FILED PURSUANT TO RULE 424(B)(2)
CALCULATION OF REGISTRATION FEE
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Title of each class of securities |
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to be registered |
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Aggregate offering price |
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Amount of registration fee(1) |
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Debt Securities
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$2,000,000,000 |
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$214,000 |
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(1) |
The filing fee of $214,000 is calculated in accordance with
Rule 457(r) of the Securities Act of 1933. |
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PROSPECTUS SUPPLEMENT |
Filed Pursuant to Rule 424(b)(2) |
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(To prospectus dated July 10, 2006) |
Registration No. 333-135665 |
LAFARGE S.A.
US$600,000,000 6.15% Notes Due 2011
US$800,000,000 6.50% Notes Due 2016
US$600,000,000 7.125% Notes Due 2036
We are offering three tranches of notes pursuant to this
prospectus supplement:
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Tranche 1: US$600,000,000 principal amount of
6.15% notes due 2011, |
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Tranche 2: US$800,000,000 principal amount of
6.50% notes due 2016, and |
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Tranche 3: US$600,000,000 principal amount of
7.125% notes due 2036. |
The notes are redeemable in whole or in part at any time at our
option at the redemption price equal to the make-whole amount
described on page S-54. The notes will be issued only in
denominations of US$1,000.
Investing in these securities involves certain risks. See
Risk Factors beginning on page 2 of the
accompanying prospectus.
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Per |
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Per |
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Per |
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Tranche 1 |
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Tranche 2 |
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Tranche 3 |
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Note |
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Total |
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Note |
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Total |
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Note |
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Total |
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Public offering price(1)
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99.861% |
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US$ |
599,166,000 |
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99.588% |
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US$ |
796,704,000 |
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99.327% |
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US$ |
595,962,000 |
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Underwriting discount
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|
0.350% |
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|
US$ |
2,100,000 |
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0.450% |
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US$ |
3,600,000 |
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0.875% |
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US$ |
5,250,000 |
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Proceeds, before expenses, to Lafarge
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99.511% |
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|
US$ |
597,066,000 |
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|
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99.138% |
|
|
US$ |
793,104,000 |
|
|
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98.452% |
|
|
US$ |
590,712,000 |
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(1) |
Plus accrued interest from July 18, 2006, if settlement
occurs after that date. |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the related prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the notes to purchasers
through the book-entry delivery system of The Depository Trust
Company for the accounts of its participants, including
Clearstream and The Euroclear System on or about July 18,
2006.
Joint Book-Running Managers
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|
Barclays Capital |
BNP PARIBAS |
Citigroup |
JPMorgan |
Senior Co-Lead Managers
Deutsche Bank
Securities UBS
Investment Bank
Co-Lead Managers
CALYON Corporate and Investment
Bank Dresdner
Kleinwort HSBC
RBS Greenwich
Capital SOCIETE
GENERALE
The date of this prospectus supplement is July 13, 2006.
TABLE OF CONTENTS
Prospectus Supplement
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S-1 |
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S-7 |
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S-8 |
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S-9 |
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S-10 |
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S-11 |
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S-13 |
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S-16 |
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S-53 |
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S-58 |
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S-61 |
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Prospectus |
ABOUT THIS PROSPECTUS
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1 |
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ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
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1 |
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RISK FACTORS
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2 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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7 |
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WHERE YOU CAN FIND MORE INFORMATION ABOUT US
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8 |
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LAFARGE
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9 |
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RATIO OF EARNINGS TO FIXED CHARGES
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10 |
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CAPITALIZATION AND INDEBTEDNESS OF LAFARGE
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11 |
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USE OF PROCEEDS
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12 |
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DESCRIPTION OF DEBT SECURITIES
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13 |
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CLEARANCE AND SETTLEMENT
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24 |
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TAX CONSIDERATIONS
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27 |
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PLAN OF DISTRIBUTION
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34 |
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VALIDITY OF DEBT SECURITIES
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36 |
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EXPERTS
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36 |
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference is accurate only as of each
of their respective dates. Our business, financial condition,
results of operations and prospects may have changed since those
dates.
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights key information described in greater
detail elsewhere, or incorporated by reference, in this
prospectus supplement and the accompanying prospectus. You
should read carefully the entire prospectus supplement, the
accompanying prospectus and the documents incorporated by
reference before making an investment decision. In this
prospectus supplement, unless otherwise specified or the context
otherwise requires, references to Lafarge are to
Lafarge S.A. and its consolidated subsidiaries. Terms such as
the Group, we, us and
our generally refer to Lafarge.
Lafarge
We produce and sell cement, aggregates, concrete, roofing
products, gypsum wallboard, and related products worldwide,
primarily under the commercial name Lafarge.
Based on sales, we are the world leader in construction
materials. Our products are used for residential, commercial and
public works construction projects throughout the world, whether
for new construction or renovation. Based on both internal and
external analyses, we believe that we are co-leader of the
cement industry, the second largest producer of aggregates and
concrete worldwide, the largest producer of concrete and clay
roofing tiles worldwide and the third-largest manufacturer of
gypsum wallboard worldwide.
Our financial reporting currency is the euro
(). In fiscal
2005, we generated
16.0 billion
in sales and we earned current operating income of
2.4 billion
and net income-Group share of
1.1 billion.
At year-end 2005, our assets totaled
27.9 billion.
We currently employ approximately 80,000 people throughout the
76 countries in which we operate.
We began operations in the early 1800s and were incorporated in
1884 under the name J. et A. Pavin de Lafarge. Our
shares are a component of the French CAC-40 market index (and
have been since its inception) and are included in the SBF 250
index and the Dow Jones Eurostoxx 50 index. Our shares also
trade on the New York Stock Exchange (NYSE) under
the symbol LR in the form of American Depositary
Shares (ADS). Each ADS represents one-fourth of one
share. Our market capitalization totaled
17.3 billion
at the close of the market on June 30, 2006 including
164 million
attributable to our treasury shares.
Our strategy
Our strategy is based on two fundamental components: performance
and development.
Performance: We strive to benefit from our experience across a
broad range of products, geographies and cultures to accelerate
internal sharing of best practices and pursue energetically the
development and implementation of our performance programs. Each
of our Divisions has developed its know-how in strategy,
innovation, customer orientation, production, maintenance and
logistics as well as administrative efficiency. These programs
allow us to use the same managerial and systematic approach in
each of our local operations, focusing our teams on the same
priorities and using proven models. They contribute to the
improvement of the efficiency and responsiveness of our
organization, and hence allow us to better unlock all the
potential of the Group. With this approach, we believe that we
can differentiate our products and services, increase our
operating margins, better use our assets and hence create
additional value for our customers. One of our key performance
indicators is the return on capital employed after
tax.
Development: We are disciplined in our use of capital, both for
internal development and acquisitions. We concentrate on the
projects that fit strategically with our existing product lines
and satisfy our criteria for financial performance. Our solid
financial position, and our strategy of partnership, allow us to
finance development in different economic environments and to
take advantage of attractive opportunities. This development
policy is part of our multi business strategy, comprised of our
four Divisions: Cement, Aggregates & Concrete, Roofing
and Gypsum.
In summary, we seek to achieve global leadership through
excellence in local business management (which we call
multi-local management) and to grow providing
maximum value for our stakeholders.
S-1
Recent Developments
Minority Buy-Out of Lafarge North America Inc.
On May 15, 2006, we completed our cash tender offer for the
46.8% minority stake in Lafarge North America Inc. (which we
refer to as LNA) that we did not previously own and
for all of the outstanding exchangeable preference shares of
Lafarge Canada Inc., a subsidiary of LNA. As a result, we
acquired a total of 34,697,857 LNA common shares and Lafarge
Canada exchangeable preference shares to hold, following the
cash tender offer, approximately 92.37% of the LNA common shares
and Lafarge Canada exchangeable preference shares taken together
as a single class. On May 16, 2006, we completed our
acquisition of the remaining shares of LNA by way of a
short-form merger of LNA with one of our wholly owned
subsidiaries. We now own 100% of the shares of LNA. The total
cost to us of the acquisition was US$3.5 billion.
To finance the cash tender offer, we entered into a
US$2,800,000,000 credit facility on February 5, 2006,
arranged by BNP Paribas and J.P. Morgan plc and also used
funds from our
1,850,000,000
credit facility described in Section 8.4 of our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. Each of the Joint Book-Running Managers, Senior
Co-Lead Managers, and Co-Lead Managers (other than Greenwich
Capital Markets, Inc.), or an affiliate thereof, is a lender
under the US$2,800,000,000 credit facility. This facility
provides a revolving credit line in the amount of
US$2,800,000,000, which may be disbursed either in dollars or
euros, with a maturity of 364 days from the date of the
facility. At its maturity, we may elect to extend outstanding
loans under the facility for an additional 6 months in an
amount up to US$1,400,000,000. We are required to prepay amounts
owed under this facility from the proceeds of certain debt or
equity refinancings. Borrowings under the credit facility bear
interest at a rate equal to the applicable reference rate (LIBOR
or EURIBOR), plus a margin of 0.225% per annum, subject to
adjustments for certain additional costs. The facility also
provides for a commitment fee for unutilized commitments in the
amount of 0.06% per annum as well as other customary
commissions. As of July 10, 2006, we had drawn down
US$2,200,000,000 under this facility. We expect to repay a
portion of this facility with the net proceeds of our offering
of the notes.
Credit Rating
Following our minority buy-out of LNA, Standard and Poors
confirmed its previous rating and outlook for our company (BBB
(stable, A2)) on March 31, 2006, and Moodys confirmed
its previous rating (Baa2) with an outlook change from stable to
negative on May 17, 2006.
Investigation by Polish Competition Authority
On June 21, 2006, the Polish competition authority OCCP
announced that it has opened an investigation into alleged
anticompetitive practices involving the cement industry. Our
company is among several market participants that are being
investigated by the competition authority. Given the early stage
of the investigation, we are not yet in a position to assess the
extent or amount of our potential risk. We intend to cooperate
fully with the Polish competition authoritys investigation.
Strategic Plan
On June 22, 2006, we announced a detailed strategic plan,
called Excellence 2008. This plan confirms our
Groups determination to be the best in its sector, focused
on its strengths, committed to realizing its ambitions and
benefiting from a more efficient organization.
The key points of this plan are as follows:
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An accountable and mobilized management team and organization,
with a performance-based culture |
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A program to reduce costs
by 400 million
by 2008 |
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The generation
of 1.5 billion
in additional cash flow over the next three years |
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A strategy of profitable growth, focused on Cement activity in
fast-growing markets and on innovation in Concrete |
S-2
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The possible divestment of the Roofing business |
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A renewed commitment to our Groups values, with priority
given to employee safety, corporate governance and sustainable
development. |
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1. |
Accelerated transformation of the organization |
We have begun to transform our organization in order to simplify
our processes, accelerate decision making, make managers truly
accountable for the performance of their business units and
encourage cost reductions, in order to optimize the Groups
development.
Already, our Groups top management structure has been
simplified, with the suppression of the Direction
générale level (a former senior management layer)
and the reorganization of Group functions. The organization in
North America is now aligned with that of the Group, by business
line, resulting in the elimination of a hierarchical level. All
aggregates and concrete activities, worldwide, are now directly
under the authority of the Aggregates & Concrete
Division. We have completed the reorganization of our cement
technical centers, with a new regional breakdown and reinforced
engineering capacities. We have reviewed the main levers of our
information systems strategy.
All of this makes it possible to launch a new phase of
reorganization, towards a greater standardization of our
procedures and systems and the development of synergies at the
country level.
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2. |
A program to reduce costs
by 400 million
by 2008 |
Over the past six months, we have undertaken a detailed review
to identify areas for cost reductions within each of the
Groups activities. The current transformation of the Group
to create a more efficient organization is one of the vectors
for reducing costs. Thanks to this groundwork, we are now able
to announce a cost-reduction program
of 400 million,
which takes into account the expected synergies from the buyout
of minority interests in Lafarge North America Inc.
and 60 million
in cost reductions arising from the turnaround plan of the
Roofing activity.
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3. |
1.5 billion
in additional cash flow generation |
We will achieve this by pursuing our program to improve working
capital requirements, by tight controls on maintenance
investments, by lowering the cost of our investments to
modernize existing plants or build new capacity, and through a
divestment program of
over 1 billion
by the end of 2008.
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4. |
The possible divestment of the Roofing business |
The turnaround plan for the Roofing business is well underway
and progressing rapidly. We intend to explore opportunities to
divest the Roofing business, if valuation conditions are met and
we can maintain a minority stake in this activity, in the best
interests of our shareholders.
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5. |
A strategy of profitable growth |
We are determined to maintain growth at a sustained pace in the
coming years. This growth will be generated first by the Cement
business, primarily in fast-growing markets, through the
construction of new production capacity and through
acquisitions, and by the Aggregates business. It will also be
fueled by an acceleration in the pace and contribution of
innovations in all businesses, notably in Concrete.
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6. |
We reaffirm our values to mark our difference and
reinforce our leadership |
We reaffirm our commitment to our values of respect, care and
excellence. Vital for the realization of our strategic plan and
inseparable from the result-oriented culture introduced at all
levels of the organization, these values are crucial for the
long-term leadership of our Group and for the best valuation of
our shareholders investment.
We renew our commitment to being ranked among the worlds
most effective industrial groups in terms of employee health and
safety, protection of the environment, social responsibility and
corporate governance.
S-3
Western New York Investigation
On June 28, 2006, U.S. federal agents served a warrant
on and searched the premises of several of Lafarge North
Americas offices in western New York State in connection
with an investigation of certain government contracts. The
company is cooperating with the investigation.
It is too early to tell whether this investigation will have a
material impact on Lafarge North America and its operations.
S-4
The Offering
The following summary contains basic information about the notes
and is not intended to be complete. It does not contain all the
information that is important to you. For a more complete
understanding of the notes, please refer to the section entitled
Description of Notes in this prospectus supplement
and the section entitled Description of Debt
Securities in the accompanying prospectus.
