations, as much as possible, solid waste
– such as trimmings, scrap, and fine particles –
is reintroduced into the manufacturing process
as raw materials. It’s another aspect of James
Hardie’s strategy to increase manufacturing
efficiency.
For example, significant amounts of recycled
product off-cuts are used in all US and Australian
fibre cement plants. Over half of all batches
incorporate waste mix slurry.
Water is a critical component of the fibre cement
manufacturing process and process water is
reused at least four times before it is treated
and released. The solid waste extracted is
re-introduced into the mainstream production
process.
In the US, one of our plants is implementing an
ion exchange process that will allow the plant
to operate with significantly less than half of the
fresh water input that we currently use. In the
longer term, the plant is evaluating technology
and process control to allow it to become a
closed loop facility. The continuous research
and experience gained from this plant will also
permit us to reduce water usage in our other
manufacturing facilities.
Recycle
Recycling materials that can’t be re-used in
the manufacturing process is a key aspect of
improving our manufacturing efficiency and
in the past three years the company has made
significant progress in reducing the amount
of materials sent to landfill.
One of the objectives of increasing our
manufacturing efficiency is to eliminate offsite
disposal of waste. In fiscal year 2011, James
Hardie invested considerable time and effort
to devise a process for reclamation and
reintroduction of fibre cement boards from
our manufacturing processes, which would
otherwise be disposed of in local landfill.
The product of this effort is a robust process
for recycling fibre cement boards back into
the process.
The first of these systems is currently being
constructed and commissioned in our Tacoma
facility in the United States. The new system
is designed to eliminate disposal of fibre
cement waste in the local landfill, by enabling
the plant to cost-effectively reuse waste
product. The process is expected to be highly
reliable, requires relatively low energy input
and generates low emissions. Recycling our
entire waste stream back into the plant for
reprocessing will eliminate up to 7,500 tons of
material from landfill. The Tacoma installation
will also provide a full-scale test facility, where
we can further develop this process with the aim
to eventually replicate it at other manufacturing
plants.
16
James Hardie Annual Report 2011
SUSTAINABILITY
(CONTINUED)
We have been pursuing recycling opportunities
vigorously for some time and are beginning
to achieve some real gains. For example, in
Australia, James Hardie has partnered with a large
cement manufacturer that reprocesses waste fibre
cement product and crushes it into a powder
form to replace some of the natural materials like
limestone. Other partners that manufacture road
base materials are replacing sand and crushed
hard rock with James Hardie waste and James
Hardie also recycles some materials in the
manufacture of pallets.
The result of these efforts is that James Hardie
has been able to reduce the landfill footprint
by over 80% from the Rosehill plant, thereby
eliminating in excess of 16,000 tonnes of waste
per annum from landfill.
Sustainable construction
While reducing the environmental impact of
product manufacturing is critical, the fact is that
sustainable construction involves far more than
that. James Hardie understands that sustainable
construction not only involves selecting products
that are low in embodied energy (and a timber-
framed brick veneer wall has about two and a
half times the embodied energy of a similar-sized,
timber-framed fibre cement clad wall) but also
those that:
• are low maintenance and extremely durable;
• can be put up quickly with few trades;
• require lighter building frames which are
typically lower in embodied energy themselves
(a timber-framed and elevated floor has less
than half the embodied energy of a concrete
slab) and have less impact on the topology
and vegetation of a site;
• can be easily used to create energy efficient
buildings in any climate; and
• don’t emit volatile organic compounds or
provide a haven for mould.
For this reason, James Hardie continues to
develop products that help achieve all of the
sustainability goals above. For example, in the
US, James Hardie unveiled the HardieZone™
System, which is based on the eight individual
climatic variables that primarily affect long-term
performance of siding. Using these factors we
arrived at ten distinct climatic zones. Though
different, we found common variables in
certain regions, allowing us to engineer the
HZ5™ product line for freezing, wet climates
and the HZ10™ product line for climates with
a combination of hot, humid or high moisture
conditions.
the Awards successfully promoted the best in
sustainable, affordable and innovatively designed
and built homes.
In June 2011, James Hardie launched a new
site and digital magazine for consumers and
designers, called Light Home. Light Home aims
to change perceptions of lightweight construction
by positioning it as the perfect way to live in
the Australian climate and helping consumers
understand how to design and build with
lightweight systems.
James Hardie is also well into the third reprint of
the sustainable construction guide, the Smarter
Green Book, of which over 100,000 copies have
been distributed. It is part of a series of small
books that include the Smarter Design Book, the
Smarter Construction Book and the Smarter Small
Home Case Book.
James Hardie launched the Smarter Small Home
(SSH) in 2009. It was a built concept of a small,
sustainable and well-designed home that James
Hardie has promoted to Australian builders and
designers. By 2011, 200 SSH spin-offs have
been built or are in construction across Australia
and a further 1000 are in planning. This number
will continue to multiply as designers, builders
and developers incorporate SSH principles as
standard design and construction elements.
In 2011, James Hardie also introduced a new
program for design professionals called ACCEL™
design. ACCEL™ design enables architects,
designers and builders to quickly create realistic
3D designs with intelligent ArchiCAD® and Revit®
content and easily calculate sustainability, fire and
acoustic ratings using smart product calculators.
James Hardie recognises that as a category-
leading manufacturer, product innovation isn’t
enough. James Hardie also runs a series of
industry-wide education initiatives.
United States initiatives
In the United States, James Hardie is actively
seeking approval in leading green programs
including Eco-Options and the ICC-SAVE
program (Sustainable Attributes Verification
and Evaluation). James Hardie is a member
of The US Green Building Council (USGBC),
a non-profit membership organisation founded
in 1993, and dedicated to creating a sustainable
built environment.
The use of James Hardie products contributes
points towards a LEED certification as well as
the 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.
Following the creation of the Streetscapes
magazine and newsletter, 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.
Australian initiatives
James Hardie held the second LookHome Green
Design Awards in 2010 and featured the winners
in the LookHome Design Annual, of which
100,000 copies were printed. With over 130
entries from around Australia, judged by an expert
panel of architects and architectural publishers,
James Hardie Annual Report 2011
17
DIRECTORS’
REPORT
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
DIRECTORS
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 26–40 of this annual report.
SIGNIFICANT ChANGES IN STATE OF AFFAIRS
On 2 June 2010, shareholders approved Stage 2 of the Re-domicile, which
was completed on 17 June 2010, and as a result James Hardie Industries SE
changed its registered corporate seat to Ireland.
POST FISCAl yEAR EvENTS
On 17 May 2011, James Hardie announced that it had adopted a capital
management policy to distribute between 20% and 30% of profits after tax
(excluding asbestos adjustments, which are substantially of a non-cash
nature in the short-term) in the form of ordinary dividends and to conduct
a more active approach to capital management which will likely see the
company buy-back or issue shares as the company’s needs dictate. In
accordance with this policy, James Hardie also announced that it will seek
to acquire up to 5% of the company’s issued capital via an on-market share
buyback during the next 12 months.
FINANCIAl POSITION, OUTlOOK AND FUTURE NEEDS
The financial position, outlook and future needs of the company are set
out in Management’s Discussion and Analysis, on pages 26–40 of this
annual report.
DIvIDENDS
No dividends or distributions were recommended by the Board or paid to
shareholders in fiscal year 2011.
On 17 June 2010, James Hardie completed Stage 2 of a proposal to change
our registered corporate domicile from The Netherlands to Ireland, and as
a result James Hardie Industries SE changed its corporate seat to Ireland
(the Re-domicile). From that date the company has had a single Board.
Prior to the completion of Stage 2 of the Re-domicile, James Hardie had
a multi-tiered Board structure, consisting of a Supervisory and Managing
Board. These Boards ceased to exist on 17 June 2010.
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 to James Hardie’s Boards between 1 April 2010 and the date of this
report were:
• Messrs Hammes, McGauchie, Anderson, Dilger, Harrison, Osborne and
van der Meer ceased to be members of the Supervisory Board on 17 June
2010 when the Supervisory Board was abolished, and became members of
the single Board of directors on 17 June 2010;
• Messrs Gries, Chenu and Cox ceased to be members of the Managing
Board on 17 June 2010 when the Managing Board was abolished; and
• Louis Gries became a member of the single Board of directors on
17 June 2010.
Directors’ qualifications, experience, special responsibilities, period in office
and directorships of other publicly listed companies are set out in the Board
of Directors’ profiles in this annual report, and for Messrs Chenu and Cox in
the Group Management Team profiles in this annual report.
ATTENDANCE AT MEETINGS
Directors’ attendance at Board and Board Committee meetings during
the fiscal year ended 31 March 2011 is recorded on page 64, within the
Corporate Governance Report of this annual report.
PRINCIPAl ACTIvITIES
The principal activities of the company during fiscal year 2011 were the
manufacture and marketing of fibre cement products in the USA, Australia,
New Zealand, the Philippines and Europe.
18
James Hardie Annual Report 2011
DIRECTORS’ REPORT
(CONTINUED)
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
ENvIRONMENTAl REGUlATIONS AND PERFORMANCE
COMPANy SECRETARy
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 company secretary is Marcin Firek. Mr Firek has been employed by
James Hardie since 2006. Mr Firek is a member of the Institute of Chartered
Secretaries Australia and has over 14 years experience in legal practice.
REMUNERATION OF DIRECTORS AND
SENIOR ExECUTIvES
The summary of the company’s remuneration practices between 1 April 2010
and 31 March 2011 is set out on page 41 within the Remuneration Report in
this annual report.
ChANGES IN DIRECTORS’ INTERESTS
IN JhI SE SECURITIES
Changes in directors’ relevant interests in JHI SE securities between 1 April
2010 and 31 March 2011 are set out on page 62, in the Remuneration Report
of this annual report.
Our operations and properties are subject to extensive federal, state and
local environmental protection and health and safety laws, regulations and
ordinances in each of the countries we operate. These environmental laws,
among other matters, govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and water, and establish
standards for the handling of hazardous and toxic substances and the
handling and disposal of solid and hazardous wastes.
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.
Our senior management has a portion of their long-term incentive
arrangements based on environmental and safety goals in the Scorecard.
Further details of the Scorecard are included in the remuneration report on
pages 41–62 of this annual report.
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, activities and Charters of the Board
Committees are set out on pages 63–73 of this report.
James Hardie Annual Report 2011
19
OPTIONS AND RESTRICTED STOCK UNITS
No options were granted during fiscal year 2011.
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 pages 49 and 50 of this annual report. Details of options exercised and
RSUs vested during the fiscal year are set out in Note 16 to the consolidated financial statements, starting on page 99 of this annual report.
Options changes between 31 March 2011 and 15 June 2011 are set out below. Options changes during the period 1 April 2010 to 31 March 2011 are set out
in Note 16 to the consolidated financial statements starting on page 99 of this annual report.
Range of exercise prices
Prices A$
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.40
8.90
9.50
Total
Number of options
outstanding at
31 March 2011
100,673
1,321,250
93,000
2,250,317
723,500
1,534,250
1,016,000
2,402,205
1,899,100
15,000
11,355,295
Options cancelled
1 April to
15 June 2011
_
–
_
_
–
–
–
–
–
–
–
Options exercised
for equal number
of shares /CUFS
1 April to
15 June 2011
_
–
_
_
–
–
–
–
–
–
–
Number of options
outstanding at
15 June 2011
100,673
1,321,250
93,000
2,250,317
723,500
1,534,250
1,016,000
2,402,205
1,899,100
15,000
11,355,295
RSU changes between 31 March 2011 and the date of this report are set out below.
RSU changes during the period 1 April 2010 to 31 March 2011 are set out in Note 16 to the consolidated financial statements on page 101 of this annual
report.
Number of
Non-vested RSUs
at 31 March 2011
5,112,095
RSUs
Cancelled
(167,141)
RSUs
Vested
(925,024)
RSUs
Granted
63,146
Number of
outstanding RSUs
at 15 June 2011
4,083,076
20
James Hardie Annual Report 2011
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,
the company secretary or an employee 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 or
who have been officers or directors of the company or its subsidiaries.
AUDITORS
The external auditor for the company and its subsidiaries is Ernst & Young
LLP. The company prepared its annual accounts for fiscal year 2011 in
accordance with Irish 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.
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 2011 are set out in Remuneration
Disclosures, on page 105 of this annual report.
The Board is satisfied that the provision of these non-audit services by the
auditor during fiscal year 2011 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 to 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 the Irish Directors’ Report which is filed
with the Irish Company Registration Office (CRO) annually, which contain
additional disclosures prescribed, respectively, by the SEC and Irish law
and accounting standards. The Form 20-F filing and Irish Directors’ Report
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 2011
Louis Gries
Chief Executive Officer
James Hardie Annual Report 2011
21
SECTION 2
22 Group Management Team
24 Board of Directors
26 Management’s Discussion and Analysis
41 Remuneration Report
63 Corporate Governance Report
74 Consolidated Financial Statements
80 Notes to Consolidated Financial Statements
105 Remuneration to Independent Registered
Public Accounting Firm
105 Selected Quarterly Financial Data
22
James Hardie Annual Report 2011
SECTION 2
GROUP MANAGEMENT TEAM
Our management 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.
Members of the GMT in fiscal year 2011 were:
Louis Gries BSc, MBA
Chief Executive Officer
Age 57
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 Products, 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 Annual General
Meeting (AGM) and continued as Chairman of the
Managing Board until it was dissolved 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, Long Beach,
California, USA.
Russell Chenu BCom, MBA
Chief Financial Officer
Age 61
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
dissolved in June 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
Chief Legal Officer
Age 57
Robert Cox commenced as James Hardie’s
General Counsel in January 2008. He joined the
Company’s Managing Board as 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
dissolved in June 2010 and as Company
Secretary until 29 June 2010. He was appointed
Chief Legal Officer on 13 June 2011.
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; 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; and a
Bachelor of Arts from Wesleyan University in
Connecticut.
Mark Fisher BSc, MBA
Executive General Manager – International
Age 40
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
University of Southern California.
Sean O’Sullivan BA, MBA
Vice President – Investor & Media Relations
Age 46
Sean O’Sullivan joined James Hardie as Vice
President – Investor & 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.
James Hardie Annual Report 2011
23
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Sean O’Sullivan
Nigel Rigby
None of the persons above has any familial
relationship with each other or with the Board of
Directors listed below. In addition, none of the
individuals listed above is party to any
arrangement or understanding with a major
shareholder, customer, supplier or other entity,
pursuant to which any of the above was selected
as a member of senior management.
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 in Economics from
Sydney University and an MBA from Macquarie
Graduate School of Management.
Nigel Rigby
Executive General Manager – USA
Age 44
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 us, Mr Rigby held various
management positions at Fletcher Challenge, a
New Zealand based company involved in energy,
pulp and paper, forestry and building materials.
24
James Hardie Annual Report 2011
BOARD OF DIRECTORS
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 69
Michael Hammes was elected as an independent
Non-Executive Director of James Hardie in
February 2007. He was appointed Chairman of
the Board in January 2008 and 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 a 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 five
years: Current – Lead Director of Navistar
International Corporation (since 1996) and
DynaVox Mayer-Johnson (listed in April 2010).
Other: Resident of the United States.
Last elected: August 2009
Donald McGauchie AO
Age 61
Donald McGauchie joined James Hardie as an
independent Non-Executive Director in August
2003 and was appointed Acting Deputy Chairman
in February 2007 and Deputy Chairman in April
2007. He 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 five
years: Current – Chairman (since August
2010) and Director (since May 2010) of
Australian Agricultural Company Limited;
Chairman (since July 2010) and Director (since
2003) of Nufarm Limited; Director of GrainCorp
Limited (since 2009). Former – Chairman of
Telstra Corporation Limited (2004-2009).
Other: Chairman Australian Wool Testing Authority
(since 2005) and Director since 1999; Former
Director of The Reserve Bank of Australia
(2001-2011); resident of Australia.
Last elected: August 2010
Brian Anderson BS, MBA, CPA
Age 61
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 Corporate Vice
President of Finance, Senior Vice President and
Chief Financial Officer (1997-2004) and, more
recently, 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).
Directorships of listed companies in the past five
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 Lead
Director (since April 2011) of W.W. Grainger, Inc.
Other: Resident of the United States.
Last elected: August 2009
David Dilger CBE, BA, FCA
Age 54
David Dilger was appointed as an independent
Non-Executive Director of James Hardie in
September 2009. He is a member of the Board,
the Audit Committee and the Remuneration
Committee.
Experience: Mr Dilger has substantial
experience in multinational manufacturing
operations and a strong finance background. He
has held a number of senior executive positions,
including CEO of Greencore Group plc
(1995-2008), CEO of Food Industries plc
(1988-1991) and CFO of Woodchester
Investments (1984-1988).
Directorships of listed companies in the past five
years: Non-executive director of The Bank of
Ireland plc (2003-2009) serving as Senior
Independent Director (2007-2009).
Other: Former Chairman of Dublin Airport
Authority plc (2009-2011); resident of Ireland.
Last elected: August 2010
David Harrison BA, MBA, CMA
Age 64
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.
Michael Hammes
Donald McGauchie
Brian Anderson
David Dilger
David Harrison
James Hardie Annual Report 2011
25
Experience: Mr Harrison is an experienced
company director with a finance background,
having served in corporate finance roles,
international operations and information
technology during 22 years with Borg Warner/
General Electric Co. His previous experience
includes ten years at Pentair, Inc., as Executive
Vice President and Chief Financial Officer
(1994-1996 and 2000-2007) and Vice President
and Chief Financial Officer roles at Scotts, Inc.
and Coltec Industries, Inc. (1996-2000).
Directorships of listed companies in the past five
years: Director National Oilwell Varco (since
2003); Director Navistar International Corporation
(since 2007).
Other: Resident of the United States.
Last elected: August 2010
James Osborne BA Hons, LLB
Age 62
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
businesses operating in North America and
Europe. His career includes 35 years with the
leading Irish law firm, A&L Goodbody, including
as managing partner (1982-1994) and opening
the firm’s New York office in 1979. Mr Osborne
contributed to the listing of Ryanair in London,
New York and Dublin and has served on its
Board since 1996.
Directorships of listed companies in the past five
years: Current – Director, Ryanair Holdings plc
(since 1996); Former – Chairman, Newcourt
Group plc (2004-2009).
Other: Chairman, Eason & Son Ltd (since August
2010), Chairman, Centric Health (since March
2011); resident of Ireland.
Last elected: August 2009
Rudy van der Meer M.Ch.Eng
Age 66
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
former executive, with considerable knowledge of
international business 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), and member of the five person
Executive Board (1993-2005).
Directorships of listed companies in the past five
years: Current – Chairman of the Supervisory
Board of Imtech N.V. (since 2005); Director
LyondellBasell Industries NV (since August 2010);
Former – Member of the Supervisory Board of
Hagemeyer N.V. (2006-2008).
Other: Chairman of the Board of Energie Beheer
Nederland B.V. (since 2006); Chairman of the
Supervisory Board of Univé-VGZ-IZA-Trias (UVIT)
Health Insurance (since May 2011); resident of
The Netherlands.
Last elected: August 2009
Our CEO, Louis Gries, is an Executive Director on
the company’s Board. Mr Gries’ biographical
details appear in the Group Management Team
section.
None of the persons above has any familial
relationship with each other or with the Group
Management Team. In addition, none of the
individuals listed above is party to any
arrangement or understanding with a major
shareholder, customer, supplier or other entity,
pursuant to which any of the above was selected
as a director.
James Osborne
Rudy van der Meer
26
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
Notes to consolidated financial statements in this annual report.
OVERVIEW
We intend this discussion to provide information that will assist in
understanding our 31 March 2011 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 our financial
condition and results of operations in future periods. This discussion
includes information about our critical accounting estimates and how these
estimates affect our consolidated financial statements, and information about
the consolidated financial results of each business segment to provide a
better understanding of how each segment and its results affect our
financial condition and results of operations as a whole.
Our consolidated financial statements are prepared in accordance with US
GAAP. Our discussion in this section includes several non-GAAP measures
to provide additional information concerning our performance. We believe
that these non-GAAP measures enhance an investor’s overall understanding
of our financial performance by being more reflective of our core operational
activities and to be more comparable with our financial results over various
periods. In addition, we use non-GAAP financial measures internally for
strategic decision making, forecasting future results and evaluating current
performance. Non-GAAP financial measures include:
(cid:129) Operating income excluding asbestos and ASIC expenses
(cid:129) Effective tax rate excluding asbestos and tax adjustments
(cid:129) Net income excluding asbestos, ASIC expenses and tax adjustments
We have reconciled these non-GAAP financial measures to the most directly
comparable US GAAP financial measure for fiscal years 2011 and 2010 in
the “Definitions” section below at the end of our “Results of Operations”
discussion. These non-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.
Our pre-tax results for fiscal years 2011 and 2010 were affected by
unfavourable asbestos adjustments of US$85.8 million and
US$224.2 million, respectively; Asbestos Injuries Compensation Fund (which
we refer to as AICF) SG&A expenses of US$2.2 million and US$2.1 million,
respectively; and ASIC related (recoveries) expenses of US$(8.7) million and
US$3.4 million, respectively. Information regarding our asbestos-related
matters and ASIC matters can be found in this discussion and Notes 11 and
13 in our consolidated financial statements.
The Company and the Building Product Markets
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 current primary geographic markets include the United
States, Australia, New Zealand, the Philippines, Europe and Canada.
Through significant research and development expenditure, we develop key
product and production process technologies that we patent or hold as trade
secrets. We believe that these technologies give us a competitive
advantage.
Our 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 remodeling and a
variety of commercial and industrial applications (stores, warehouses,
offices, hotels, motels, schools, libraries, museums, dormitories, hospitals,
detention facilities, religious buildings and gymnasiums). We manufacture
numerous types of 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.
Our products are primarily sold in the residential housing markets.
Residential construction levels fluctuate based on new home construction
activity and the repair and renovation of existing homes. These levels of
activity are affected by many factors, including home mortgage interest
rates, 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
2011, resulting in weaker residential construction activity, particularly in the
United States and New Zealand.
Our earnings are seasonal and typically follow activity levels in the building
and construction industry. In the United States, the calendar quarters ending
December and March reflect reduced levels of building activity depending
on weather conditions. In Australia and New Zealand, the calendar quarter
ending March is usually affected by a slowdown due to summer holidays. In
the Philippines, construction activity diminishes during the wet season from
June to September and during the last half of December due to a slowdown
in business activity over the holiday period. Also, general industry patterns
can be affected by weather, economic conditions, industrial disputes and
other factors.
Fiscal Year 2011 Key Results
Total net sales increased 4% to US$1,167.0 million in fiscal year 2011. We
recorded an operating income of US$104.7 million in fiscal year 2011
compared to an operating loss of US$21.0 million in fiscal year 2010. The
operating income (loss) in fiscal years 2011 and 2010 was adversely
affected by unfavourable asbestos adjustments of US$85.8 million and
US$224.2 million, respectively. Operating profit excluding asbestos and ASIC
expenses decreased 12% to US$184.0 million in fiscal year 2011 from
US$208.7 million in fiscal year 2010.
Net income excluding asbestos, ASIC expenses and tax adjustments
decreased 12% to US$116.7 million in fiscal year 2011 from
US$133.0 million in fiscal year 2010. Including asbestos, ASIC expenses
and tax adjustments, net income moved from a loss of US$84.9 million to a
loss of US$347.0 million. In fiscal year 2011, tax adjustments include a
charge of US$345.2 million related to the dismissal of RCI Pty Ltd’s (which
we refer to as RCI) appeal of the 1999 disputed amended tax assessment,
which did not result in a cash outflow for the year ended 31 March 2011.
Also included in tax adjustments for fiscal year 2011 was a charge of
US$32.6 million related to our corporate structure simplification announced
on 17 May 2011.
Our largest market is North America. During fiscal year 2011, USA and
Europe Fibre Cement net sales contributed approximately 70% of total net
sales, and its operating income was the primary contributor to the total
Company results. Net sales for our USA and Europe Fibre Cement business
James Hardie Annual Report 2011
27
decreased 2% due to lower sales volume, partially offset by a higher
average net sales price.
Operating income for our USA and Europe Fibre Cement segment decreased
23% in fiscal year 2011 from fiscal year 2010 primarily due to an increase
in input costs (primarily pulp and freight), lower sales volume, unfavourable
cost absorption driven by lower production volume and higher labour cost
per unit manufactured, and unfavourable manufacturing performance,
partially offset by a higher average net sales price and a reduction in SG&A
expense.
During fiscal year 2011, Asia Pacific net sales contributed approximately
30% of total net sales. Net sales increased 19% due to favourable currency
exchange rates movements in the Asia Pacific business’ currencies
compared to the US dollar and an increase in sales volume and average net
sales price.
We do not believe that general inflation has had a significant impact on our
results of operations for the fiscal years ended 31 March 2011, 2010 and 2009.
CRITICAL ACCOUNTING ESTIMATES
The accounting policies affecting our financial condition and results of
operations are more fully described in Note 2 to our consolidated financial
statements. Certain of our accounting policies require the application of
judgment by management in selecting appropriate assumptions for
calculating financial estimates, which inherently contain some degree of
uncertainty. Management bases its estimates on historical experience and
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the reported carrying value of assets and liabilities and the reported
amounts of revenues and expenses that may not be readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions and conditions. We consider the following policies to be the
most critical in understanding the judgments that are involved in preparing
our consolidated financial statements and the uncertainties that could
impact our results of operations, financial condition and cash flows.
Accounting for Contingencies
We account for loss contingencies arising from contingent obligations when
the obligations are probable and the amounts are reasonably estimable. As
facts concerning contingencies become known, we reassess our situation
and make appropriate adjustments to the consolidated financial statements.
Accounting for the AFFA
Prior to 31 March 2007, our consolidated financial statements included an
asbestos provision based on the Original Final Funding Agreement governing
our anticipated future payments to the AICF as announced on 1 December
2005 (which we refer to as 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 certain former
subsidiaries of the James Hardie Group, including ABN 60, Amaca and
Amaba 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 Actuarial. Based on their assumptions, KPMG Actuarial 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 Actuarial 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
our business, results of operations and financial condition.
Sales Rebates and Discounts
We record estimated reductions to sales for customer rebates and discounts
including volume, promotional, cash and other rebates and discounts.
Rebates and discounts are recorded based on management’s best estimate
when products are sold. The estimates are based on historical experience
for similar programs and products. Management reviews these rebates and
discounts on an ongoing basis and the related accruals are adjusted, if
necessary, as additional information becomes available.
Accounts Receivable
We evaluate the collectability of accounts receivable on an ongoing basis
based on historical bad debts, customer credit-worthiness, current economic
trends and changes in our customer payment activity. An allowance for
doubtful accounts is provided for known and estimated bad debts. Although
credit losses have historically been within our expectations, we cannot
guarantee that we will continue to experience the same credit loss rates
that we have in the past. Because our accounts receivable are concentrated
in a relatively small number of customers, a significant change in the
liquidity or financial position of any of these customers could impact their
ability to make payments and result in the need for additional allowances
which would decrease our net sales.
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
28
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
management to make judgments about the future demand for inventory, and
is therefore at risk to change from period to period. If our estimate for the
future demand for inventory is greater than actual demand and we fail to
reduce manufacturing output accordingly, we could be required to record
additional inventory reserves, which would have a negative impact on our
gross profit.
Accrued Warranty Reserve
We have offered, and continue to offer, various warranties on our products,
including a 30-year limited warranty on certain of our fibre cement siding
products in the United States. Because our 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 our expectations over an
extended period of time. A typical warranty program requires that we
replace defective products within a specified time period from the date of
sale. We record an estimate for future warranty-related costs based on an
analysis by us, which includes the historical relationship of warranty costs to
installed product. Based on this analysis and other factors, we adjust the
amount of our warranty provisions as necessary. Although our warranty
costs have historically been within calculated estimates, if our experience is
significantly different from our estimates, it could result in the need for
additional reserves.
Accounting for Income Tax
We recognise 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 we expect the differences to reverse. We
record a valuation allowance to reduce the deferred tax assets to the
amount that we are more likely than not to realise. We must assess
whether, and to what extent, we can recover our deferred tax assets. If full
or partial recovery is unlikely, we must increase our income tax expense by
recording a valuation allowance against the portion of deferred tax assets
that we cannot recover. We believe that we will recover all of the deferred
tax assets recorded (net of valuation allowance) on our consolidated balance
sheet at 31 March 2011. However, if facts later indicate that we will be
unable to recover all or a portion of our net deferred tax assets, our income
tax expense would increase in the period in which we determine that
recovery is unlikely.