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Issuer |
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Lafarge |
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Issue |
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Three tranches of senior notes. |
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Tranche 1 Notes |
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US$600,000,000 of principal amount of 6.15% notes due 2011 |
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Tranche 2 Notes |
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US$800,000,000 of principal amount of 6.50% notes due 2016 |
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Tranche 3 Notes |
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US$600,000,000 of principal amount of 7.125% notes due 2036 |
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Maturity |
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Tranche 1 Notes |
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July 15, 2011 |
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Tranche 2 Notes |
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July 15, 2016 |
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Tranche 3 Notes |
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July 15, 2036 |
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Issue price |
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99.861% of the principal amount in respect of the Tranche 1
Notes |
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99.588% of the principal amount in respect of the Tranche 2
Notes |
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99.327% of the principal amount in respect of the Tranche 3
Notes |
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Interest |
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Interest on the notes will be calculated on the basis of a
360-day year consisting
of twelve 30-day months. |
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Interest payment dates |
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Interest on the notes will be payable on January 15 and
July 15 of each year, commencing on January 15, 2007. |
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Form of notes |
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Each tranche of notes will be issued as one or more global
securities. You should read Description of Debt
Securities Legal Ownership Global
Securities in the accompanying prospectus for more
information about global securities. The notes will be issued in
the form of global securities deposited in DTC. Beneficial
interests in the notes may be held through DTC, Clearstream or
Euroclear. For more information about global securities held by
DTC through DTC, Clearstream or Euroclear, you should read
Clearance and Settlement in the accompanying
prospectus. |
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Denominations |
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US$1,000. |
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Ranking |
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The notes are senior obligations of our company. They are not
secured by any collateral. |
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Covenants |
|
The indenture relating to the notes contains restrictions on our
ability to incur liens and merge or transfer assets. For a more
complete description see Description of Debt
Securities Special Situations Negative
Pledge and Description of Debt
Securities Special Situations Mergers
and Similar Events in the accompanying prospectus. |
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Redemption |
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We may redeem the notes, in whole or in part, at any time and
from time to time at a redemption price equal to the greater of
(1) 100% of the principal amount of the notes plus accrued
interest to the date of redemption and (2) as determined by
the quotation |
S-5
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agent (which will be selected by the trustee after consultation
with us), the sum of the present values of the remaining
scheduled payments of principal and interest on the notes
(excluding any portion of such payments of interest accrued as
of the date of redemption) discounted to the redemption date on
a semi-annual basis (assuming a
360-day year consisting
of twelve 30-day
months) at the adjusted treasury rate, plus 20 basis points in
the case of the Tranche 1 Notes, 25 basis points in the
case of the Tranche 2 Notes and 30 basis points in the case
of the Tranche 3 Notes. See Description of
Notes Redemption Optional
Redemption. |
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Listing |
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The notes will not be listed. |
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Payment of additional amounts |
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We will pay additional amounts in respect of any payments of
interest or principal so that the amount you receive after
French withholding tax will equal the amount that you would have
received if no withholding tax had been applicable, subject to
some exceptions as described under Description of Debt
Securities Special Situations Payment of
Additional Amounts in the accompanying prospectus. |
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Tax redemption |
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If, due to changes in French tax treatment (or treatment of any
jurisdiction in which a successor to, or substitute obligor of,
our company is organized or resident for tax purposes) occurring
after the issuance date of the notes (or after the date of
succession or substitution), we would be required to pay
additional amounts as described under Description of Debt
Securities Special Situations Payment of
Additional Amounts in the accompanying prospectus, we may
redeem the notes in whole but not in part at a redemption price
equal to 100% of the principal amount of the notes plus accrued
interest to the redemption date. |
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Trustee |
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Law Debenture Trust Company of New York. |
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Paying Agent |
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Citibank N.A. |
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Further issuances |
|
We reserve the right, from time to time, without the consent of
the holders of the notes, to issue additional notes on terms and
conditions identical to those of any tranche of notes, which
additional notes shall increase the aggregate principal amount
of, and shall be consolidated and form a single series with, the
relevant tranche of notes. We may also issue other securities
under the indenture that have different terms from the notes. |
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Use of proceeds |
|
The net proceeds of this offering will be used to repay a
portion of the US$2,800,000,000 credit facility used to finance
our cash tender offer for the 46.8% minority stake in Lafarge
North America Inc. that we did not previously own. See
Use of Proceeds. |
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Rating |
|
The notes have been assigned a rating of Baa2 by Moodys
and BBB by Standard & Poors. A securities rating
is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time. |
|
Risk factors |
|
See Risk Factors in the accompanying prospectus and
the other information included or incorporated by reference into
this prospectus supplement and the accompanying prospectus for a
discussion of the factors you should carefully consider before
investing in the notes. |
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Governing law |
|
The notes will be governed by and construed in accordance with
the laws of the State of New York. |
S-6
USE OF PROCEEDS
The amount of the net proceeds of the sale of the notes is
expected to be US$1,980,882,000, after deducting underwriting
discounts, and US$1,980,463,000, after further deducting our
share of the estimated expenses of the offering of the notes.
The net proceeds will be used to repay a portion of the
currently drawn-down US$2,200,000,000 of the US$2,800,000,000
credit facility used to finance our cash tender offer for the
46.8% minority stake in Lafarge North America Inc. that we did
not previously own. BNP Paribas and J.P. Morgan plc are
arrangers, and each of the Joint Book-Running Managers, Senior
Co-Lead Managers, and Co-Lead Managers (other than Greenwich
Capital Markets, Inc.), or an affiliate thereof, is a lender,
under this credit facility. See Prospectus Supplement
Summary Recent Developments for a description
of the interest rate and maturity of this credit facility.
S-7
EXCHANGE RATES
The following table sets forth, for the periods and dates
indicated, certain information concerning the Noon Buying Rate
in New York City as defined by the Federal Reserve Bank of New
York.
As of July 12, 2006, the Noon Buying Rate was
1=US$1.27.
As used in this prospectus supplement, the term Noon
Buying Rate refers to the rate of exchange for the euro,
expressed in U.S. dollars per euro, as announced by the
Federal Reserve Bank of New York for customs purposes as the
rate in the City of New York for cable transfers in foreign
currencies. Such rate is not necessarily the rate we used in the
preparation of our consolidated financial statements included in
our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. No representation is made that the euro amounts
have been, could have been or could be converted into
U.S. dollars at the rates indicated or at any other rates.
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US$ Per 1.00 |
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Year/Period |
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Average |
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Closing Rate |
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Rate* |
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High |
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Low |
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YEARLY RATES
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2001
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0.89 |
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|
0.90 |
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|
0.95 |
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|
0.84 |
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2002
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1.05 |
|
|
|
0.95 |
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|
1.05 |
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|
0.86 |
|
2003
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|
|
1.26 |
|
|
|
1.13 |
|
|
|
1.26 |
|
|
|
1.04 |
|
2004
|
|
|
1.35 |
|
|
|
1.24 |
|
|
|
1.36 |
|
|
|
1.18 |
|
2005
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|
|
1.18 |
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|
1.24 |
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|
1.35 |
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|
1.18 |
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MONTHLY RATES
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|
|
|
|
|
|
|
|
|
|
|
|
January 2006
|
|
|
1.22 |
|
|
|
1.21 |
|
|
|
1.23 |
|
|
|
1.20 |
|
February 2006
|
|
|
1.19 |
|
|
|
1.19 |
|
|
|
1.21 |
|
|
|
1.19 |
|
March 2006
|
|
|
1.20 |
|
|
|
1.20 |
|
|
|
1.22 |
|
|
|
1.19 |
|
April 2006
|
|
|
1.26 |
|
|
|
1.23 |
|
|
|
1.26 |
|
|
|
1.21 |
|
May 2006
|
|
|
1.28 |
|
|
|
1.28 |
|
|
|
1.29 |
|
|
|
1.26 |
|
June 2006
|
|
|
1.28 |
|
|
|
1.27 |
|
|
|
1.30 |
|
|
|
1.25 |
|
July 2006 (through July 12)
|
|
|
1.27 |
|
|
|
1.28 |
|
|
|
1.28 |
|
|
|
1.27 |
|
|
|
* |
For any year, the average of the Noon Buying Rates on the
last business day of each month during such year; in the case of
a month or partial month, the average of the Noon Buying Rates
on the business days occurring during such month or partial
month. |
S-8
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
The following table shows the ratios of earnings to fixed
charges for Lafarge, computed in accordance with International
Financial Reporting Standards (IFRS) for the fiscal years ended
December 31, 2005 and 2004 and in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP) for the fiscal years ended
December 31, 2005, 2004, 2003, 2002 and 2001. As a
first-time adopter of IFRS in 2005 and in accordance with
General Instruction G to Form 20-F, we are providing
the ratio of earnings to fixed charges for 2005 and 2004 in
accordance with IFRS and for 2005, 2004, 2003, 2002 and 2001 in
accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
For Lafarge
(IFRS)(1)
|
|
|
4.62 |
|
|
|
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For Lafarge in accordance with U.S. GAAP
|
|
|
4.30 |
|
|
|
3.54 |
|
|
|
3.29 |
|
|
|
2.67 |
|
|
|
2.84 |
|
|
|
(1) |
2004 IFRS ratio is based on figures that are restated from
French GAAP, as set forth in our consolidated financial
statements for the year ended December 31, 2005. |
In calculating the ratio of earnings to fixed charges, we used
the following definitions:
The term fixed charges means the sum of the
following: (a) interest expensed and capitalized,
(b) amortized premiums, discounts and capitalized expenses
related to indebtedness, (c) an estimate of the interest
within rental expense and (d) preference security dividend
requirements of consolidated subsidiaries.
The term earnings is the amount resulting from
adding and subtracting the following items. Add the following:
(a) Pre-tax income from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees, (b) fixed charges,
(c) distributed income of equity investees, and
(d) our share of pre-tax losses of equity investees for
which charges arising from guarantees are included in fixed
charges. Amortization of capitalized interest would normally be
added as well, but has not been taken into account for the
purpose of this calculation as the amounts are immaterial. From
the total of the added items, subtract the following:
(a) interest capitalized, (b) preference security
dividend requirements of consolidated subsidiaries, and
(c) the minority interest in pre-tax income of subsidiaries
that have not incurred fixed charges. Equity investees are
investments that we account for using the equity method of
accounting.
S-9
CAPITALIZATION AND INDEBTEDNESS OF LAFARGE
(Unaudited)
The following table sets out the consolidated capitalization and
long-term indebtedness, as well as short-term indebtedness, of
Lafarge at December 31, 2005, prepared on the basis of
IFRS, on an actual basis and as adjusted to give effect to the
issuance of the notes hereby. You should read this table
together with our consolidated financial statements and the
other financial data appearing elsewhere, or incorporated by
reference, in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
As Adjusted(1) |
|
|
|
|
|
|
|
(in millions) |
Short-term borrowings, including current portion of long-term
debt
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
1,555 |
|
|
|
1,555 |
|
|
|
Short-term borrowings and Bank overdrafts
|
|
|
331 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
Total short-term indebtedness
|
|
|
1,886 |
|
|
|
1,886 |
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
6,856 |
|
|
|
6,856 |
|
Notes offered
hereby(1)
|
|
|
0 |
|
|
|
1,574 |
|
Total long-term debt
|
|
|
6,856 |
|
|
|
8,430 |
|
Minority interests
|
|
|
2,571 |
|
|
|
2,571 |
|
Shareholders equity parent company
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
704 |
|
|
|
704 |
|
Additional paid in capital
|
|
|
6,316 |
|
|
|
6,316 |
|
Retained earnings
|
|
|
2,025 |
|
|
|
2,025 |
|
Foreign currency translation adjustment
|
|
|
741 |
|
|
|
741 |
|
Treasury shares
|
|
|
(98 |
) |
|
|
(98 |
) |
Other reserves
|
|
|
70 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity parent company
|
|
|
9,758 |
|
|
|
9,758 |
|
|
|
|
|
|
|
|
|
|
Total capitalization and long-term indebtedness
|
|
|
19,185 |
|
|
|
20,759 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As adjusted to reflect the issuance of the notes offered
pursuant to this prospectus supplement and translated from
U.S. dollars into euros using the Noon Buying Rate on
July 12, 2006 of
1 = US$1.27. |
As of December 31, 2005, we had an issued share capital of
175,985,303 ordinary fully-paid shares (including 1,785,074
treasury shares from shareholders equity), with a nominal
value of 4 per
share, and securities with rights to up to
6,938,951 shares. From December 31, 2005 to
June 30, 2006, we issued 184,384 shares in connection
with the exercise of stock options by employees.
As of December 31, 2005, property collateralizing debt
amounted to
475 million.
As of December 31, 2005, we had
271 million
of outstanding guarantees to third parties. For more information
about our commitments and contingencies, put options on shares
of subsidiaries and derivative instruments, see Notes 29,
26 and 27 of the notes to our audited consolidated financial
statements in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. Since December 31, 2005, we have incurred
US$3.5 billion of debt in connection with our purchase of
the minority interests in Lafarge North America Inc. and
447 million
of debt in connection with our dividend payment. We expect to
use the net proceeds of this offering to repay a portion of the
debt incurred in connection with our purchase of the minority
interests in Lafarge North America Inc.
Except as disclosed herein or in the prospectus supplement,
there have been no material changes in the consolidated
capitalization, indebtedness and contingent liabilities of
Lafarge since December 31, 2005.
S-10
SELECTED FINANCIAL INFORMATION
The first table below sets forth selected consolidated financial
data under IFRS at and for the years ended December 31,
2005 and 2004. This information is derived from the audited
financial statements of our company and our subsidiaries
included in our annual report on
Form 20-F for the
year ended December 31, 2005.
The second table below sets forth selected financial information
under U.S. GAAP at and for the years ended December 31,
2005, 2004, 2003, 2002 and 2001.