We evaluate our uncertain tax positions in accordance with the guidance for
accounting for uncertainty in income taxes. We believe that our reserve for
uncertain tax positions, including related interest, is adequate. Due to our
size and the nature of our business, we are subject to ongoing reviews by
taxing jurisdictions on various tax matters, including challenges to various
positions we assert on our income tax returns. The amounts ultimately paid
upon resolution of these matters could be materially different from the
amounts previously included in our income tax expense and therefore could
have a material impact on our 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 we evaluate the income tax positions
taken, or expected to be taken, to determine whether these positions meet
the more-likely-than-not threshold. We are required to make subjective
judgments and assumptions regarding our 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, our income tax expense in a given
financial statement period could be materially affected.
James Hardie Annual Report 2011
29
RESULTS OF OPERATIONS
Year Ended 31 March 2011 Compared to Year Ended 31 March 2010
The following table shows our selected financial and operating data for continuing operations for fiscal years 2011 and 2010, expressed in millions of US
dollars, unless otherwise stated.
Fiscal Years Ended 31 March
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
Operating income (loss)
Net interest expense
Other (expense) income
Income (loss) before income taxes
Income tax expense
Net loss
Volume (mmsf):
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Average net sale price per unit (per msf):
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
2011
$ 814.0
353.0
1,167.0
(775.1)
391.9
(173.4)
(28.0)
(85.8)
104.7
(4.4)
(3.7)
96.6
(443.6)
$ (347.0)
1,248.0
407.8
US$
A$
652
916
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
US$
A$
635
894
Favourable
(Unfavourable)
Change
(2)%
19
4
(9)
(6)
7
(3)
62
–
(10)
–
–
–
–
(4)
5
3
2%
Total Net Sales. Total net sales increased 4% from US$1,124.6 million in
fiscal year 2010 to US$1,167.0 million in fiscal year 2011. Net sales in
fiscal year 2011 was favourably impacted by an increase in the average
net sales price and an appreciation of the Asia Pacific currencies against
the US dollar.
USA and Europe Fibre Cement Net Sales. Net sales decreased 2% from
US$828.1 million in fiscal year 2010 to US$814.0 million in fiscal year
2011 due to lower sales volume, partially offset by a higher average net
sales price.
Sales volume decreased 4% from 1,303.7 million square feet in fiscal
year 2010 to 1,248.0 million square feet in fiscal year 2011, primarily
due to weaker demand for our products in the US caused by the
prolonged weakness in housing construction activity. The average net
sales price increased 3% from US$635 per thousand square feet in fiscal
year 2010 to US$652 per thousand square feet in fiscal year 2011 as a
result of a price increase and a favourable shift in product mix.
production volume and higher labour cost per unit manufactured, and
unfavourable manufacturing performance, partially offset by a higher
average net sales price and a reduction in SG&A expenses. USA and
Europe Fibre Cement operating income was favourably impacted by the
European business, which delivered a strong result as both sales volume
and average net sales price increased in fiscal year 2011 compared to
fiscal year 2010.
According to the US Census Bureau, single family housing starts, which
are a key driver of our performance, were 446,400 in fiscal year 2011,
7.3% below fiscal year 2010.
For fiscal year 2011, the average Northern Bleached Softwood Kraft
(NBSK) pulp price was US$978 per ton, up 30.4% compared to US$750
per ton for fiscal year 2010. Input costs are expected to remain high with
NBSK pulp prices forecast to remain at or above US$1,000 per ton. In
April 2011, the average NBSK pulp price rose to US$1,020 per ton from
US$990 per ton in March 2011.
USA and Europe Fibre Cement fiscal year 2011 operating income was
23% below prior year due to an increase in input costs (primarily pulp and
freight), lower sales volume, unfavourable cost absorption driven by lower
Similarly, freight costs in the US were higher for fiscal year 2011
compared to fiscal year 2010 with the majority of the increase impacting
the fourth quarter result. Freight costs rose due to higher truck rates
30
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
attributed to flatbed truck supply constraints (as the broader US economy
recovers), higher fuel costs and product mix shifts.
Notwithstanding improved affordability, increasing levels of household
formation and falling inventories of new and existing houses for sale, a
recovery in the sector continues to be inhibited by a combination of
factors such as relatively low levels of consumer confidence, limited
access to credit for prospective home buyers, falling housing values and
the continued supply of foreclosed properties.
Asia Pacific Fibre Cement Net Sales. Net sales increased 19% from
US$296.5 million in fiscal year 2010 to US$353.0 million in fiscal year
2011. The higher value of the Asia Pacific business’ currencies against
the US dollar accounted for 12% of this increase. The underlying
Australian dollar business results accounted for the remaining 7%
increase, as both sales volume and average net sales price increased.
Asia Pacific Fibre Cement sales volume was up 5% in fiscal year 2011
compared to fiscal year 2010 as a strong sales effort across the region
and particularly in Australia delivered improved results. When combined
with the sustained growth in primary demand for fibre cement and market
share gains, these factors helped to offset a moderation in market
conditions in the second half of fiscal year 2011.
In Australia, increases in mortgage interest rates, along with wet weather
along the eastern seaboard and the end of the government social housing
construction initiative, had a dampening effect upon the Australian
residential housing construction market in the fourth quarter. According to
the Australian Bureau of Statistics (ABS), total dwellings approved increased
3% compared to fiscal year 2010, with detached houses down 10%.
In Australia, the ScyonTM branded product range continued to build
momentum over the course of fiscal year 2011. In New Zealand, the
business faced continued challenges as business and consumer
confidence fell during fiscal year 2011 and subsequently the construction
of residential houses fell to historically low levels. The business has also
had to contend with increased competition from imported products. In the
Philippines, sales volume decreased slightly in fiscal year 2011 compared
to fiscal year 2010. Improved sales of differentiated products and relatively
strong underlying market conditions during fiscal year 2011 were partially
offset by a mechanical failure during the second quarter.
Gross Profit. Gross profit decreased 6% from US$416.1 million in fiscal
year 2010 to US$391.9 million in fiscal year 2011. The gross profit
margin decreased 3.4 percentage points from 37.0% in fiscal year 2010
to 33.6% in fiscal year 2011.
USA and Europe Fibre Cement gross profit decreased 16% compared to fiscal
year 2010, of which 9% was due to an increase in input costs (primarily pulp
and freight), 6% due to lower sales volume and 6% due to unfavourable cost
absorption and higher labour cost per unit manufactured driven primarily by
lower production volume, partially offset by a 5% benefit from an increase in
average net sales price. The gross profit margin of the USA and Europe Fibre
Cement business decreased by 5.6 percentage points.
Asia Pacific Fibre Cement gross profit increased 30% compared to fiscal
year 2010, of which 13% resulted from favourable currency exchange rate
movements in the Asia Pacific business’ currencies compared to the US
dollar. In Australian dollars, gross profit increased 17%, of which 9% was
due to an increase in average net sales price, 5% due to higher sales
volume, 4% due to improved manufacturing performance and 3% due to
lower fixed unit cost of manufacturing as fixed costs were spread over
higher production volume, partially offset by a 3% detriment due to
increased pulp costs and 1% detriment due to a mechanical failure in the
Philippines facility that occurred during the second quarter of fiscal year
2011. The gross profit margin of the Asia Pacific Fibre Cement business
increased by 2.8 percentage points.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses
decreased 7%, from US$185.8 million in fiscal year 2010 to
US$173.4 million in fiscal year 2011. The decrease was primarily due to
recoveries from third parties of US$10.3 million related to the costs of
bringing and defending appeals for certain of the ten former officers and
directors involved in the ASIC proceedings, partially offset by higher SG&A
expenses in the Asia Pacific Fibre Cement segment. As a percentage of
sales, SG&A expenses declined 1.6 percentage points to 14.9%. Further
information on general corporate costs is included below.
ASIC Proceedings
For the year ended 31 March 2011, we incurred legal costs related to the
ASIC proceedings of US$1.6 million. Our cumulative net costs in relation
to the ASIC proceedings from their commencement in February 2007 to
31 March 2011 have totalled US$14.4 million.
During the second quarter of fiscal year 2011, we entered into
agreements with third parties and subsequently received payment for
US$10.3 million related to the costs of the ASIC proceedings for certain of
the ten former officers and directors. This resulted in a net benefit of
US$8.7 million in fiscal year 2011, compared to an expense of
US$3.4 million in fiscal year 2010. ASIC recoveries are included as a
component of SG&A expense for the year ended 31 March 2011.
See Note 13 to our consolidated financial statements for further
information on the ASIC Proceedings.
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 8% higher for fiscal year 2011
at US$16.9 million compared to fiscal year 2010.
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 3% lower for the fiscal year 2011 at
US$11.1 million compared to fiscal year 2010.
Asbestos Adjustments. The Company’s asbestos adjustments are derived from
an estimate of future Australian asbestos-related liabilities in accordance with
the Amended and Restated Final Funding Agreement (AFFA) that was signed
with the New South Wales (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 A$1.537 billion at 31 March 2010 to A$1.478 billion at 31 March
2011. The reduction in the discounted central estimate of A$59 million is
primarily due to 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 our Consolidated Balance Sheets in US dollars is subject to
adjustment, with a corresponding effect on our Consolidated Statement of
Operations, depending on the closing exchange rate between the two
currencies at the balance sheet date.
For fiscal year 2011, the Australian dollar appreciated against the US
dollar by 13%, compared to a 33% appreciation in fiscal year 2010.
James Hardie Annual Report 2011
31
The Company receives an updated actuarial estimate as of 31 March each
year. The last actuarial assessment was performed as of 31 March 2011.
The asbestos adjustments for the fiscal years ended 31 March 2011 and
2010 are as follows:
(Millions of US dollars)
Change in estimates
Effect of foreign exchange movements
Asbestos adjustments
Fiscal Years Ended 31
March
2011
2010
$
$
21.5
$
(3.3)
(107.3)
(220.9)
(85.8)
$
(224.2)
Claims Data
The number of new claims filed in fiscal year 2011 of 494 is lower than
new claims of 535 reported for fiscal year 2010, and below actuarial
expectations for the fiscal year 2011.
The number of settled claims in fiscal year 2011 of 459 is lower than
claims settled of 540 for the fiscal year 2010.
The average claim settlement of A$204,000 for fiscal year 2011 is
A$13,000 higher than fiscal year 2010 but below the actuarial expectations
for fiscal year 2011.
Asbestos claims paid of A$100.6 million for fiscal year 2011 were lower
than the actuarial expectation of A$117.0 million. The lower-than-expected
expenditure was due to lower settlement activity and lower-than-expected
claim settlement sizes.
All figures provided in this Claims Data section are gross of insurance and
other recoveries. See Note 11 to our consolidated financial statements for
further information on asbestos adjustments.
Operating Income (Loss). Operating income moved from a loss of
US$21.0 million in fiscal year 2010 to income of US$104.7 million in fiscal
year 2011. Fiscal year 2011 operating income includes net unfavourable
asbestos adjustments of US$85.8 million, AICF SG&A expenses of
US$2.2 million and a net benefit related to the ASIC proceedings of
US$8.7 million. In fiscal year 2010, operating loss included net unfavourable
asbestos adjustments of US$224.2 million, AICF SG&A expense of
US$2.1 million and ASIC expenses of US$3.4 million.
USA and Europe Fibre Cement operating income fell 23% from
US$208.5 million in fiscal year 2010 to US$160.3 million in fiscal year
2011. The decrease was primarily due to an increase in input costs
(primarily pulp and freight), lower sales volume, unfavourable cost
absorption driven by lower production volume and higher labour cost per
unit manufactured, and unfavourable manufacturing performance, partially
offset by a higher average net sales price and a reduction in SG&A
expenses. The USA and Europe Fibre Cement operating income margin was
5.5 percentage points lower at 19.7%.
Asia Pacific Fibre Cement operating income increased 35% from
US$58.7 million in fiscal year 2010 to US$79.4 million in fiscal year 2011,
of which 13% was attributed to appreciation of the Asia Pacific business’
currencies compared to the US dollar. In Australian dollars, Asia Pacific
Fibre Cement operating income increased 22% primarily due to an increase
in average net sales price, higher sales volume, lower fixed unit cost of
manufacturing as fixed costs were spread over higher production volume
and improved manufacturing performance, partially offset by higher input
costs (primarily pulp) and a mechanical failure in the Philippines facility that
temporarily halted production during the second quarter of fiscal year 2011.
The Asia Pacific Fibre Cement operating income margin was 2.7 percentage
points higher at 22.5%.
General Corporate Costs. General corporate costs decreased 37% from
US$42.9 million in fiscal year 2010 to US$26.9 million in fiscal year 2011.
General corporate costs in fiscal year 2011 have been materially impacted
by US$10.3 million recovered from third parties in respect of prior period
ASIC expenses.
ASIC expenses moved from an expense of US$3.4 million in fiscal year
2010 to a benefit of US$8.7 million in fiscal year 2011.
General corporate costs excluding ASIC expenses and domicile change
related costs for fiscal year 2011 increased from US$30.4 million in fiscal
year 2010 to US$33.8 million in fiscal year 2011 primarily due to a
US$7.6 million non-recurring write-back of a legal provision recognised in
fiscal year 2010.
Net Interest Expense. Net interest expense increased from US$4.0 million in
fiscal year 2010 to US$4.4 million in fiscal year 2011. Net interest expense
in fiscal year 2011 includes a realised loss of US$3.9 million on interest
rate swaps and interest and borrowing costs relating to our external credit
facilities of US$5.0 million, partially offset by AICF interest income of
US$4.3 million. Net interest expense for fiscal year 2010 includes a realised
loss on interest rate swaps of US$2.5 million and interest and borrowing
costs relating to our external credit facilities of US$2.2 million, partially
offset by AICF interest income of US$3.3 million.
Other (expense) income. Other expense moved from income of
US$6.3 million in fiscal year 2010 to an expense of US$3.7 million in fiscal
year 2011. This movement is primarily due to an unrealised loss resulting
from a change in the fair value of interest rate swap contracts of
US$3.8 million in fiscal year 2011, compared to an unrealised loss of
US$0.4 million in fiscal year 2010. In addition, a realised gain of
US$6.7 million was recognised in fiscal year 2010, which resulted from the
sale of restricted short-term investments held by AICF that did not recur in
fiscal year 2011.
Income tax. Income tax expense increased from US$66.2 million in fiscal
year 2010 to US$443.6 million in fiscal year 2011, as further explained
below. Our effective tax rate on earnings excluding asbestos and tax
adjustments was 31.1% in fiscal year 2011, compared to 34.4% in fiscal
year 2010. The change in effective tax rate excluding asbestos and tax
adjustments compared to fiscal year 2010 is attributable to changes in the
geographic mix of earnings and expenses, and reductions in non-tax
deductible expenses.
We recorded unfavourable tax adjustments of US$380.7 million in fiscal
year 2011 compared to favourable tax adjustments of US$2.9 million in
fiscal year 2010. The tax adjustments in fiscal year 2011 reflect a
US$32.6 million tax charge arising from our corporate structure
simplification and a non-cash expense of US$345.2 million following the
dismissal of RCI’s appeal of the 1999 disputed amended tax assessment.
RCI strongly disputes the amended assessment and is pursuing an appeal
of the Federal Court’s judgment. RCI’s appeal was heard from 16 May 2011
to 18 May 2011 before the Full Court of the Federal Court of Australia.
Judgment has been reserved.
With effect from 1 September 2010, we have expensed payments of GIC to
the ATO until RCI ultimately prevails on the matter or the remaining
outstanding balance of the amended assessment is paid. See Note 14 to
our consolidated financial statements for further information on the ATO
Amended Assessment.
32
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
Net Loss. Net loss for fiscal year 2011 was US$347.0 million, compared to US$84.9 million for fiscal year 2010. Net income excluding asbestos, ASIC
expenses and tax adjustments decreased 12% from US$133.0 million in fiscal year 2010 to US$116.7 million in fiscal year 2011.
Year Ended 31 March 2010 Compared to Year Ended 31 March 2009
The following table shows our selected financial and operating data for continuing operations for fiscal years 2010 and 2009, expressed in millions of US
dollars, unless otherwise stated.
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
Operating (loss) income
Net interest expense
Other income (expense)
(Loss) income before income taxes
Income tax expense
Net (loss) income
Volume (mmsf):
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Average net sale price per unit (per msf):
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Fiscal Years Ended 31 March
2010
2009
$
828.1
296.5
1,124.6
$
929.3
273.3
1,202.6
(708.5)
416.1
(185.8)
(27.1)
(224.2)
(21.0)
(4.0)
6.3
(18.7)
(66.2)
(813.8)
388.8
(208.8)
(23.8)
17.4
173.6
(3.0)
(14.8)
155.8
(19.5)
$
(84.9)
$
136.3
1,303.7
389.6
1,526.6
390.6
US$
A$
635
894
US$
A$
609
879
Favourable
(Unfavourable)
Change
(11)%
9
(6)
13
7
11
(14)
–
–
(33)
–
–
–
–
(15)
–
4
2%
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.
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.
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 our 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.
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.
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.
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
James Hardie Annual Report 2011
33
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.
ABS reported a 16% increase in housing approvals in fiscal year 2010
compared to the 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 ScyonTM 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.
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
For the year ended 31 March 2010, we incurred legal costs related to the
ASIC proceedings and appeals, noted as ASIC expenses, of
US$3.4 million. These costs were substantially lower compared to fiscal
year 2009, when we incurred ASIC expenses of US$14.0 million. ASIC
expenses are included in SG&A expenses.
Our 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.
See Note 13 to our consolidated financial statements for more information.
Chile Litigation
On 31 December 2009, we entered into a settlement agreement with El
Volcan resolving all outstanding issues between us relating to the sale of
FC Volcan to El Volcan in July 2005. Under the settlement agreement, we
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 defense of the antitrust
proceedings, including payment of any final judgments rendered on
appeal. El Volcan will also be required to defend and indemnify us 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 we 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.
We denied and continue to deny the allegations of predatory pricing in
Chile.
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 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 our security holders in February 2007.
The discounted central estimate of the asbestos liability has 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 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
34
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
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 our consolidated balance sheets in US dollars is subject to
adjustment, with a corresponding effect on our consolidated statement of
operations, depending on the closing exchange rate between the two
currencies at the balance sheet date.
For fiscal year 2010, the Australian dollar appreciated against the US
dollar by 33%, compared to a 25% depreciation in fiscal year 2009. We
receive 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 2011 and 2010 are as
follows:
(Millions of US dollars)
Change in estimates
Fiscal Years Ended 31 March
2010
2009
$
(3.3)
$
(162.3)
Effect of foreign exchange movements
(220.9)
179.7
Asbestos adjustments
$ (224.2)
$
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). We will make a contribution of
approximately 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 our consolidated financial statements for
further information on asbestos adjustments.
Operating Income (Loss). Operating income 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, operating income 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.
USA and Europe Fibre Cement operating income 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 operating income margin was
3.8 percentage points higher at 25.2%.
Asia Pacific Fibre Cement operating income 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 operating profit
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 operating profit 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. We incurred costs associated with
our 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 domicile change
related 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 the 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. Our 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.
James Hardie Annual Report 2011
35
We 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 Income (Loss). Net loss moved from income of US$136.3 million in fiscal year 2009 to a loss of US$84.9 million in fiscal year 2010. Net income
excluding asbestos, ASIC expenses and tax adjustments increased from US$100.5 million in fiscal year 2009 to US$133.0 million in fiscal year 2010.
Fiscal year 2010 includes a legal provision reversal of US$7.6 million. See Note 13 to our consolidated financial statements for further information on the
legal provision reversal.
DEFINITIONS
Financial Measures – Australian equivalent terminology
Operating income and Operating income margin – is equivalent to EBIT and EBIT margin
Income before income taxes – is equivalent to operating profit
Net income – is equivalent to net operating profit
Non-GAAP Financial Information Derived from GAAP Measures
The following tables set forth the reconciliation of our non-GAAP financial measures included in our discussion above to the most directly comparable GAAP
financial measure. These non-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.
Operating income excluding asbestos and ASIC expenses – operating income excluding asbestos and ASIC expenses is not measures of financial
performance under US GAAP and should not be considered to be more meaningful than operating income. We have included these financial measures to
provide investors with an alternative method for assessing our operating results in a manner that is focussed on the performance of our ongoing operations
and provide useful information regarding our financial condition and results of operations. We use these non-US GAAP measures for the same purposes.
(Millions of US dollars)
USA and Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development
General Corporate:
General corporate costs
Asbestos adjustments
AICF SG&A expenses
Total operating income (loss)
Excluding:
Asbestos:
Asbestos adjustments
AICF SG&A expenses
ASIC related (recoveries) expenses
2011
$ 160.3
79.4
(20.1)
(26.9)
(85.8)
(2.2)
Fiscal Years Ended 31 March
$
2010
208.5
58.7
(19.0)
(42.9)
(224.2)
(2.1)
$
2009
199.3
47.1
(18.9)
(70.6)
17.4
(0.7)
$ 104.7
$
(21.0)
$
173.6
85.8
2.2
(8.7)
224.2
2.1
3.4
(17.4)
0.7
14.0
Operating income excluding asbestos and ASIC expenses
$ 184.0
$
208.7
$
170.9
36
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
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. We have included this financial measure to
provide investors with an alternative method for assessing our operating results in a manner that is focussed on the performance of our ongoing operations.
We use this non-US GAAP measure for the same purposes.
(Millions of US dollars)
Income (loss) before income taxes
Excluding:
Asbestos:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Income before income taxes excluding asbestos and ASIC expenses
$
180.3
Income tax expense
Excluding:
Tax expense (benefit) related to asbestos adjustments
Tax adjustments1
Income tax expense excluding tax effect of asbestos adjustments and tax
adjustments
Effective tax rate
Effective tax rate excluding asbestos and tax adjustments
$ (443.6)
6.9
380.7
$
(56.0)
(459.2)%
31.1%
2011
96.6
$
Fiscal Years Ended 31 March
2010
$
(18.7)
85.8
2.2
(4.3)
–
224.2
2.1
(3.3)
(6.7)
197.6
(66.2)
1.1
(2.9)
$
$
2009
$
155.8
(17.4)
0.7
(6.4)
14.8
$
$
147.5
(19.5)
(48.7)
7.2
$
(68.0)
$
(61.0)
354.0%
34.4%
12.5%
41.4%
Net income excluding asbestos, ASIC expenses and tax adjustments – Net income 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. We have included this financial
measure to provide investors with an alternative method for assessing our operating results in a manner that is focussed on the performance of our ongoing
operations. We use this non-US GAAP measure for the same purposes.
(Millions of US dollars)
Net (loss) income
Excluding:
Asbestos adjustments
AICF SG&A expenses
AICF interest income
(Gain) impairment on AICF investments
Tax expense (benefit) related to asbestos
ASIC related (recoveries) expenses
Tax adjustments1
2011
$ (347.0)
Fiscal Years Ended 31 March
2010
$
(84.9)
2009
$
136.3
85.8
2.2
(4.3)
–
6.9
(7.6)
380.7
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
Net income excluding asbestos, ASIC expenses and tax adjustments
$
116.7
$
133.0
$
100.5
1 Fiscal year 2011 includes a charge of US$345.2 million related to the dismissal of RCI’s appeal of the 1999 disputed amended tax assessment and a
charge of US$32.6 million arising from our corporate structure simplification announced on 17 May 2011.
Impact of Recent Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, which requires new fair value disclosures pertaining to significant transfers in and out of Level 1 and
Level 2 fair value measurements and the reasons for the transfers and activity. For Level 3 fair value measurements, purchases, sales, issuances and
settlements must be reported on a gross basis. Further, additional disclosures are required by class of assets or liabilities, as well as inputs used to
measure fair value and valuation techniques. ASU No. 2010-06 is effective for interim and annual reporting periods beginning after 15 December 2009,
except for the disclosures about purchases, sales, issuances and settlements on a gross basis, which is effective for fiscal years beginning after
15 December 2010. The adoption of the effective portions of this ASU did not result in a material impact on our consolidated financial position, results of
James Hardie Annual Report 2011
37
operations or cash flows. We do not anticipate that the adoption of the
remaining portions of this ASU will result in a material impact to our
reported consolidated financial position, results of operations or cash
flows.
In April 2010, the FASB issued ASU No. 2010-13, which provides
additional guidance concerning the classification of an employee share-
based payment award with an exercise price denominated in the currency
of a market in which the underlying equity security trades. This update
clarifies that an employee share-based payment award with an exercise
price denominated in the currency of a market in which a substantial
portion of the entity’s equity securities trades should not be considered to
contain a condition that is not a market, performance or service condition.
Therefore, an entity would not classify such an award as a liability if it
otherwise qualifies as equity. The amendments included in this update do
not expand the recurring disclosure requirements already in effect. The
amendments in this update are effective for fiscal years and interim
periods beginning on or after 15 December 2010. The adoption of this
ASU did not result in a material impact on our reported consolidated
financial position, results of operations or cash flows.
policy is reviewed annually and is designed to ensure that we have sufficient
liquidity to support our business activities and meet future business
requirements in the countries in which we operate. Counterparty limits are
managed by our treasury department and based upon the counterparty
credit rating; total exposure to any one counterparty is limited to specified
amounts that are approved annually by the Chief Financial Officer.
We have historically met our 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 the redemption of investments. Seasonal
fluctuations in working capital generally have not had a significant impact on
our short-term or long-term liquidity. We anticipate that we will have
sufficient funds to meet our planned working capital and other cash
requirements for the next 12 months based on our existing cash balances
and anticipated operating cash flows arising during the year. We anticipate
that any additional cash requirements will be met from unutilised committed
credit facilities and anticipated future net operating cash flow.
At 31 March 2011 we had net debt of US$40.4 million, a decrease of
US$94.4 million from net debt of US$134.8 million at 31 March 2010.
Liquidity and Capital Resources
Our treasury policy regarding our liquidity management, foreign exchange
risk management, interest rate risk management and cash management is
administered by our treasury department and is centralised in Ireland. This
Excluding restricted cash, we had cash and cash equivalents of
US$18.6 million as of 31 March 2011. At that date, we also had credit
facilities totaling US$320.0 million, of which US$59.0 million was drawn.
The credit facilities are all uncollateralised and consist of the following:
(Millions of US dollars)
Description
Effective Interest Rate
At 31 March 2011
Total Facility
Principal Drawn
Term facilities, can be drawn in US$, variable interest rates based on
LIBOR plus margin, can be repaid and redrawn until September 2012
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
Term facilities, can be drawn in US$, variable interest rates based on
LIBOR plus margin, can be repaid and redrawn until February 2014
Total
The weighted average interest rate on the Company’s total debt was
1.02% and 0.92% at 31 March 2011 and 2010, respectively, and the
weighted average term of all debt facilities is 1.9 years at 31 March
2011.
On 16 June 2010, US$161.7 million of our term facilities matured, which
included US$95.0 million of term facilities that were outstanding at
31 March 2010. We did not refinance these facilities. Accordingly, amounts
outstanding under these facilities were repaid by using longer-term facilities.
We replaced term facilities in the amount of US$45.0 million that matured
in February 2011 with new term facilities totalling US$100.0 million.
These facilities became available to us in February 2011. US$50.0 million
of these facilities mature in September 2012 and US$50.0 million of these
facilities mature in February 2014. At 31 March 2011, no amounts were
outstanding under these new term facilities.
We draw on and repay amounts available under our term facilities
throughout the financial year. During fiscal year 2011, we drew down
US$460.0 million and repaid US$555.0 million of our term facilities. The
weighted average remaining term of the total credit facilities of
US$320.0 million at 31 March 2011 was 1.9 years.
–
–
1.02%
–
$
50.0
$
130.0
90.0
50.0
–
–
59.0
–
$
320.0
$
59.0
ATO – 1999 Disputed Amended Assessment
In March 2006, RCI received an amended assessment from the ATO in
respect of RCI’s income tax return for the year ended 31 March 1999.
On 30 May 2007, the ATO issued a Notice of Decision disallowing our
objection to the amended assessment (which we refer to as the Objection
Decision). On 11 July 2007, we filed an application appealing the
Objection Decision with the Federal Court of Australia. The matter was
heard before the Federal Court in September 2009. On 1 September
2010, the Federal Court dismissed RCI’s appeal.
Prior to the Federal Court’s decision on RCI’s appeal, we believed it was
more-likely-than-not that the tax position reported in RCI’s tax return for
the 1999 financial year would be upheld on appeal. As a result, until
31 August 2010, we treated the payment of 50% of the amended
assessment, GIC and interest accrued on amounts paid to the ATO with
respect to the amended assessment as a deposit on our consolidated
balance sheet.
As a result of the Federal Court’s decision, we re-assessed our tax
position with respect to the amended assessment and concluded that the
‘more-likely-than-not’ recognition threshold as prescribed by US GAAP was
38
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
no longer met. Accordingly, effective 1 September 2010, we removed the
deposit with the ATO from our consolidated balance sheet and recognised
an expense of US$345.2 million (A$388.0 million) on our consolidated
statement of operations for the fiscal year ended 31 March 2011, which
did not result in a cash outflow for the year ended 31 March 2011. In
addition, we recognised an uncertain tax position of US$190.4 million
(A$184.3 million) on our consolidated balance sheet relating to the unpaid
portion of the amended assessment.
RCI strongly disputes the amended assessment and is pursuing an appeal
of the Federal Court’s judgment. RCI’s appeal was heard from 16 May
2011 to 18 May 2011 before the Full Court of the Federal Court of
Australia. Judgment has been reserved.
With effect from 1 September 2010, we expense payments of GIC to the
ATO until RCI ultimately prevails on the matter or the remaining
outstanding balance of the amended assessment is paid.
ASIC Proceedings
On 17 December 2010, the New South Wales Court of Appeal dismissed
our appeal against Justice Gzell’s judgment and ASIC’s cross appeals
against the appellants. On 6 May 2011, the Court of Appeal rendered
judgment in the exoneration, penalty and cost matter for certain former
officers.
The Company was ordered to pay a portion of the costs incurred by ASIC
for each of the first instance proceedings and appeal. The amount of such
costs we are required to pay is contingent on a number of factors, which
include, without limitation, whether such costs are deemed to be valid and
reasonable legal costs relating to each of the first instance and appeal
proceedings and whether such costs are properly allocated and directly
attributable to each of the first instance proceedings and appeal
proceedings.
In light of the uncertainty surrounding the amount of such costs, we have
not recorded any provision for such costs at 31 March 2011. Losses and
expenses arising from the ASIC proceedings could have a material adverse
effect on our financial position, liquidity, results of operations and cash
flows.
See Note 13 to our consolidated financial statements for further
information on the ASIC Proceedings.
If we are unable to extend our credit facilities, or are unable to renew our
credit facilities on terms that are substantially similar to the ones we
presently have, we may experience liquidity issues and may have to
reduce our levels of planned capital expenditures, suspend dividend
payments and/or share buy-back programs, or take other measures to
conserve cash in order to meet our future cash flow requirements.
As of 31 March 2011, our management believes that we were in
compliance with all restrictive covenants contained in our credit facility
agreements. Under the most restrictive of these covenants, we (i) are
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 us under the AFFA.
Cash Flow – Year Ended 31 March 2011 compared to Year ended
31 March 2010
Net operating cash flow declined US$35.9 million from US$183.1 million
in fiscal year 2010 to US$147.2 million in fiscal year 2011. Net operating
cash flow in fiscal year 2011 included a contribution of US$63.7 million to
AICF on 1 July 2010, compared with nil in fiscal year 2010.
Excluding the contribution to AICF, net operating cash flow was
US$210.9 million for the full year, up by 15% on US$183.1 million in the
prior year. The increase in net operating cash flow was primarily due to
reductions in trade receivables during the year ended 31 March 2011,
partially offset by a decline in earnings from operations relative to the prior
year and a payment of US$18.6 million for taxes on re-domicile from The
Netherlands to Ireland.
Historically, we have generated cash from operations before accounting for
unusual or discrete large cash outflows. Therefore, in periods when we do
not incur any unusual or discrete large cash outflows, we expect 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, we expect to rely more significantly on
available credit facilities and other sources of working capital.
Net cash used in investing activities decreased from US$50.5 million in
fiscal year 2010 to US$49.6 million in fiscal year 2011 as capital
expenditures decreased slightly from the prior year.
Net cash used in financing activities decreased from US$159.0 million to
US$89.7 million primarily due to the repayment of our 364-day facilities of
US$93.3 million in fiscal year 2010, partially offset by a reduction in our
outstanding term facilities of US$95.0 million during fiscal year 2011
compared to reduction of US$76.7 million during fiscal year 2010.
Capital Requirements and Resources
Our capital requirements consist of expansion, renovation and
maintenance of our production facilities and construction of new facilities.
Our working capital requirements, consisting primarily of inventory and
accounts receivable and payable, fluctuate seasonally during months of
the year when overall construction and renovation activity volumes
increase.
During the fiscal year ended 31 March 2011, we met our capital
expenditure requirements through a combination of internal cash and
funds from our credit facilities. We currently expect to spend
approximately US$80 million to US$105 million in fiscal year 2012 for
capital expenditures, including facility upgrades and expansions and
equipment to enhance environmental compliance.
We anticipate that our cash flows from operations, net of estimated
payments under the AFFA, will be sufficient to fund our planned capital
James Hardie Annual Report 2011
39
expenditure and working capital requirements in the short-term. If we do
not generate sufficient cash from operations to fund our planned capital
expenditures and working capital requirements, we believe the cash and
cash equivalents of US$18.6 million at 31 March 2011 and the cash that
we anticipate will be available to us under credit facilities, will be sufficient
to meet any cash shortfalls during at least the next 12 months.
We have historically reinvested a portion of the cash generated from our
operations to fund additional capital expenditures, including research and
development activities, which we believe have facilitated greater market
penetration and increased profitability. Our ability to meet our long-term
liquidity needs, including our long-term growth plan, is dependent on the
continuation of this trend and other factors discussed here.
We believe our business is affected by general economic conditions, 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 values. 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 adversely impacted our business. We expect that
business derived from current US forecasts of new housing starts and
renovation and remodel expenditures will result in our operations
generating cash flow sufficient to fund the majority of our planned capital
expenditures. It is possible that a deeper than expected decline in new
housing starts in the United States or in other countries in which we
manufacture and sell our products would negatively impact our growth
and our current levels of revenue and profitability and therefore decrease
our liquidity and ability to generate sufficient cash from operations to meet
our capital requirements.
Pulp and cement are primary ingredients in our fibre cement formulation,
which have been subject to price volatility, affecting our working capital
requirements. In fiscal year 2011, the average NBSK pulp price was
US$978 per ton, an increase of 30% compared to fiscal year 2010.
Based on information we receive from RISI, a leading provider of
information for the global pulp and paper industry, and other sources, pulp
prices are predicted to remain at or above US$1,000 per ton. To minimise
additional working capital requirements caused by rising pulp prices, we
have entered into various contracts that discount pulp prices in relation to
pulp indices and purchase our pulp from several qualified suppliers in an
attempt to mitigate price increases and supply interruptions.
Freight costs in the US increased in fiscal year 2011 and are expected to
rise over the short to medium term reflecting supply constraints for trucks,
as the broader economy improves and the cost of fuel remains high.
The collective impact of the foregoing factors, and other factors, including
those identified in “Forward-Looking Statements” may materially adversely
affect our ability to generate sufficient cash flows from operations to meet
our short and longer-term capital requirements. We believe that we will be
able to fund any cash shortfalls for at least the next 12 months with cash
that we anticipate will be available under our credit facilities and that we
will be able to maintain sufficient cash available under those facilities.
Additionally, we may decide that it is necessary to suspend planned
dividend payments and/or share buy-backs, scale back or postpone our
expansion plans and/or take other measures to conserve cash to maintain
sufficient capital resources over the short and longer-term.
Subject to the terms and conditions of the AFFA, we are required to fund the
AICF on an annual basis, depending on our 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, unless quarterly payments are elected by the Company.
The amounts of these annual payments are dependent on several factors,
including our free cash flow (as defined in the AFFA), actuarial estimations,
actual claims paid, operating expenses of the AICF and the annual cash flow
cap. Further contributions of A$118.0 million (US$110.0 million) (including
interest payments) and A$72.8 million (US$63.7 million) were made in fiscal
years 2009 and 2011, respectively. Under the terms of the AFFA, we were
not required to make a contribution to the AICF in fiscal years 2008 and
2010. We expect to make a contribution to the AICF in fiscal year 2012 of
approximately US$51.5 million. Our obligation to make future contributions to
the AICF continues to be linked under the terms of the AFFA to our long-term
financial success, especially our ability to generate net operating cash flow.
No dividends were paid to shareholders in fiscal years 2011 and 2010. On
17 May 2011, we announced the adoption of a capital management policy to
distribute between 20% to 30% of profits after tax (excluding asbestos
adjustments, which are substantially of a non-cash nature in the short-term) in
the form of ordinary dividends and to conduct a more active approach to
capital management which is likely to see us buying back or issuing shares as
our capital needs dictate, subject to the Board’s review and declaration. We
expect to resume paying dividends starting with an interim dividend to be paid
following the November 2011 announcement of our second quarter results.
There is expected to be a further dividend following the May 2012
announcement of our fiscal year 2012 year end results. In accordance with this
policy, we also announced that we will be seeking to acquire up to 5% of our
issued capital via an on-market share buyback during the next twelve months.
The effect of this policy, in addition to our ongoing obligation to make
contributions to the AICF, is that we expect to be distributing a significant
portion of our operating surplus each year in the form of ordinary dividends
and share buy-backs. In circumstances where we determine that share buy-
backs are not attractive, special dividends may be considered as an alternative.
To facilitate the ability to access and distribute surplus cash flows and
earnings of our operating subsidiaries more efficiently (including for the
purpose of making periodic contributions to the AICF), we have commenced
an internal reorganisation involving simplification of our corporate structure
including some of the arrangements which were previously part of our
Netherlands domicile. As part of this restructure, we incurred a tax charge of
approximately US$32.6 million in fiscal year 2011, which will be paid in fiscal
year 2012. This charge will not impact our contribution to the AICF in fiscal
year 2012, although it is likely to reduce the contribution to the AICF in fiscal
year 2013 by up to US$11.4 million in accordance with the terms of the
AFFA.
We expect to rely primarily on increased market penetration of our products
and increased profitability from a more favourable product mix to generate cash
to fund our long-term growth. Historically, our products have been well-
accepted by the market and our product mix has changed towards higher-
priced, differentiated products that generate higher margins than that of less
differentiated products.
40
James Hardie Annual Report 2011
MANAGEMENT’S
DISCUSSION AND ANALYSIS
(CONTINUED)
Capital Expenditures
Our total capital expenditures for fiscal years 2011, 2010 and 2009 were US$50.3 million, US$50.5 million and US$26.1 million, respectively.
Significant capital expenditures in fiscal years 2011 and 2010 included expenditures related to a new finishing capability on an existing product line.
Significant capital expenditures in fiscal year 2011 also included the addition of 12 foot XLD Trim capability at our Peru, Illinois plant, the commencement of
an upgrade to the US business’ supply chain management IT systems and the commencement of a new ColorPlus line at our Cleburne, Texas plant.
Contractual Obligations
The following table summarises our contractual obligations at 31 March 2011:
Payments Due
During Fiscal Year Ending 31 March
(Millions of US dollars)
Total
2012
2013 to 2014
2015 to 2016
Beyond 5 Years
Asbestos Liability1
Long-Term Debt
Estimated interest payments on Long-
Term Debt2
Operating Leases
Purchase Obligations3
$
1,698.1
59.0
14.5
103.8
0.6
$
N/A
–
4.8
18.0
0.6
$
N/A
59.0
7.3
32.1
–
$
N/A
–
1.8
29.1
–
$
N/A
–
0.6
24.6
–
Total
$
1,876.0
$
23.4
$
98.4
$
30.9
$
25.2
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 Actuarial. The asbestos liability also includes an allowance for the future claims-handling costs of
the AICF. The table above does not include a break down of payments due each year as such amounts are not reasonably estimable. See Note 11 to our consolidated financial
statements for further information regarding our future obligations under the AFFA.
2 Interest amounts are estimates based on gross debt remaining unchanged from the 31 March 2011 balance and interest rates remaining consistent with the rates at 31 March
2011. Interest paid includes interest in relation to our debt facilities, as well as the net amount paid relating to interest rate swap agreements. The interest on our debt facilities is
variable based on a market rate and includes margins agreed to with the various lending banks. The interest on our interest rate swaps is set at a fixed rate. There are several
variables that can affect the amount of interest we 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. We have not included estimated interest payments subsequent to fiscal year ending 31 March 2017 as such amounts are not reasonably
estimable.
3 Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and legally-binding on us and that specify all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions.
The table above excludes the unpaid portion of the ATO amended assessment of US$190.4 million as we are unable to reasonably estimate the timing of
settlement. See Note 14 to our consolidated financial statements.
See Notes 9 and 13 to our consolidated financial statements for further information regarding long-term debt and operating leases, respectively.
OFF-BALANCE SHEET ARRANGEMENTS
As of 31 March 2011 and 2010, we did not have any material off-
balance sheet arrangements.
RESEARCH AND DEVELOPMENT
For fiscal years 2011, 2010 and 2009, our expenses for research and
development were US$28.0 million, US$27.1 million and US$23.8 million,
respectively.
We view research and development as key to sustaining our existing
market leadership position and expect to continue to allocate significant
funding to this endeavor. Through our investment in process technology,
we aim to keep reducing our capital and operating costs, and find new
ways to make existing and new products.
OUTLOOK
Housing starts in the US continue to be weak as factors such as relatively
high levels of unemployment, low levels of consumer confidence,
restricted access to credit and the supply of foreclosed homes continue to
constrain demand in the housing market, affected in particular by the lack
of stability in house values that have continued to fall.
Input costs are also expected to remain high with NBSK pulp index prices
forecast to remain at or above US$1,000 per ton. Freight costs in the US
are expected to rise reflecting supply constraints for trucks, as the broader
economy improves, and the higher cost of fuel.
Activity in the US residential housing sector is expected to remain
relatively flat in both the construction and the repair and remodel
segments for our 2012 financial year.
In the Asia Pacific region, increases in mortgage interest rates in Australia
have continued to dampen activity in the sector, although the market is
expected to remain relatively robust. In the Philippines, domestic demand
continues to provide a strong operating environment. In New Zealand,
housing activity is likely to remain subdued as housing construction reaches
historic lows in response to weak consumer and business confidence.
Changes in the asbestos liability to reflect changes in foreign exchange
rates or updates of the actuarial estimate, ASIC proceeding matters,
income tax related issues and other matters referred to in “Forward
Looking Statements,” may have a material impact on our consolidated
financial statements.
James Hardie Annual Report 2011
41
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.
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 Australian Corporations Act to submit a remuneration
report to shareholders for a non-binding vote.
However, taking into consideration the company’s large Australian
shareholder base, James Hardie has voluntarily produced a remuneration
report for non-binding shareholder approval for some years and currently
intends to continue to do so. This report provides information similar to that
provided by Australian listed companies in their remuneration reports on the
company’s remuneration practices in fiscal year 2011 and also voluntarily
includes an outline of the company’s proposed remuneration framework for
fiscal year 2012.
During fiscal year 2011 the Remuneration Committee retained Towers
Watson (in the United States) and Guerdon Associates (in Australia) as its
independent advisers, and the company retained Hewitt Associates as its
external remuneration advisor.
1. APPROACH TO CEO AND SENIOR EXECUTIVE
REMUNERATION
1.1 Objectives
James Hardie’s remuneration philosophy is to provide competitive
remuneration, compared with US companies, that emphasises operational
excellence and shareholder value creation through 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 remuneration amounts based
on an evaluation of performance by the business and the individual.
1.2 Policy
Compensation is managed to align remuneration received with performance
achieved relative to peers.
Remuneration packages for senior executives comprise fixed pay and
benefits (which we refer to as “Fixed Remuneration”) and variable
performance pay (which we refer to as “Variable Remuneration”), based on
both short-term incentives (which we refer to as “STI”) and long-term
incentives (which we refer to as “LTI”).
The company’s policy is for fixed pay and benefits for senior executives to
be positioned at the market median and total target direct remuneration
(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 profitability and growth results in
the top quartile of its listed US building products peer group companies. If
these performance hurdles are not met, the amount payable under the STI
and LTI components will be less.
1.3 Setting Remuneration Packages
Individual remuneration 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. The Remuneration Committee commissions a
review from its independent US compensation advisor of the remuneration
positioning for the CEO and senior executives relative to their US peers.
The Board makes the final decisions concerning the remuneration (base
salary, employment contract terms, ‘Scorecard’ rating, and STI and LTI
target, maximum and actual grants) of the CEO and CFO. The CEO makes
recommendations to the Board and Remuneration Committee regarding the
remuneration of senior executives other than himself. The Remuneration
Committee then makes the final decisions concerning the remuneration of
the remaining senior executives, for review by the Board.
Remuneration decisions are based on the company’s remuneration
framework, which is reviewed by the Remuneration Committee and
approved by the Board each fiscal year. Senior executive remuneration takes
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.
Each year the Remuneration Committee reviews and approves a list of peer
group companies which it uses for comparative purposes in setting
remuneration for the CEO, CFO 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 comprises US listed companies
exposed to the US housing market. The same peer group is used to
determine relative performance for that year’s LTI equity grants.
1.4 Senior Executives
The company’s senior executives in fiscal year 2011 were:
(cid:129) Louis Gries, Chief Executive Officer1
(cid:129) Russell Chenu, Chief Financial Officer2
(cid:129) Robert Cox, Chief Legal Officer3
(cid:129) Mark Fisher, Executive General Manager – International
(cid:129) Nigel Rigby, Executive General Manager – USA
1 From 1 April 2010 to 17 June 2010 Louis Gries was also Chairman of the Managing Board. The Managing Board was dissolved on 17 June 2010 following completion of
JHI SE’s re-domicile to Ireland.
2 From 1 April 2010 to 17 June 2010 Russell Chenu was also a member of the Managing Board.
3 From 1 April 2010 to 17 June 2010 Robert Cox was also a member of the Managing Board. From 1 April 2010 until 13 June 2011 Robert Cox was General Counsel of
JHISE.
42
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
2. FISCAL 2011 COMPANY PERFORMANCE AND LINK WITH REMUNERATION POLICY
2.1 Actual Performance
James Hardie’s five year EBIT in US$ terms (excluding asbestos) and five-year A$ Total Return (including dividends and capital returns) mapped against
changes in US housing starts are shown in the graphs below:
JHX Total Return Index vs US Housing starts
Five Year EBIT (ex reported adjustments) growth
(Millions of US dollars)
11
10
09
08
07
192.7
205.3
156.9
207.5
318.9
2.2 Market Conditions and Company Performance
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.
Operating conditions in the US residential housing market continued to be
challenging in fiscal year 2011. A combination of relatively high levels of
unemployment, low levels of consumer confidence, restricted access to
credit and the supply of foreclosed homes continued to dampen demand.
US single family housing starts (as reported by the US Census Bureau) for
the year ended 31 March 2011 were 446,400 units, down 7.3% from
481,000 units in the prior financial year and down 74% from the financial
year ended 31 March 2006 peak of 1.73 million units. Repair and
remodel activity also continued to decline during fiscal year 2011.
Rolling 12 Month Avg Starts
(seasonally adjusted)
)
s
t
i
n
U
s
0
0
0
(
s
t
r
a
t
S
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3,000
2,500
2,000
1,500
1,000
500
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6
0
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7
0
0
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JHX Total Return Index
US Housing Starts
120
100
80
60
40
20
6
0
0
2
h
c
r
a
M
1
3
t
a
d
e
s
a
b
e
R
x
e
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n
I
31 March
2006
31 March
2007
31 March
2008
31 March
2009
31 March
2010
31 March
2011
Fiscal Year End
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
In the face of the significant decline in the US housing market since
March 2006, the company’s USA and Europe Fibre Cement business
continued to perform strongly in fiscal year 2011, with revenue down 2%
and sales volume down 4% from fiscal year 2010. As new housing starts
have continued to decline, the company has benefited from the strategic
decision to commit additional resources to increase its share of the repair
and remodel market in recent years.
The Asia Pacific region (comprising Australia, New Zealand and The
Philippines business units) experienced mixed market conditions, with
Australian dwelling approvals increasing 3%, New Zealand dwelling
approvals declining 5% and The Philippines experiencing strong domestic
demand. Despite these operating conditions, Asia Pacific recorded strong
results with revenue up 7% (in Australian dollars).
These solid results compared to the market, particularly considering the
difficult market conditions, were achieved mainly through:
(cid:129) the company’s primary demand growth strategies in each of our
businesses, to achieve further market penetration at the expense of
alternative materials, driving stronger volume; and
(cid:129) its continued success in introducing higher margin, differentiated
products, driving stronger revenue.
James Hardie Annual Report 2011
43
The company’s EBIT in fiscal year 2011 was also heavily impacted by raw
material costs, in particular higher pulp prices and freight costs, which
increased substantially in fiscal year 2011.
n
o
T
c
i
r
t
e
M
/
$
S
U
1,100
1,000
900
800
700
600
500
400
Apr
2009
Jun
2009
Sep
2009
Dec
2009
Mar
2010
Jun
2010
Sep
2010
Dec
2010
Mar
2011
Price of NBSK Pulp Delivered to the US
2.3 Performance Against Scorecard Objective
The Board and Remuneration Committee reviewed the company’s and
management’s performance under the Scorecard, which reflects a number
of medium term strategic objectives for the company, and the following
results were achieved:
Objective
US Primary
Demand Growth
(PDG)
US Product Mix
Shift
US Zero To Landfill
(ZTL)
Safety
Strategic
Positioning
Legacy Issues
Starting Point
PDG for the last three fiscal years is as follows:
FY 11
FY 10
FY 09
(cid:2)3.8%
6.1%
3.0%
This has focused primarily on ColorPlus
penetration.
FY11 results are commercial in confidence but
exceeded the results in FY10 and FY09.
In the past three years the company has
continued to make significant progress in
reducing the amount of waste materials sent to
landfill.
The incident rate (IR) and severity rate (SR) over
the last three fiscal years were as follows:
SR
19
37
54
FY 11
FY 10
FY 09
IR
1.7
1.7
4.7
The Company continues to be highly dependent
on the US fibre cement business.
The re-domicile project was completed in mid-
2010. The ASIC proceedings and tax issues are
at appeals stage and the loan facility for the
AICF was concluded. The company’s
contribution to the AICF in July 2011 is
US$51.5 million.
Objective
Managing
During the
Economic Crisis
Starting Point
At the end of FY11, total credit facilities were
US$320 million and net debt was US$40
million.
a capital management policy to pay dividends
of between 20% and 30% of NPAT and a 5%
on-market buy-back.
In May 2011, the company announced
Talent
Management/
Development
The company has a strong management team
which has delivered superior results over the
past three years.
2.4 Performance Linkage with Remuneration Policy
The Executive Incentive Plan for fiscal year 2011 was based on a ‘Payout
Matrix’ which required management to achieve both sales above market
(which we refer to as “Growth Measure”) and strong earnings (which we
refer to as “Return Measure”). Although the Payout Matrix excluded legacy
costs and included an inherent indexing of the Growth Measure for new
housing starts, it did not include allowances for:
(cid:129) substantial increases (or decreases) in the US repair and remodel
market; and
(cid:129) substantial increases (or decreases) in input costs.
A combination of a substantial decrease in the repair and remodel market,
substantial increases in input costs, together with other factors, resulted in
the US Fibre Cement business earning a nil payment under its Payout
Matrix for fiscal year 2011.
The Board and Remuneration Committee reviewed the reasons for this
result and concluded that the Payout Matrix, which was indexed to new
housing starts, did not account for substantial variations beyond
management control such as changes to input costs (for example
increases in the cost of pulp and freight) or changes in the repair and
remodel market. Taking these factors into account, the Board and
Remuneration Committee concluded that management had performed well
in fiscal year 2011, despite a very challenging industry dynamic,
particularly compared to its peer group companies. Therefore, the Board
and Remuneration Committee exercised discretion to recognize
management’s response to these factors, and determined that such
performance merited an adjustment to the calculation that otherwise
would have applied with a strict application of the Payout Matrix.
Following a review of the operation of the Executive Incentive Program, the
Board and Remuneration Committee determined that:
(cid:129) the US business receive a payment of 16.7% of its maximum STI under
the Executive Incentive Plan, with a follow-on impact on the result for
the corporate component of the plan;
(cid:129) no adjustment be made to the Asia Pacific result; and
(cid:129) the 2012 Payout Matrix should be indexed for changes in the US repair
and remodel market and pulp costs.
The Board and Remuneration Committee consider this was an appropriate
response because:
(cid:129) the Board carried out a similar review of bonus payments in fiscal year
2010 when the external factors would have had the result of increasing
bonus payments (although no adjustment was determined in that year);
44
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
(cid:129) by indexing the most significant swing factors to the Payout Matrix
results, management will not be penalized (or benefit) from significant
events outside of its control;
(cid:129) a significant proportion of the potential payment for US participants in
the Executive Incentive Plan has been forfeited;
(cid:129) a significant proportion of the potential payment under the separate LTI
transferred to STI because of long-term uncertainty was also forfeited;
(cid:129) the company’s performance compared to its US peer group based on a
range of ratios confirmed that management has performed well in fiscal
year 2011; and
(cid:129) the Board had foreshadowed in the 2010 Remuneration Report that it
reserved the ability to adjust the payout under the Executive Incentive
Plan in limited circumstances.
The percentage of each senior executive’s STI granted and forfeited in
respect of fiscal year 2011 is set out below. Although the Board considers
that management performed well during fiscal year 2011, all senior
executives received substantially lower STI in fiscal year 2011 compared
to fiscal year 2010.
The Board believes that the remuneration paid to senior executives in
fiscal year 2011 appropriately reflects management’s level of performance
during the year. The Board and Remuneration Committee continue to
believe that the structure of the remuneration framework, including the
changes discussed above are appropriate to focus management on
dealing with the continuing difficult US housing industry conditions and
provide appropriate alignment between senior executives and
shareholders.
2.5 Variable Remuneration Paid in Fiscal Year 2011
Details of the percentage of the maximum Variable Remuneration awarded to or forfeited by senior executives for performance in fiscal year 2011 compared
to fiscal year 2010 are set out below.
Louis Gries
Fiscal Year 2011
Fiscal Year 2010
Russell Chenu
Fiscal Year 2011
Fiscal Year 2010
Robert Cox3
Fiscal Year 2011
Fiscal Year 2010
Mark Fisher
Fiscal Year 2011
Fiscal Year 2010
Nigel Rigby
Fiscal Year 2011
Fiscal Year 2010
Cash STI1
Hybrid RSUs2
Awarded
%
Forfeited
%
Awarded
%
Forfeited
%
31
100
100
100
—
92
34
100
28
100
69
0
0
0
—
8
66
0
72
0
8
100
8
100
—
100
8
100
8
100
92
0
92
0
—
0
92
0
92
0
1 Awarded = % of fiscal year 2011 Cash STI maximum actually paid. Forfeited = % of fiscal year 2011 STI maximum foregone. These amounts were paid in cash under
the Executive Incentive Program and IP Plan or as an additional one-off discretionary bonus. These amounts do not include the Hybrid RSUs granted following the transfer of
LTI to STI. The cash payments for fiscal year 2011 were paid to senior executives in June 2011
2 Awarded = % of fiscal year 2011 Hybrid RSUs (transfer from LTI to STI) maximum which actually granted. Forfeited = % of fiscal year 2011 Hybrid RSUs (transfer from
LTI to STI) which was foregone. The value earned for performance in fiscal year 2011 was granted in the form of Hybrid RSUs in June 2011. Hybrid RSUs will vest in June
2013 and convert to shares, subject to each senior executive’s performance rating against the Scorecard.
3 Was not eligible for a bonus under the Executive Incentive Plan in fiscal year 2011 and not granted any Hybrid RSUs in respect of fiscal year 2011. The bonus payments set
out in the table in section 5.1 represent accruals only.
The tables do not include Relative TSR RSUs and Scorecard LTI granted for performance in fiscal year 2011 because they are granted on a dollar value
determined by the Remuneration Committee and would only be forfeited during fiscal year 2011 in limited circumstances, all of which involve the employee
ceasing employment.
James Hardie Annual Report 2011
45
3. DESCRIPTION OF REMUNERATION ARRANGEMENTS IN FISCAL YEAR 2011
3.1 Overview of Variable Remuneration in Fiscal Year 2011
Senior executives are eligible to participate in one or more incentive plans which provide for Variable Remuneration. Eligibility for inclusion in an incentive
plan does not guarantee participation in any future year. 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 2011 are set out below:
Duration
Plan Name
Amount
Form Incentive Paid
>
>
>
Short-term
(1-3 years)
Long-term
(3-5 years)
Individual Performance
Plan (IP Plan)1
Executive
Incentive Plan2
>
>
>
20% of STI Target4
80% of STI Target4
40% of LTI Target5
>
>
>
Long Term
Incentive Plan
(LTIP)3
>
30% of LTI Target
>
>
30% of LTI Target
>
Cash
Cash
RSUs6 vesting and
converting into shares
in 2 years subject to
the Scorecard
(Hybrid RSUs7)
RSUs vesting and
converting into shares
in 3-5 years subject
to relative TSR8
performance hurdles
(Relative TSR RSUs)
Cash in 3 years
based on share
price performance
and subject to the
Scorecard
(Scorecard LTI)
1 See section 3.3.1(a) of this report
2 See section 3.3.1(b) of this report
3 See section 3.3.2 of this report
4 See section 3.3.1 of this report
5 See section 4.3.2 of this report
6 RSUs refer to restricted stock units.
7 Previously referred to as Executive Incentive Program RSUs.
8 TSR refers to Total Shareholder Return.
3.2 Scorecard
Both the STI and LTI incentives for senior executives include an element of
a ‘Scorecard’ rating to ensure continued focus on financial, strategic,
business, customer and people components, each of which are important
contributors to long-term creation of shareholder value. The Scorecard
contains a number of key objectives, and the measures the Board expects
to see achieved in relation to these objectives. Individual senior executives
may receive different ratings depending on their contribution to achieving
the Scorecard objectives.