PRIMARY IFRS ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
US$* | |
|
| |
|
| |
|
|
(in millions) | |
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
18,910 |
|
|
|
15,969 |
|
|
|
14,436 |
|
Current operating income
|
|
|
2,791 |
|
|
|
2,357 |
|
|
|
2,201 |
|
Operating income
|
|
|
2,649 |
|
|
|
2,237 |
|
|
|
2,074 |
|
NET INCOME
|
|
|
1,686 |
|
|
|
1,424 |
|
|
|
1,334 |
|
Out of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
Group share
|
|
|
1,298 |
|
|
|
1,096 |
|
|
|
1,046 |
|
Minority interests
|
|
|
388 |
|
|
|
328 |
|
|
|
288 |
|
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current assets
|
|
|
24,327 |
|
|
|
20,543 |
|
|
|
18,241 |
|
Current assets
|
|
|
8,706 |
|
|
|
7,352 |
|
|
|
6,259 |
|
TOTAL ASSETS
|
|
|
33,033 |
|
|
|
27,895 |
|
|
|
24,500 |
|
Shareholders equity parent Company
|
|
|
11,555 |
|
|
|
9,758 |
|
|
|
7,782 |
|
Minority interests
|
|
|
3,045 |
|
|
|
2,571 |
|
|
|
2,119 |
|
Non current liabilities
|
|
|
11,410 |
|
|
|
9,635 |
|
|
|
9,774 |
|
Put options on shares of subsidiaries
|
|
|
311 |
|
|
|
263 |
|
|
|
299 |
|
Current liabilities
|
|
|
6,712 |
|
|
|
5,668 |
|
|
|
4,526 |
|
TOTAL EQUITY AND LIABILITIES
|
|
|
33,033 |
|
|
|
27,895 |
|
|
|
24,500 |
|
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,233 |
|
|
|
1,886 |
|
|
|
1,877 |
|
Net cash (used in) investing activities
|
|
|
(1,994 |
) |
|
|
(1,684 |
) |
|
|
(972 |
) |
Net cash (used in) financing activities
|
|
|
(219 |
) |
|
|
(185 |
) |
|
|
(854 |
) |
Increase in cash and cash equivalents
|
|
|
20 |
|
|
|
17 |
|
|
|
51 |
|
|
|
* |
Amounts in U.S. dollars presented in the table have been
translated solely for the convenience of the reader using the
Noon Buying Rate on December 30, 2005 of
1 = US$1.1842.
As of July 12, 2006, the Noon Buying Rate was
1 = US$1.27. |
S-11
U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
US$* | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
STATEMENT OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
17,886 |
|
|
|
15,104 |
|
|
|
13,371 |
|
|
|
12,468 |
|
|
|
13,406 |
|
|
|
12,434 |
|
Operating income
|
|
|
2,430 |
|
|
|
2,052 |
|
|
|
1,811 |
|
|
|
1,854 |
|
|
|
1,580 |
|
|
|
1,403 |
|
NET INCOME
|
|
|
1,299 |
|
|
|
1,097 |
|
|
|
987 |
|
|
|
831 |
|
|
|
436 |
|
|
|
702 |
|
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
7,761 |
|
|
|
6,554 |
|
|
|
5,498 |
|
|
|
5,252 |
|
|
|
5,096 |
|
|
|
5,817 |
|
Non current assets
|
|
|
24,670 |
|
|
|
20,833 |
|
|
|
18,129 |
|
|
|
19,046 |
|
|
|
21,302 |
|
|
|
23,872 |
|
TOTAL ASSETS
|
|
|
32,431 |
|
|
|
27,387 |
|
|
|
23,627 |
|
|
|
24,298 |
|
|
|
26,398 |
|
|
|
29,689 |
|
Current liabilities
|
|
|
5,680 |
|
|
|
4,796 |
|
|
|
3,735 |
|
|
|
3,968 |
|
|
|
3,864 |
|
|
|
5,345 |
|
Non current liabilities
|
|
|
11,300 |
|
|
|
9,543 |
|
|
|
9,387 |
|
|
|
10,767 |
|
|
|
14,204 |
|
|
|
14,332 |
|
Minority interests
|
|
|
2,990 |
|
|
|
2,525 |
|
|
|
2,244 |
|
|
|
2,063 |
|
|
|
1,936 |
|
|
|
2,201 |
|
Shareholders equity
|
|
|
12,461 |
|
|
|
10,523 |
|
|
|
8,261 |
|
|
|
7,500 |
|
|
|
6,394 |
|
|
|
7,811 |
|
TOTAL EQUITY AND LIABILITIES
|
|
|
32,431 |
|
|
|
27,387 |
|
|
|
23,627 |
|
|
|
24,298 |
|
|
|
26,398 |
|
|
|
29,689 |
|
|
|
* |
Amounts in U.S. dollars presented in the table have been
translated solely for the convenience of the reader using the
Noon Buying Rate on December 30, 2005 of
1 = US$1.1842.
As of July 12, 2006, the Noon Buying Rate was
1 = US$1.27. |
S-12
BUSINESS OVERVIEW
We manage our operations through our Cement,
Aggregates & Concrete, Roofing, and Gypsum Divisions.
Each Division holds a leading position in its respective
industry and represents a separate strategic Business Unit with
its own capital requirements and marketing strategies.
We have vertically integrated our operations to varying degrees
across and within our Divisions. Our Cement Division supplies
most of the cement used by our concrete operations, which also
acquires from internal sources most of the aggregates used to
produce concrete. We supply aggregates to our asphalt and paving
operations. The Gypsum Division manufactures half of the paper
used in its gypsum wallboard operations.
In 2005, the contributions to our consolidated sales by Division
(after elimination of inter-Division sales) and by geographic
area (by destination) were as follows, compared to 2004:
SALES BY DIVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation | |
|
|
|
|
2005 | |
|
2005/2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Cement
|
|
|
7,595 |
|
|
|
47.6 |
% |
|
|
11.5 |
% |
|
|
6,810 |
|
|
|
47.2 |
% |
Aggregates & Concrete
|
|
|
5,377 |
|
|
|
33.7 |
|
|
|
13.3 |
% |
|
|
4,747 |
|
|
|
32.9 |
|
Roofing
|
|
|
1,514 |
|
|
|
9.5 |
|
|
|
1.4 |
% |
|
|
1,493 |
|
|
|
10.3 |
|
Gypsum
|
|
|
1,462 |
|
|
|
9.2 |
|
|
|
9.1 |
% |
|
|
1,340 |
|
|
|
9.3 |
|
Other
|
|
|
21 |
|
|
|
0 |
|
|
|
(54.3 |
)% |
|
|
46 |
|
|
|
0.3 |
|
TOTAL
|
|
|
15,969 |
|
|
|
100.0 |
% |
|
|
10.6 |
% |
|
|
14,436 |
|
|
|
100.0 |
% |
SALES BY GEOGRAPHIC AREA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation | |
|
|
|
|
2005 | |
|
2005/2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Western Europe
|
|
|
6,280 |
|
|
|
39.3 |
% |
|
|
4.3 |
% |
|
|
6,020 |
|
|
|
41.7 |
% |
North America
|
|
|
4,516 |
|
|
|
28.3 |
|
|
|
14.7 |
% |
|
|
3,938 |
|
|
|
27.3 |
|
Mediterranean Basin
|
|
|
671 |
|
|
|
4.2 |
|
|
|
25.7 |
% |
|
|
534 |
|
|
|
3.7 |
|
Central & Eastern Europe
|
|
|
905 |
|
|
|
5.7 |
|
|
|
21.3 |
% |
|
|
746 |
|
|
|
5.2 |
|
Latin America
|
|
|
707 |
|
|
|
4.4 |
|
|
|
22.1 |
% |
|
|
579 |
|
|
|
4.0 |
|
Africa
|
|
|
1,414 |
|
|
|
8.9 |
|
|
|
18.8 |
% |
|
|
1,190 |
|
|
|
8.2 |
|
Asia/ Pacific
|
|
|
1,476 |
|
|
|
9.2 |
|
|
|
3.3 |
% |
|
|
1,429 |
|
|
|
9.9 |
|
TOTAL
|
|
|
15,969 |
|
|
|
100.0 |
% |
|
|
10.6 |
% |
|
|
14,436 |
|
|
|
100.0 |
% |
The following table presents, for each of the four Divisions,
the contribution to consolidated sales and current operating
income for the year ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Contribution to |
|
Contribution to Current |
|
|
Consolidated Sales |
|
Operating Income |
|
|
|
|
|
Cement
|
|
|
47.6 |
% |
|
|
75.1 |
% |
Aggregates & Concrete
|
|
|
33.7 |
|
|
|
16.9 |
|
Roofing
|
|
|
9.5 |
|
|
|
4.2 |
|
Gypsum
|
|
|
9.2 |
|
|
|
6.4 |
|
Other*
|
|
|
|
|
|
|
(2.6 |
) |
TOTAL
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
* |
Mainly costs of the holding company. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this prospectus
supplement. |
S-13
In the following discussion in this section, data regarding
the number of sites and production capacity include 100% of the
number of sites and production capacity of all our subsidiaries,
whether fully or proportionately consolidated.
Cement
Cement is a fine powder that is the principal strength-giving
and property-controlling component of concrete. It is a high
quality, cost-effective building material that is a key
component of construction projects throughout the world,
including the 43 countries in which our Cement Division has
production facilities. Based on both internal and external
analyses, and taking into account annual sales, production
capacity, broad geographical presence, technological development
and quality of service, we believe that we are the worlds
co-leading producer of cement. At the end of 2005, our
consolidated businesses operated 122 cement, 24 clinker grinding
and 6 slag grinding plants, with an annual cement production
capacity of 164 million tonnes and sales for the year of
approximately 123 million tonnes.
Aggregates & Concrete
Aggregates, concrete and asphalt are, like cement, key
components of construction projects throughout the world. Based
on volumes sold in 2005, we believe that we are the second
largest producer of aggregates and concrete worldwide. At the
end of 2005, our consolidated businesses operated 567 aggregates
quarries and 1,141 concrete plants in 27 countries and sold
during the year approximately 240 million tonnes of
aggregates and 39 million
m3
of concrete. Our Aggregates & Concrete Division also
produces pre-cast concrete products and asphalt in several
markets, and provides road contracting and surfacing services.
We manage our aggregates, concrete and asphalt businesses in the
same Division for a number of reasons:
|
|
|
|
|
the customer base is similar across these lines of products and
services; |
|
|
|
each product line generally serves local markets through large
numbers of subsidiaries; |
|
|
|
finally, it is generally efficient to produce concrete and
asphalt at or close to our aggregate quarries, so we can pool
management, equipment, services and marketing efforts, thereby
reducing overall operating costs. |
We are vertically integrated to varying degrees between our
Aggregates & Concrete and Cement Divisions, and within
our Aggregates & Concrete Division itself. In many of
our markets, our Cement Division supplies substantial volumes of
cement to our own concrete operations. Similarly, our aggregates
operations supply a substantial volume of aggregates required
for our concrete, asphalt and paving operations.
Roofing
We manufacture and sell clay and concrete roof tiles designed to
cover pitched residential and non-residential roofs, the
predominant type of roof used in residential housing in Western
Europe and North America. We also sell a variety of other
roofing components used in the construction or renovation of
pitched roofs and provide related services to customers who use
our roofing products. Through our product offering, we offer
complete roofing systems providing total roof solutions for our
customers buildings.
Based on volumes sold, we believe we are the worlds
largest producer of concrete and clay roof tiles and the leading
manufacturer of chimney systems in Europe. At the end of 2005,
our consolidated businesses operated 104 concrete tile
production plants (with 557 million square meters maximum
annual capacity), 25 clay tile production plants (with
41 million square meters maximum annual capacity) and 33
other plants where we produce chimneys and other roofing
products. During 2005, we sold 124 million square meters of
concrete roof tiles, 27 million square meters of clay roof
tiles and 3.8 million meters of chimneys. We conduct
industrial roofing operations in 35 countries, principally in
Western Europe which accounted for 72% of our 2005 roofing
sales, and through a joint venture in North America which
accounted for 9% of our 2005 roofing sales. We are expanding
into other regions such as Asia Pacific
which accounted for 19% of our 2005 roofing sales.
S-14
Gypsum
Gypsum wallboard (also known as plasterboard) and
other gypsum-based products (e.g. plaster, plaster blocks, joint
compounds and related products such as metal studs and
accessories) are used primarily to offer gypsum-based building
solutions for constructing, finishing or decorating interior
walls and ceilings in residential, commercial and institutional
construction projects throughout the world, as well as for sound
and thermal insulating partitions. Other gypsum-based products
include industrial plaster (used for special applications such
as moldings or sculptures) and self-leveling floor-screeds.
We believe, based on our experience in this industry, that we
are the third largest manufacturer of gypsum wallboard
worldwide, as measured by wallboard sold in 2005. At the end of
2005, our consolidated businesses operated the following number
of plants throughout 23 countries: 36 wallboard plants (with an
annual production capacity of approximately 993 million
square meters), 39 other plants which produced primarily
plaster, plaster blocks or joint compounds and 3 wallboard paper
plants.
S-15
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion has been extracted from our annual
report on
Form 20-F for the
year ended December 31, 2005 for the convenience of the
reader. It excludes the section entitled Recent
Events and information about our ratings at the time of
the filing of our annual report, which have been superseded by
the information in this prospectus supplement under the heading
Prospectus Supplement Summary Recent
Developments.
The discussion in this section should be read in conjunction
with our consolidated financial statements prepared in
accordance with IFRS, which are included in our annual report on
Form 20-F for the
year ended December 31, 2005, incorporated herein by
reference.
IFRS differs in some respects from accounting principles
generally accepted in the United States of America (U.S.
GAAP). A description of the main differences between
U.S. GAAP and IFRS is set forth in Notes 36 and 37 to
our consolidated financial statements included in our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
Each of our Divisions, as well as our Other
activities, constitutes a business segment for
purposes of reporting our results of operations.
Overview
|
|
|
Summary of our results for 2005 |
In 2005, we continued the pace of solid growth in our existing
operations.
Sales increased by 10.6% compared to 2004 and current
operating income increased by 7.1%. In the majority of our
markets, we were able to absorb the impact of a record rise in
energy costs by successful price increases.
Current operating
income1
recorded solid growth in Cement, Aggregates & Concrete
and Gypsum, while the current operating income of Roofing
decreased, particularly affected by the German construction
market.
Net income Group share increased by 4.8% compared to
2004, despite the impact of a higher effective tax rate.
At the end of 2005, we benefited from a solid financial
structure. At December 31, 2005 our net debt to equity
ratio had improved significantly at 59% compared to 70% at
year-end 2004, and our cash flow from operations to net debt
ratio remained stable year on year at
31%2.
We made significant efforts to ensure compliance with the
internal control standards of the Sarbanes-Oxley Act
(Section 404) for the first time at the end of 2005. We
consider this initiative to be a major improvement to further
enhance the quality of our internal control and the efficiency
of our processes.
In Cement, the construction of additional capacity in
China, Bangladesh, Mexico, Morocco and Vietnam progressed in
2005 according to plan. This new capacity should be operational
in 2006. With the creation of the Lafarge Shui On Joint venture
in China, in November 2005, we have established a key strategic
alliance which enables us to be active in areas of strong
economic growth in China.
In Aggregates & Concrete, in addition to
continuing to strengthen our position in our major markets,
North America and Western Europe, we strengthened our position
in growing markets. These markets have again in 2005
significantly increased their contribution to Division results.
In Roofing, which was particularly affected by the weak
German construction sector, we made new restructuring efforts.