Although most of the objectives in the Scorecard have quantitative targets,
the company has not allocated a specific weighting to any and the final
Scorecard assessment will involve an element of judgment by the Board.
The Board may also give different ratings when assessing Scorecard
performance for the Hybrid RSUs and Scorecard LTI. The Board monitors
progress against the Scorecard annually.
The Scorecard can only be applied by the Board to exercise negative
discretion (ie to reduce the amount of Hybrid RSUs and Scorecard LTI
which will ultimately vest). It cannot be applied to enhance the maximum
reward that can be received.
46
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
The Scorecard objectives for fiscal year 2011 were unchanged from fiscal year 2010. The reasons the Board considered these objectives were appropriate,
are set out below.
Objective
Reasons
Primary Demand Growth
Product Mix Shift
Zero To Landfill
Safety
Legacy Issues
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. Improving material yield will reduce
manufacturing costs. In addition, achieving important environmental, social and governance (ESG) goals reduces risk.
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.
Strategic Positioning
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.
Managing During the Downturn
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.
Talent Management/ Development
Management development and capability is important to the company’s future growth.
Further details of the Scorecard for fiscal year 2011, including the method
of measurement, historical performance against the proposed measures
and the Board’s expectations, were set out in the 2010 AGM Notice of
Meeting. Details of the Scorecard for fiscal year 2012 are set out on
page 50 of this report.
The Board will provide an explanation of the final assessment of
performance under the above Scorecard at the conclusion of fiscal year
2013.
3.3 Details of Variable Remuneration Components in
Fiscal Year 2011
3.3.1 Short-Term Incentives
The STI target for senior executives, other than the CFO, was allocated
80% towards corporate goals (under the Executive Incentive Plan) and
20% towards individual goals (under the Individual Performance Plan).
The STI target for senior executives was determined as a percentage of
base salary, which in fiscal year 2011 was:
Position
Chief Executive Officer
Chief Financial Officer
Other senior executives
STI Target as percentage of
base salary
125%
33%
60-65%
Given the continuing lack of stability in the US housing market, for fiscal
year 2011 the Board also determined that 40% of each senior executive’s
LTI target should be transferred to the Executive Incentive Plan. Although
this component of a senior executive’s Variable Remuneration is received
in three years time, it is treated as an STI since the maximum amount
which can be paid is determined at the end of the first year based on the
company’s performance in fiscal year 2011, and then subject to the
negative discretion exercisable by the Board under the Scorecard in a
further two years.
(a) Individual Performance Plan – Cash
20% of the STI target for senior executives (other than the CFO) was
allocated to the IP Plan and payable in cash. The maximum payout for the
IP Plan was capped at 150% of the target.
Senior executives who participated in the IP Plan were assessed by the
Board and Remuneration Committee on their individual performance
against specific objectives approved by the Board and Remuneration
Committee. Rewards were based on each senior executive’s performance
rating at the end of the fiscal year.
Board’s Assessment of 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 which are not directly captured by the corporate
component of the Executive Incentive Plan.
(b) Executive Incentive Plan – Cash
80% of the STI target for senior executives (other than the CFO) was
allocated to the Executive Incentive Plan and payable in cash. The
maximum payout for the Executive Incentive Plan was capped at 300% of
the target.
In fiscal year 2011, the Board replaced the previous EBIT-based
performance target with a ‘Payout Matrix’ based on earnings and sales
growth. A separate ‘Payout Matrix’ was approved for each business unit.
Employees below senior executive level and US senior executives were
eligible for cash bonuses depending on the Payout Matrix result for their
business unit. The remaining senior executives were eligible for cash
bonuses depending on a combined Payout Matrix result for the company.
The purpose of the new Payout Matrix performance hurdle was to ensure
that as management increased its top line growth focus, it did not do so
at the expense of short to medium-term returns. The Executive Incentive
Plan for fiscal year 2011 was designed to encourage senior executives to
effectively balance growth and returns. To achieve strong rewards,
James Hardie Annual Report 2011
47
management was required to generate both strong earnings and sales
growth substantially above market. Higher returns on one measure at the
expense of the other measure could result in lower, or nil, reward.
The Payout Matrix approved by the Board for fiscal year 2011 inherently
included indexing for new housing starts but did not include indexing for the
US repair and remodel market or input prices, in particular pulp. Other factors
such as legacy costs and exchange rate movements were also excluded.
The Board reserved for itself discretion to change the payout under the
Payout Matrix if growth relative to market was below expectations and the
Board determined that the reason for such performance was 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.
For the reasons described above in section 2.4, the Board determined that
the payout under the US Payout Matrix should be 50% of STI target (and
16.7% of maximum STI), which also impacted the corporate Payout
Matrix. No discretion was applied to the Asia Pacific Payout Matrix.
The company does not disclose the Return Measure and Growth Measure
targets, but achieving a target payment for fiscal year 2011 (without
indexing for the US repair and remodel market and pulp prices) would
have required performance in excess of the average of the performance
for the previous three years on each measure.
Board Assessment of Executive Incentive Plan
The Board believes that the Payout Matrix incentive methodology remains
valid. The Board recognized that by indexing for new housing starts alone,
the fiscal year 2011 Payout Matrix did not take into account substantial
variations in input costs and the US repair and remodel markets. After a
review of the changes between fiscal year 2010 and 2011, the Board
revised the Payout Matrix to also take into account changes in the cost of
pulp and changes in the repair and remodel market which differed
substantially during the year from expectations at the start of fiscal year
2011. The Board believes that the revised Payout Matrix under the
Executive Incentive Plan is appropriate because it:
(cid:129) provides management with an incentive towards achieving the overall
corporate goals;
(cid:129) balances growth with returns;
(cid:129) recognises the need to flexibly respond to strategic opportunities
depending on our markets’ ability to recover from the currently
prevailing uncertain economic environment; and
(cid:129) incorporates indexing for factors beyond management’s control in the
Board’s assessment of management’s performance
(c) Executive Incentive Plan – Hybrid RSUs
40% of the LTI target for senior executives was allocated to the Executive
Incentive Plan and payable in Hybrid RSUs (formerly referred to as
Executive Incentive Program RSUs). The maximum initial grant of Hybrid
RSUs is 300% of the target.
The number of Hybrid RSUs granted is based on the company’s
performance against corporate level EBIT performance targets approved by
the Board. The targets for fiscal year 2011 were derived from the cash
Executive Incentive Plan ‘Payout Matrix’ for fiscal year 2011 and a payout
at target required an improvement on performance for fiscal year 2010,
indexed to housing starts. The EBIT performance hurdle was:
)
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
Performance (% of Plan)
Before the Hybrid RSUs granted in June 2011 vest in June 2013 and
convert to shares, the Board will assess each senior executive’s
contribution to the long-term objectives set out in the Scorecard and give
them a rating between 0 and 100. Depending on this rating, between 0%
and 100% of the senior executive’s Hybrid RSUs will vest and convert to
shares. In effect, the Scorecard applies a “holdback and forfeiture”
principle to ensure short-term results in fiscal year 2011 are not obtained
at the expense of long-term sustainability.
Calculation of the Hybrid RSUs at the end of fiscal year 2011 is described
below:
LTI target
x
40%1
x
Payout
based on
performance
against 2012
EBIT goal
=
Value granted
in Hybrid
RSUs
x
Scorecard
Rating
in June 2014
(0–100%)
=
Hybrid
RSUs vesting
and converting
to shares
1 Amount of LTI received as Hybrid RSU’s in the absence of long-term quantitative measures.
Worked Example
Based on the CEO’s LTI target quantum of US$2,800,000 in fiscal year
2011, James Hardie’s performance of 91% of the EBIT performance
hurdle, resulting in a payment of 25% of target for fiscal year 2011, and
assuming a Scorecard rating of 75 out of 100 in June 2013 the CEO
would receive:
(cid:129) 40% x US$2,800,000 x 25% = US$280,800 to be settled in Hybrid
RSUs in June 2011. At the actual value of US$6.12865/share, this is
equivalent to 45,687 Hybrid RSUs.
48
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
At the conclusion of the additional two-year performance period in June
2013, a number of Hybrid RSUs are forfeited, based on the CEO’s
assumed rating under the Scorecard for this example:
(cid:129) 45,687 RSUs x 75% = 34,265 shares received
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.
Board Assessment
The Board believes that Hybrid RSUs and the Scorecard are an
appropriate incentive vehicle in the current market because they:
(cid:129) provide an incentive to ensure that the growth focus underlying the
primary demand growth objective is not achieved at the expense of
short and medium-term shareholder returns;
(cid:129) align management with shareholders because the reward vehicle is
based on share price;
(cid:129) focus on long-term results over the three year performance period;
(cid:129) focus management on sustainable long-term value creation;
(cid:129) recognise that quantifying a specific long-term financial outcome
requirement is not yet possible in the current market;
(cid:129) avoid a mechanistic formula with outcomes based on market
movements rather than management action; and
(cid:129) allow the collective judgment of the independent directors to “forfeit”
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.
3.3.2 Long-Term Incentives
The remaining 60% of the LTI target for senior executives was allocated
as grants of RSUs based on the company’s total shareholder return (which
we refer to as “Relative TSR RSUs”) relative to its peers, plus grants of
cash-settled awards based on the company’s stock price performance and
the Scorecard (which we refer to as “Scorecard LTI”). The maximum
payout under both of these programs was capped at 300% of the target.
(a) Relative TSR RSUs
30% of the LTI target for senior executives in fiscal year 2011 was
allocated as grants of Relative TSR RSUs in September 2010.
The peer group for the Relative TSR RSUs is the same peer group of
companies exposed to the US housing market which the company uses
for compensation benchmarking purposes. 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 until the end of year 5, based
on the following schedule:
Performance against Peer Group
G50th Percentile
50th Percentile
51st – 74th Percentile
(cid:3)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 global
financial crisis. 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 the LTI target for senior executives in fiscal year 2011 was
allocated as grants of Scorecard LTI awards in June 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 the 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, the Board will assess each
of the senior executive’s contribution to the long-term objectives set out in
the Scorecard to give them a rating of between 0 and 100. Depending on
this rating, between 0% and 100% of the senior executive’s awards will
vest in June 2013. Each senior 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 their 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 readily
determined in the current uncertain housing market. Ensuring that the
reward’s 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 or other material commitments at a time that coincides with vesting of
shares (via the RSU programs) such that they are less likely to wish to sell
their shares.
James Hardie Annual Report 2011
49
(c) Long-Term Incentives Below Senior Executive Level
In fiscal year 2011, 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 (which we refer to as the “2001 Plan”).
Participation in such a plan 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. The term of
the 2001 Plan expires in September 2011 and shareholders will be asked
at the 2011 AGM to extend it for a further 10 years.
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
in fiscal year 2011. 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 better management of the
company’s cash flow.
3.4 Details of Fixed Remuneration in Fiscal Year 2011
Fixed remuneration comprises base salaries, non-cash benefits,
participation in a defined contribution retirement plan and superannuation
contributions.
3.4.1 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.
Following a review of senior executive compensation at the start of fiscal
year 2011, the Board determined that only one of the company’s senior
executives would receive a base salary increase in fiscal year 2011,
although two of the senior executives received base salary increases
during fiscal year 2010 following an increase in their job responsibilities.
3.4.2 Non-Cash Benefits
James Hardie’s executives may receive non-cash benefits such as a 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.
3.4.3 Retirement Plan/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.
3.5 Relative Weightings of Fixed and Variable Remuneration in
2011
The substantial reduction in Variable Remuneration paid to senior
executives in fiscal year 2011 compared to fiscal year 2010 is reflected in
the reduced percentage of their total compensation received as Variable
Remuneration in the table below. The amounts below are based on the
actual remuneration received for performance in fiscal year 2011:
Fixed
Remuneration1
Salary, Non-cash
Benefits, Superannuation,
401(k) etc
%
Variable Remuneration
Cash Incentive2
Hybrid (RSUs)3
%
Scorecard LTI4
%
Relative
TSR RSUs5
%
Total
Variable
%
Louis Gries
Fiscal Year 2011
Fiscal Year 2010
Russell Chenu
Fiscal Year 2011
Fiscal Year 2010
Robert Cox6
Fiscal Year 2011
Fiscal Year 2010
Mark Fisher
Fiscal Year 2011
Fiscal Year 2010
Nigel Rigby
Fiscal Year 2011
Fiscal Year 2010
1 See section 3.4 of this report.
20
18
55
46
100
26
36
25
36
24
12
21
13
10
0
19
17
23
17
24
4
25
2
18
0
23
3
21
3
21
32
18
15
13
0
15
22
16
22
16
32
18
15
13
0
15
22
16
22
16
80
82
45
54
0
74
64
75
64
76
50
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
2 See section 3.3.1 of this report. This includes short-term cash incentive paid under the IP Plan and Executive Incentive Plan or as an additional one-off
discretionary bonus in June 2011 for performance in fiscal year 2011.
3 See sections 3.3.1(c) and 3.3.2(a) of this report. This includes long-term incentive paid under the Long Term Incentive Plan with Relative TSR RSUs
granted in September 2010 and Hybrid RSUs (formerly Executive Incentive Plan RSUs) granted May 2011 for performance in fiscal year 2011. This
amount includes the actual value of grant received in respect of fiscal year 2011 rather than the value used for accounting purposes.
4 See section 3.3.2(b) of this report. This includes awards of Scorecard LTI under the Long Term Incentive Plan granted in June 2010.
5 See section 3.3.2(a) of this report. This includes grants of Relative TSR RSUs under the Long Term Incentive Plan granted in September 2010.
6 Was not eligible for a bonus under the Executive Incentive Plan in fiscal year 2011 and did not receive a grant of Hybrid RSUs, Scorecard LTI or Relative
TSR RSUs in respect of fiscal year 2011.
3.6 Variable Remuneration Payable in Future Years
Details of the accounting cost of the Variable Remuneration for fiscal year 2011 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
Hybrid RSUs2
Relative TSR RSUs3
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
2012
2013
2014
2012
2013
2014
2012
2013
2014
760,977
932,069
932,069
114,503
140,248
26,128
466,550
866,788
397,870
85,917
105,234
105,234
14,313
17,531
3,266
58,319
108,349
49,734
–
–
–
–
–
85,917
105,234
105,234
13,291
16,279
98,191
120,267
120,267
14,313
17,531
–
3,033
3,266
–
–
–
54,153
100,610
46,181
58,319
108,349
49,734
1 Represents annual accounting cost for Scorecard LTI granted in June 2011 for performance in fiscal year 2011. The fair value of each award is adjusted
for changes in JHI SE’s share price at each balance sheet date until the Scorecard is applied at the conclusion of fiscal year 2012, at which time 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.
2 Represents annual accounting cost for the Hybrid RSUs granted in June 2011 for performance in fiscal year 2011. The fair value of each RSU is adjusted
for changes in JHI SE’s share price at each balance sheet date until the Scorecard is applied in June 2013.
3 Represents annual accounting cost for the Relative TSR RSUs granted in September 2010 with fair market value estimated using the Monte Carlo option-
pricing method.
4. REMUNERATION FOR FISCAL YEAR 2012
4.1 Overview of Remuneration for Fiscal Year 2012
Following their review of the existing remuneration framework, the
Remuneration Committee and Board resolved to continue with the
remuneration framework of the last three years in fiscal year 2012.
In particular, the Board and Remuneration Committee has determined that
the continuing challenging market conditions mean that a transfer of 40%
of senior executives’ LTI target to STI is warranted in order to ensure
appropriate management focus on the company’s short term results.
Subject to a number of adjustments described below, the STI and LTI
incentive plans and the amount of a senior executive’s STI and LTI target
allocated to those plans will continue in fiscal year 2012.
4.2 Summary of Changes to Compensation for Fiscal Year 2012
The principal changes to the company’s compensation programs in fiscal
year 2012 are:
(cid:129) expanding the ‘Zero-to-Landfill’ Scorecard objective to a broader
‘Manufacturing Efficiency Reset’ objective;
(cid:129) indexing performance targets for the cash Executive Incentive Plan
Payout Matrix for changes in the US repair and remodel market and
pulp prices;
(cid:129) indexing performance targets for the Hybrid RSUs for changes in pulp
prices;
(cid:129) giving the Remuneration Committee broader flexibility to reward senior
executives under the IP Plan, subject to the existing cap of 150% of
target; and
(cid:129) increasing the CEO’s target LTI by US$300,000 to US$3,100,000.
The reasons for these changes are set out in further detail below.
4.3 Details of Variable Remuneration Components in
Fiscal Year 2012
4.3.1 Scorecard
The Board uses the Scorecard to set strategic objectives for which
performance can only be assessed over a period of time. The company
has made significant progress in each of the past three years reducing the
amount of materials sent to landfill. In fiscal year 2012, the ‘Zero-to-
Landfill’ objective will be expanded to a broader ‘Manufacturing Efficiency
Reset’ objective which will be a multi-year initiative building (and
continuing) the waste reduction objectives of ‘Zero-to-Landfill’ but also
focusing on increasing machine efficiencies and product capabilities.
Among other matters, this will support more energy efficient
manufacturing.
James Hardie Annual Report 2011
51
4.3.2 FY2012 Short Term Incentive
For fiscal year 2012, the Board will continue to transfer 40% of each
senior executive’s LTI target to the STI target. This component will be
received in Hybrid RSUs based on the company’s performance in fiscal
year 2012, which are then subject to negative discretion exercisable by
the Board under the Scorecard in a further two years.
(a) Individual Performance Plan
20% of the STI target for senior executives (other than the CFO) will
continue to be allocated to the IP Plan, to be paid in cash. There will be
no change to the 150% maximum payout.
The existing IP Plan for senior executives has five levels of performance
rating, each resulting in the payment of a certain percentage of the senior
executive’s STI target (up to a maximum of 150%). Whilst this rating system
is effective and will be retained for most employees, the Board believes that
a more flexible system is appropriate for senior executives. For fiscal year
2012, senior executives will still be assessed by the Board and Remuneration
Committee on their individual performance against specific objectives, but the
final amount payable under the IP Plan will be a discretionary payment
determined by the Board and Remuneration Committee.
No other changes in the operation of the IP Plan are planned for fiscal
year 2012.
(b) Executive Incentive Plan – Cash
80% of the STI target for senior executives (other than the CFO) will
continue to be allocated to the Executive Incentive Plan. The maximum
payout is 300% of target.
The existing ‘Payout Matrix’ will continue to be used in fiscal year 2012,
although the matrix will incorporate indexing for changes in new housing
starts, the US repair and remodel market and pulp prices. Other factors
such as legacy costs and exchange rate movements will also be excluded.
The Board has approved a Payout Matrix for each business unit. Each
Payout Matrix includes a range of Return Measure and Growth Measure
targets. The actual amount earned will be determined by the actual
earnings and sales growth results for each business unit, and the
corporate result will be based on the combined results of all of the
business units. Strong returns on one measure at the expense of the other
measure may result in lower, or nil, reward.
All senior executives, including the CEO, will have a goal based on the
corporate result.
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.
The Board believes that the Executive Incentive Program and Payout
Matrix are appropriate for the reasons set out in sections 2.4 and 3.3.1(b)
of this Remuneration report.
(c) LTI Transferred to STI – Hybrid RSUs
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 2012
performance payable in two-year deferred Hybrid RSUs subject to the
Scorecard, and vesting and converting to shares in June 2014. 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
Hybrid RSUs are based on historical results. Achievement of a target payout
in Hybrid RSUs will require improvement on the average performance for
fiscal years 2009 to 2011, indexed to housing starts and pulp prices.
The Hybrid RSUs will then be subject to negative discretion of the Board
based on the Scorecard in June 2014 (ie the number of Hybrid RSUs which
are to vest and convert to shares may be reduced, depending on the rating
received under the Scorecard). The Scorecard for the Hybrid RSUs will be the
same as in fiscal year 2011, except that the ‘Zero-to-Landfill’ objective will be
expanded to a broader ‘Manufacturing Efficiency Reset’ objective.
All senior executives, including the CEO, will have the same corporate
level EBIT goal. The EBIT achievement will have the following potential
payout slope:
)
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
Performance (% of Plan)
Before the Hybrid RSUs vest and convert to shares, the Board will assess
each senior executive’s contribution to the long-term objectives set out in
the Scorecard and provide each of them with a rating of between 0 and
100. Depending on this rating, between 0% and 100% of the senior
executive’s Hybrid RSUs will vest. In effect, the Scorecard applies a
“holdback and forfeiture” principle to ensure short-term results in fiscal
year 2012 are not obtained at the expense of long-term sustainability.
No other changes in the operation of the Executive Incentive Plan are
planned for fiscal year 2012.
All other elements of the Hybrid RSUs in fiscal year 2012 will be the same
as in fiscal year 2011.
52
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
Calculation of the Hybrid RSUs in June 2012 and June 2014 is described below:
LTI target
x
40%1
x
Payout
based on
performance
against 2012
EBIT goal
=
Value granted
in Hybrid
RSUs
x
Scorecard
Rating in
June 2014
(0–100%)
=
Hybrid RSUs
vesting and
converting
to shares
1 Amount of LTI target received as Hybrid RSUs in the absence of long-term quantitative financial measures
The Board believes that the Hybrid RSUs are appropriate for the reasons
set out in section 3.3.1(c) of this Remuneration report.
The maximum that can be received will remain at 300% of the LTI target
allocated to Relative TSR RSUs.
4.3.2 Long-Term Incentive
In previous remuneration reports the Board has stated that the CEO’s LTI
target remains below target levels compared to US peers and that further
adjustments will be required to bring the LTI target in line with the Board’s
policy. For fiscal year 2012, the CEO’s LTI target will increase by
$300,000 to $3,100,000.
(a) Relative TSR RSUs
It is currently intended that there will be no changes in the operation of
Relative TSR RSUs or in the peer group of companies for fiscal year 2012.
(b) Scorecard LTI
Other than replacing the ‘Zero-to-Landfill’ objective with the
‘Manufacturing Efficiency Reset’ objective, it is currently intended that
there will be no changes to the operation of Scorecard LTI for fiscal year
2012.
The maximum that can be received will remain at 300% of the LTI target
allocated to Scorecard LTI.
Further details of the Relative TSR RSUs and Hybrid RSUs for fiscal year
2012 will be set out in the 2011 AGM 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.
4.4 Fixed Remuneration
No significant changes to Fixed Remuneration are planned for fiscal year
2012.
James Hardie Annual Report 2011
53
5. REMUNERATION TABLES FOR SENIOR EXECUTIVES
5.1 Total Remuneration for Senior Executives for the Years Ended 31 March 2011 and 31 March 2010
Details of the remuneration of the senior executives in fiscal year 2011 and 2010 are set out below:
(US dollars)
Primary
Post-employment
Equity
Other
Relocation
Allowances,
Expatriate
Benefits,
and Other
Non-recurring
Total
Base Pay
Bonuses1
Noncash
Benefits2
Superannuation
and 401(k)
Benefits
Equity
Awards3
$ 944,137
936,860
$ 948,342
1,688,832
$ 50,948
471,208
$ 17,072
12,999
$5,075,476
3,744,250
$599,8064
174,510
$ 7,635,781
7,028,659
828,3345
738,463
436,206
450,000
438,596
384,169
472,663
397,558
255,494
320,148
397,801
245,699
200,803
382,303
204,204
406,711
85,570
83,728
33,613
74,721
28,401
33,098
24,413
24,228
78,812
66,462
867,564
607,122
132,740
185,971
2,248,514
2,001,894
19,037
14,700
1,224,965
606,351
38,143
156,807
2,149,765
1,548,278
15,986
12,842
–
755,725
536,472
765,132
536,472
–
–
–
–
1,439,511
1,348,884
1,466,412
1,364,969
Name
L. Gries
Fiscal Year 2011
Fiscal Year 2010
R. Chenu
Fiscal Year 2011
Fiscal Year 2010
R. Cox6
Fiscal Year 2011
Fiscal Year 2010
M. Fisher
Fiscal Year 2011
Fiscal Year 2010
N. Rigby
Fiscal Year 2011
Fiscal Year 2010
Total Compensation for Senior Executives
3,119,936
Fiscal Year 2011
222,945
Fiscal Year 2010
2,907,050
686,983
1 Bonuses in respect of each fiscal year are paid in June of the following fiscal year. The amounts in fiscal years 2011 and 2010 include all incentive
2,006,644
3,043,693
8,688,862
6,030,667
130,907
107,003
770,689
517,288
14,939,983
13,292,684
amounts accrued in respect of each fiscal year, pursuant to the terms of the applicable plans and any additional one-off discretionary bonuses paid. 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. Senior executives were paid fiscal year 2010 bonuses in
performance shares. Refer to section 3 of this remuneration report for a summary of the terms of our Variable Remuneration plans.
2 Includes the aggregate amount of all noncash benefits received by the executive in the year indicated. Examples of noncash benefits that may be
received by 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, Relative TSR and Hybrid RSUs. Relative TSR RSUs are valued using the Monte Carlo simulation method. Hybrid
RSUs and Scorecard LTI awards are valued based on JHI SE’s share price at each balance date. The fair value of equity awards granted are included in
compensation during the period in which the equity awards vest.
4 Includes a one-off non-cash charge to recognise gross up and tax paid on fiscal year 2010’s bonus during secondment to The Netherlands.
5 R Chenu’s base salary is paid in A$ and a significant amount of this increase is as a result of changes in the A$:US$ exchange rate.
6 A number of R Cox’s RSUs and Scorecard LTI were forfeited during fiscal year 2011. Under US GAAP accounting standards the company was required to
record a non-cash cost in relation to the forfeiture.
54
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
5.2 Equity Holdings for the Years Ended 31 March 2011 and 2010
(a) Options
Name
Senior Executives
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
Exercise
Price
per right
(A$)
Holding
at
1 April
2010
Grant
Date
Granted
Total
Value at
Grant1
(US$)
Value at
Exercise
per right2
(US$)
Value at
Lapse
per right3
(US$)
Holding
at
31 March
2011
Weighted
Average
Fair Value
per right4
Lapsed
Vested Exercised
325,000 $
325,000 $
3-Dec-026 $ 6.4490
325,000
5-Dec-035 $ 7.0500
325,000
22-Nov-056 $ 8.5300 1,000,000 1,000,000 $ 2,152,500
21-Nov-067 $ 8.4000
415,000
21-Nov-067 $ 8.4000
381,000
29-Aug-077 $ 7.8300
445,000
29-Aug-077 $ 7.8300
437,000
210,633 325,000
338,975 325,000
–
888,100 415,000
415,000 $
381,000 $ 1,131,570 228,600
445,000 $
965,650 445,000
437,000 $ 1,302,260 244,720
22-Feb-055 $ 6.3000
22-Nov-056 $ 8.5300
21-Nov-067 $ 8.4000
21-Nov-067 $ 8.4000
29-Aug-077 $ 7.8300
29-Aug-077 $ 7.8300
93,000
90,000
65,000
60,000
68,000
66,000
93,000 $
90,000 $
65,000 $
60,000 $
68,000 $
66,000 $
107,973
193,725
139,100
178,200
147,560
196,680
93,000
–
65,000
36,000
68,000
36,960
–
–
–
–
–
–
17-Dec-01 $ 5.0586
3-Dec-02 $ 6.4490
5-Dec-03 $ 7.0500
14-Dec-04 $ 5.9900
1-Dec-05 $ 8.9000
21-Nov-06 $ 8.4000
10-Dec-07 $ 6.3800
17-Dec-01 $ 5.0586
3-Dec-02 $ 6.4490
5-Dec-03 $ 7.0500
14-Dec-04 $ 5.9900
1-Dec-05 $ 8.9000
21-Nov-06 $ 8.4000
10-Dec-07 $ 6.3800
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
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 $
68,283
28,904
47,959
74,000
137,676 132,000
183,276 180,000
386,137 190,000
291,069 158,500
275,084 277,778
20,003
8,467
27,000
17,499
34,419
33,000
183,276 180,000
386,137 190,000
291,069 158,500
275,084 277,778
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,000,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
68,283
–
–
–
–
–
–
1.7114
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
325,000 $ 0.6481
325,000 $ 1.0430
– $ 2.1525
415,000 $ 2.1400
381,000 $ 2.9700
445,000 $ 2.1700
437,000 $ 2.9800
93,000 $ 1.1610
– $ 2.1525
65,000 $ 2.1400
60,000 $ 2.9700
68,000 $ 2.1700
66,000 $ 2.9800
–
–
– $ 0.4233
74,000 $ 0.6481
132,000 $ 1.0430
180,000 $ 1.0182
190,000 $ 2.0323
158,500 $ 1.8364
277,778 $ 0.9903
20,003 $ 0.4233
27,000 $ 0.6481
33,000 $ 1.0430
180,000 $ 1.0182
190,000 $ 2.0323
158,500 $ 1.8364
277,778 $ 0.9903
James Hardie Annual Report 2011
55
(b) RSUs
Name
Senior Executives
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
Holding
at
1 April
2010
Grant
Date
15-Sep-088
15-Sep-089
29-May-09
15-Sep-099
11-Dec-099
07-Jun-1011
15-Sep-109
15-Sep-089
29-May-09
15-Sep-099
11-Dec-099
07-Jun-1011
15-Sep-109
15-Sep-089
29-May-09
15-Sep-099
11-Dec-099
07-Jun-1011
17-Jun-0810
17-Dec-089
29-May-09
15-Sep-099
11-Dec-099
07-Jun-1011
15-Sep-109
17-Jun-0810
17-Dec-089
29-May-09
15-Sep-099
11-Dec-099
07-Jun-1011
15-Sep-109
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
–
–
Granted
201,324
558,708
487,446
234,900
81,746
360,267
577,255
108,637
94,781
45,675
15,895
70,052
72,157
155,196
135,402
65,250
22,707
100,074
36,066
116,948
77,548
39,150
13,624
60,044
67,003
36,066
116,948
77,548
39,150
13,624
60,044
72,157
Total
Value at
Grant1
(US$)
Holding
at
31 March
2011
Weighted
Average
Fair Value
per unit4
Vested
Lapsed
746,107
$
$ 1,592,318
$ 1,640,256
$ 1,176,849
$
564,865
$ 2,142,760
$ 2,595,627
201,324
–
–
–
–
–
–
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
309,615
318,938
228,832
109,834
416,648
324,454
442,309
455,628
326,903
156,905
595,210
144,625
268,980
260,949
196,142
94,142
357,124
301,279
144,625
268,980
260,949
196,142
94,142
357,124
324,454
–
–
–
–
–
–
–
–
–
–
–
36,066
–
–
–
–
–
–
36,066
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62,504
61,580
65,250
22,707
96,788
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
558,708
487,446
234,900
81,746
360,267
577,255
108,637
94,781
45,675
15,895
70,052
72,157
92,692
73,822
–
–
3,286
–
116,948
77,548
39,150
13,624
60,044
67,003
–
116,948
77,548
39,150
13,624
60,044
72,157
$ 3.7060
$ 2.8500
$ 3.3650
$ 5.0100
$ 6.9100
$ 5.9477
$ 4.4965
$ 2.8500
$ 3.3650
$ 5.0100
$ 6.9100
$ 5.9477
$ 4.4965
$ 2.8500
$ 3.3650
$ 5.0100
$ 6.9100
$ 5.9477
$ 4.0100
$ 2.3000
$ 3.3650
$ 5.0100
$ 6.9100
$ 5.9477
$ 4.4965
$ 4.0100
$ 2.3000
$ 3.3650
$ 5.0100
$ 6.9100
$ 5.9477
$ 4.4965
1 Total Value at Grant = Weighted Average Fair Value per right multiplied by number of rights granted.
2 Value at Exercise/right = Value Market Value of a share of the company’s stock at Exercise less the Exercise price per right.
3 Value at Lapse/right = Fair 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 58 for summary of key terms of options granted.
6 Options granted under 2005 Managing Board Transitional Stock Option Plan. See section 7, page 60 for summary of key terms of options granted.
7 Options granted under James Hardie Industries Long-Term Incentive Plan 2006 (LTIP). See section 7, pages 59-60 for summary of key terms of options
granted.
8 Deferred Bonus RSUs granted under Deferred Bonus Program and LTIP. See section 7, page 61 for key terms of Deferred Bonus RSUs.
9 Relative TSR RSUs granted under LTIP. See section 7, page 59 for key terms of Relative TSR RSUs.
10 Deferred Bonus RSUs granted under Deferred Bonus Program and 2001 JHI SE Equity Incentive Plan.
11 Hybrid RSUs (formerly Executive Incentive Plan RSUs) granted under LTIP. See Section 7, Page 60 for key terms of Hybrid RSUs.
56
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
(c) Scorecard LTI
Name
Senior Executives
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
Grant
Date
Holding at
1 April 2010
Granted
Vested
Lapsed
Holding at
31 March 2011
21-Jun-09
29-Jun-10
21-Jun-09
29-Jun-10
21-Jun-09
29-Jun-10
21-Jun-09
29-Jun-10
21-Jun-09
29-Jun-10
483,294
–
483,294
442,424
93,974
–
93,974
55,303
134,248
–
134,248
–
80,549
–
80,549
–
80,549
51,353
80,549
55,303
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88,315
–
–
–
–
–
483,294
442,424
93,974
55,303
45,933
–
80,549
51,353
80,549
55,303
5.3 Senior Executive’s Relevant Interests in JHISE
Changes in senior executives’ relevant interests in JHI SE securities between 1 April 2010 and 31 March 2011 are set out below:
Louis Gries
Russell Chenu
Robert Cox
Mark Fisher
Nigel Rigby
CUFS at
1 April 2010
CUFS at
31 March 2011
Options at
1 April 2010
Options at
31 March 2011
RSUs at
1 April 2010
RSUs at
31 March 2011
259,875
35,000
–
29,519
–
298,543
55,990
48,621
96,519
73,792
3,328,000
442,000
–
1,080,561
886,281
2,328,000
352,000
–
1,012,278
886,281
1,564,124
264,988
378,555
283,336
283,336
2,300,322
407,197
169,800
410,383
415,537
5.4 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 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 the RSUs (net
of taxes and other costs).
The CEO and two other senior executives held the number of shares
required to comply with the stock ownership guidelines during fiscal year
2011. However, even after the stock ownership guidelines have been
achieved, senior executives are required to retain at least 25% of shares
issued under the company’s long-term equity incentive plans as a result of
exercise 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 68 of the Corporate Governance Report within this annual report.
5.5 Loans
The company did not grant loans to senior executives during fiscal year
2011. There are no loans outstanding to senior executives.
James Hardie Annual Report 2011
57
6. 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.
6.1 CEO’s Employment Contract
Details of the terms of the CEO’s employment contract are as follows:
Components
Details
Length of contract
Indefinite. The CEO is an ‘at-will’ employee.
Base salary
Short-term incentive
Long-term incentive
US$950,000 for fiscal year 2011 and 2012. Salary reviewed annually by the Board and there will be no base salary
increase for fiscal year 2012.
Annual STI target is 125% of annual base salary for fiscal year 2011 and 2012. 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 IP 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 2012, the LTI target will be US$3.1 million.
Defined Contribution Plan
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.
Resignation
The CEO may cease employment with the company by providing written notice.
Board then his unvested RSUs and awards will not be forfeited and will be held until the next test date.
If the CEO retires with the approval of the
Termination by James Hardie
Post-termination Consulting
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 duration of the consulting agreement
referenced below; and
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 LTIP, the CEO’s outstanding options will not expire during any post-termination consulting
period.
In addition, in the event of an agreed separation or agreed retirement, his unvested restricted stock units and
awards will not be automatically forfeited. 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 20 years.
6.2 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
Resignation or Termination
Redundancy or diminution of
role
Details
Fixed period concluding 5 October 2012.
A$900,279 for fiscal year 2011. Salary reviewed annually by the Board in May.
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.
The CFO will receive stock options or other long-term equity with performance hurdles each year. The value of equity to be
granted will be equivalent to at least US$350,000.
The CFO is entitled to superannuation contributions equal to 9% of his base salary. The contribution to the CFO’s
superannuation fund will be the maximum contribution currently allowed by law (A$50,000), with the balance paid to the
CFO.
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, 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.
58
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
6.3 Benefits contained in contracts for CEO, CFO and General Counsel
In fiscal year 2011, 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 benefits
listed below. The CFO continues to receive these benefits during the term of his assignment in the US:
International Assignment
Other
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 in The Netherlands.
Health, Welfare and Vacation Benefits: Eligible to receive all health, welfare and vacation benefits offered to all US
employees, or similar benefits. The CEO was 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.
6.4 Other senior executives’ employment contracts
Details of employment contracts for 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 in May.
An annual STI target is set at a percentage of the senior executive’s salary. The STI target is between 60% and 65% and
reviewed annually.
Upon the approval of the Board, awards of Scorecard LTI awards and grants of Relative TSR and Hybrid RSUs may be 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, except as required under the terms of the applicable STI or LTI plans.
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.
7. KEY TERMS OF EQUITY GRANTS
7.1 Outstanding Equity Grants
2001 JHI SE Equity
Incentive Plan (Options)
Offered to
Vesting schedule
Expiration date
Annual option grants made in December 2001, 2002, 2003, 2004 and 2005, November 2007 and December 2007.
Off-cycle grants made to new employees in March 2007.
General management, not Managing Board directors1 (all awards were granted while JHI SE was domiciled in The
Netherlands).
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.
10th anniversary of each grant.
James Hardie Annual Report 2011
59
2001 JHI SE Equity
Incentive Plan (RSUs)
Offered to
Vesting schedule
Expiration date
James Hardie Industries
Long Term Incentive Plan
2006 (LTIP) Option
Grants
Offered to
Performance period
Retesting
Exercise period
Performance condition
Vesting criteria
Annual grants made in December 2008, 2009 and 2010. RSUs replaced options as the company’s grant vehicle in 2008.
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.
RSUs convert to shares on vesting on a one-for-one basis.
Options granted on 21 November 2006 and 29 August 2007. Grants were divided into two tranches: Return on Capital
Employed (which we refer to as “ROCE”) and TSR.
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 ten 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 Australia
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:
(cid:2) 0% vesting if ROCE below 60th percentile of peer group.
(cid:2) 50% vesting if ROCE at 60th percentile of peer group.
(cid:2) Between the 60th and 85th percentiles, vesting on a straight line basis.
(cid:2) 100% vesting if ROCE is at 85th percentile of peer group.
For the TSR tranche:
(cid:2) 0% vesting if TSR below 50th percentile of peer group.
(cid:2) 50% vesting if TSR at 50th percentile of peer group.
(cid:2) Between 50th and 75th percentiles, vesting on a straight line basis.
(cid:2) 100% vesting if TSR is at 75th percentile of peer group.
To date, the 2006 and 2007 grant ROCE tranche options vested 100%, the 2006 TSR tranche options have vested 60%
and the 2007 TSR tranche options have vested 56%. No options have been exercised.
Relative TSR RSUs granted September and December 2008 and 2009 and September 2010.
Senior executives and Managing Board directors (1).
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.
Vesting to date
James Hardie Industries
Long Term Incentive Plan
2006 (Relative TSR
RSUs) (RSUs)
Offered to
Performance period
Retesting
Exercise period
1 The Managing Board was dissolved on 17 June 2011 following completion of JHISE’s re-domicile to Ireland.
60
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
Performance condition
Vesting criteria
RSU exercise price
Expiration date
James Hardie Industries
Long Term Incentive Plan
2006 (Hybrid RSUs)
(Previously referred to as
Executive Incentive
RSUs)
Offered to
Option Exercise Price
Vesting schedule (2010
grant only)
Expiration date
James Hardie Industries
Long Term Incentive Plan
2006 Scorecard LTI (Cash
Awards)
Offered to
Option Exercise Price
Performance period
Payment schedule
Expiration 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. For 2010 onwards, the TSR performance hurdle peer group companies also
include American Woodmark Corp, Apogee Enterprises, Inc, Amstrong World Enterprises, Inc, Fortune Brands, Inc, Interface,
Inc, Mohawk Industries, Inc and PGT Inc.
(cid:2) 0% vesting if TSR below 50th percentile of peer group.
(cid:2) 33% vesting if TSR at 50th percentile of peer group.
(cid:2) Between 50th and 75th percentile, vesting is on a straight line basis.
(cid:2) 100% vesting if TSR is at 75th percentile of peer group.
Not applicable.
RSUs convert to shares on vesting on a one-for-one basis.
Hybrid RSUs granted June 2010 and 2011.
Senior executives and Managing Board directors.
Nil.
A proportion will vest on the 2nd anniversary of the grant depending on each senior executive’s Scorecard rating between 0
and 100.
RSUs convert to shares on vesting on a one-for-one basis.
Cash-settled Awards granted June 2009, 2010 and 2011
Senior executives.
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.
Three years from the grant date.
7.2 Equity grants which vested or lapsed in fiscal year 2011
2005 Managing Board
Transitional Stock Option
Plan (MBTSOP) (Options)
Offered to
Performance period
Retesting
Exercise period
Performance condition
Vesting criteria
Vested/Lapsed
Options granted on 22 November 2005.
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.
Not applicable, as all options have lapsed.
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.
(cid:2) 0% vesting if TSR below 50th percentile of peer group.
(cid:2) 50% vesting if TSR at 50th percentile of peer group.
(cid:2) Between 50th and 75th percentiles, vesting on a straight line basis.
(cid:2) 100% vesting if TSR is at least 75th percentile of peer group.
Lapsed with no options vesting.
James Hardie Annual Report 2011
61
2001 JHI SE Equity
Incentive Plan Deferred
Bonus Program (RSUs)
Offered to
RSU exercise price
Vesting schedule
Expiration date
James Hardie Industries
Long Term Incentive Plan
2006 Hybrid RSUs
(RSUs)
Offered to
Option Exercise Price
Vesting schedule (2009
grant only)
Expiration 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.
The RSUs vested and converted into shares granted on a one-for-one basis.
Hybrid RSUs granted June 2009.
Senior executives and Managing Board directors (1).
Nil.
100% vest on the 2nd anniversary of the grant.
The RSUs vested and converted into shares granted on a one-for-one basis.
Further details of equity incentive plans that expired during fiscal year 2011 are provided in Note 16 to the consolidated financial statements starting on
page 99 of this annual report.
8. REMUNERATION FOR 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.
8.1 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 (discussed below). All directors’
fees are paid in cash.
During fiscal year 2011, 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 non-executive director fees, excluding fees paid
to Committee Chairs, by 5% effective 1 April 2011.
The fees paid in fiscal year 2011, and payable in fiscal year 2012 are:
(US $)
Role
Chairman
Deputy Chairman
Board member
Audit Committee Chairman
Remuneration or Nominating and
Governance Committee Chairman
Fiscal
year
2011
$315,000
$183,750
$136,500
$ 20,000
Fiscal
year
2012
$330,750
$192,938
$143,325
$ 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 fee. The
Due Diligence Committee met three times in fiscal year 2011 as part of
the completion of the Company’s Re-domicile.
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.
8.2 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.
8.3 Supervisory Board Share Plan
Under the Supervisory Board Share Plan 2006 (which we refer to as the
“SBSP”), non-executive directors could elect to receive some of their
annual fees in JHI SE shares. The complexity of the four different
jurisdictions in which the company’s individual directors are resident
means that it is easier for most directors to directly acquire shares to
meet the Board Accumulation Policy. As a result, the SBSP has been
discontinued.
8.4 Director Retirement Benefits
The company does not provide any benefits for our non-executive Board
directors upon termination of employment.
62
James Hardie Annual Report 2011
REMUNERATION REPORT
(CONTINUED)
8.5 Total Remuneration for Non-Executive Directors for the Years Ended 31 March 2011 and 31 March 2010
The table below sets out the remuneration for those directors who served on the Board during the fiscal years ended 31 March 2011 and 31 March 2010:
(US dollars)
Name
M. Hammes
Fiscal Year 2011
Fiscal Year 2010
D. McGauchie
Fiscal Year 2011
Fiscal Year 2010
B. Anderson
Fiscal Year 2011
Fiscal Year 2010
D. Dilger4
Fiscal Year 2011
Fiscal Year 2010
D. Harrison
Fiscal Year 2011
Fiscal Year 2010
J. Osborne
Fiscal Year 2011
Fiscal Year 2010
R. van der Meer
Fiscal Year 2011
Fiscal Year 2010
Primary
Directors’ Fees1
Equity
JHI SE Stock2
Other Benefits3
Total
$ 316,500
221,000
$
–
85,000
$ 6,065
10,641
$ 322,565
316,641
193,750
185,000
159,500
155,000
154,019
75,000
146,500
130,000
138,000
127,500
136,500
120,000
–
–
–
10,000
–
–
–
10,000
–
10,000
–
10,000
1,659
2,428
1,005
8,290
2,431
1,784
195,409
187,428
160,505
173,290
156,450
76,784
1,456
10,000
147,956
150,000
2,483
990
1,264
–
140,483
138,490
137,764
130,000
Total Compensation for Non-Executive Directors
Fiscal Year 2011
Fiscal Year 2010
$1,244,769
1,013,500
$
–
125,000
$16,363
34,133
$1,261,132
1,172,633
1 Amount includes base, Chairman, Deputy Chairman, Committee Chairman and Due Diligence Committee attendance fees.
2 The Supervisory Board Share Plan (SBSP) was discontinued for fiscal year 2011. For fiscal year 2010, 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. Refer to section 8.3 for further details about the SBSP.
3 Other Benefits includes the cost of non-executive directors’ fiscal compliance in The Netherlands and other costs connected with Board-related events.
4 Mr. Dilger was appointed as a director effective September 2, 2009. The amounts for fiscal year 2011 include $17,519 fees paid for service on a
number of the Company’s subsidiary boards, as approved by the Board.
8.6 Non-Executive Directors’ Interests in JHISE
Changes in non-executive directors’ relevant interests in JHI SE securities between 1 April 2010 and 31 March 2011 are set out below:
Michael Hammes
Donald McGauchie
Brian Anderson
David Dilger
David Harrison
James Osborne
Rudy van der Meer
1 9,000 shares/CUFS held as ADRs.
2 6,000 shares held for the McGauchie Superannuation Fund.
3 25,000 shares held for the David Dilger Approved Retirement Fund for which Mr Dilger is a beneficiary.
4 10,000 shares held as ADRs.
Number of
Shares/CUFS
At 1 April 2010
32,8471
25,3722
7,635
25,0003
12,3844
2,551
17,290
On market
Purchases
–
–
–
–
–
–
Number of
Shares/CUFS at
31 March 2011
32,847
25,372
7,635
25,000
12,384
2,551
17,290
James Hardie Annual Report 2011
63
CORPORATE GOVERNANCE
These Corporate Governance Principles describe the corporate governance
arrangements that have been followed by James Hardie from the
commencement of the fiscal year 2011 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 2011.
On 17 June 2010, we completed Stage 2 of a proposal to move our
corporate domicile from The Netherlands to Ireland, and as a result James
Hardie Industries SE moved its corporate seat to Ireland (which we refer to
as 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, Ireland.
CORPORATE GOVERNANCE AT JAMES HARDIE
OVERVIEW
James Hardie operates under the regulatory requirements of numerous
jurisdictions and organisations, including the ASX, ASIC, the NYSE, the US
SEC, the Irish Takeover Panel 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.
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.
Our corporate governance framework incorporates 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.
BOARD STRUCTURE
The responsibilities of our Board and Board Committees are formalised in
our Articles of Association and our Board Committee charters, respectively.
The Board has also reserved certain matters to itself.
Number of Boards
Since completion of Stage 2 of the Re-domicile, the Company has had a
single Board.
However, prior to the completion of the Re-domicile, James Hardie had a
two-tiered board structure, consisting of a Supervisory Board and a
Managing Board.
Single Board
The Board 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:
(cid:129) appointing, removing and assessing the performance and remuneration of
the CEO and CFO;
(cid:129) succession planning for the Board and senior management and defining
the Company’s management structure and responsibilities;
(cid:129) approving the overall strategy for the Company, including the business
plan and annual operating and capital expenditure budgets;
(cid:129) convening and monitoring the operation of shareholder meetings and
approving matters to be submitted to shareholders for their consideration;
(cid:129) approving annual and periodic reports, results announcements and
related media releases, and notices of shareholder meetings;
(cid:129) approving the dividend policy and interim dividends and making
recommendations to shareholders regarding the annual dividend;
(cid:129) reviewing the authority levels of the CEO and management;
(cid:129) approving the remuneration framework for the Company;
(cid:129) overseeing corporate governance matters for the Company;
(cid:129) approving corporate-level Company policies;
(cid:129) considering management’s recommendations on various matters which
are above the authority levels delegated to the CEO or management; and
(cid:129) 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 reserved powers charter, which is available on our website
(www.jameshardie.com, select Investor Relations, Corporate Governance,
then Board Powers).
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.
SUPERVISORY BOARD
The Supervisory Board was in existence until 17 June 2010, when it was
replaced by the single Board. It comprised only non-executive directors, with
at least two members or a higher number as determined by the Supervisory
Board.
The Supervisory Board supervised and provided advice to the Managing
Board, and was responsible for, amongst other matters:
(cid:129) nominating Managing Board directors for election by shareholders;
(cid:129) appointing and removing the CEO and the Chairman of the Managing
Board;
(cid:129) approving Managing Board decisions relating to specified matters or
above agreed thresholds;
(cid:129) approving the strategic plan and annual budget proposed by the
Managing Board;
64
James Hardie Annual Report 2011
CORPORATE GOVERNANCE
(CONTINUED)
(cid:129) approving the annual financial accounts;
(cid:129) supervising the policy and actions of the Managing Board;
(cid:129) supervising the general course of affairs of James Hardie and the
business it operates;
(cid:129) approving issues of new shares;
(cid:129) approving declaration of dividends;
(cid:129) approving any share buy-back programs and cancelling the shares
bought back;
(cid:129) approving any significant changes in the identity or nature of the
Company;
(cid:129) approving the strategy set by the Managing Board;
(cid:129) monitoring Company performance; and
(cid:129) 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 Supervisory Board;
(cid:129) ensuring the implementation of the Company’s strategic plan;
(cid:129) preparing quarterly and annual accounts, management reports and media
releases;
(cid:129) monitoring the Company’s compliance with all relevant legislation and
regulations and managing the risks associated with the Company’s
activities;
(cid:129) reporting and discussing the Company’s internal risk management and
control systems with the Supervisory Board and the Audit Committee; and
(cid:129) representing, entering into and performing agreements on behalf of the
Company.
(cid:129) maintaining effective external disclosure policies and procedures.
MANAGING BOARD
The Managing Board was in existence until 17 June 2010, when it ceased
to exist and the CEO joined the single Board. It comprised only executive
directors, with at least two members or such higher number as determined
by the Supervisory Board.
The Managing Board was accountable to the Supervisory Board and to the
shareholders for the day-to-day management of the Company, including:
(cid:129) administering the Company’s general affairs, operations and finance;
OPERATION OF THE BOARD
BOARD MEETINGS
The Board meets at least four times a year or whenever the Chairman or
three or more members have requested a meeting.
Meetings are generally held at the Company’s offices in Ireland (and in The
Netherlands prior to completion of the Re-domicile). At each physical meeting,
the Board meets in executive session without management present for at least
part of the meeting. The Board may also delegate some of its powers to a
sub-committee of the Board or pass resolutions by written consent.
The number of Board and Board Committee meetings held, and each director’s attendance during the fiscal year, is set out below:
Board
Audit
H
7
7
7
7
7
7
7
7
A
7
7
7
7
7
7
7
7
H
8
8
8
8
–
–
–
–
–
–
A
8
8
8
8
–
–
–
–
–
–
Remuneration
H
A
6
6
3
6
6
–
–
–
–
–
6
6
3
6
6
–
–
–
–
–
Nominating &
Governance
Managing
Board
H
5
–
–
–
5
5
5
–
–
–
A
5
–
–
–
5
5
5
–
–
–
H
–
–
–
–
–
–
–
4
4
4
A
–
–
–
–
–
–
–
4
4
4
Number of meetings held during the time the Director held office or was a member of the Committee during the fiscal year.
Number of meetings attended during the time the Director held office or was a member of the Committee during the fiscal year. Non-Committee
members also attend Committee meetings from time to time; these attendances are not shown.
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 above in the Board of Directors biography section 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.
Name
Hammes
Anderson
Dilger
Harrison
McGauchie
Osborne
Van der Meer
Gries
Chenu
Cox
H =
A =
James Hardie Annual Report 2011
65
The Nominating and Governance Committee reviews the other
commitments of Board members each year.
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.
The Board and Nominating and Governance Committee have also spent
significant time over the past years considering the appropriate
composition of the Board.
During the year, the Board and Nominating and Governance Committee
considered the desired profile of the Board, including the right number,
mix of skills, qualifications, experience, expertise, diversity and geographic
location of its directors, to maximise the effectiveness of the Board.
RETIREMENT AND TENURE POLICY
The Company does not have a retirement and tenure policy. The length of
tenure of individual Board directors is considered as part of the Board’s
decision-making process when considering whether a director should be
recommended by the Board for re-election.
BOARD EVALUATION
The Nominating and Governance Committee supervises the director
evaluation process and makes recommendations to the Board. During
fiscal year 2011, a purpose-designed survey was used by directors to
self-assess the operation of the Board and each Board Committee, and
the results were reviewed and discussed by the Nominating and
Governance Committee and the Board.
The Chairman discussed with each Board director, and the Deputy
Chairman discussed with the Chairman, his performance and contribution
to the effectiveness of the Board. The Nominating and Governance
Committee and the Board 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.
DIRECTOR RE-ELECTION
The Board’s overriding desire is to maximise its effectiveness by
appointing the best candidates for vacancies and closely reviewing the
performance of directors subject to 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 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.
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 Irish law, 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 accounting standards’ approach to materiality 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:
(cid:129) 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 and receives
a rebate from James Hardie in respect of those purchases;
(cid:129) Rudy van der Meer was until 1 January 2011 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
(cid:129) David Dilger is a director of a number of James Hardie’s subsidiaries
and receives directors’ fees for such service approved by the Board of
James Hardie Industries SE.
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.
INDUCTION
The Company has an induction 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 Ireland, 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 comprehensive orientation
materials including relevant corporate documents and policies.
66
James Hardie Annual Report 2011
CORPORATE GOVERNANCE
(CONTINUED)
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. An annual plant
and market tour forms an important part of the Board’s continuing
development.
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. We do not provide any
benefits for our Board non-executive directors upon termination of
employment.
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:
(cid:129) provides leadership to the Board;
(cid:129) chairs Board and shareholder meetings;
(cid:129) facilitates Board discussion;
(cid:129) monitors, evaluates and assesses the performance of the Company’s
Board and Board Committees; and
(cid:129) is a member of and attends meetings of all Board Committees.
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.
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 above.
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,
the company secretary, or an employee or 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.
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. 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.
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 are 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 regarding the Company’s
strategy and performance, including two sessions each year where Board
members formally review the Company’s strategy and progress. The Board
and each Board Committee have also scheduled an annual calendar of
topics to be covered to assist them to properly discharge all of their
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.
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.
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). The Board may also delegate some of its powers
or specific decisions to ad hoc committees from time to time.
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.
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 a separate
executive session with the external auditor and internal auditor,
respectively.
Currently, the members of the Audit Committee are Mr Anderson
(Chairman), Mr Dilger, Mr Hammes and Mr Harrison.
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
James Hardie Annual Report 2011
67
that Mr Anderson, Mr Harrison and Mr Dilger are “audit committee
financial experts.”
The Audit Committee provides advice and assistance to the Board in
fulfilling its responsibilities and, amongst other matters:
(cid:129) overseeing the Company’s financial reporting process and reports on
the results of its activities to the Board;
(cid:129) reviewing with management and the external auditor the Company’s
annual and quarterly financial statements and reports to shareholders;
(cid:129) discussing earnings releases as well as information and earnings
guidance provided to analysts;
(cid:129) reviewing and assessing the Company’s risk management policies and
procedures;
(cid:129) 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;
(cid:129) reviewing the adequacy and effectiveness of the Company’s internal
compliance and control procedures;
(cid:129) reviewing the Company’s compliance with legal and regulatory
requirements; and
(cid:129) establishing procedures for complaints regarding accounting, internal
accounting controls and auditing matters, including any complaints from
whistleblowers.
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.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee is responsible for:
(cid:129) identifying and recommending to the Board individuals qualified to
become Board directors;
(cid:129) overseeing the evaluation of the Board and senior management;
(cid:129) assessing the independence of each Board director;
(cid:129) reviewing the conduct of the AGM; and
(cid:129) performing a leadership role in shaping the Company’s corporate
governance policies.