To strengthen our strategy of product innovation and increase
our proximity to customers in France, we started the
construction of a new plant in Limoux (Aude), completed the
modernization of our
1 Current Operating Income was previously
identified as Operating Income on Ordinary
Activities.
2 See Overview Reconciliation of our
non-GAAP financial measures below.
S-16
Marseilles plant and decided to enhance our industrial position
in the Champagne-Ardennes region of northern France with the
construction of a new production unit for clay roofing tiles.
In Gypsum, two consecutive years of strong improvements
in results have confirmed the success of our strategy. In 2005,
we decided to further expand our production capacity in selected
markets, such as the United States, the United Kingdom and Asia.
Demand for our cement, aggregate and concrete and roofing
products is seasonal and tends to be lower in the winter months
in temperate countries and in the rainy season in tropical
countries. We usually experience a reduction in sales on a
consolidated basis during the first quarter, reflecting the
effect of the winter season in our principal markets in Western
Europe and North America, and an increase in sales in the second
and third quarters, reflecting the summer construction season.
|
|
|
Critical accounting policies |
We prepare the consolidated financial statements of Lafarge in
conformity with IFRS. We also prepare a reconciliation of our
consolidated financial statements to U.S. GAAP. The Notes
to our consolidated financial statements summarize the
significant accounting policies which we believe are the most
critical to aid in fully understanding and evaluating our
reported financial results.
See Note 2 to our consolidated financial statements for
more information on the significant accounting policies we apply
under IFRS and Notes 36 and 37 for a description of the
principal differences between IFRS and the U.S. GAAP as
they relate to Lafarge. The consolidated financial statements
are included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
Certain of our critical accounting policies require the use of
judgment in their application or require estimates of inherently
uncertain matters. Although our accounting policies are in
compliance with generally accepted accounting principles, a
change in the facts and circumstances of the underlying
transactions could significantly change the implication of the
accounting policy and the resulting financial statement impact.
Listed below are those policies that we believe are critical and
require the use of complex judgment in their application.
In accordance with IAS 36, Impairment of Assets, the
net book value of goodwill is reviewed at least annually, during
the second half of the year, to take into consideration factors
that may have affected the assets value and recoverability.
For the purposes of the test, the Groups net assets are
allocated to Cash Generating Units or reporting units (CGUs).
Our four Divisions are considered to be our four
reporting/operating segments, each comprised of multiple CGUs.
Our CGUs represent businesses that are one level below the
reporting/operating segment and, generally, perform one of our
four activities in a particular country. The CGU is the level
used by the Group to organize and present activities and results
in its internal reporting.
In its goodwill impairment test, the Group uses a combination of
a market approach (fair value) and an income approach (value in
use). In the market approach, we compare the carrying value of
our CGUs with multiples of their current operating income before
depreciation and amortization. For CGUs presenting an impairment
risk according to the market approach we then use the value in
use approach. In the value in use approach, we estimate the
discounted value of the sum of the expected future cash flows.
If the carrying value of the CGU exceeds the higher of the fair
value or the value in use of the related assets and liabilities,
the Group records an impairment of goodwill (in other
operating expenses).
Evaluations for impairment are significantly impacted by
estimates of future prices for our products, the evolution of
expenses, economic trends in the local and international
construction sector, expectations of long-term development of
emerging markets and other factors. This also depends on the
discount rates and
S-17
perpetual growth rates used. The Group has defined country
specific discount rates for each of its CGUs based on their
weighted-average cost of capital.
In some cases, the Group uses a third party valuation as part of
its impairment test.
For more information on Goodwill, see Note 9 to our
consolidated financial statements included in our annual report
on Form 20-F for
the year ended December 31, 2005, which is incorporated
herein by reference.
|
|
|
Pension Plans and Other Postretirement Benefits |
The accounting for pension plans and other postretirement
benefits requires us to make certain assumptions that have a
significant impact on the expenses and liabilities that we
record for pension plans, end of service indemnities, and other
post employment benefits.
The main defined pension plans and other postretirement benefits
provided to employees by the Group are in the United Kingdom and
North America (the United States of America and Canada). The
related projected benefit obligations as of December 31,
2005 represent 59% and 24%, respectively, of the Groups
total obligations in respect of pension plans, end of service
indemnities and other post employment benefits.
For more information on the primary assumptions made to
account for pension plans, end of service indemnities and other
post employment benefit, see Note 23 to our consolidated
financial statements included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
The expected long-term rate of investment return on pension plan
assets is based on historical performance, current and long-term
outlook and the asset mix in the pension trust funds. The
discount rates reflect the rate of long-term high-grade
corporate bonds.
The 2005 pension plans, end of service indemnities and other
post employment benefits expenses are impacted by the year-end
2004 assumptions for the discount rate and the expected return
rate on assets (pension plans only). For North America and the
United Kingdom, if the 2004 discount rate assumption had been
lowered by one percent, the 2005 pension plan and other
postretirement benefit expenses would have increased by
approximately 22 million euros, partially offset by an
increase in the value of bonds held by pension trust funds. If
the 2004 long-term rate of investments on pension plan assets
assumption had been lowered by one percent, the 2005 pension and
other benefit plans expenses would have increased by
approximately 29 million euros.
The pension and other postretirement benefit obligations are
impacted by the 2005 discount rate. The impact of decreasing the
discount rate assumption by one percentage point as of
December 31, 2005 for the valuation of the most significant
benefit plans located in the United Kingdom and North America
would have been to increase the total benefit obligation by
approximately 633 million euros.
Because of the typically long-term nature of the Groups
obligations in respect of its main post employment benefit
schemes, and the short-term volatility of financial markets,
which has an impact on both the discount rate used and actual
investment returns obtained, Group accounting standards require
recognition of any differences between the expected and actual
investment returns, as well as any impact of a modification of
discount rates used, over the expected remaining active life of
beneficiaries.
Costs that result in future economic benefits, such as extending
useful lives, increased capacity or safety, and those costs
incurred to mitigate or prevent future environmental
contamination are capitalized. Environmental costs are expensed
as incurred. When the Group determines that it is probable that
a liability for environmental costs exists and that its
resolution will result in an outflow of resources, an estimate
of the future remediation is recorded as a provision without the
offset of contingent insurance recoveries (only virtually
certain insurance recoveries are recorded as an asset in the
balance sheet). When the Group does not have a reliable reversal
time schedule or when the effect of the passage of time is not
material, the provision is calculated based on undiscounted cash
flows.
S-18
The other environmental costs are accounted for in charges when
they occur.
See Note 24 to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
When the Group is legally, contractually or constructively
required to restore a quarry site, the estimated costs of site
restoration are accrued and amortized to cost of sales on a
units-of-production
basis over the operating life of the quarry. The estimated
future costs for known restoration requirements are determined
on a site by site basis and are calculated based on the present
value of estimated future costs.
See Note 24 to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
In accordance with IAS 12 Income Taxes,
deferred income taxes are accounted for by applying the
balance-sheet liability method to temporary differences between
the tax basis of assets and liabilities and their carrying
amounts in the balance sheet (including tax losses available for
carry forward). Deferred taxes are measured by applying
currently enacted tax laws. Deferred tax assets are recognized
and their recoverability is then assessed. If it is not
reasonably certain that they will be recovered in future years,
a valuation allowance is recorded to reduce the deferred tax
asset to the amount that is reasonably certain to be recovered.
The Group offsets deferred tax assets and liabilities in the
balance sheet if the entity has a legally enforceable right to
offset current tax assets against current tax liabilities and
the deferred tax assets and deferred tax liabilities relate to
income taxes levied by the same taxing authority.
The Group computes its income tax obligations in accordance with
the prevailing tax legislation in the countries where the income
is earned.
See Note 22 to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
|
|
|
Effects on our reported results of changes in the scope of
our operations and currency fluctuations |
Changes in the scope of our operations, such as acquisitions and
divestitures, together with changes in how we account for our
business units, such as a change from proportionate to global
consolidation, may increase or decrease our consolidated sales
and operating results in comparison to a prior year and thus
make it difficult to discern the evolution of the underlying
performance of our operations.
|
|
|
Changes in the scope of our operations |
In order to provide a meaningful analysis between any two years
(referred to below as the current year and the
prior year), sales and current operating income are
adjusted in order to compare the two years at a constant scope
of consolidation. With respect to businesses entering the scope
of consolidation at any time during the two years under
comparison, current year sales and current operating income are
adjusted in order to take into account the contribution of these
businesses during the current year only for a period of time
identical to the period of their consolidation in the prior
year. With respect to businesses leaving the scope of
consolidation at any time during the two years under comparison,
prior year sales and current operating income are adjusted in
order to take into account the contribution of these businesses
during the prior year only for a period of time identical to the
period of their consolidation in the current year.
Similarly, as a global business operating in numerous
currencies, changes in exchange rates against our reporting
currency, the euro, may result in an increase or a decrease in
the sales and current operating income reported in euros, which
are not linked to the evolution of underlying performance.
Except as otherwise noted,
S-19
we calculate the impact of currency variances as the difference
between the prior years figures as published (adjusted if
necessary for the effects of businesses leaving the scope of
consolidation) and the result of converting the prior
years figures (adjusted if necessary for the effects of
businesses leaving the scope of consolidation) using the current
years exchange rates.
|
|
|
Reconciliation of our non-GAAP financial measures |
|
|
|
Net debt and cash flow from operations |
To assess the financial strength of the Group, we use various
indicators, in particular the net
debt-to-equity ratio
and the cash flow from operations to net debt ratio. We believe
that these ratios are useful to investors as they provide a view
of the Group level of debt as compared to its total equity and
its cash flow from operations.
For the value of these ratios in 2005 and 2004, see
Section 4.4 (Liquidity and capital resources
level of debt and financial ratios at December 31, 2005)
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
As shown in the table below, our net debt is defined as the sum
of our long-term debt, short-term debt and current portion of
long-term debt, derivative instrument liabilities-non-current,
derivative instrument liabilities-current and put options on
shares of subsidiaries less our cash and cash equivalents,
derivative instruments assets-non-current and derivative
instruments assets-current.
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
(in millions) |
Long-term debt
|
|
|
6,856 |
|
|
|
6,959 |
|
Short-term debt and current portion of long-term debt
|
|
|
1,886 |
|
|
|
1,387 |
|
Derivative instruments liabilities non-current
|
|
|
10 |
|
|
|
29 |
|
Derivative instruments liabilities current
|
|
|
88 |
|
|
|
43 |
|
Put options on shares of subsidiaries
|
|
|
263 |
|
|
|
299 |
|
Cash and cash equivalents
|
|
|
(1,735 |
) |
|
|
(1,550 |
) |
Derivative instruments assets non-current
|
|
|
(49 |
) |
|
|
|
|
Derivative instruments assets current
|
|
|
(98 |
) |
|
|
(209 |
) |
NET DEBT
|
|
|
7,221 |
|
|
|
6,958 |
|
We calculate the net
debt-to-equity ratio by
dividing the amount of our net debt, as computed above, by our
total equity, which we define as the sum of shareholders
equity-parent Company and minority interests as set out in our
consolidated balance sheet.
We calculate the cash flow from operations to net debt ratio by
dividing our cash flow from operations by our net debt as
computed above. Cash flow from operations is the net cash
provided by operating activities, less changes in operating
working capital items, excluding financial expenses and income
taxes, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
(in millions) |
Net cash provided by operating activities
|
|
|
1,886 |
|
|
|
1,877 |
|
|
Changes in operating working capital items excluding
financial expenses and income taxes
|
|
|
(352 |
) |
|
|
(271 |
) |
CASH FLOW FROM OPERATIONS
|
|
|
2,238 |
|
|
|
2,148 |
|
|
|
|
Return on capital employed after tax |
One of the key profitability measures used by our Group and
Division management for each Division is the return on
capital employed after tax. This non-GAAP measure is
calculated by dividing the sum of current operating income
after tax and income from associates by the
average of capital employed at the ends of the
current and prior year.
S-20
In both 2005 and 2004, return on capital employed after tax was
determined using a stable tax rate of 28.6% which was the 2003
effective consolidated tax rate allowing comparison from one
year to the other, the rates of 2005 and 2004 being not
representative.
For more information on the current operating income, the
share of income from associates and the
capital employed by Division, see Note 3 to our
consolidated financial statements included in our annual report
on Form 20-F for
the year ended December 31, 2005, which is incorporated
herein by reference.