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:
(cid:129) administers and makes recommendations on the Company’s incentive
compensation and equity-based remuneration plans;
(cid:129) reviews the remuneration of Board directors;
(cid:129) reviews the remuneration framework for the Company;
(cid:129) 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 above.
The current members of the Remuneration Committee are Mr Harrison
(Chairman), Mr Anderson, Mr Dilger, Mr Hammes and Mr McGauchie.
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. These include:
(cid:129) Code of Business Conduct and Ethics;
(cid:129) Ethics Hotline;
(cid:129) Continuous Disclosure and Market Communication; and
(cid:129) Insider Trading.
Copies of all these policies are available in the Investor Relations area of
our website (www.jameshardie.com).
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. The Audit Committee
reviewed and revised the Code of Business Conduct and Ethics policy
during the fiscal year.
We have not granted any waivers from the provisions of our Code of
Business Conduct and Ethics during fiscal year 2011.
The current members of the Nominating and Governance Committee are
Mr McGauchie (Chairman), Mr Hammes, Mr Osborne and Mr van der
Meer.
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
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CORPORATE GOVERNANCE
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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.
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 2nd Floor, Europa House, Harcourt Centre, Harcourt Street, Dublin
2, 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.
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:
(cid:129) understand James Hardie’s strategy and assess the quality of its
management;
(cid:129) examine James Hardie’s financial position and the strength of its
growth prospects; and
(cid:129) receive any news or information that might reasonably be expected to
materially affect the price or market for James Hardie securities.
The CEO is responsible for ensuring the Company complies with our
continuous disclosure obligations. A Disclosure Committee comprised of
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
before they are approved by the Board. The Audit Committee reviewed the
Company’s disclosure practices under the Continuous Disclosure and
Market Communication policy and revised the policy during the fiscal year.
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. There is a general prohibition
on hedging unvested shares, options or RSUs.
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.
The Audit Committee reviewed the Company’s share trading approval
practices under the Insider Trading policy and revised the policy during the
fiscal year.
RISK MANAGEMENT
OVERALL RESPONSIBILITY
The Audit Committee and the Board reviewed our risk management
processes during the fiscal year.
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, General Counsel and
Director of Internal Audit. 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 Corporate, US and Asia Pacific Risk
Management Committees, as described 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.
At a management level, the GMT (comprising in fiscal year 2011 the CEO,
CFO, General Counsel, Executive General Manager USA, Executive General
Manager International and the Vice President of Investor and Media
Relations) is the primary management forum for risk assessment and
management within the Company.
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:
(cid:129) our risk management systems are effective;
(cid:129) our principal strategic, operational and financial risks are identified;
(cid:129) effective systems are in place to monitor and manage risks; and
James Hardie Annual Report 2011
69
(cid:129) reporting systems, internal controls and arrangements for monitoring
compliance with laws and regulations are adequate.
A summary of these policies, processes and controls is available in the
Investor Relations area of our website (www.jameshardie.com).
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.
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:
(cid:129) quarterly meetings of the corporate, US and Asia Pacific Risk
Management Committees 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;
(cid:129) quarterly reporting to the GMT, Audit Committee, and annual reporting
to the Board, of the Risk Management Committees’ assessment
regarding the key strategic, operations, reporting and compliance risks
facing the Company;
(cid:129) a program for the Audit Committee to review in detail each year all
items identified by the Risk Management Committees as high level
risks;
(cid:129) meetings of the Financial Statements Disclosure Committee to review
all quarterly and annual results;
(cid:129) a planning process involving the preparation of three-year strategic
plans and a rolling twelve month forecast;
(cid:129) annual budgeting and monthly reporting to monitor performance;
(cid:129) an internal audit department with a reporting line direct to the
Chairman of the Audit Committee;
(cid:129) regular monitoring of the Company’s liquidity and status of finance
facilities;
(cid:129) maintaining an appropriate insurance program;
(cid:129) maintaining policies and procedures in relation to treasury operations,
including the use of financial derivatives;
(cid:129) issuing and revising standards and procedures in relation to
environmental and health and safety matters;
(cid:129) implementing and maintaining training programs in relation to legal
issues such as trade practices/antitrust, trade secrecy, and intellectual
property protection;
(cid:129) issuing procedures requiring significant capital and recurring
expenditure to be approved at the appropriate levels; and
(cid:129) documenting detailed accounting policies, procedures and guidance for
the group in a single group finance manual.
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.
RISK MANAGEMENT COMMITTEE
During the fiscal year, the Risk Management Committee was divided into
three separate committees, one for Corporate, one for the US business
and one for the non-US business, to allow each committee to focus on
individual risks in greater detail. Each Committee comprises a cross-
functional group of employees and reviews and monitors the risks facing
the Company in their area of responsibility. The Risk Committees are
coordinated by the Director of Internal Audit and report on a quarterly
basis to the GMT. The Risk Committees also provide quarterly reports to
the 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.
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.
EXTERNAL AUDIT
The external auditor reviews each quarterly and half-year consolidated
financial statements and audits the full year consolidated financial
statements. 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.
The Audit Committee reviews and approves management representations
made to the external auditor as part of the audit of the full year results.
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.
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James Hardie Annual Report 2011
CORPORATE GOVERNANCE
(CONTINUED)
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.
INTERNAL CONTROLS AND SOX 404
Each fiscal year, the members of the GMT, 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.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by this
report. In designing and evaluating our disclosure controls and procedures,
our management recognises that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives and are subject to certain
limitations, including the exercise of judgment by individuals, the difficulty
in identifying unlikely future events, and the difficulty in eliminating
misconduct completely. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, our disclosure
controls and procedures were effective at a reasonable assurance level as
of 31 March 2011, to ensure the information required to be disclosed in
the reports that we file or submit under the Exchange Act were recorded,
processed, summarised and reported within the time periods specified in
the rules and forms of the SEC and that such information was
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow for timely decisions
regarding required disclosures.
MANAGEMENT’S 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 may 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 2011. 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 2011.
The effectiveness of our internal control over financial reporting as of
31 March 2011 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report below.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting
that occurred during the period covered by this annual report on
Form 20-F that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
James Hardie Annual Report 2011
71
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’s internal control over financial reporting as of 31 March 2011, 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 Annual 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 31 March 2011 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 as of 31 March 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ deficit, and
cash flows for each of the three years in the period ended 31 March 2011, and our report dated 19 May 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Orange County, California
19 May 2011
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James Hardie Annual Report 2011
CORPORATE GOVERNANCE
(CONTINUED)
LIMITATIONS OF CONTROL SYSTEMS
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.
SHAREHOLDERS’ PARTICIPATION
LISTING INFORMATION
James Hardie securities trade as CUFS on the ASX and as ADSs (which
reference American Depositary Shares) on the NYSE.
ANNUAL GENERAL MEETING (AGM)
The 2010 AGM was held in Ireland and simultaneously broadcast to a
meeting in Sydney. Shareholders in both locations were able to participate
in the meeting, including voting and asking questions.
Each shareholder (other than an ADS holder) has the right to:
(cid:129) attend the AGM either in person or by proxy;
(cid:129) speak at the AGM; and
(cid:129) 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.
COMMUNICATION
We are committed to communicating effectively with our shareholders
through a program that includes:
(cid:129) making management briefings and presentations accessible via a live
webcast and/or teleconference following the release of quarterly and
annual results;
(cid:129) audio webcasts of other management briefings and webcasts of the
annual shareholder meeting;
(cid:129) a comprehensive Investor Relations website that displays all Company
announcements and notices (promptly after they have been cleared by
the ASX), major management and investor road show presentations;
(cid:129) site visits and briefings on strategy for investment analysts;
(cid:129) an email alert service to advise shareholders and other interested
parties of announcements and other events; and
(cid:129) equality of access for shareholders and investment analysts to briefings,
presentations and meetings and equality of media access to the
Company, on a reasonable basis.
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.
COMPLIANCE WITH CORPORATE GOVERNANCE
REQUIREMENTS
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.
The Board has discussed the revisions to the Principles and
Recommendations, which apply to financial years commencing 1 January
2011. Although we note that companies with a balance date of 30 June
2010 have been encouraged to adopt the policy in advance as part of
their 2011 annual reports, James Hardie, which has a balance date of
31 March, will report against the new requirements as part of its 2012
annual report.
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
James Hardie Annual Report 2011
73
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.
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.
Two ways in which our corporate governance practices differ significantly
from those followed by US domestic companies under NYSE listing
standards should be noted:
(cid:129) 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 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
(cid:129) 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.
TAKEOVER RULES AND CONTROL OVER THE COMPANY
James Hardie is subject to Irish takeover laws. The Irish Takeover Rules
are built on several General Principles which are 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:
(cid:129) All holders of the securities of an offeree of the same class must be
afforded equivalent treatment; moreover, if a person acquires control of
a company, the other holders of securities must be protected.
(cid:129) 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.
(cid:129) 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.
(cid:129) 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.
(cid:129) 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.
(cid:129) An offeree must not be hindered in the conduct of its affairs for longer
than is reasonable by any offer for its securities.
(cid:129) 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.
74
James Hardie Annual Report 2011
CONSOLIDATED FINANCIAL STATEMENTS
JAMES HARDIE INDUSTRIES SE
INDEX
75
76
77
78
79
80
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of 31 March 2011 and 31 March 2010
Consolidated Statements of Operations for the Years Ended 31 March 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended 31 March 2011, 2010 and 2009
Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended 31 March 2011, 2010 and 2009
Notes to Consolidated Financial Statements
James Hardie Annual Report 2011
75
REPORT OF INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF JAMES HARDIE INDUSTRIES SE
We have audited the accompanying consolidated balance sheets of James Hardie Industries SE (formerly “James Hardie Industries N.V. and Subsidiaries”) as
of 31 March 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for each of the three
years in the period ended 31 March 2011. 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as 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 at 31 March 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended 31 March
2011 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 31 March 2011, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated 19 May 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Orange County, California
19 May 2011
76
James Hardie Annual Report 2011
CONSOLIDATED
BALANCE SHEETS
JAMES HARDIE INDUSTRIES SE
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 $2.7 million and $2.3 million as of 31 March 2011 and 31 March 2010, 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
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities
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
Australian Taxation Office – amended assessment
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Shareholders’ deficit:
Common stock, Euro 0.59 par value, 2.0 billion shares authorised;
436,386,587 shares issued at 31 March 2011 and
434,524,879 shares issued at 31 March 2010
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
The accompanying notes are an integral part of these consolidated financial statements
(Millions of US dollars)
31 March
2011
2010
$
18.6
0.8
56.1
5.8
138.1
161.5
31.6
13.7
0.3
21.1
10.5
458.1
4.5
707.7
188.6
90.4
27.3
451.4
–
32.6
$ 1,960.6
$
106.4
–
40.9
6.1
3.9
111.1
0.3
53.8
322.5
59.0
108.1
20.1
1,587.0
90.4
190.4
37.6
2,415.1
$
$
$
19.2
0.6
44.5
13.3
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
222.5
52.5
(784.7)
55.2
(454.5)
$ 1,960.6
221.1
39.5
(437.7)
59.2
(117.9)
2,178.8
$
James Hardie Annual Report 2011
CONSOLIDATED
STATEMENTS
OF OPERATIONS
JAMES HARDIE INDUSTRIES SE
(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
Asbestos adjustments
Operating income (loss)
Interest expense
Interest income
Other (expense) income
Income (loss) 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
77
Years Ended 31 March
2010
2011
2009
$ 1,167.0
$
1,124.6
$
1,202.6
(775.1)
391.9
(173.4)
(28.0)
(85.8)
104.7
(9.0)
4.6
(3.7)
96.6
(443.6)
(347.0)
(0.80)
(0.80)
435.6
435.6
$
$
$
(708.5)
416.1
(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
$
$
$
(813.8)
388.8
(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
$
$
$
78
James Hardie Annual Report 2011
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
JAMES HARDIE INDUSTRIES SE
(Millions of US dollars)
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
Changes in operating assets and liabilities:
Restricted cash and cash equivalents
Restricted short-term investments
Payment to the AICF
Accounts and other receivables
Inventories
Prepaid expenses and other assets
Insurance receivable – Asbestos
Accounts payable and accrued liabilities
Asbestos liability
Deposit with Australian Taxation Office
ATO settlement payment
Australian Taxation Office – amended assessment
Other accrued liabilities
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities
Purchases of property, plant and equipment
Proceeds from sale 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
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
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
Years Ended 31 March
2010
2009
2011
$ (347.0)
$
(84.9)
$
136.3
62.9
(21.9)
1.3
9.1
85.8
(0.4)
–
63.3
9.7
(63.7)
24.9
(8.1)
6.3
22.9
(7.7)
(97.8)
254.3
–
190.4
(37.1)
147.2
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
(50.3)
0.7
(49.6)
$
$
(50.5)
–
(50.5)
–
–
460.0
(555.0)
4.9
0.4
–
(89.7)
(8.5)
(0.6)
19.2
18.6
9.5
9.1
18.6
9.1
38.7
$
–
(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
7.4
48.5
$
$
$
$
$
$
$
$
$
$
$
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
7.8
23.2
$
$
$
$
$
$
$
$
$
$
$
James Hardie Annual Report 2011
79
CONSOLIDATED
STATEMENTS OF CHANGES
IN SHAREHOLDERS’ DEFICIT
JAMES HARDIE INDUSTRIES SE
(Millions of US dollars)
Common
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balances as of 31 March 2008
$ 219.7
$ 19.3
$ (454.5)
$
(4.0)
$ 16.9
$ (202.6)
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
Equity awards exercised
Dividends paid
Treasury stock retired
–
–
–
–
–
–
–
–
–
(0.5)
–
–
–
–
–
7.2
(0.4)
0.1
–
(3.5)
136.3
–
–
–
–
–
–
–
(34.6)
–
Balances as of 31 March 2009
$ 219.2
$ 22.7
$ (352.8)
$
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
Equity awards exercised
Balances as of 31 March 2010
Comprehensive income:
Net loss
Pension and post-retirement benefit adjustments
Unrealised gain on investments
Foreign currency translation loss
Other comprehensive loss
Total comprehensive loss
Stock-based compensation
Tax benefit from stock options exercised
Equity awards exercised/released
Balances as of 31 March 2011
–
–
–
–
–
–
–
1.9
–
–
–
–
–
7.7
0.9
8.2
(84.9)
–
–
–
–
–
–
–
$ 221.1
$ 39.5
$ (437.7)
$
–
–
–
–
–
0.7
–
0.7
–
–
–
–
–
8.4
0.4
4.2
(347.0)
–
–
–
–
–
–
–
$ 222.5
$ 52.5
$ (784.7)
$
The accompanying notes are an integral part of these consolidated financial statements
–
–
–
–
–
–
–
–
–
4.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
–
1.3
1.3
(6.6)
(4.0)
–
–
–
(347.0)
1.3
1.3
(6.6)
(4.0)
(351.0)
9.1
0.4
4.9
$ 55.2
$ (454.5)
80
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JAMES HARDIE INDUSTRIES SE
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 21 August 2009, James Hardie Industries N.V. (“JHI NV”) shareholders
approved a plan to transform the Company into a Societas Europaea
(“SE”) and, subsequently, change its domicile from The Netherlands to
Ireland. On 19 February 2010, the Company was transformed from a
Dutch “NV” company to a Dutch “SE” company, and on 17 June 2010,
the Company changed its registered corporate domicile from The
Netherlands to Ireland and, in so doing, became an Irish “SE” company.
The Company became an Irish tax resident on 29 June 2010 and
operates under the name of James Hardie Industries SE (“JHI SE”).
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.
Upon shareholder approval of the Amended and Restated Final Funding
Agreement (as amended from time to time, the “AFFA”) on 7 February
2007, 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.
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.
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 qualifying special purpose entities are consolidated and
all significant intercompany transactions and balances are eliminated.
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.
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.
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:
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
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.
Environmental Remediation and Compliance Expenditures
Environmental remediation and Compliance 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
James Hardie Annual Report 2011
81
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$7.9 million,
US$9.1 million and US$9.9 million during the years ended 31 March
2011, 2010 and 2009, 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$11.3 million,
US$9.3 million and US$7.2 million for the years ended 31 March 2011,
2010 and 2009, respectively. Included in stock-based compensation
expense for the years ended 31 March 2011, 2010 and 2009 is an
expense of US$2.2 million, US$1.6 million and nil, respectively, related to
liability-classified awards.
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:
(Millions of shares)
Basic common shares outstanding
Dilutive effect of stock awards
Diluted common shares outstanding
Years Ended 31 March
2011
435.6
–
435.6
2010
433.1
–
433.1
2009
432.3
2.2
434.5
(US dollars)
2011
2010
2009
Net (loss) income per share –
basic
Net (loss) income per share –
diluted
$ (0.80)
$ (0.80)
$
$
(0.20)
(0.20)
$
$
0.32
0.31
Potential common shares of 13.8 million, 13.7 million and 19.0 million for
the years ended 31 March 2011, 2010 and 2009, 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
82
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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 AFFA entered into on
21 November 2006 to provide long-term funding to 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 AFFA 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 AFFA. The Company
appoints three of the AICF directors and the NSW Government appoints
two of the AICF directors.
Under the terms of the AFFA, 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 AFFA), 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.
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, for financial
reporting purposes, 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 AFFA. 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. Since fiscal year 2007, the Company
has classified the expense related to the increase of the asbestos liability
as asbestos adjustments and the Company has 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 2011, the Company did not provide
financial or other support to the AICF that it was not previously
contractually required to provide. Future funding of the AICF by the
Company continues to be linked under the terms of the AFFA 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 in 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 for further
details on the related assets and liabilities recorded in the Company’s
consolidated balance sheet under the terms of the AFFA.
Asbestos-Related Assets and Liabilities
The Company has recorded on its consolidated balance sheets certain
assets and liabilities under the terms of the AFFA. 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 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 Actuarial. 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 Actuarial 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 records insurance receivables that
are deemed probable of being realised.
James Hardie Annual Report 2011
83
Included in insurance receivable is US$10.8 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.
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
Actuarial 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 tax 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 AFFA. 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 January 2010, the FASB issued ASU No. 2010-06, which requires new
fair value disclosures pertaining to significant transfers in and out of
Level 1 and Level 2 fair value measurements and the reasons for the
transfers and activity. For Level 3 fair value measurements, purchases,
sales, issuances and settlements must be reported on a gross basis.
Further, additional disclosures are required by class of assets or liabilities,
as well as inputs used to measure fair value and valuation techniques.
ASU No. 2010-06 is effective for interim and annual reporting periods
beginning after 15 December 2009, except for the disclosures about
purchases, sales, issuances and settlements on a gross basis, which is
effective for fiscal years beginning after 15 December 2010. The adoption
of the effective portions of this ASU did not result in a material impact on
the Company’s consolidated financial position, results of operations or
cash flows. The Company does not anticipate that the adoption of the
remaining portions of this ASU will result in a material impact to its
reported consolidated financial position, results of operations or cash
flows.
In April 2010, the FASB issued ASU No. 2010-13, which provides
additional guidance concerning the classification of an employee share-
based payment award with an exercise price denominated in the currency
of a market in which the underlying equity security trades. This update
clarifies that an employee share-based payment award with an exercise
price denominated in the currency of a market in which a substantial
portion of the entity’s equity securities trades should not be considered to
contain a condition that is not a market, performance or service condition.
Therefore, an entity would not classify such an award as a liability if it
otherwise qualifies as equity. The amendments included in this update do
not expand the recurring disclosure requirements already in effect. The
amendments in this update are effective for fiscal years and interim
periods beginning on or after 15 December 2010. The adoption of this
ASU did not result in a material impact on the Company’s reported
consolidated financial position, results of operations or cash flows.
84
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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:
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 issues.
The following are changes in the allowance for doubtful accounts:
(Millions of US dollars)
Cash at bank and on hand
Short-term deposits
31 March
2011
2010
$
9.5
9.1
$
13.1
6.1
(Millions of US dollars)
Balance at beginning of period
Charged to expense
Total cash and cash equivalents
$ 18.6
$
19.2
Balance at end of period
31 March
2011
2010
$ 2.3
0.4
$ 2.7
$
$
1.4
0.9
2.3
4. RESTRICTED CASH
Included in restricted cash and cash equivalents is US$5.3 million related
to an insurance policy at 31 March 2011 and 2010, which restricts the
cash from use for general corporate purposes.
5. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consist of the following components:
(Millions of US dollars)
Trade receivables
Other receivables and advances
Allowance for doubtful accounts
31 March
2011
2010
$ 118.3
$
122.8
22.5
(2.7)
34.5
(2.3)
Total accounts and other receivables
$ 138.1
$
155.0
6. INVENTORIES
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
2011
$ 104.5
$
5.9
57.3
2010
99.8
4.8
52.0
(6.2)
(7.5)
$ 161.5
$
149.1
James Hardie Annual Report 2011
85
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following components:
(Millions of US dollars)
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
Changes in net book value:
Capital expenditures
Retirements and sales
Depreciation
Foreign currency translation adjustments
Total changes
Balance at 31 March 2011:
Cost
Accumulated depreciation
Net book value
$
$
Land
18.0
–
18.0
0.1
–
–
–
0.1
18.1
–
18.1
0.2
–
–
–
0.2
18.3
–
18.3
$
Buildings
201.6
(47.3)
Machinery
and
Equipment
826.2
(349.3)
$
154.3
$
476.9
3.6
(9.7)
–
–
(6.1)
$
205.2
(57.0)
148.2
4.4
–
(9.5)
–
(5.1)
209.6
(66.5)
30.0
(52.0)
20.7
21.0
19.7
$
897.9
(401.3)
496.6
58.9
(0.7)
(53.4)
10.4
15.2
966.5
(454.7)
$
143.1
$
511.8
Construction
In Progress1
Total
$
$
51.6
–
51.6
1,097.4
(396.6)
$ 700.8
16.8
–
(20.7)
–
(3.9)
50.5
(61.7)
–
21.0
9.8
47.7
–
47.7
$ 1,168.9
(458.3)
710.6
(13.2)
–
–
–
(13.2)
50.3
(0.7)
(62.9)
10.4
(2.9)
34.5
–
34.5
$
1,228.9
(521.2)
$ 707.7
1 Construction in progress consists of plant expansions and upgrades.
86
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
Depreciation expense for the year ended 31 March 2011 was
US$62.9 million. Included in property, plant and equipment are restricted
assets of the AICF with a net book value of US$2.4 million and
US$2.3 million as of 31 March 2011 and 2010.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following
components:
(Millions of US dollars)
Trade creditors
Other creditors and accruals
31 March
2011
57.7
48.7
$
2010
71.3
29.6
$
Total accounts payable and accrued liabilities
$ 106.4
$
100.9
9. LONG-TERM DEBT
At 31 March 2011, the Company’s credit facilities consisted of:
Description
(US$ millions)
Term facilities, can be drawn in
US$, variable interest rates
based on LIBOR plus margin,
can be repaid and redrawn
until September 2012
Term facilities, can be drawn in
US$, variable interest rates
based on LIBOR plus margin,
can be repaid and redrawn
until December 2012
Term facilities, can be drawn in
US$, variable interest rates
based on LIBOR plus margin,
can be repaid and redrawn
until February 2013
Term facilities, can be drawn in
US$, variable interest rates
based on LIBOR plus margin,
can be repaid and redrawn
until February 2014
Total
Effective
Interest Rate
Total
Facility
Principal
Drawn
–
$
50.0
$
–
–
130.0
–
1.02%
90.0
59.0
–
50.0
–
$ 320.0
$ 59.0
The weighted average fixed interest rate on the Company’s interest rate
swap contracts is set forth in Note 12. The weighted average interest rate
on the Company’s total debt was 1.02% and 0.92% at 31 March 2011
and 2010, respectively, and the weighted average term of all debt
facilities is 1.9 years at 31 March 2011.
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 by using longer-term facilities.
The Company replaced term facilities in the amount of US$45.0 million
that matured in February 2011 with new term facilities totaling
US$100.0 million. These facilities became available to the Company in
February 2011. US$50.0 million of these facilities mature in September
2012 and US$50.0 million of these facilities mature in February 2014. At
31 March 2011, no amounts were outstanding under these new term
facilities.
For all facilities, the interest rate is calculated two business days prior to
the commencement of each draw-down period based on the US$ 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 2011,
there was US$59.0 million drawn under the combined facilities and
US$261.0 million was unutilised and available.
At 31 March 2011, 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 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.
James Hardie Annual Report 2011
87
10. PRODUCT WARRANTIES
The Company offers various warranties on its products, including a
30-year limited warranty on certain of its 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$0.9 million and US$1.2 million
as of 31 March 2011 and 2010, respectively.
The following are the changes in the product warranty provision:
(Millions of US dollars)
Balance at beginning of period
Accruals for product warranties
Settlements made in cash or in kind
Foreign currency translation
adjustments
Years Ended 31 March
2011
$ 24.9
9.1
(7.8)
$
2010
24.9
8.1
(8.4)
2009
17.7
14.6
(7.1)
–
0.3
(0.3)
Balance at end of period
$ 26.2
$
24.9
$
24.9
88
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
11. ASBESTOS
The AFFA was approved by shareholders in February 2007 to provide long-term funding to the AICF. The accounting policies utilised by the Company to
account for the AFFA are described in Note 2.
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
Subtotal – Change in estimates
(Loss) gain on foreign currency exchange
Total Asbestos Adjustments
Years Ended 31 March
2011
2010
2009
$
9.8
$
(3.8)
$ (180.9)
(0.5)
12.2
21.5
1.9
(1.4)
(3.3)
(107.3)
(220.9)
19.8
(1.2)
(162.3)
179.7
$ (85.8)
$
(224.2)
$
17.4
Asbestos-Related Assets and Liabilities
Under the terms of the AFFA, 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 AFFA Liability.”
(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
31 March
2011
2010
$
(111.1)
$
(106.7)
(1,587.0)
(1,512.5)
(1,698.1)
(1,619.2)
13.7
188.6
202.3
0.3
90.4
(0.3)
(90.4)
–
10.5
451.4
461.9
18.6
(1.3)
(1,016.6)
61.9
16.7
185.1
201.8
0.1
98.8
(0.1)
(98.8)
–
16.4
420.0
436.4
16.5
(1.7)
(966.2)
57.8
Unfunded Net Amended FFA liability
$
(954.7)
$
(908.4)
On 1 July 2010, the Company contributed US$63.7 million to the AICF in accordance with the terms of the AFFA.
Asbestos Liability
The amount of the asbestos liability reflects the terms of the AFFA, which has been calculated by reference to (but is not exclusively based upon) the most
recent actuarial estimate of the projected future asbestos-related cash flows prepared by KPMG Actuarial. The asbestos liability also includes an allowance
James Hardie Annual Report 2011
89
for the future claims-handling costs of the AICF. The Company receives an updated actuarial estimate as of 31 March each year. The last actuarial
assessment was performed as of 31 March 2011.
The changes in the asbestos liability for the year ended 31 March 2011 are detailed in the table below:
(Millions of US dollars)
Asbestos liability – 31 March 2010
Asbestos claims paid1
AICF claims-handling costs incurred1
Change in actuarial estimate2
Change in estimate of AICF claims-handling costs2
Loss on foreign currency exchange
Asbestos liability – 31 March 2011
A$
Millions
A$ to US$
rate
(1,768.0)
100.6
3.0
9.5
11.8
1.0919
1.0584
1.0584
0.9676
0.9676
US$
Millions
(1,619.2)
95.0
2.8
9.8
12.2
(198.7)
(1,643.1)
0.9676
(1,698.1)
Insurance Receivable – Asbestos
The changes in the insurance receivable for the year ended 31 March 2011 are detailed in the table below:
(Millions of US dollars)
Insurance receivable – 31 March 2010
Insurance recoveries1
Change in actuarial estimate2
Gain on foreign currency exchange
Insurance receivable – 31 March 2011
Deferred Income Taxes – Asbestos
The changes in the deferred income taxes – asbestos for the year ended 31 March 2011 are detailed in the table below:
(Millions of US dollars)
Deferred tax assets – 31 March 2010
Amounts offset against income tax payable1
AICF earnings1
Gain on foreign currency exchange
Deferred tax assets – 31 March 2011
A$
Millions
A$ to US$
rate
US$
Millions
220.3
(24.1)
(0.5)
1.0919
1.0584
0.9676
201.8
(22.9)
(0.5)
23.9
195.7
0.9676
202.3
A$
Millions
A$ to US$
rate
US$
Millions
476.5
(22.3)
(7.3)
1.0919
1.0584
1.0584
436.4
(21.1)
(6.9)
53.5
446.9
0.9676
461.9
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 2011 is used to convert the Australian dollar amount to US dollars as the adjustment to the estimate was made on
that date.
Income Taxes Payable
A portion of the deferred income tax asset is applied against the Company’s income tax payable. At 31 March 2011 and 2010, this amount was
US$21.1 million and US$15.3 million, respectively. During the year ended 31 March 2011, there was a US$2.1 million unfavourable effect of foreign
currency exchange.
Other Net Liabilities
Other net liabilities include a provision for asbestos-related education and medical research contributions of US$2.5 million and US$2.6 million at 31 March
2011 and 2010, 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$1.3 million and US$0.9 million at 31 March 2011 and 2010, respectively. During the
year ended 31 March 2011, there was a US$0.1 million net favourable effect of foreign currency exchange on these other assets and liabilities.
90
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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.
At 31 March 2011, the Company revalued the AICF’s short-term investments available-for-sale resulting in a positive mark-to-market fair value adjustment
of US$1.3 million. This appreciation in the value of the investments was recorded as an unrealised gain in Other Comprehensive Income.
The changes in the restricted cash and short-term investments of the AICF for the year ended 31 March 2011 are detailed in the table below:
(Millions of US dollars)
Restricted cash and cash equivalents and restricted short-term investments – 31 March 2010
Asbestos claims paid1
Payments received in accordance with AFFA2
AICF operating costs paid – claims-handling1
AICF operating costs paid – non claims-handling1
Insurance recoveries1
Interest and investment income1
Unrealised gain on investments1
Other1
Gain on foreign currency exchange
A$
Millions
A$ to US$
rate
US$
Millions
63.1
(100.6)
72.8
(2.9)
(2.3)
24.1
4.5
1.4
(0.2)
1.0919
1.0584
1.1430
1.0584
1.0584
1.0584
1.0584
1.0584
1.0584
57.8
(95.0)
63.7
(2.8)
(2.2)
22.9
4.3
1.3
(0.1)
12.0
Restricted cash and cash equivalents and restricted short-term investments – 31 March 2011
59.9
0.9676
61.9
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 on the date of payment is used to convert the Australian dollar amount to US dollars.
James Hardie Annual Report 2011
91
Actuarial Study; Claims Estimate
The AICF commissioned an updated actuarial study of potential asbestos-
related liabilities as of 31 March 2011. Based on KPMG Actuarial’s
assumptions, KPMG Actuarial 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$1.5 billion). The undiscounted (but
inflated) value of the central estimate of the asbestos-related liabilities of
Amaca and Amaba as determined by KPMG Actuarial was approximately
A$2.7 billion (US$2.8 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 Actuarial as of 31 March 2011 and to adjust
for payments made to claimants during the year then ended.
In estimating the potential financial exposure, KPMG Actuarial made
assumptions related to the total number of claims which were reasonably
estimated to be asserted through 2074, 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 Actuarial 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 2011, KPMG Actuarial’s
undiscounted (but inflated) central estimate of asbestos-related liabilities was
A$2.7 billion (US$2.8 billion). This undiscounted (but inflated) central
estimate is net of expected insurance recoveries of A$388.1 million
(US$401.1 million) after making a general credit risk allowance for
insurance carriers for A$58.6 million (US$60.6 million) and an allowance for
A$56.3 million (US$58.2 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$1.0 billion) to A$2.3 billion (US$2.4 billion). The undiscounted (but
inflated) estimates could be in a range of A$1.7 billion (US$1.8 billion) to
A$4.6 billion (US$4.8 billion) as of 31 March 2011. The actual cost of the
liabilities could be outside of that range depending on the results of actual
experience relative to the assumptions made. One of the critical
assumptions is the estimated peak year of mesothelioma disease claims
which is targeted for 2010/2011. Potential variation in this estimate has an
impact much greater than the other sensitivities. If the peak year occurs five
years later, in 2015/2016, the discounted central estimate could increase by
approximately 50%.
Claims Data
The AICF provides compensation payments for Australian asbestos-related
personal injury claims against the Former James Hardie Companies. The
claims data in this section are reflective of these Australian asbestos-related
personal injury claims against the Former James Hardie Companies.
92
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
The following table shows the activity related to the numbers of open claims, new claims and closed claims during each of the past five years and the
average settlement per settled claim and case closed:
Number of open claims at beginning of period
Number of new claims
Number of closed claims
Number of open claims at end of period
Average settlement amount per settled claim
Average settlement amount per case closed
Average settlement amount per settled claim
Average settlement amount per case closed
2011
529
494
459
564
For the Years Ended 31 March
2010
2009
534
535
540
529
523
607
596
534
2008
490
552
519
523
2007
564
463
537
490
A$ 204,366
A$ 190,627
A$ 190,638
A$ 147,349
A$ 166,164
A$ 173,199
A$ 171,917
A$ 168,248
A$ 126,340
A$ 128,723
US$ 193,090
US$ 162,250
US$ 151,300
US$ 128,096
US$ 127,163
US$ 163,642
US$ 146,325
US$ 133,530
US$ 109,832
US$
98,510
Under the terms of the AFFA, 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 AFFA) 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.
James Hardie Annual Report 2011
93
AICF – NSW Government Secured Loan Facility
On 9 December 2010, the AICF, Amaca, Amaba and ABN 60 (together,
the “Obligors”) entered into a secured standby loan facility and related
agreements (the “Facility”) with The State of New South Wales, Australia
(“NSW”) whereby the AICF may borrow, subject to certain conditions, up
to an aggregate amount of A$320.0 million (US$330.7 million, based on
the exchange rate at 31 March 2011).
The amount available to be drawn depends on the value of the insurance
policies benefiting the Obligors and may be adjusted upward or
downward, subject to a ceiling of A$320.0 million. At 31 March 2011, the
discounted value of insurance policies was A$177.3 million
(US$183.2 million, based on the exchange rate at 31 March 2011).
In accordance with the terms of the Facility, drawings under the Facility
may only be used by the AICF to fund the payment of asbestos claims
and certain operating and legal costs of the Obligors. The amount
available to be drawn is subject to periodic review by NSW. The Facility is
available to be drawn up to the tenth anniversary of signing and must be
repaid on or by 1 November 2030.
Interest accrues daily on amounts outstanding. Interest is calculated based
on a 365-day year and is payable monthly. The AICF may, at its
discretion, elect to capitalise interest payable on amounts outstanding
under the Facility on the date interest becomes due and payable. In
addition, if the AICF does not pay interest on a due date, it is taken to
have elected to capitalise the interest.
NSW will borrow up to 50% of the amount made available under the
Facility from the Commonwealth of Australia (“Commonwealth”).
To the extent that NSW’s source of funding the Facility is from the
Commonwealth, the interest rate on the Facility is calculated by reference
to the cost of NSW’s borrowings from the Commonwealth for that
purpose, being calculated with reference to the Commonwealth Treasury
fixed coupon bond rate for a period determined as appropriate by the
Commonwealth.
In summary, to the extent that NSW’s source of funding is not from the
Commonwealth, the interest rate on drawings under the Facility is
calculated as (i) during the period to (but excluding) 1 May 2020, a yield
percent per annum calculated at the time of the first drawdown of the
Facility by reference to the NSW Treasury Corporation’s 6% 1/05/2020
Benchmark Bonds, (ii) during the period after 1 May 2020, a yield percent
per annum calculated by reference to NSW Treasury Corporation bonds on
issue at that time and maturing in 2030, or (iii) in any case, if the relevant
bonds are not on issue, a yield percent per annum in respect of such
other source of funding for the Facility determined by the NSW
Government in good faith to be used to replace those bonds, including
any guarantee fee payable to the Commonwealth in respect of the bonds
(where the bonds are guaranteed by the Commonwealth) or other source
of funding.
Under the Facility, Amaca, Amaba and ABN 60 each guarantee the
payment of amounts owed by the AICF and the AICF’s performance of its
obligations under the Facility. Each Obligor has granted a security interest
in certain property including cash accounts, proceeds from insurance
claims, payments remitted by the Company to the AICF and contractual
rights under certain documents including the AFFA. Each Obligor may not
deal with the secured property until all amounts outstanding under the
Facility are paid, except as permitted under the terms of the security
interest.
Under the terms of the Facility, each Obligor must, upon receipt of
proceeds from insurance claims and payments remitted by the Company
under the AFFA, apply all of such proceeds in repayment of amounts
owing under the Facility. NSW may, at its sole discretion, waive or
postpone (in such manner and for such period as it determines) the
requirement for the Obligors to apply proceeds of insurance claims and
payments remitted by the Company to repay amounts owed under the
Facility to ensure the AICF has sufficient liquidity to meet its future cash
flow needs.
The Obligors are subject to certain operating covenants under the Facility
and the terms of the security interest, including, without limitation,
(i) positive covenants relating to providing corporate reporting documents,
providing particular notifications and complying with the terms of the
AFFA, and (ii) negative covenants restricting them from voiding, canceling,
settling, or adversely affecting existing insurance policies, disposing of
assets and granting security to secure any other financial indebtedness,
other than in accordance with the terms and conditions of the Facility.
Upon an event of default, NSW may cancel the commitment and declare
all amounts outstanding as immediately due and payable. The events of
default include, without limitation, failure to pay or repay amounts due in
accordance with the Facility, breach of covenants, misrepresentation, cross
default by an obligor and an adverse judgment (other than a personal
asbestos or Marlew claim) against an Obligor.
The term of the Facility expires on 1 November 2030. At that time, all
amounts outstanding under the Facility become due and payable. As of
19 May 2011, all substantive conditions precedent to drawdown of the
facility have been satisfied with only procedural matters remaining. There
are no amounts outstanding under the Facility. Further, from the time of
signing through 19 May 2011, there have not been any drawings on the
Facility by the Obligors.
Any drawings, repayments, or payments of accrued interest under the
Facility by the AICF do not impact the Company’s net operating cash flow,
as defined in the AFFA, on which annual contributions remitted by the
Company to the AICF are based. James Hardie Industries SE and its
wholly-owned subsidiaries are not a party to, guarantor of, or security
provider in respect of the Facility.
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
94
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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 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 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 vale compared to the cost
of the assets. Accordingly, for the year ended 31 March 2009, the
Company recognised an other-than-temporary impairment charge on these
investments of US$14.8 million within Other Expense. The Company
recorded an unrealised gain on these restricted short-term investments of
US$1.3 million for the year ended 31 March 2011. 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 2011, the
Company had interest rate swap contracts with a total notional 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.
The fair value of interest rate swap contracts is calculated based on the
fixed rate, notional principal, settlement date and present value of the
future cash inflows and outflows based on the terms of the agreement
and the future floating interest rates as determined by a future interest
rate yield curve. The model used to value the interest rate swap contracts
is based upon well recognised financial principles, and interest rate yield
curves can be validated through readily observable data by external
sources. Although readily observable data is used in the valuations,
different valuation methodologies could have an effect on the estimated
fair value. Accordingly, the interest rate swap contracts are categorised as
Level 2.
At 31 March 2011, the weighted average fixed interest rate of these
contracts is 2.4% and the weighted average remaining life is 2.6 years.
These contracts have a fair value of US$6.1 million, which is included in
Accounts Payable. For the year ended 31 March 2011, the Company
included in Other Income an unrealised loss on interest rate swaps of
US$3.8 million. Included in Interest Expense is a realised loss on
settlements of interest rate swap contracts of US$3.9 million for the year
ended 31 March 2011.
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 2011 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 included in Accounts Payable
Total Liabilities
Fair Value at
Fair Value Measurements
Using Inputs Considered as
31 March 2011
Level 1
Level 2
Level 3
$
$
$
18.6
61.4
5.8
85.8
6.1
6.1
$
$
$
18.6
61.4
5.8
85.8
$
$
–
–
–
–
–
–
6.1
$ 6.1
$
$
$
–
–
–
–
–
–
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, including litigation concerning its products. 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 Australian Securities and Investments
Commission (“ASIC”) proceedings, the matters described in the
Environmental and Legal section below, the amended assessment from
the Australian Taxation Office (“ATO”) 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 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.
James Hardie Annual Report 2011
95
The Company defended each of the allegations made by ASIC and the
orders sought against it in the proceedings, as did the former directors
and officers of the Company.
granted ASIC’s applications for special leave on 13 May 2011. The High
Court also granted the special leave applications for one of the former
officers, and the other former officer withdrew his application.
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.
On 30 September 2010, the Company entered into agreements with third
parties and subsequently received payment for US$10.3 million relating to
the costs of the ASIC proceedings for certain former officers. These
recoveries are reflected as a reduction to selling, general and
administrative expenses for the year ended 31 March 2011. The Company
notes that other recoveries may be available resulting from repayments by
third parties, including former directors and officers, in accordance with
the terms of their indemnities.
On 17 December 2010, the New South Wales Court of Appeal dismissed
the Company’s appeal against Justice Gzell’s judgment and ASIC’s cross
appeal and ordered that the Company pay 90% of the costs incurred by
ASIC in respect of the Company’s appeal. The Court of Appeal also
allowed the appeals brought by the non-executive directors, dismissed
ASIC’s related cross-appeals, and ordered ASIC to pay the non-executive
directors costs of the proceedings and the appeals. The Court of Appeal
allowed the appeals and cross appeals in respect of certain former officers
in part and reserved certain matters for further submissions. On 6 May
2011, the Court of Appeal rendered judgment in the exoneration, penalty
and cost matter for certain former officers in which it varied certain orders
made at first instance and ordered that there be no order as to the costs
of the appeals of the certain former officers and ASIC’s related cross-
appeals.
The amount of the costs the Company may be required to pay to ASIC
following the Court of Appeal judgments is contingent on a number of
factors, which include, without limitation, whether such costs (including
the costs orders in ASIC’s favour against us in the first instance hearing,
which orders were not disturbed by the Court of Appeal) are reasonable
having regard to the issues pursued in the case by ASIC against us, the
associated legal work undertaken specifically in respect of those issues (as
distinct from the legal costs of a previous claim and related order against
us that was withdrawn by ASIC in September 2008 just prior to the
commencement of the first instance trial, the legal costs incurred by ASIC
in connection with similar or overlapping claims against other parties in
the first instance or appeal proceedings and the successful interlocutory
appeal by the Company against ASIC during the course of the first
instance hearing), the number of legal practitioners involved in such legal
work and their applicable fee rates.
In light of the uncertainty surrounding the amount of such costs, the
Company has not recorded any provision for these costs at 31 March
2011.
ASIC subsequently filed applications for special leave to appeal to the High
Court appealing from the Court of Appeals judgment in favour of the
former directors’ appeals and a former officer. Certain former officers have
also filed special leave applications to the High Court. The Company did
not file application for special leave to the High Court. The High Court
As with the first instance proceedings, the Company will pay a portion of
the costs of bringing and defending appeals, with the remaining costs
being met by third parties, including former directors and executives, in
accordance with the terms of their applicable indemnities. Losses and
expenses arising from the ASIC proceedings could have a material adverse
effect on our financial position, liquidity, results of operations and cash
flows. It is our policy to expense legal costs as incurred.
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 addition, the Company is involved from time to time in various legal
proceedings and administrative actions concerning the Company’s
operations and products, including putative class action lawsuits. With
respect to asserted claims, the Company believes it has made adequate
provision on its consolidated balance sheet as of 31 March 2011 for
asserted claims that are reasonably estimable. Although it is reasonably
possible that the Company could experience an unexpected increase in
the cost of asserted claims and may be subject to new asserted claims in
the future, the Company is unable to estimate an amount or range of loss
in relation to such matters. Management is of the opinion that, based on
information presently known, the 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 2011:
Years ending 31 March
(Millions of US dollars):
2012
2013
2014
2015
2016
Thereafter
Total
$
18.0
16.5
15.6
15.1
14.0
24.6
$ 103.8
Rental expense amounted to US$15.3 million, US$13.2 million and
US$14.5 million for the years ended 31 March 2011, 2010 and 2009,
respectively.
Capital Commitments
Commitments for the acquisition of plant and equipment and other
purchase obligations contracted for but not recognised as liabilities and
generally payable within one year, were US$0.6 million at 31 March 2011.
96
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
14. AUSTRALIAN TAXATION OFFICE – AMENDED
ASSESSMENT
In March 2006, RCI Pty Ltd (“RCI”), a wholly-owned subsidiary of the
Company, received an amended assessment from the Australian Taxation
Office (“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.
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.
The ATO conceded that RCI has a reasonably arguable position that the
amount of net capital gains arising as a result of the corporate restructure
carried out in 1998 was reported correctly in the fiscal year 1999 tax
return and that Part IVA does not apply.
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.
On 1 September 2010, the Federal Court of Australia dismissed RCI’s
appeal.
Prior to the Federal Court’s decision on RCI’s appeal, the Company
believed it was more-likely-than-not that the tax position reported in RCI’s
tax return for the 1999 fiscal year would be upheld on appeal. As a
result, until 31 August 2010, the Company treated the payment of 50% of
the amended assessment, GIC and interest accrued on amounts paid to
the ATO with respect to the amended assessment as a deposit on its
consolidated balance sheet.
As a result of the Federal Court’s decision, the Company re-assessed its
tax position with respect to the amended assessment and concluded that
the ’more-likely-than-not’ recognition threshold as prescribed by US GAAP
was no longer met. Accordingly, with effect from 1 September 2010, the
Company removed the deposit with the ATO from its consolidated balance
sheet and recognised an expense of US$345.2 million (A$388.0 million)
on its consolidated statement of operations, which did not result in a cash
outflow for the year ended ended 31 March 2011. In addition, the
Company recognised an uncertain tax position of US$190.4 million
(A$184.3 million) on its consolidated balance sheet relating to the unpaid
portion of the amended assessment.
RCI strongly disputes the amended assessment and is pursuing an appeal
of the Federal Court’s judgment. RCI’s appeal was heard from 16 May
2011 to 18 May 2011 before the Full Court of the Federal Court of
Australia. Judgment has been reserved.
With effect from 1 September 2010, the Company has expensed
payments of GIC to the ATO as incurred. The Company will continue to
expense GIC as incurred until RCI ultimately prevails on the matter or the
remaining outstanding balance of the amended assessment is paid.
The ATO was awarded costs in connection with RCI’s appeal of the
objection decision to the Federal Court of Australia. The Company has
made a provision for such costs within other non-current liabilities on the
Company’s consolidated balance sheet at 31 March 2011.
15. 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:
(Millions of US dollars)
2011
2010
2009
Years Ended 31 March
Income (loss) from operations
before income taxes:
Domestic1
Foreign
Total income (loss) before income
taxes
Income tax (expense) benefit:
$
$
66.5
30.1
$
12.8
$
24.6
(31.5)
131.2
96.6
$
(18.7)
$ 155.8
Current:
Domestic1
Foreign
Current income tax (expense)
benefit
Deferred:
Domestic1
Foreign
Deferred income tax benefit
(expense)
$
(15.6)
$
0.6
$
(0.1)
(447.4)
(137.7)
37.4
(463.0)
(137.1)
37.3
(22.2)
41.6
(0.9)
71.8
(0.1)
(56.7)
19.4
70.9
(56.8)
Total income tax expense
$ (443.6)
$
(66.2)
$
(19.5)
1 Since JHI SE became an Irish parent holding company during fiscal year
2011, domestic represents both Ireland and The Netherlands for fiscal
year 2011. For fiscal years 2010 and 2009, domestic represents The
Netherlands.
James Hardie Annual Report 2011
97
Income tax (expense) benefit computed at the statutory rates represents taxes on income applicable to all jurisdictions in which the Company conducts
business, calculated at 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:
Years Ended 31 March
(Millions of US dollars)
Income tax (expense) benefit 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
Income (losses) not available for carryforward
Repatriation of foreign earnings
Change in reserves
Amortisation of intangibles
Taxes on foreign income
State amended returns and audit
Tax assessment in dispute
Other permanent items
Total income tax expense
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
Prepayments
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciable and amortisable assets
Accrued interest income
Foreign currency movements
Unremitted earnings
Other
Total deferred tax liabilities
Net deferred tax assets
2011
$(18.3)
(1.7)
(31.7)
–
(4.0)
–
0.7
(32.6)
(0.2)
(5.9)
(2.0)
–
(349.1)
1.2
2010
$8.3
(3.7)
(66.4)
3.2
(3.7)
2.0
(0.6)
–
(2.2)
–
(1.6)
(2.2)
–
0.7
2009
$(47.0)
(2.9)
51.2
1.8
(7.8)
1.6
(4.1)
–
(13.4)
–
(2.7)
3.0
–
0.8
$ (443.6)
$
(66.2)
$
(19.5)
-459.2%
354.0%
12.5%
31 March
2011
2010
$ 461.9
$
436.6
35.7
32.5
34.3
–
–
564.4
(43.1)
521.3
37.4
9.9
30.4
2.8
0.2
517.3
(39.2)
478.1
(114.9)
(115.7)
–
–
(32.6)
(4.2)
(12.0)
(0.3)
–
–
(151.7)
(128.0)
$ 369.6
$
350.1
98
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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$3.9 million during fiscal year 2011
due to foreign currency movements.
At 31 March 2011, the Company had Australian and Irish tax loss carry-
forwards of approximately US$47.1 million and US$23.6 million,
respectively, that will never expire. The Company has a US tax loss carry-
forward of US$18.7 million that will expire in 2031.
At 31 March 2011, the Company had US$114.3 million in Australian capital
loss carry-forwards which will never expire. At 31 March 2011, the
Company had a 100% valuation allowance against the Australian capital
loss carry-forwards.
At 31 March 2011, the Company had European tax loss carry-forwards of
approximately US$33.3 million that are available to offset future taxable
income, of which US$24.0 million will never expire. Carry-forwards of
US$9.4 million will expire in fiscal years 2014 through 2019. At 31 March
2011, 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 AFFA, 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 2011. 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 2011, the undistributed earnings of non-Irish subsidiaries
approximated US$930.5 million. Subsequent to 31 March 2011, the
Company adopted a plan to reorganise its subsidiary holding company
structure. As a result, the Company has recognised deferred taxes of
US$32.6 million on undistributed earnings of its US subsidiaries, as it
intends to remit US earnings as part of the Company’s plan. At 31 March
2011, the undistributed earnings of US subsidiaries approximated
US$651.4 million. Except as noted above, the Company intends to
indefinitely reinvest its undistributed earnings of other non-Irish subsidiaries
and 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 2011, 2010 and 2009, the Company recorded an income tax
expense of nil, US$2.2 million, and an income tax benefit of US$3.0 million,
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, the
Philippines and Ireland. The Company is no longer subject to US federal
examinations by US Internal Revenue Service (“IRS”) for tax years prior to
tax year 2008. 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.
In connection with the Company’s re-domicile from The Netherlands to
Ireland, the Company became an Irish tax resident on 29 June 2010. While
the Company was domiciled in The Netherlands, the Company derived
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 provided, among other things,
requirements that the Company must meet for the Company 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 was in
compliance and qualified for treaty benefits while the Company was
domiciled in The Netherlands. However, if during a subsequent tax audit or
related process, the Internal Revenue Service (“IRS”) determines that these
changes did 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 in
which the Company was domiciled in The Netherlands.
The Company believes that it is more likely than not that it was in
compliance and should qualify for treaty benefits for calendar year 2008
and subsequent periods in which the Company was domiciled in The
Netherlands. 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 2011.
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$153.0 million) in December 2008.
James Hardie Annual Report 2011
99
Dutch Exit Tax
In connection with implementing Stage 1 of the Company’s proposal to re-
domicile its corporate seat from The Netherlands to Ireland, the Company
incurred a tax liability that arose from: (i) a capital gain on the transfer of its
intellectual property from The Netherlands to a newly-formed James Hardie
entity and (ii) the exit from the Dutch Financial Risk Reserve regime.
The Dutch Tax Authority (the “DTA”) reviewed the Company’s assessed fair
value of the intellectual property as performed by a third party valuation
firm. Based on the DTA’s review, the Company incurred a capital gain and
Dutch tax liability, which has been deferred and included in non-current
Other Assets, net of amortisation, on the Company’s consolidated balance
sheet as of 31 March 2011 and is being amortised on a straight-line basis
over the remaining useful life of the intellectual property.
Unrecognised Tax Benefits
A reconciliation of the beginning and ending amount of unrecognised tax
benefits and interest and penalties are as follows:
(US$ millions)
Unrecognised
tax benefits
Interest and
Penalties
Balance at 1 April 2008
$
61.9
$
47.0
Additions for tax positions of the current
year
Additions (deletions) for tax positions of prior
year
Settlements paid during the current period
Foreign currency translation adjustment
Balance at 31 March 2009
Additions for tax positions of the current
year
Additions (deletions) for tax positions of prior
year
Other reductions for the tax positions of
prior periods
Foreign currency translation adjustment
Balance at 31 March 2010
Additions for tax positions of the current
year
Additions for tax positions of prior year
Other reductions for the tax positions of
prior periods
Foreign currency translation adjustment
$
$
1.7
37.3
(72.0)
(16.6)
12.3
1.2
4.4
(10.2)
–
7.7
0.1
153.3
(0.4)
24.8
–
(14.3)
(39.6)
(9.1)
$
(16.0)
–
(4.1)
(0.6)
(6.2)
$
(26.9)
–
195.8
(0.2)
27.6
Balance at 31 March 2011
$ 185.5
$ 196.3
As of 31 March 2011, 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$185.5 million and US$196.3 million, respectively.
The Company recognises penalties and interest accrued related to
unrecognised tax benefits in income tax expense. During the year ended
31 March 2011 and 2010, the total amount of interest and penalties
recognised in tax expense was an expense of US$195.6 million and a
benefit of US$4.7 million, respectively.
Except for the liability associated with the ATO amended assessment as
disclosed in Note 14, 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.
16. STOCK-BASED COMPENSATION
At 31 March 2011, the Company had the following equity award plans: the
Executive Share Purchase Plan; the JHI SE 2001 Equity Incentive Plan and
the Long-Term Incentive Plan 2006 as amended in 2008.
Compensation expense arising from equity-based award grants as estimated
using pricing models was US$9.1 million, US$7.7 million and US$7.2 million
for the years ended 31 March 2011, 2010 and 2009, respectively. As of
31 March 2011, the unrecorded deferred stock-based compensation related
to equity awards was US$9.8 million after estimated forfeitures and will be
recognised over an estimated weighted average amortisation period of
2.5 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.
Under the 2001 Equity Incentive Plan, 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.
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.
Under the 2001 Equity Incentive Plan, the Company granted 348,426 and
278,569 restricted stock units to its employees in the years ended
31 March 2011 and 2010, 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 2011, there were 854,409
restricted stock units outstanding under this plan.
100
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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 certain members of senior management (“Executives”). The shareholders also approved, in accordance with certain LTIP rules, the issue of options in the
Company to Executives of the Company. 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 Executives, 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 unless an
Executive ceases employment with the Company.
The Company granted the following restricted stock units under the LTIP:
Grant Date
15 September 2008
17 December 2008
29 May 2009
15 September 2009
11 December 2009
7 June 2010
15 September 2010
Restricted
Stock Units
Granted
1,023,865
545,757
1,066,595
522,000
181,656
807,457
951,194
5,098,524
These restricted stock units 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 2011, there were 1,937,000 options and 4,257,686 restricted stock units outstanding under this plan.
Stock Options
The Company estimates the fair value of each stock option 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”). The Company’s stock based-compensation expense is the estimated fair
value of options granted over the periods in which the stock options vest. There were no stock options granted during the years ended 31 March 2011,
2010 and 2009.
The following table summarises the Company’s stock options available for grant and the activity in the Company’s outstanding options during the noted
period:
Balance at 31 March 2009
Exercised
Forfeited
Forfeitures available for re-grant
Balance at 31 March 2010
Exercised
Forfeited
Forfeitures available for re-grant
Balance at 31 March 2011
Outstanding Options
Shares Available for Grant
Number
23,747,833
18,272,928
(2,058,275)
(1,770,215)
1,540,215
25,288,048
14,444,438
(530,984)
(2,558,159)
1,468,159
26,756,207
11,355,295
Weighted Average
Exercise Price (A$)
7.28
5.51
7.97
7.44
5.19
8.10
7.40
The total intrinsic value of stock options exercised was A$0.6 million, A$4.7 million and nil for the years ended 31 March 2011, 2010 and 2009,
respectively.
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$0.4 million, US$0.9 million and nil for the years ended 31 March 2011, 2010 and 2009, respectively.