For 2005 and 2004, return on capital employed after tax for each
Division and the Group was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
Return on |
|
|
|
|
|
|
|
|
Income After |
|
Capital |
|
Capital |
|
|
|
Capital |
|
|
Current |
|
Current |
|
Income |
|
Tax with |
|
Employed at |
|
Employed at |
|
Average |
|
Employed |
|
|
Operating |
|
Operating |
|
from |
|
Income from |
|
December 31, |
|
December 31, |
|
Capital |
|
After Tax |
2005 |
|
Income |
|
Income After Tax |
|
Associates |
|
Associates |
|
2005 |
|
2004* |
|
Employed |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
(b) = (a)x(1 |
|
(c) |
|
(D) = |
|
(e) |
|
(f) |
|
(G) = |
|
(H) = |
|
|
|
|
28.6%) |
|
|
|
(B)+(C) |
|
|
|
|
|
((E)+(F))/2 |
|
(D)/(G) |
|
|
(in millions) |
Cement
|
|
|
1,770 |
|
|
|
1,264 |
|
|
|
8 |
|
|
|
1,272 |
|
|
|
13,982 |
|
|
|
12,167 |
|
|
|
13,075 |
|
|
|
9.7 |
|
Aggregates & Concrete
|
|
|
398 |
|
|
|
284 |
|
|
|
8 |
|
|
|
292 |
|
|
|
3,932 |
|
|
|
3,337 |
|
|
|
3,634 |
|
|
|
8.1 |
|
Roofing
|
|
|
98 |
|
|
|
70 |
|
|
|
7 |
|
|
|
77 |
|
|
|
2,181 |
|
|
|
2,118 |
|
|
|
2,149 |
|
|
|
3.6 |
|
Gypsum
|
|
|
151 |
|
|
|
108 |
|
|
|
15 |
|
|
|
123 |
|
|
|
1,267 |
|
|
|
1,147 |
|
|
|
1,207 |
|
|
|
10.2 |
|
Other
|
|
|
(60 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
(43 |
) |
|
|
290 |
|
|
|
139 |
|
|
|
215 |
|
|
|
N.A. |
|
TOTAL
|
|
|
2,357 |
|
|
|
1,683 |
|
|
|
38 |
|
|
|
1,721 |
|
|
|
21,652 |
|
|
|
18,908 |
|
|
|
20,280 |
|
|
|
8.5 |
|
|
|
* |
Restated from French GAAP to IFRS. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
Return on |
|
|
|
|
|
|
|
|
Income After |
|
Capital |
|
Capital |
|
|
|
Capital |
|
|
Current |
|
Current |
|
Income |
|
Tax with |
|
Employed at |
|
Employed at |
|
Average |
|
Employed |
|
|
Operating |
|
Operating |
|
from |
|
Income from |
|
December 31, |
|
December 31, |
|
Capital |
|
After Tax |
2004* |
|
Income |
|
Income After Tax |
|
Associates |
|
Associates |
|
2004 |
|
2003 |
|
Employed |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
(b) = (a)x(1 |
|
(c) |
|
(D) = |
|
(e) |
|
(f) |
|
(G) = |
|
(H) = |
|
|
|
|
28.6%) |
|
|
|
(B)+(C) |
|
|
|
|
|
((E)+(F))/2 |
|
(D)/(G) |
|
|
(in millions) |
Cement
|
|
|
1,597 |
|
|
|
1,140 |
|
|
|
40 |
|
|
|
1,180 |
|
|
|
12,167 |
|
|
|
12,182 |
|
|
|
12,175 |
|
|
|
9.7 |
|
Aggregates & Concrete
|
|
|
357 |
|
|
|
255 |
|
|
|
5 |
|
|
|
260 |
|
|
|
3,337 |
|
|
|
3,061 |
|
|
|
3,199 |
|
|
|
8.2 |
|
Roofing
|
|
|
149 |
|
|
|
106 |
|
|
|
10 |
|
|
|
116 |
|
|
|
2,118 |
|
|
|
2,118 |
|
|
|
2,118 |
|
|
|
5.5 |
|
Gypsum
|
|
|
132 |
|
|
|
94 |
|
|
|
13 |
|
|
|
107 |
|
|
|
1,147 |
|
|
|
1,166 |
|
|
|
1,156 |
|
|
|
9.3 |
|
Other
|
|
|
(34 |
) |
|
|
(23 |
) |
|
|
6 |
|
|
|
(17 |
) |
|
|
139 |
|
|
|
198 |
|
|
|
169 |
|
|
|
N.A. |
|
TOTAL
|
|
|
2,201 |
|
|
|
1,572 |
|
|
|
74 |
|
|
|
1,646 |
|
|
|
18,908 |
|
|
|
18,725 |
|
|
|
18,817 |
|
|
|
8.7 |
|
|
|
* |
Restated from French GAAP to IFRS. |
Sales and current operating income
All data presented in the discussions below and elsewhere in
this section regarding sales, current operating income and sales
volumes, include the proportional contributions of our
proportionately consolidated subsidiaries.
|
|
|
Consolidated Sales and Current Operating Income |
Consolidated sales increased by 10.6% to 15,969 million
euros from 14,436 million euros in 2004. Currency
fluctuations had a positive impact of 227 million euros or
1.7% reflecting mainly the strong appreciation of the Canadian
dollar, the South Korean won, the Brazilian real, the Polish
zloty, the Romanian leu and the Chilean peso against the euro.
Changes in the scope of consolidation had a net positive impact
of 109 million euros or 0.7%, including in particular the
effect of the acquisition of Cementos Selva Alegre in
S-21
Ecuador by the Cement Division and of several smaller
acquisitions in North America and Europe by the
Aggregates & Concrete Division. Consolidated sales at
constant scope and exchange rates grew by 8.2%, positively
affected by overall favorable market conditions and by the
significant price increases implemented to cover the sharp rise
in energy costs in most of our markets.
Contributions to our sales by Division (before elimination of
inter-Division sales) for the years ended December 31, 2005
and 2004, and the related percentage changes between the two
periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(in millions) |
Cement
|
|
|
8,314 |
|
|
|
12.3 |
|
|
|
7,403 |
|
Aggregates & Concrete
|
|
|
5,392 |
|
|
|
13.3 |
|
|
|
4,761 |
|
Roofing
|
|
|
1,514 |
|
|
|
1.4 |
|
|
|
1,493 |
|
Gypsum
|
|
|
1,479 |
|
|
|
9.3 |
|
|
|
1,353 |
|
Other
|
|
|
25 |
|
|
|
(51.0 |
) |
|
|
51 |
|
Elimination of inter-Division sales
|
|
|
(755 |
) |
|
|
20.8 |
|
|
|
(625 |
) |
TOTAL
|
|
|
15,969 |
|
|
|
10.6 |
|
|
|
14,436 |
|
Contributions to our consolidated sales by Division (after
elimination of inter-Division sales) for the years ended
December 31, 2005 and 2004, and the related percentage
changes between the two periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Cement
|
|
|
7,595 |
|
|
|
47.6 |
|
|
|
11.5 |
|
|
|
6,810 |
|
|
|
47.2 |
|
Aggregates & Concrete
|
|
|
5,377 |
|
|
|
33.7 |
|
|
|
13.3 |
|
|
|
4,747 |
|
|
|
32.9 |
|
Roofing
|
|
|
1,514 |
|
|
|
9.5 |
|
|
|
1.4 |
|
|
|
1,493 |
|
|
|
10.3 |
|
Gypsum
|
|
|
1,462 |
|
|
|
9.2 |
|
|
|
9.1 |
|
|
|
1,340 |
|
|
|
9.3 |
|
Other
|
|
|
21 |
|
|
|
|
|
|
|
(54.3 |
) |
|
|
46 |
|
|
|
0.3 |
|
TOTAL
|
|
|
15,969 |
|
|
|
100.0 |
|
|
|
10.6 |
|
|
|
14,436 |
|
|
|
100.0 |
|
At constant scope and exchange rates, the changes in sales by
Division between the years ended December 31, 2005 and
2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
2005 |
|
2004 |
|
2005/2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
% Change at |
|
|
|
|
Scope |
|
On a |
|
|
|
Scope |
|
At |
|
Currency |
|
On a |
|
Gross |
|
Constant Scope |
Changes in |
|
|
|
Effect of |
|
Comparable |
|
|
|
Effect of |
|
Constant |
|
Fluctuation |
|
Comparable |
|
Change |
|
and Exchange |
Sales by Division |
|
Actual |
|
Acquisitions |
|
Basis |
|
Actual |
|
Disposals |
|
Scope |
|
Effects |
|
Basis |
|
Actual |
|
Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
(b) |
|
(c)=(a)+(b) |
|
(d) |
|
(e) |
|
(f)= |
|
(g) |
|
(h)=(f)+(g) |
|
(i)=(a |
|
(j)=(c |
|
|
|
|
|
|
|
|
|
|
|
|
(d)+(e) |
|
|
|
|
|
d)/(d) |
|
h)/(h) |
|
|
(in millions) |
Cement
|
|
|
8,314 |
|
|
|
(89 |
) |
|
|
8,225 |
|
|
|
7,403 |
|
|
|
7 |
|
|
|
7,410 |
|
|
|
114 |
|
|
|
7,524 |
|
|
|
12.3 |
|
|
|
9.3 |
|
Aggregates & Concrete
|
|
|
5,392 |
|
|
|
(97 |
) |
|
|
5,295 |
|
|
|
4,761 |
|
|
|
(66 |
) |
|
|
4,695 |
|
|
|
103 |
|
|
|
4,798 |
|
|
|
13.3 |
|
|
|
10.4 |
|
Roofing
|
|
|
1,514 |
|
|
|
(27 |
) |
|
|
1,487 |
|
|
|
1,493 |
|
|
|
(1 |
) |
|
|
1,492 |
|
|
|
8 |
|
|
|
1,500 |
|
|
|
1.4 |
|
|
|
(0.8 |
) |
Gypsum
|
|
|
1,479 |
|
|
|
|
|
|
|
1,479 |
|
|
|
1,353 |
|
|
|
(11 |
) |
|
|
1,342 |
|
|
|
18 |
|
|
|
1,360 |
|
|
|
9.3 |
|
|
|
8.7 |
|
Other
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
51 |
|
|
|
(28 |
) |
|
|
23 |
|
|
|
1 |
|
|
|
24 |
|
|
|
(51.0 |
) |
|
|
4.2 |
|
Elimination of inter-Division sales
|
|
|
(755 |
) |
|
|
6 |
|
|
|
(749 |
) |
|
|
(625 |
) |
|
|
1 |
|
|
|
(624 |
) |
|
|
(17 |
) |
|
|
(641 |
) |
|
|
N.A. |
|
|
|
N.A. |
|
TOTAL
|
|
|
15,969 |
|
|
|
(207 |
) |
|
|
15,762 |
|
|
|
14,436 |
|
|
|
(98 |
) |
|
|
14,338 |
|
|
|
227 |
|
|
|
14,565 |
|
|
|
10.6 |
|
|
|
8.2 |
|
Current Operating Income grew by 7.1% to 2,357 million
euros from 2,201 million euros in 2004. The appreciation of
the Canadian dollar, the Brazilian real, the Romanian leu, the
Polish zloty, the Chilean peso and the South Korean won against
the euro had a positive impact of 45 million euros. Changes
in the scope of
S-22
consolidation accounted for a net increase of 24 million
euros and are principally due to the acquisition of Cementos
Selva Alegre in Ecuador. At constant scope and exchange rates,
current operating income recorded an increase of 3.9%, with the
Cement, Aggregates & Concrete and Gypsum Divisions
benefiting from solid current operating income growth. The
Roofing Divisions current operating income declined, as it
was particularly affected by the difficult German construction
environment. As a percentage of our sales, current operating
income represented 14.8% in 2005, compared to 15.2% in 2004.
Group return on capital employed after
tax1
declined slightly to 8.5% in 2005 from 8.7% in 2004.
Contributions to our current operating income by Division for
the years ended December 31, 2005 and 2004, and the related
percentage changes between the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Current Operating Income |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Cement
|
|
|
1,770 |
|
|
|
75.1 |
|
|
|
10.8 |
|
|
|
1,597 |
|
|
|
72.6 |
|
Aggregates & Concrete
|
|
|
398 |
|
|
|
16.9 |
|
|
|
11.5 |
|
|
|
357 |
|
|
|
16.2 |
|
Roofing
|
|
|
98 |
|
|
|
4.2 |
|
|
|
(34.2 |
) |
|
|
149 |
|
|
|
6.8 |
|
Gypsum
|
|
|
151 |
|
|
|
6.4 |
|
|
|
14.4 |
|
|
|
132 |
|
|
|
6.0 |
|
Other
|
|
|
(60 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
(1.6 |
) |
TOTAL
|
|
|
2,357 |
|
|
|
100.0 |
|
|
|
7.1 |
|
|
|
2,201 |
|
|
|
100.0 |
|
At constant scope and exchange rates, the changes in
consolidated current operating income by Division between the
years ended December 31, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Variation |
|
|
2005 |
|
2004 |
|
2005/2004 |
Changes in |
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
% |
|
% Change at |
Current Operating |
|
|
|
Scope |
|
On a |
|
|
|
Scope |
|
At |
|
Currency |
|
On a |
|
Gross |
|
Constant Scope |
Income by |
|
|
|
Effect of |
|
Comparable |
|
|
|
Effect of |
|
Constant |
|
Fluctuation |
|
Comparable |
|
Change |
|
and Exchange |
Division |
|
Actual |
|
Acquisitions |
|
Basis |
|
Actual |
|
Disposals |
|
Scope |
|
Effects |
|
Basis |
|
Actual |
|
Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
(b) |
|
(c)=(a)+(b) |
|
(d) |
|
(e) |
|
(f)= |
|
(g) |
|
(h)=(f)+(g) |
|
(i)=(a |
|
(j)=(c |
|
|
|
|
|
|
|
|
|
|
|
|
(d)+(e) |
|
|
|
|
|
d)/(d) |
|
h)/(h) |
|
|
(in millions) |
|
|
|
|
Cement
|
|
|
1,770 |
|
|
|
(16 |
) |
|
|
1,754 |
|
|
|
1,597 |
|
|
|
|
|
|
|
1,597 |
|
|
|
36 |
|
|
|
1,633 |
|
|
|
10.8 |
|
|
|
7.4 |
|
Aggregates & Concrete
|
|
|
398 |
|
|
|
(7 |
) |
|
|
391 |
|
|
|
357 |
|
|
|
|
|
|
|
357 |
|
|
|
5 |
|
|
|
362 |
|
|
|
11.5 |
|
|
|
7.9 |
|
Roofing
|
|
|
98 |
|
|
|
(2 |
) |
|
|
96 |
|
|
|
149 |
|
|
|
|
|
|
|
149 |
|
|
|
|
|
|
|
149 |
|
|
|
(34.2 |
) |
|
|
(35.7 |
) |
Gypsum
|
|
|
151 |
|
|
|
|
|
|
|
151 |
|
|
|
132 |
|
|
|
(1 |
) |
|
|
131 |
|
|
|
3 |
|
|
|
134 |
|
|
|
14.4 |
|
|
|
12.8 |
|
Other
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
1 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
TOTAL
|
|
|
2,357 |
|
|
|
(25 |
) |
|
|
2,332 |
|
|
|
2,201 |
|
|
|
(1 |
) |
|
|
2,200 |
|
|
|
45 |
|
|
|
2,245 |
|
|
|
7.1 |
|
|
|
3.9 |
|
|
|
|
Sales and Current Operating Income by Division |
|
|
|
Methodology of presentation |
|
|
|
(a) Sales before elimination of inter-Division
sales |
Individual Division information is discussed below without
elimination of inter-Division sales. For sales by each Division
after elimination of inter-Divisional sales, see the table under
Consolidated Sales and Current Operating Income
above.
|
|
|
(b) Geographic market information: by origin of sale,
domestic and by destination |
For the Cement Division and the Aggregates &
Concrete Division, unless otherwise indicated, we analyze our
sales for each region or country by origin of sale.
Domestic sales and domestic volumes
concern only sales and volumes both originating and made within
the relevant geographic market, and thus exclude export sales
and volumes. When not described as domestic, such
information includes domestic sales or volumes
1 See Overview Reconciliation of our
non-GAAP financial measures above.
S-23
plus exports to other geographic markets. Unless otherwise
indicated, all domestic information is provided on
the basis of constant scope and exchange rates.
Certain sales and volume information is also presented
by market of destination. Such information
represents domestic sales and volumes for the relevant market
plus imports into this market.
For the Roofing and Gypsum Divisions, unless otherwise
indicated, we analyze sales and volumes for each region or
country by market of destination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation at |
|
|
|
|
|
|
Variation |
|
Constant Scope and |
Sales and Current Operating Income |
|
2005 |
|
2004 |
|
2005/2004 |
|
Exchange Rates |
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
(in millions) |
|
(%) |
|
(%) |
SALES
|
|
|
8,314 |
|
|
|
7,403 |
|
|
|
+12.3 |
|
|
|
+9.3 |
|
CURRENT OPERATING INCOME
|
|
|
1,770 |
|
|
|
1,597 |
|
|
|
+10.8 |
|
|
|
+7.4 |
|
Contributions to our sales by geographic origin of sale for the
years ended December 31, 2005 and 2004, and the related
percentage changes between the two periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
2,532 |
|
|
|
30.5 |
|
|
|
4.5 |
|
|
|
2,422 |
|
|
|
32.7 |
|
North America
|
|
|
1,756 |
|
|
|
21.1 |
|
|
|
15.5 |
|
|
|
1,520 |
|
|
|
20.5 |
|
Central & Eastern Europe
|
|
|
584 |
|
|
|
7.0 |
|
|
|
25.1 |
|
|
|
467 |
|
|
|
6.3 |
|
Mediterranean Basin
|
|
|
534 |
|
|
|
6.4 |
|
|
|
24.2 |
|
|
|
430 |
|
|
|
5.8 |
|
Latin America
|
|
|
534 |
|
|
|
6.4 |
|
|
|
16.3 |
|
|
|
459 |
|
|
|
6.2 |
|
Sub-Saharan Africa
|
|
|
1,281 |
|
|
|
15.4 |
|
|
|
21.4 |
|
|
|
1,055 |
|
|
|
14.3 |
|
Asia
|
|
|
1,093 |
|
|
|
13.2 |
|
|
|
4.1 |
|
|
|
1,050 |
|
|
|
14.2 |
|
SUB-TOTAL BEFORE ELIMINATION OF INTER-DIVISION
SALES
|
|
|
8,314 |
|
|
|
100.0 |
|
|
|
12.3 |
|
|
|
7,403 |
|
|
|
100.0 |
|
Sales of the Cement Division increased by 12.3% to
8,314 million euros, from 7,403 million euros in 2004.
Currency fluctuations had a positive impact on sales of 1.7% and
amounted to 114 million euros. Changes in the scope of
consolidation had a net positive impact of 96 million
euros, or 1.3%, including in particular the effect of the
acquisition of Cementos Selva Alegre in Ecuador.
At constant scope and exchange rates our sales grew by 9.3%
(2.1% in the first quarter 2005 compared to the first quarter
2004, 9.9% in the second quarter 2005, 10.8% in the third
quarter 2005 and 13.3% in the fourth quarter 2005). This strong
sales growth was driven primarily by generally upward pricing
trends in the majority of our markets, with the noticeable
exception of Brazil, South Korea and Malaysia, in a context of
sharply rising energy costs. Volumes, which reached
123.2 million tonnes in 2005, increased by 3.2% compared to
2004. At constant scope, volume growth reached 2.2%.
S-24
Contributions to our current operating income by region for the
years ended December 31, 2005 and 2004, and the related
percentage changes between the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Current Operating Income |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
623 |
|
|
|
35.2 |
|
|
|
(1.0 |
) |
|
|
629 |
|
|
|
39.4 |
|
North America
|
|
|
321 |
|
|
|
18.2 |
|
|
|
18.9 |
|
|
|
270 |
|
|
|
16.9 |
|
Central & Eastern Europe
|
|
|
179 |
|
|
|
10.1 |
|
|
|
70.5 |
|
|
|
105 |
|
|
|
6.6 |
|
Mediterranean Basin
|
|
|
199 |
|
|
|
11.2 |
|
|
|
28.4 |
|
|
|
155 |
|
|
|
9.7 |
|
Latin America
|
|
|
126 |
|
|
|
7.1 |
|
|
|
(12.5 |
) |
|
|
144 |
|
|
|
9.0 |
|
Sub-Saharan Africa
|
|
|
254 |
|
|
|
14.4 |
|
|
|
29.6 |
|
|
|
196 |
|
|
|
12.3 |
|
Asia
|
|
|
68 |
|
|
|
3.8 |
|
|
|
(30.6 |
) |
|
|
98 |
|
|
|
6.1 |
|
TOTAL
|
|
|
1,770 |
|
|
|
100.0 |
|
|
|
10.8 |
|
|
|
1,597 |
|
|
|
100.0 |
|
Current operating income grew by 10.8% to 1,770 million
euros in 2005 compared to 1,597 million euros in 2004.
Currency fluctuations had a positive impact of 2.4% or
36 million euros. Net changes in the scope of consolidation
had a net positive impact of 16 million euros.
At constant scope and exchange rates, current operating income
rose by 7.4%. As a percentage of the Divisions sales,
current operating income represented 21.3% in 2005, compared to
21.6% in 2004. Current operating income generally improved under
the impact of volume growth, although markets where local
production capacity could not satisfy demand experienced a more
limited growth in current operating income due to additional
import of cement and clinker and transportation costs. Price
increases, despite difficult pricing conditions in Brazil, South
Korea and Malaysia, allowed us to compensate for most of our
cost increases, and in particular, the sharp rise in energy
prices which increased our production costs by 160 million
euros. Improvements in fuel mix by using petcoke and other
alternative fuels to replace higher cost fuels helped to limit
the increase in energy costs.
Return on capital employed after
tax1
remained unchanged in 2005 compared to 2004, at 9.7%.
In Western Europe, sales totaled 2,532 million euros, an
increase of 4.5% compared to 2004.
Domestic sales, at constant scope and exchange rates, increased
by 4.3%. The volumes sold in Western Europe by destination, at
31.9 million tonnes, remained essentially unchanged
compared with 2004. Domestic volumes, at constant scope,
decreased by 1.8%.
|
|
|
|
|
In France, domestic sales were up by 6.1% as the result
of volume growth in a context of a strong building sector
throughout the year coupled with a favorable pricing environment. |
|
|
|
In the United Kingdom, domestic sales grew by 2.7% driven
by well oriented prices despite lower volumes due to the
weakening of the market and some market share erosion with the
new plant of one of our competitors, Tarmac, running now at full
capacity. |
|
|
|
Spain continued to record favorable trends in
construction spending. Domestic sales growth at 7.6% benefited
from good pricing conditions. |
|
|
|
In Germany, the construction market weakened once again,
but domestic sales recorded an 8% sustained growth fuelled by
the steady recovery in prices more than offsetting the adverse
volume trend. |
1 See Overview Reconciliation of our
non-GAAP financial measures above.
S-25
|
|
|
|
|
In Greece, domestic volumes were down in line with the
market decline after the completion of the 2004 Olympic Games
and the reduction of public spending. Domestic sales were
however slightly up as a result of improved pricing. |
Current operating income in Western Europe decreased by 1.0% to
623 million euros compared to 629 million euros in
2004. Foreign exchange fluctuations and scope variation had a
limited impact on the trend in current operating income.
At constant scope and exchange rates current operating income
decreased by 1.0%. The evolution of current operating income was
mixed across the region.
|
|
|
|
|
In France, the strong construction market led to robust
growth in current operating income, with good pricing conditions
more than offsetting higher energy expenses. |
|
|
|
In Spain, current operating income improved as the result
of price increases. The rise in energy costs was partly
compensated by improved fuel mix. |
|
|
|
In the United Kingdom, current operating income was down
as the result of lower volumes. Successful price increases more
than offset the sharp rise in energy costs which were partly
mitigated by improved fuel mix. |
|
|
|
In Germany, where losses were incurred in 2004, the
steady improvement in prices enabled positive results in 2005,
despite lower domestic volumes. Increased usage of alternative
fuels partly offset the rise in energy prices. |
|
|
|
In Greece, current operating income decreased as the
result of a decline in volumes and price increases which were
insufficient to fully cover cost increases. The increase in
energy costs was partly limited, however, by improved fuel mix. |
In North America, we achieved sales of 1,756 million euros
in 2005, an increase of 15.5% compared to 2004. Domestic sales,
at constant scope and exchange rates, increased by 13.1%.
The volumes sold in North America by destination, at
21.2 million tonnes, grew by 1%. Domestic volumes, at
constant scope, recorded a similar growth at 1.1%.
Favorable economic conditions supported strong levels of demand
across markets in the first half of 2005, offsetting the slight
decline witnessed in the second half of the year. Results were
mixed depending upon geography. Volume growth in our Western,
River and Southeastern markets more than compensated for weaker
Northeastern and Lakes markets. Pricing trends continued to be
positive with successful price increases achieved in all markets
in the first half of the year. In several U.S. markets a
second price increase was implemented later in the year.
Current operating income in North America grew by 18.9% to
321 million euros compared to 270 million euros in
2004. Currency fluctuations had a positive impact of
12 million euros.
At constant scope and exchange rates, current operating income
grew by 13.8%. The growth in results was essentially achieved
through improved pricing which mitigated relatively high cost
increases. Higher energy prices were exacerbated by hurricane
Katrinas impact on energy supply, freight costs increased
due to sub-optimal shipping patterns to serve customers in a
context of tight market conditions in early 2005, and high
levels of demand in the growth markets led to increased imports
of cement. In addition, our costs were also impacted by an
increase in pension costs and costs associated with our ERP
implementation project.
S-26
In growing markets, our sales increased by 16.3% to
4,026 million euros, with growing markets accounting for
48.4% of the Divisions sales in 2005, compared to 46.8% in
2004. Overall, domestic growing market sales increased by 10.8%,
at constant scope and exchange rates. The volumes sold in
growing markets by destination, at 70.1 million tonnes for
2005, grew by 5.6%.
At constant scope, domestic volumes in growing markets recorded
a 6.5% growth. Strong domestic market growth was recorded in all
regions except Latin America and Asia.
Our sales in Central and Eastern Europe rose by 25.1% in 2005 to
584 million euros. At constant scope and exchange rates,
domestic sales increased by 19.3%. The volumes sold in Central
and Eastern Europe by destination, at 11.2 million tonnes,
grew by 10.9%. Domestic volumes, at constant scope, recorded a
12.8%, growth.
|
|
|
|
|
In Romania domestic sales were up by 11.1%, in a favorable
environment in both residential and infrastructure sectors and
despite a slight price decrease. |
|
|
|
In Poland, domestic sales recorded a modest growth of 0.7%, with
downward pricing pressure partly offsetting the benefit of
improved domestic volumes. |
|
|
|
In Russia, domestic sales recorded an excellent 59.6% growth
fuelled by the positive price trend which started to materialize
at the end of the first semester and continued throughout the
rest of the year. Volumes also increased benefiting from
unusually warm weather in the last quarter of the year and from
additional production capacity in our Korkino plant in the Ural
region. |
|
|
|
In Serbia high domestic volumes growth and good prices resulted
in a solid 32% domestic sales improvement. |
In the Mediterranean Basin, our sales increased in 2005
by 24.2% to 534 million euros.
At constant scope and exchange rates, domestic sales increased
by 26.0%. The volumes sold in the Mediterranean Basin by
destination at 10.5 million tonnes, grew by 8.2%. Domestic
volumes, at constant scope, recorded a 14.0%, growth.
|
|
|
|
|
In Jordan, Turkey and Egypt significant domestic volume growth
was achieved in very active construction sectors. Strong price
rises implemented to counteract the sharp increase in energy
prices led to a very solid domestic sales growth in the three
countries ranging from 31.3% in Egypt and Jordan to 42.3% in
Turkey. |
|
|
|
In Morocco, the domestic sales growth was relatively strong at
5.9%. |
In the Sub-Saharan
Africa region, our sales grew by 21.4% to 1,281 million
euros.
At constant scope and exchange rates, domestic sales increased
by 20.1%. The volumes sold in the
Sub-Saharan Africa
region by destination, at 12.8 million tonnes, grew by
3.2%. Domestic volumes, at constant scope, recorded a 6.4%
growth.
|
|
|
|
|
In Nigeria, good pricing conditions and domestic volume
increases, led to a 21% domestic sales growth. |
|
|
|
In South Africa, a particularly active non-residential building
sector, delivered strong 20.4% domestic sales growth, although
activity slowed in the previously dynamic residential sector. |
|
|
|
In Kenya and Uganda, with strong market conditions favored by an
active residential sector, domestic sales increased by
respectively 22.5% and 19.1%. |
|
|
|
In Cameroon, domestic sales grew by 7.7% in a stable market
environment. |
|
|
|
In South East Africa, which covers Zambia, Malawi, Tanzania and
Zimbabwe, domestic sales contributed solid growth with strong
volume increase and good pricing conditions in all countries. |
S-27
In Latin America, our sales were up in 2005 by 16.3% to
534 million euros with scope changes resulting from the
acquisition of Cementos Selva Alegre having a positive impact of
11%.
At constant scope and exchange rates, domestic sales decreased
by 2.1%. The volumes sold in Latin America by destination,
at 6.9 million tonnes, grew by 15%. Domestic volumes, at
constant scope, recorded a 5% growth.
|
|
|
|
|
In Brazil, domestic sales were down by 26.6%, suffering from a
32% decline in prices in a context of fierce competition. |
|
|
|
In Venezuela, where high oil prices are fuelling economic
recovery, cement demand has been strong. In such a context,
domestic sales grew by 21.3%. |
|
|
|
In Chile, domestic sales increased by 4.4% despite limited
volume growth as a consequence of a relatively slow first
semester affected by unfavorable weather conditions. |
|
|
|
In Honduras, sales grew by 39%, with prices recovering from a
difficult situation in 2004. |
In Asia, our operations recorded sales growth of 4.1% in
2005 to 1,093 million euros. The net positive scope effect
resulting from the new Lafarge Shui On Joint Venture had no
material impact on our sales, since consolidation started in
November 2005.
At constant scope and exchange rates, domestic sales remained
essentially unchanged compared with 2004. The volumes sold in
Asia by destination, at 28.7 million tonnes, grew by 1.8%.
Domestic volumes, at constant scope, recorded a 2% growth.
|
|
|
|
|
In the Philippines, domestic sales were up 5.3% as the result of
price increases while volumes were down in a context of
depressed demand with, in particular, low levels of government
spending. |
|
|
|
In Malaysia domestic sales growth was limited to 4.8%, despite
higher domestic volumes, as a result of severe price competition
during the first semester of the year. Prices started to recover
in June and have since moved to a level which was higher than
2004 and the highest since the Asian financial crisis in 1998. |
|
|
|
In South Korea, domestic sales declined by 15.1% with lower
sales volumes and declining prices in a difficult market.