James Hardie Annual Report 2011
101
The following table summarises outstanding and exercisable options under both the 2001 Equity Incentive Plan and the LTIP as of 31 March 2011:
Exercise
Price (A$)
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.40
8.90
9.50
Number
100,673
1,321,250
93,000
2,250,317
723,500
1,534,250
1,016,000
2,402,205
1,899,100
15,000
Total
11,355,295
Options Outstanding
Weighted
Average
Remaining
Life (in Years)
Weighted
Average
Exercise
Price (A$)
0.7
3.7
3.9
6.7
1.7
2.7
6.4
5.7
4.7
4.9
4.8
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.40
8.90
9.50
7.40
Aggregate
Intrinsic
Value
104,700
145,337
–
–
–
–
–
–
–
–
Number
100,673
1,321,250
93,000
2,250,317
723,500
1,534,250
794,680
2,225,805
1,899,100
15,000
250,037
10,957,575
Options Exercisable
Weighted
Average
Exercise
Price (A$)
5.06
5.99
6.30
6.38
6.45
7.05
7.83
8.40
8.90
9.50
7.38
Aggregate
Intrinsic
Value (A$)
104,700
145,337
–
–
–
–
–
–
–
–
250,037
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$6.10 as of 31 March 2011, which would have been received by the option holders had those option holders exercised
their options as of that date.
Restricted Stock
The Company estimates the fair value of restricted stock units on the date of grant and recognises this estimated fair value as compensation expense over
the periods in which the restricted stock vests.
The following table summarises the Company’s restricted stock activity during the noted period:
Non-vested at 31 March 2009
Granted
Vested
Forfeited
Non-vested at 31 March 2010
Granted
Vested
Forfeited
Non-vested at 31 March 2011
Restricted Stock – service vesting
The Company granted restricted stock units with a service vesting condition to employees as follows:
Grant Date
17 June 2008
15 September 2008
17 December 2008
29 May 2009
7 December 2009
7 December 2010
Equity Award Plan
2001 Equity Incentive Plan
Long-Term Incentive Plan
2001 Equity Incentive Plan
Long-Term Incentive Plan
2001 Equity Incentive Plan
2001 Equity Incentive Plan
Weighted Average
Fair Value at Grant
Date (A$)
3.95
5.38
3.85
4.32
4.57
5.85
4.94
5.15
4.94
Shares
2,991,061
2,048,820
(208,884)
(94,276)
4,736,721
2,107,077
(970,793)
(760,910)
5,112,095
Restricted Stock Units Granted
698,440
201,324
992,271
1,066,595
278,569
348,426
3,585,625
102
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
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.
Restricted Stock – performance vesting
The Company issued 807,457 restricted stock units with a performance vesting condition under the LTIP to senior executives of the Company for the year
ended 31 March 2011. The vesting of the restricted stock units is deferred for two years and the amount of restricted stock units that will vest at that time
is dependent on the scorecard rating of the award recipient. The scorecard reflects a number of key qualitative and quantitative performance objectives and
the outcomes the Board expects to see achieved at the end of the vesting period.
When the scorecard is applied at the conclusion of fiscal year 2012, the award recipients may receive all, some, or none of their awards. The scorecard
can only be applied by the Board to exercise discretion at the percentage of restricted stock units that will vest. The scorecard may not be applied to
enhance the maximum award that was originally granted to the award recipient.
The fair value of each restricted stock unit (performance vesting) is adjusted for changes in JHI SE’s common stock price at each balance sheet date until
the scorecard is applied at the conclusion of fiscal year 2012.
Restricted Stock – market condition
Under the terms of the LTIP, the Company granted 951,194 and 703,656 restricted stock units (market condition) to members of the Company’s Managing
Board and senior managers during the years ended 31 March 2011 and 2010, 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 2011 and 2010:
Date of grant
Expected volatility
Risk free interest rate
Expected life in years
JHX stock price at grant date (A$)
Number of restricted stock units
15 Sep 2010
11 Dec 2009
15 Sep 2009
50.6%
1.5%
3.0
5.94
49.9%
2.1%
3.0
8.20
42.1%
2.5%
3.0
7.04
951,194
181,656
522,000
Scorecard LTI – Cash Settled Units
Under the terms of the LTIP, the Company granted awards equivalent to 821,459 and 1,089,265 Scorecard LTI units during the years ended 31 March
2011 and 2010, 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 450 and 35,741 cash settled units (service vesting) to employees during the years ended 31 March 2011 and 2010, 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 2011 and 2010 was US$2.2 million and US$1.6 million,
respectively.
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
Company’s management team. USA and Europe Fibre Cement manufactures
fibre cement interior linings, exterior siding products and related accessories
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 (Israel, Kuwait, Qatar and
United Arab Emirates), 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.
James Hardie Annual Report 2011
103
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
Asia Pacific Fibre Cement2
Research and Development2
Segments total
General Corporate3
Total operating income (loss)
Net interest expense4
Other (expense) income
Worldwide total
(Millions of US dollars)
USA & Europe Fibre Cement
Asia Pacific Fibre Cement
Research and Development
Segments total
General Corporate5,6
Worldwide total
(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 Corporate5,6
Worldwide total
Net Sales to Customers1
Years Ended 31 March
$
2011
814.0
353.0
$ 1,167.0
2010
$ 828.1
296.5
$1,124.6
2009
929.3
273.3
1,202.6
$
$
Income (Loss) Before Income Taxes
Years Ended 31 March
2011
160.3
79.4
(20.1)
219.6
(114.9)
104.7
(4.4)
(3.7)
96.6
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
$
$
Total Identifiable Assets
31 March
$
2011
752.0
235.0
14.4
1,001.4
959.2
$ 1,960.6
Net Sales to Customers1
Years Ended 31 March
2011
789.2
266.4
52.9
58.5
1,167.0
2010
808.9
214.3
50.6
50.8
1,124.6
$
$
2010
780.8
216.9
14.2
1,011.9
1,166.9
2,178.8
2009
912.2
193.2
50.0
47.2
1,202.6
$
$
$
$
$
$
$
$
Total Identifiable Assets
31 March
$
2011
752.1
155.5
45.8
48.0
1,001.4
959.2
$ 1,960.6
2010
783.6
131.6
49.8
46.9
1,011.9
1,166.9
2,178.8
$
$
104
James Hardie Annual Report 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JAMES HARDIE INDUSTRIES SE
1 Export sales and inter-segmental sales are not significant.
2 Research and development costs of US$9.7 million, US$10.4 million and US$8.0 million in fiscal years 2011, 2010 and 2009, respectively, were
expensed in the USA and Europe Fibre Cement segment. Research and development costs of US$1.4 million, US$1.0 million and US$1.2 million in fiscal
years 2011, 2010 and 2009, respectively, were expensed in the Asia Pacific Fibre Cement segment. Research and development costs of
US$16.9 million, US$15.7 million and US$14.4 million in fiscal years 2011, 2010 and 2009, respectively, were expensed in the Research and
Development segment. The Research and Development segment also included selling, general and administrative expenses of US$3.2 million,
US$3.3 million and US$4.5 million in fiscal years 2011, 2010 and 2009, respectively.
Research and development expenditures are expensed as incurred and in total amounted to US$28.0 million, US$27.1 million and US$23.8 million for
the years ended 31 March 2011, 2010 and 2009, respectively.
3 The principal components of General Corporate are officer and employee compensation and related benefits, professional and legal fees, administrative
costs, and rental expense net of rental income on the Company’s corporate offices. Included in General Corporate for the year ended 31 March 2011 are
unfavourable asbestos adjustments of US$85.8 million, AICF SG&A expenses of US$2.2 million and a net benefit of US$8.7 million related to the ASIC
proceedings. 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.
4 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$4.3 million, US$3.3 million and US$6.4 million in fiscal years 2011,
2010 and 2009, respectively. See Note 11.
5 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.
6 Asbestos-related assets at 31 March 2011 and 2010 are US$819.7 million and US$797.7 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 two 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 two customers’ accounts receivable represented 20% and 29% of the Company’s trade accounts receivable at 31 March 2011 and 2010,
respectively. The following are gross sales generated by these two customers, which are all from the USA and Europe Fibre Cement segment:
(Millions of US dollars)
Customer A
Customer B
Years Ended 31 March
2011
2010
2009
$ 208.9
134.0
$ 342.9
%
17.9
11.5
$
224.4
144.5
$
368.9
%
20.0
12.8
%
23.0
12.4
$
277.1
149.6
$
426.7
Approximately 32% of the Company’s fiscal year 2011 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.
18. ACCUMULATED OTHER
COMPREHENSIVE INCOME
Accumulated other comprehensive income consists of the following
components:
(Millions of US dollars)
31 March
2011
2010
Pension and post-retirement benefit adjustments
Unrealised gain on restricted short-term investments
Foreign currency translation adjustments
Total accumulated other comprehensive income
$ (0.3)
2.5
53.0
$ 55.2
$
(1.6)
1.2
59.6
$ 59.2
James Hardie Annual Report 2011
105
REMUNERATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
(UNAUDITED, NOT FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS)
Audit Committee Pre-Approval Policies and Procedures
In accordance with our Audit Committee’s policy and the requirements of
the law, all services provided by our 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 we may ask our
independent registered public accounting firm to perform will be set forth
in a separate document requesting Audit Committee approval in advance
of the service being performed.
All of the services pre-approved by the Audit Committee are permissible
under the SEC’s auditor independence rules. To avoid potential conflicts of
interest, the law prohibits a publicly traded company from obtaining
certain non-audit services from its independent registered public
accounting firm. We obtain these services from other service providers as
needed.
Fees paid to our independent registered public accounting firm for
services provided for fiscal years 2011, 2010 and 2009 were as follows:
(Millions of US dollars)
Audit Fees1
Audit-Related Fees2
Fiscal Years Ended 31 March
2009
2010
2011
$ 2.7
$
2.7
$
2.4
0.3
–
–
1 Audit Fees include the aggregate fees for professional services
rendered by our independent registered public accounting firm.
Professional services include the audit of our annual financial
statements and services that are normally provided in connection with
statutory and regulatory filings.
2 Audit-Related Fees include the aggregate fees billed for assurance and
related services rendered by our independent registered public
accounting firm. Our independent registered public accounting firm did
not engage any temporary employees to conduct any portion of the
audit of our consolidated financial statements for the fiscal years ended
31 March 2011, 2010 and 2009.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED, NOT FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS)
The information furnished in the selected quarterly financial data for the years ended 31 March 2011 and 2010 is unaudited but includes all adjustments
which, in the opinion of management, are necessary for a fair statement of the financial results of the respective interim periods. Such adjustments are of a
normal recurring nature. Interim financial statements are by necessity somewhat tentative; judgments are used to estimate interim amounts for items that
are normally determinable only on an annual basis
(Millions of US dollars, except per share data)
First
Second
Third
Fourth
First
Second
Third
Fourth
Fiscal Years Ended 31 March 2011
By Quarter
Fiscal Years Ended 31 March 2010
By Quarter
Net sales
Cost of goods sold
Gross profit
Operating income (loss)
Interest expense
Interest income
Other (expense) income
Income (loss) before income taxes
Income tax expense1
Net income (loss)
Net income (loss) per share –
basic
Net income (loss) per share –
diluted
$ 318.4
$ 287.6
$ 272.6
$ 288.4
$ 284.5
$ 304.2
$ 261.0
$ 274.9
(201.6)
(194.2)
(187.8)
(191.5)
(174.1)
(186.6)
(164.3)
(183.5)
116.8
127.0
(1.8)
0.7
(4.4)
93.4
(56.2)
(2.2)
1.3
(2.9)
121.5
(60.0)
(16.6)
(363.7)
84.8
(16.9)
(2.0)
0.7
2.7
(15.5)
(10.9)
$ 104.9
$(423.7)
$ (26.4)
96.9
50.8
(3.0)
1.9
0.9
50.6
(52.4)
(1.8)
110.4
117.6
(0.8)
(1.5)
1.1
(1.0)
(2.2)
(17.4)
(57.1)
(1.5)
0.8
4.8
(53.0)
(24.9)
(77.9)
96.7
25.1
(1.8)
1.0
2.2
26.5
(11.6)
91.4
11.8
(2.9)
0.8
0.3
10.0
(12.3)
$ (19.6)
$ 14.9
$
(2.3)
$ 0.24
$ (0.97)
$ (0.06)
$ (0.04)
$ (0.18)
$ (0.05)
$ 0.03
$ 0.01
$ 0.24
$ (0.97)
$ (0.06)
$ (0.04)
$ (0.18)
$ (0.05)
$ 0.03
$ 0.01
1 Includes non-cash charge of US$345.2 million recognised in the second quarter of the fiscal year ended 31 March 2011 related to the dismissal of RCI’s
appeal of the 1999 disputed amended tax assessment. Amount also includes a charge of US$32.6 million recognised in the fourth quarter of the fiscal
year ended 31 March 2011 related to our corporate structure simplification, as announced on 17 May 2011, which will be paid during the fiscal year
ended 31 March 2012.
106
106
James Hardie Annual Report 2011
James Hardie Annual Report 2011
MANAGEMENT’S
SECTION 3
DISCUSSION AND ANALYSIS
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
107 Group Statistics
108 Definitions and Glossary
109 Share/CUFS Information
113 Forward-looking Statements
James Hardie Annual Report 2011
107
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 income (loss)
Net interest (expense) income
Other (expense) income
Income (loss) from operations before income taxes
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 average 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
2011
2010
2009
2008
2007
$
814.0
353.0
$ 1,167.0
$ 828.1
296.5
$ 1,124.6
$
929.3
273.3
$ 1,202.6
$ 1,170.5
298.3
1,468.8
$
$ 1,291.2
251.7
$ 1,542.9
$
$
$
160.3
79.4
(20.1)
219.6
(29.1)
(85.8)
104.7
(4.4)
(3.7)
96.6
(443.6)
(347.0)
–
$ 208.5
58.7
(19.0)
248.2
(45.0)
(224.2)
(21.0)
(4.0)
6.3
(18.7)
(66.2)
(84.9)
–
$
$
$
$
$
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
135.6
$
$ 1,960.6
59.0
$
(454.5)
$
$ 50.4
$ 2,178.8
154.0
$
(117.9)
$
137.7
$
$ 1,891.7
230.7
$
(108.7)
$
1,629
768
107
36
2,540
11,446
435.6
435.6
50.3
62.9
–
(79.7¢)
(79.7¢)
3.2%
$
$
1,508
755
106
41
2,410
12,411
433.1
433.1
$ 50.5
$ 61.7
–
(19.6¢)
(19.6¢)
10.9%
1,631
809
109
48
2,597
12,786
432.3
434.5
26.1
56.4
8.0¢
31.5¢
31.4¢
24.0%
$
$
$
$
$
$
$
$
$
$
$
235.2
50.3
(18.1)
267.4
(63.9)
(240.1)
(36.6)
1.1
–
(35.5)
(36.1)
(71.6)
126.2
183.7
2,179.9
174.5
(202.6)
1,924
834
106
49
2,913
14,012
455.0
455.0
38.5
56.5
27.0¢
(15.7¢)
(15.7¢)
22.7%
$ 353.1
39.4
(17.1)
375.4
(56.5)
(405.5)
(86.6)
(6.5)
–
(93.1)
243.9
150.8
42.1
$
$
259.0
$
$ 2,128.1
105.0
$
258.7
$
2,120
845
109
50
3,124
14,776
464.6
466.4
92.1
50.7
9.0¢
32.5¢
32.3¢
12.8%
$
$
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.
108
James Hardie Annual Report 2011
DEFINITIONS AND GLOSSARY
Glossary of abbreviations and terms
Non-financial Terms
ABS – Australian Bureau of Statistics
ADR – American Depositary Receipt
ADS – American Depositary Share
AFFA – Amended and Restated Final Funding Agreement, as amended from
time to time
AGM – Annual General Meeting
AICF – Asbestos Injuries Compensation Fund
ASIC – Australian Securities and Investments Commission
ASX – Australian Securities Exchange
ATO – Australian Taxation Office
CEO – Chief Executive Officer
CFO – Chief Financial Officer
CHESS – Clearing House Electronic Subregister System
CUFS – CHESS Units of Foreign Securities
GIC – General Interest Charge
GMT – Group Management Team
IRS – United States Internal Revenue Service
KPMG Actuarial – KPMG Actuarial Pty Limited
LIBOR – London Interbank Offered Rate
NAHB – National Association of Home Builders
NBSK – Northern Bleached Softwood Kraft,
the Company’s benchmark grade of pulp
NSW – New South Wales
NYSE – New York Stock Exchange
RSU – Restricted Stock Unit
SCI – Special Commission Inquiry
SEC – United States Securities and Exchange Commission
Former James Hardie companies consists of Amaca Pty Ltd, Amaba Pty Ltd
and ABN 60 Pty Ltd.
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.
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 sale 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”, and “Net debt (cash)”). 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, 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.
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 (excluding
loan establishment fees).
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.
Return on capital employed – EBIT divided by gross capital employed.
James Hardie Annual Report 2011
109
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 2011 James Hardie Industries SE had on issue 437,311,611 CHESS Units of Foreign Securities (CUFS) issued over 437,311,611 ordinary shares
held by CHESS Depositary Nominees Pty Ltd (CDN) on behalf of 11,446 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 2011:
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
5,001
4,838
912
623
72
11,446
Holdings
2,364,714
11,678,433
6,560,314
14,121,286
402,586,864
437,311,611
Holders
–
17
23
75
21
136
Holdings
–
39,391
182,685
2,843,252
8,289,967
11,355,295
Based on the closing price of A$5.50 on 15 June 2011, 376 CUFS holders held less than a marketable parcel.
James Hardie Industries SE substantial CUFS holders as at 15 June 2011:
Holdings shown below are as disclosed in substantial holding notices lodged with the ASX.
Shareholder
Commonwealth Bank of Australia
Schroder Investment Management Australia Limited
FMR LLC and FIL Limited
Lazard Asset Management Pacific Co
National Australia Bank Limited Group
Baillie Gifford & Co
Ausbil Dexia Limited
James Hardie Industries SE 20 largest CUFS holders and their holdings as at 15 June 2011:
Shares
Beneficially Owned
49,692,187
43,527,584
33,874,177
28,678,287
28,198,184
26,907,513
24,980,920
Percentage
of Shares
Outstanding
11.36%
9.95%
7.75%
6.56%
6.45%
6.15%
5.71%
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
J P Morgan Nominees Australia Limited
Tasman Asset Management Ltd
AMP Life Limited
Madingley Nominees Pty Ltd
Queensland Investment Corporation
Cogent Nominees Pty Limited
Citicorp Nominees Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
Citicorp Nominees Pty Ltd
ARGO Investments Limited
Citicorp Nominees Pty Ltd
Mirrabooka Investments Limited
Mr G G Cross
Millenium Pty Limited
Total:
Note
1
1
1
1
1
1
1
1
1
CUFS
Holdings
107,379,862
95,829,808
88,060,696
31,477,022
21,749,185
13,815,931
4,669,550
4,514,575
3,630,826
1,969,808
1,833,846
1,778,387
1,750,914
1,590,930
1,535,897
1,214,000
1,179,113
960,000
919,842
900,000
386,760,192
%
24.55
21.91
20.14
7.20
4.97
3.16
1.07
1.03
0.83
0.45
0.42
0.41
0.40
0.36
0.35
0.28
0.27
0.22
0.21
0.21
88.44
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.
110
James Hardie Annual Report 2011
SHARE/CUFS INFORMATION
(NOT FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS)
CONTINUED
JAMES HARDIE INDUSTRIES SE AND SUBSIDIARIES
COMpOSiTiON Of OUR ShAREhOldER bASE
43.69%
0-1,000
42.27%
1,001-5,000
7.97%
5,001-10,000
5.44%
10,001 and over
0.63%
100,001 and over
60.90%
Australia
15.05%
North America
14.35%
UK and Europe
5.31%
Asia
0.12%
Other
Size of Holding Range as at 15 June 2011
Distribution of issued capital by geography
Analysis based on Top100 extract of share register at 31 May 2011
James Hardie Industries SE share/CUFS buy-back
On 17 May 2011, the company announced that it will seek to acquire up to 5% of the company’s issued capital via an on-market share buyback during the next
12 months.
MAJOR ANNOUNCEMENTS
James Hardie informs the ASX and the SEC of anything that might affect 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 our 2011 financial year. Complete
announcements are available on our website at www.jameshardie.com (select Investor Relations, then News).
Calendar 2010
27 May 2010
18 June 2010
1 July 2010
12 August 2010
30 August 2010
Results for Q4 and full year FY10. James Hardie announced a US$23.7 million net operating profit, excluding asbestos, ASIC expenses and
tax adjustments, for the quarter ended 31 March 2010, an increase of 208% compared to the corresponding quarter of last year. The net
operating result for the fourth quarter including asbestos, ASIC expenses and tax adjustments was a loss of US$2.3 million, compared to
a loss of US$129.6 million for the corresponding quarter of last year.
Full year net operating profit excluding asbestos, ASIC expenses and tax adjustments increased 32% to US$133.0 million from
US$100.5 million for the prior year. Including asbestos, ASIC expenses and tax adjustments, full year net operating profit moved from
US$136.3 million to a loss of US$84.9 million.
James Hardie announced that on 17 June 2010 (US time) it finalised its transformation to an Irish Societas Europaea company (SE) as
part of the second and final stage of its previously announced proposal to transform James Hardie into an SE (Stage 1), and change its
registered 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 2010 with the United States Securities and Exchange
Commission.
Results for Q1 FY11: James Hardie announced a US$40.5 million net operating profit, excluding asbestos, ASIC expenses and tax
adjustments, for the quarter ended 30 June 2010, a decrease of 3% compared to the prior corresponding quarter. The net operating result
for the first quarter including asbestos, ASIC expenses and tax adjustments was a profit of US$104.9 million, compared to a loss of
US$77.9 million for the corresponding quarter of the prior year. The current quarter’s result includes a favourable asbestos adjustment of
US$63.1 million, which is attributable to the depreciation of the Australian dollar against the US dollar.
James Hardie advised that it has been informed that judgment in the matter of RCI Pty Ltd (RCI), a wholly-owned subsidiary of JHISE,
v Commissioner of Taxation will be handed down in the Federal Court of Australia at 2.15pm on Wednesday, 1 September 2010.
1 September 2010 The Federal Court of Australia delivered its decision on the appeal by RCI in respect of an amended assessment issued to RCI by the
Australian Taxation Office (ATO) for the income tax year ended 31 March 1999. RCI’s appeal was dismissed.
20 September 2010 James Hardie announced that RCI will appeal, to the Full Federal Court of Australia, the decision of the Federal Court rejecting RCI’s appeal
of an amended assessment issued to RCI by the ATO for income tax year ended 31 March 1999.
15 November 2010 Results for Q2 FY11: James Hardie announced a US$20.7 million net operating profit, excluding asbestos, ASIC expenses and tax adjustments,
for the quarter ended 30 September 2010. This represents a decrease of 45% compared to the prior corresponding quarter. The net operating
result for the quarter including asbestos, ASIC expenses and tax adjustments was a loss of US$423.7 million, compared to a loss of
US$19.6 million for the corresponding quarter of the prior year. As foreshadowed, this result reflects a non-cash charge of US$345.2 million
for taxes, penalties and interest following the loss on appeal in the Australian Federal Court against an ATO amended assessment relating to
fiscal year 1999. The current quarter’s result also includes an unfavourable asbestos adjustment related to currency translation of US$107.8
million, which is attributable to the appreciation of the Australian dollar against the US dollar.
James Hardie Annual Report 2011
111
7 December 2010
James Hardie noted that the NSW Government and the Australian Government announced that a standby loan facility of up to
A$320 million for the Asbestos Injuries Compensation Fund (AICF) had been formalised.
17 December 2010 The New South Wales Court of Appeal delivered its judgment in the appeal by James Hardie, and the related cross-appeal by the Australian
Securities & Investments Commission (ASIC), from the judgment delivered by his Honour Justice Gzell in April 2009.
The Court of Appeal dismissed the Company’s appeal and ASIC’s cross-appeal and ordered that the Company pay 90% of the costs
incurred by ASIC in respect of the Company’s appeal.
Calendar 2011
17 January 2011
James Hardie noted the announcement on 14 January 2011 by ASIC that it had filed applications for special leave to appeal to the High
Court of Australia concerning the recent decision of the New South Wales Court of Appeal in the proceedings involving the former James
Hardie non-executive directors and the former company secretary and general counsel, Peter Shafron. The Company also noted that
applications for special leave to appeal had been filed separately by former executives Peter Shafron and Phillip Morley. The company did
not make an application for special leave to appeal.
18 February 2011 Results for Q3 FY11: James Hardie today announced a US$21.0 million net operating profit, excluding asbestos, ASIC expenses and tax
adjustments, for the quarter ended 31 December 2010. This represents a decrease of 30% compared to the prior corresponding quarter.
The net operating result for the quarter including asbestos, ASIC expenses and tax adjustments was a loss of US$26.4 million, compared
to net operating income of US$14.9 million for the corresponding quarter of the prior year.
James Hardie announced that it had adopted a capital management policy to distribute between 20% and 30% of profits after tax
(excluding asbestos adjustments, which are substantially of a non-cash nature in the short-term) in the form of ordinary dividends and to
conduct a more active approach to capital management which will likely see the company buy-back or issue shares as the company’s needs
dictate. In accordance with this policy, James Hardie also announced that it will seek to acquire up to 5% of the company’s issued capital
via an on-market share buyback during the next 12 months.
17 May 2011
ANNUAl MEETiNg
The 2011 Annual General Meeting of CUFS holders of James Hardie Industries SE will be held in Dublin, Ireland, at 7.30am on Tuesday, 16 August 2011 and
simultaneously broadcast to a meeting in Sydney, Australia, at 4.30pm (Sydney time) on Tuesday, 16 August 2011. Details of the venues for both meetings are
set out in the Notice of Meeting 2011.
Calendar 2011
31 March
19 May
30 June
14 August
16 August
16 August
17 November
Calendar 2012*
February
31 March
May
End of JHI SE Fiscal Year 2011
FY11 Quarter 4 and full year results and management presentation
2011 Annual Report released
Direction Forms close 4.00pm Sydney time for Annual General Meeting
FY12 Quarter 1 results announcement and management presentation
Annual General Meeting, Dublin and Sydney
FY12 Quarter 2 and half year results announcement and management presentation
FY12 Quarter 3 and nine months results announcement and management presentation
End of JHI SE Fiscal Year 2012
FY12 Quarter 4 and full year results and management presentation
*Future dates are indicative only and may change
112
James Hardie Annual Report 2011
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.
• 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
Australia: Australian Securities Exchange Limited
about other material events.
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
In the United States, five JHI SE 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.
We cannot predict the prices at which our shares and ADRs will trade or the
volume of trading for such securities, nor can we assure you that these securities
will continue to meet the applicable listing requirements of these exchanges.
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: +1 (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
James Hardie Share/CUFS holders
Dividends and other cash distributions will be paid by electronic funds
transfer to an Australian bank account to Australian CUFS holders. To
participate in the electronic service, contact Computershare at the above
address. Other James Hardie CUFS holder dividends will be paid by cheque.
Disclosure
James Hardie aims to ensure the widest possible disclosure of its
activities, using:
• quarterly results and management presentations;
• webcasting and conference call facilities that make quarterly results
available to all security holders;
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 Continuous Disclosure and Market
Communication 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 Head Quarters
Second Floor, Europa House
Harcourt Centre
Harcourt Street, Dublin 2, Ireland
Company Secretary: Marcin Firek
Telephone: (+353) 1 411 6924
Facsimile: (+353) 1 479 1128
Investor Relations
Level 3, 22 Pitt Street, Sydney NSW 2000, Australia
Phone: +61 (2) 8274 5246
Facsimile: +61 (2) 8274 5218
Email: investor.relations@jameshardie.com.au
Website: www.jameshardie.com, select Investor Relations
USA Chicago Regional Office
231 South LaSalle Street, 20th Floor
Suite 2000
Chicago, IL 60604
Telephone: +1 (312) 705 6145
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
Fax +61 (2) 8274 5218
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.
James Hardie Annual Report 2011
113
FORWARD-LOOKING
STATEMENTS
This annual report contains forward-looking statements. We may from time
to time make forward-looking statements in our periodic reports filed with
or furnished to the SEC, on Forms 20-F and 6-K, in our annual reports to
shareholders, in offering circulars, invitation memoranda and prospectuses,
in media releases and other written materials and in oral statements made
by our 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 and share buy-backs;
• 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 Australian
Securities and Investments Commission (which we refer to as “ASIC”);
• expectations about the timing and amount of contributions to the Asbestos
Injuries Compensation Fund (which we refer to as “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 economic or housing
recovery, the levels of new home construction, unemployment levels,
changes or stability in housing values, 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 “Risk Factors” beginning
on page 106 of the Form 20-F filed with the SEC on 29 June 2011,
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;
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; 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; possible
increases in competition and 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 and potential tax
benefits; currency exchange risks; dependence on customer preference and
the concentration of our customer base on large format retail customers,
distributors and dealers; dependence on residential and commercial
construction markets; the effect of adverse changes in climate or weather
patterns; possible inability to renew credit facilities on terms favourable to us,
or at all; acquisition or sale of businesses and business segments; 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.jameshardie.eu.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