Government initiatives to dampen property price inflation have
led to tough competition between domestic producers and
importers. Although not yet back to a satisfactory level, prices
remained stable in the second half of 2005 after a continued
decline in the first part of the year. |
|
|
|
In India, markets were well oriented and domestic sales
increased by 6.5%. |
|
|
|
In Indonesia, despite an active market, our volumes were down as
a consequence of the destruction of our plant by the tsunami at
year-end 2004 and the time needed to install import logistics in
early 2005. Our domestic sales were however up by 6.3% as the
result of improved pricing. |
|
|
|
In China our domestic sales grew by 21.7% benefiting from strong
demand in most of our markets and from additional production
capacity in the Chongqing area. |
Current operating income in emerging markets rose by 18.3% in
2005 to 826 million euros compared to 698 million
euros in 2004, representing 46.7% of the Cement Divisions
current operating income, compared to 43.7% in 2004. Currency
fluctuations had a positive impact on current operating income
of 25 million euros. Changes in the scope of consolidation
had a positive impact of 13 million euros arising mainly
from the acquisition of Cementos Selva Alegre in Ecuador.
Current operating income at constant scope and exchange rates
grew by 12.1%.
In Central and Eastern Europe current operating income
increased by 70.5% to 179 million euros compared to
105 million euros in 2004.
S-28
Current operating income at constant scope and exchange rates
improved by 54.3% with all countries in the region showing
improved results.
|
|
|
|
|
In Romania the current operating income increase was driven by
the additional volumes contribution partly offset by cost
inflation which could not be passed on to customers. |
|
|
|
In Poland the negative impact of energy price increases was
mitigated by an increase usage of alternative fuel and petcoke. |
|
|
|
In Russia, current operating income increased substantially,
despite relatively high cost inflation, under the impact of
additional volumes and strong price rises. |
|
|
|
In Serbia, the strong sales improvement and the benefits of the
new cement production dry line delivered robust growth in
current operating income. |
In the Mediterranean Basin, current operating income in
2005 increased by 28.4% to 199 million euros compared to
155 million euros in 2004.
Current operating income at constant scope and exchange rates
grew by 27.2% with strong growth in Jordan, Turkey and Egypt, on
well oriented markets offering good pricing conditions in a
context of a sharp rise in energy costs.
In Morocco current operating income benefited from a favorable
volume effect while price increases did not fully cover cost
increases.
In Latin America current operating income declined by
12.5% from 144 million euros in 2004 to 126 million
euros in 2005, despite the benefit of the positive scope change
of 16 million euros resulting mainly from the acquisition
of Cementos Selva Alegre in Ecuador.
At constant scope and exchange rates, current operating income
was down 29.2%.
|
|
|
|
|
In Brazil, the collapse in selling prices combined with the
sharp rise in energy cost led to a severe fall in current
operating income. |
|
|
|
In Venezuela current operating income was improved under the
impact of increased volumes. |
|
|
|
In Chile current operating income was largely unchanged compared
with 2004. |
|
|
|
Honduras recorded a solid current operating income growth mainly
as the result of improved pricing. The increase in production
cost was mitigated by better fuel mix. |
In Sub-Saharan
Africa, current operating income increased by 29.6% to
254 million euros in 2005 from 196 million euros in
2004.
At constant scope and exchange rates, current operating income
grew by 29.3% with strong growth in Nigeria, South Africa and
Kenya, our major markets in the region.
|
|
|
|
|
In Nigeria favorable pricing trends more than offset cost
inflation. |
|
|
|
In South Africa, for the third consecutive year, the strong
construction market continued to drive current operating income
growth. |
|
|
|
Current operating income in Kenya rose sharply benefiting from
the contribution of higher volumes. |
|
|
|
In Uganda, Cameroon and Tanzania, higher cement and clinker
imports led to a slight decrease in current operating income. |
In Asia, current operating income declined by 30.6% to
68 million euros down from 98 million euros in 2004.
At constant scope and exchange rates, current operating income
declined by 29.6% as the result of the sharp fall in current
operating income in South Korea and Malaysia.
S-29
|
|
|
|
|
In South Korea, margins collapsed in the context of severe price
competition despite action plans implemented to reduce fixed
costs. |
|
|
|
In Malaysia, the drop in current operating income arose from a
price decline in the first part of the year in a context of
higher production costs affected by the increase in coal prices. |
|
|
|
The recovery in prices in the Philippines continued to
contribute strongly to the improvement in current operating
income. This improvement was achieved despite lower volumes and
high energy costs. |
|
|
|
In India, while solid sales growth was recorded, current
operating income was slightly down due to higher energy costs. |
|
|
|
In Indonesia, current operating income remained almost unchanged
compared with 2004 as the result of insurance proceeds to cover
business interruption due to the tsunami at year-end 2004. |
|
|
|
In China, despite strong volume growth, soaring energy prices
were only partially passed on to customers, leading to limited
growth in current operating income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation at |
|
|
|
|
|
|
Variation |
|
constant scope and |
Sales and Current Operating Income |
|
2005 |
|
2004 |
|
2005/2004 |
|
exchange rates |
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
(in millions) |
|
(%) |
|
(%) |
Sales
|
|
|
5,392 |
|
|
|
4,761 |
|
|
|
+ 13.3 |
|
|
|
+ 10.3 |
|
Current operating income
|
|
|
398 |
|
|
|
357 |
|
|
|
+ 11.5 |
|
|
|
+ 7.9 |
|
Contributions to our sales by activity and by geographic origin
of sale for the years ended December 31, 2005 and 2004, and
the related percentage changes between the two periods were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
AGGREGATES & RELATED PRODUCTS
|
|
|
2,831 |
|
|
|
|
|
|
|
13.1 |
|
|
|
2,503 |
|
|
|
|
|
|
Of which pure Aggregates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
937 |
|
|
|
45.6 |
|
|
|
8.6 |
|
|
|
863 |
|
|
|
46.5 |
|
|
North America
|
|
|
941 |
|
|
|
45.8 |
|
|
|
10.6 |
|
|
|
851 |
|
|
|
45.9 |
|
|
Other regions
|
|
|
176 |
|
|
|
8.6 |
|
|
|
25.7 |
|
|
|
140 |
|
|
|
7.6 |
|
TOTAL PURE AGGREGATES
|
|
|
2,054 |
|
|
|
100.0 |
|
|
|
10.8 |
|
|
|
1,854 |
|
|
|
100.0 |
|
READY MIX CONCRETE & CONCRETE PRODUCTS
|
|
|
2,932 |
|
|
|
|
|
|
|
13.4 |
|
|
|
2,586 |
|
|
|
|
|
|
Of which ready mix:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
1,227 |
|
|
|
44.2 |
|
|
|
11.0 |
|
|
|
1,105 |
|
|
|
45.2 |
|
|
North America
|
|
|
968 |
|
|
|
34.8 |
|
|
|
9.5 |
|
|
|
884 |
|
|
|
36.2 |
|
|
Other regions
|
|
|
584 |
|
|
|
21.0 |
|
|
|
28.6 |
|
|
|
454 |
|
|
|
18.6 |
|
TOTAL READY MIX CONCRETE
|
|
|
2,779 |
|
|
|
100.0 |
|
|
|
13.8 |
|
|
|
2,443 |
|
|
|
100 |
|
Eliminations of intra Aggregates & Concrete sales
|
|
|
(371 |
) |
|
|
|
|
|
|
|
|
|
|
(328 |
) |
|
|
|
|
TOTAL AGGREGATES & CONCRETE BEFORE ELIMINATION OF
INTER-DIVISION SALES
|
|
|
5,392 |
|
|
|
|
|
|
|
13.3 |
|
|
|
4,761 |
|
|
|
|
|
S-30
Sales of the Aggregates & Concrete Division increased
by 13.3% to 5,392 million euros in 2005 from
4,761 million euros in 2004. Currency fluctuations had a
positive impact of 2.4% and amounted to 103 million euros.
Positive scope changes amounted to 97 million euros,
reflecting the full year effects of the acquisition of The
Concrete Company (TCC), in Alabama, in the United States and of
Hupfer Holdings with operations in France and Switzerland,
together with the effects of small sized developments in
Ukraine, Greece and the United Kingdom. Negative scope effects
amounted to 66 million euros primarily reflecting the
impact of various divestments in North America. Overall changes
in the scope of consolidation increased sales by 0.5%.
At constant scope and exchange rates, sales grew by 10.3% (4.5%
in the first quarter 2005 compared to the first quarter 2004,
13.6% in the second quarter 2005, 10.2% in the third quarter
2005 and 11.2% in the fourth quarter 2005). Growth was driven
principally by solid pricing gains in a context of rising costs
while volume trends were also positive across most markets,
particularly in emerging markets and to a lesser extent in
Europe in the concrete activity and in several North American
markets.
Sales of our aggregates operations, including sales to our
ready-mix activities, were up by 13.1% between 2004 and 2005, to
2,831 million euros. Currency fluctuations and scope
changes had a positive impact of 3.7%. At constant scope and
exchange rates, sales grew by 9.4%. Sales volumes of aggregates
rose by 2.4% to 239.9 million tonnes in 2005. At constant
scope, they increased by 0.3%.
Sales of our concrete operations were up by 13.4% to
2,932 million euros from 2,586 million euros in 2004.
Currency fluctuations and scope changes had a net positive
impact of 2.2%. At constant scope and exchange rates, sales grew
by 11.2%. Sales volumes of concrete increased by 5.4% to
39 million cubic meters. At constant scope, sales volumes
grew by 4.8%.
Contributions to our current operating income by activity and by
region for the years ended December 31, 2005 and 2004, and
the related percentage changes between the periods were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Current Operating Income |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Aggregates
|
|
|
272 |
|
|
|
68.3 |
|
|
|
14.8 |
|
|
|
237 |
|
|
|
66.4 |
|
Concrete
|
|
|
126 |
|
|
|
31.7 |
|
|
|
5.0 |
|
|
|
120 |
|
|
|
33.6 |
|
TOTAL BY ACTIVITY
|
|
|
398 |
|
|
|
100.0 |
|
|
|
11.5 |
|
|
|
357 |
|
|
|
100.0 |
|
Western Europe
|
|
|
179 |
|
|
|
45.0 |
|
|
|
14.7 |
|
|
|
156 |
|
|
|
43.7 |
|
North America
|
|
|
162 |
|
|
|
40.7 |
|
|
|
4.5 |
|
|
|
155 |
|
|
|
43.4 |
|
Other regions
|
|
|
57 |
|
|
|
14.3 |
|
|
|
23.9 |
|
|
|
46 |
|
|
|
12.9 |
|
TOTAL BY REGION
|
|
|
398 |
|
|
|
100.0 |
|
|
|
11.5 |
|
|
|
357 |
|
|
|
100.0 |
|
Current operating income of the Aggregates & Concrete
Division increased by 11.5% to 398 million euros in 2005
from 357 million euros in 2004. Currency fluctuations had a
positive impact of 1.7% or 5 million euros. Changes in the
scope of consolidation had a net positive impact of
7 million euros arising from the small sized acquisitions
in Ukraine, Greece and the United Kingdom and from the full year
effect of the Hupfer acquisition in France and Switzerland.
At constant scope and exchange rates, current operating income
grew by 7.9%. As a percentage of the Divisions sales,
current operating income represented 7.4% in 2005, compared to
7.5% in 2004.
Current operating income for aggregates in 2005 totaled
272 million euros, an increase of 14.8% from
237 million euros in 2004. Current operating income for
concrete in 2005 totaled 126 million euros, an increase of
5.0% from 120 million euros in 2004. The increase in the
current operating income of the Division as a whole resulted
from successive and solid price increases to mitigate the
effects of cost increases, particularly for energy. It also
reflected significantly improved asphalt and paving performance,
solid growth in concrete volumes in most markets, and further
development in our special products in concrete.
S-31
Return on capital employed after
tax1
slightly decreased to 8.1% from 8.2%.
Our pure aggregates sales in Western Europe grew by 8.6% in 2005
to 937 million euros, benefiting from the positive scope
effect of the Hupfer Holdings acquisition.
At constant scope and exchange rates pure aggregates sales
growth reached 4.5% as the result of the price increases
implemented to face rising costs, while volumes were slightly
down in all main markets as a consequence of lower spending in
infrastructure projects.
Our asphalt and paving sales in the United Kingdom delivered
solid growth reflecting the success of our efforts to develop
sales and increase prices despite continuing low infrastructure
spending.
Our ready-mix sales increased by a strong 11% to
1,227 million euros in 2005. At constant scope and exchange
rates concrete sales recorded 9.7% growth, reflecting strong
volumes in France and improved pricing in all main markets
coupled with favorable product mix.
In Western Europe current operating income grew by 14.7% to
179 million euros in 2005. The net positive effect of
changes in the scope of consolidation amounted to 8 million
euros.
At constant scope the improvement in current operating income
was driven by the recovery of the asphalt activities in the
United Kingdom, and by the increase in the concrete activities
benefiting from both strong volumes overall and good pricing. In
the pure aggregates activity, current operating income was, at
constant scope, essentially unchanged compared with 2004, with
improved pricing offsetting the impact of the slight volume
decline encountered in most Western European markets.
In North America, pure aggregates sales rose by 10.6% to
941 million euros in 2005. At constant scope and exchange
rates, pure aggregates sales growth reached 8.7% driven by
successful price increases across all markets and a moderate
volume increase. Market conditions were contrasted with steady
growth in Western Canada, Western and Southeast
U.S. regions and a softening of demand in Eastern Canada
and the Great Lakes region.
Asphalt and paving sales delivered solid growth under the
combined effect of relatively strong economic conditions and
improved asphalt prices.
Ready mix sales increased by 9.5% to 968 million euros in
2005.
At constant scope and exchange rates, ready mix sales delivered
6.9% growth reflecting solid price increases achieved to recover
cost inflation in all markets. Volumes have declined in most
regions and more specifically in our Eastern Canadian markets
and in Louisiana due to hurricane Katrina, while other markets
in the southeast part of the United States benefited from good
volume growth.
In North America, operating income grew by 4.5% to
162 million euros in 2005. The strengthening of the
Canadian dollar against the euro had a positive impact of
4 million euros. Changes in the scope of consolidation had
a net negative impact of 2 million euros.
1 See Overview Reconciliation of our
non-GAAP financial measures above.
S-32
At constant scope and exchange rates, current operating income
remained essentially unchanged compared with 2004. The combined
effects of significantly higher energy and raw material costs,
higher pension and other post-retirement costs, ERP deployment
costs and increased subcontracting to meet strong demand in few
aggregates markets offset the positive contribution from higher
prices in all product lines.
In the rest of the world, pure aggregates and ready-mix sales
increased by 25.7% and 28.6%, respectively. In the aggregates
activity we recorded noticeable growth in Turkey, Poland,
Ukraine and South Africa. In the concrete activity, we benefited
from excellent activity levels in most emerging markets.
Current operating income experienced another year of strong
growth reaching 57 million euros in 2005 compared to
46 million euros in 2004. Continued significant progress in
the current operating income in South Africa where we have
the strongest aggregates and concrete position in emerging
markets, and a noticeable improvement in Poland were the key
drivers of the increase.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation at |
|
|
|
|
|
|
|
|
constant scope |
|
|
|
|
|
|
Variation |
|
and exchange |
Sales and Current Operating Income |
|
2005 |
|
2004 |
|
2005/2004 |
|
rates |
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
(in millions) |
|
(%) |
|
(%) |
Sales
|
|
|
1,514 |
|
|
|
1,493 |
|
|
|
+1.4 |
|
|
|
(0.8 |
) |
Current operating income
|
|
|
98 |
|
|
|
149 |
|
|
|
(34.2 |
) |
|
|
(35.7 |
) |
Contributions to our sales by destination for the years ended
December 31, 2005 and 2004 and the related percentage
changes between the two periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
1,085 |
|
|
|
71.7 |
|
|
|
(2.0 |
) |
|
|
1,107 |
|
|
|
74.1 |
|
|
Germany
|
|
|
329 |
|
|
|
21.7 |
|
|
|
(14.5 |
) |
|
|
385 |
|
|
|
25.8 |
|
|
Other countries in Western Europe
|
|
|
756 |
|
|
|
49.9 |
|
|
|
4.7 |
|
|
|
722 |
|
|
|
48.3 |
|
Other regions
|
|
|
429 |
|
|
|
28.3 |
|
|
|
11.1 |
|
|
|
386 |
|
|
|
25.9 |
|
TOTAL BEFORE ELIMINATION OF INTER-DIVISION SALES
|
|
|
1,514 |
|
|
|
100.0 |
|
|
|
1.4 |
|
|
|
1,493 |
|
|
|
100.0 |
|
The Roofing Division sales increased by 1.4% to
1,514 million euros in 2005 from 1,493 million euros
in 2004. Currency fluctuations had a positive impact on sales of
0.5% and amounted to 8 million euros. Changes in the scope
of consolidation had a net positive impact of 26 million
euros, or 1.7%, resulting mainly from the acquisition of the
RiteVent chimneys business in the United Kingdom.
At constant scope and exchange rates, sales dropped by 0.8%
(down 9.1% in the first quarter 2005 compared to the first
quarter 2004, down 3.8% in the second quarter 2005, up 0.8% in
the third quarter 2005 and up 7.1% in the fourth quarter 2005).
This decline in sales resulted essentially from renewed weakness
in the German construction market.
Sales of concrete tiles decreased 1.9% to 727 million euros
in 2005, while sales of clay tiles increased by 2.5% to
268 million euros. Chimney sales increased by 14.1% to
216 million euros. Roofing system components sales and
other sales at 303 million euros were stable year on year.
S-33
Contributions to our current operating income by main market,
for the years ended December 31, 2005 and 2004, and the
related percentage changes between the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Current Operating Income |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
61 |
|
|
|
62.2 |
|
|
|
(46.0 |
) |
|
|
113 |
|
|
|
75.8 |
|
|
Germany
|
|
|
(1 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
39 |
|
|
|
26.1 |
|
|
Other countries in Western Europe
|
|
|
62 |
|
|
|
63.3 |
|
|
|
(16.2 |
) |
|
|
74 |
|
|
|
49.7 |
|
Other regions
|
|
|
37 |
|
|
|
37.8 |
|
|
|
2.8 |
|
|
|
36 |
|
|
|
24.2 |
|
TOTAL
|
|
|
98 |
|
|
|
100.0 |
|
|
|
(34.2 |
) |
|
|
149 |
|
|
|
100.0 |
|
The Divisions current operating income was down 34.2% to
98 million euros in 2005 from 149 million euros in
2004. Changes in the scope of consolidation had a net positive
impact of 2 million euros. As a percentage of the
Divisions sales, current operating income represented 6.5%
in 2005, compared to 10.0% in 2004. The renewed decline in the
German construction market, with a loss now being recorded in
the German roofing operations, was the main cause of the sharp
fall in the Divisions current operating income.
Return on capital employed after
tax1
decreased to 3.6% from 5.5%.
In Western Europe, sales were down by 2.0% to 1,085 million
euros, with declines in both concrete and clay tiles.
|
|
|
|
|
In Germany, sales decreased by 14.5% in a context of weak
construction demand and fierce competition. The first and second
quarter of 2005 were particularly difficult, suffering from bad
weather conditions in the beginning of the year and from a
relatively high comparison basis, since high demand was
generated in the first half of 2004 following the announcement
of the end of public subsidies to private house builders. In
such an environment, volumes were down both in concrete and clay
activities, prices remained under pressure and chimneys sales
declined. |
|
|
|
In the Benelux (Belgium-Netherlands-Luxembourg) region,
sales were slightly up, with a decline in concrete tiles being
offset by increased sales in clay tiles. |
|
|
|
In the United Kingdom, sales were slightly adversely
affected by the negative impact of currency fluctuations but
benefited from the entry into the scope of consolidation of the
RiteVent chimney business. Weak market trends and tough
competition affected negatively our volumes both in concrete and
clay tiles. This unfavorable volume effect was however mitigated
by improved pricing and improved chimney sales. |
|
|
|
In France, 2005 sales were in line with 2004 sales, lower
volumes being offset by better mix and pricing. |
|
|
|
In Italy, a sales increase in 2005, was mainly driven by
better pricing in the concrete tile business and satisfactory
development of chimney sales, while concrete tiles volumes were
slightly down. |
|
|
|
Scandinavia delivered a solid growth in all its markets
with strong volumes benefiting from a longer season due to
favorable weather conditions. |
1 See Overview Reconciliation of our
non-GAAP financial measures above.
S-34
Current operating income in Western Europe dropped by 46% to
61 million euros in 2005.
|
|
|
|
|
In Germany, the weakness in the construction market led
to volume decrease and severe price competition. Despite the
extensive restructuring of the operations, the extent of the
renewed decline led to a sharp drop in utilization of production
capacity. As a result, an operating loss of 1 million euros
was recorded in 2005. |
|
|
|
In other Western European countries current operating
income decreased to 62 million euros from 74 million
euros in 2004. In the United Kingdom, current operating income
was below last year as the result of weak market conditions. In
France, we experienced production difficulties which led to
delivery problems as products were not available in sufficient
quantity to respond to demand. Scandinavia, on the other hand,
recorded a strong current operating income improvement. |
|
|
|
North America and other regions |
In the United States, sales increased by 21% in 2005, driven
primarily by price increases and to a lesser extent by volume
growth. In other regions sales were up by 7% overall. Good
growth was recorded in South Africa, Brazil and Turkey. In
Poland, Malaysia and Japan sales declined due to difficult
market conditions.
Current operating income improved to 37 million euros in
2005 from 36 million euros in 2004. The United States
continued to record strong current operating income growth. This
growth was partly offset by lower results in Central Europe,
Malaysia and Japan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation at |
|
|
|
|
|
|
Variation |
|
constant scope and |
Sales and Current Operating Income |
|
2005 |
|
2004 |
|
2005/2004 |
|
exchange rates |
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
(in millions) |
|
(%) |
|
(%) |
Sales
|
|
|
1,479 |
|
|
|
1,353 |
|
|
|
+9.3 |
|
|
|
+8.7 |
|
Current operating income
|
|
|
151 |
|
|
|
132 |
|
|
|
+14.4 |
|
|
|
+12.8 |
|
Contributions to our sales by destination for the years ended
December 31, 2005 and 2004 and the related percentage
changes between the two periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Sales |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
766 |
|
|
|
51.8 |
|
|
|
4.1 |
|
|
|
736 |
|
|
|
54.4 |
|
North America
|
|
|
331 |
|
|
|
22.4 |
|
|
|
25.9 |
|
|
|
263 |
|
|
|
19.4 |
|
Other regions
|
|
|
382 |
|
|
|
25.8 |
|
|
|
7.9 |
|
|
|
354 |
|
|
|
26.2 |
|
TOTAL BEFORE ELIMINATION OF INTER-DIVISION SALES
|
|
|
1,479 |
|
|
|
100.0 |
|
|
|
9.3 |
|
|
|
1,353 |
|
|
|
100.0 |
|
Sales of the Gypsum Division increased by 9.3% to
1,479 million euros in 2005 from 1,353 million euros
in 2004. Changes in the scope of consolidation had a negative
impact of 0.9% and currency fluctuations increased sales by 1.5%.
At constant scope and exchange rates, sales increased by 8.7%
(4.5% in the first quarter 2005 compared to the first quarter
2004, 9.7% in the second quarter 2005, 7.6% in the third quarter
2005 and 12.4% in the fourth quarter 2005).
S-35
The increase in sales was largely driven by favorable market
conditions in North America, with higher prices and good volume
growth.
Sales volumes of wallboard grew by 2.8% in 2005 to
694 million square meters. At constant scope volume growth
was 3.7%.
Contributions to our current operating income by region, for the
years ended December 31, 2005 and 2004, and the related
percentage changes between the periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
Current Operating Income |
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(%) |
|
(in millions) |
|
(%) |
Western Europe
|
|
|
77 |
|
|
|
51.0 |
|
|
|
4.1 |
|
|
|
74 |
|
|
|
56.1 |
|
North America
|
|
|
45 |
|
|
|
29.8 |
|
|
|
125.0 |
|
|
|
20 |
|
|
|
15.2 |
|
Other regions
|
|
|
29 |
|
|
|
19.2 |
|
|
|
(23.7 |
) |
|
|
38 |
|
|
|
28.7 |
|
TOTAL
|
|
|
151 |
|
|
|
100.0 |
|
|
|
14.4 |
|
|
|
132 |
|
|
|
100.0 |
|
Current operating income grew by 14.4% to 151 million in
2005 from 132 million in 2004. Currency fluctuations had a
positive impact of 3 million euros.
At constant scope and exchange rates, current operating income
increased by 12.8%. As a percentage of the Divisions
sales, current operating income increased to 10.2% in 2005, from
9.8% in 2004. The overall impact of selling price increases more
than matched the unfavorable variances of input costs
represented mainly by higher energy prices (21 million
euros), transportation delivery costs and raw materials prices.
However, although prices were generally able to offset cost
increases, such offsetting was not possible when market
conditions were adverse or weakened in countries like South
Korea, Poland or France.
Return on capital employed after
tax1
increased to 10.2% from 9.3%.
In Western Europe, sales grew by 4.1% to 766 million euros
in 2005 up 736 million euros in 2004 with favorable volumes
in the United Kingdom and Ireland, France and Italy. In Germany,
volumes were down in a persistently weak market. Pricing
conditions were overall favorable except in France where prices
remained under pressure and could not be increased to a more
satisfactory level.
In Western Europe current operating income improved by 4.1% to
77 million euros from 74 million euros in 2004. This
increase was largely driven by the U.K., which recorded strong
growth after a weaker 2004 which was adversely affected by
higher sourcing costs. In France, current operating income was
slightly down despite higher volumes, as the increase in selling
prices did not fully offset the sharp rise in input costs.
Current operating income was slightly up in Germany due to
improved pricing and in Italy due to improved market conditions.
In North America, sales in 2005 grew by 25.9% to
331 million euros from 263 million euros in 2004. A
strong housing market kept demand for wallboard high. In
addition, tight overall industry supply coupled with
1 See Overview Reconciliation of our
non-GAAP financial measures above.
S-36
these good market conditions have led to a very favorable
pricing environment. Five price increases were implemented in
2005.
In North America, current operating income improved by 125% to
45 million euros in 2005 from 20 million euros in
2004. Higher selling prices and continued strong demand drove
the increase in profitability, more than offsetting increases in
natural gas and raw material costs. For the second consecutive
year, our two high-speed plants at Silver Grove and Palatka
performed well at high levels of output.
In other regions our sales rose overall by 7.9% to
382 million euros in 2005 from 354 million euros in
2004. Good levels of activity were recorded in Turkey, Latin
America, South Africa and Thailand. South Korea continued
to face a depressed market while Australia was affected by a
downturn in overall demand. Poland suffered from weaker market
conditions, worsened by excess manufacturing capacity.
In other regions, current operating income declined by 23.7% to
29 million euros in 2005, compared to 38 million euros
in 2004, essentially caused by lower income in South Korea,
Australia and Poland.
|
|
|
Other (including holdings) |
Sales of our other operations fell by 51%, to 25 million
euros in 2005 from 51 million euros in 2004, following
further divestments made in the lime and road marking activities.
|
|
|
Current Operating Income (Loss) |
Current operating loss of our other operations, which includes
central unallocated costs, rose to 60 million euros in 2005
compared to a loss of 34 million euros in 2004 partly due
to accounting charges amounting to 13 million related to
stock options and to an employee share purchase plan launched in
April 2005 and to extra costs arising from the management of the
internal control certification process under French and
U.S. regulations, respectively the Loi de
sécurité financière and the Sarbanes-Oxley
Act (Section 404).
S-37
Operating income and net income
The table below shows the evolution of our operating income and
net income for the years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation |
|
|
|
|
2005 |
|
2005/2004 |
|
2004 |
|
|
|
|
|
|
|
|
|
(in millions) |
|
(%) |
|
(in millions) |
CURRENT OPERATING INCOME
|
|
|
2,357 |
|
|
|
7.1 |
|
|
|
2,201 |
|
Gains on disposals, net
|
|
|
37 |
|
|
|
(59.3 |
) |
|
|
91 |
|
Other operating income (expenses)
|
|
|
(157 |
) |
|
|
(28.0 |
) |
|
|
(218 |
) |
OPERATING INCOME
|
|
|
2,237 |
|
|
|
7.9 |
|
|
|
2,074 |
|
Finance (costs) income
|
|
|
(427 |
) |
|
|
(21.9 |
) |
|
|
(547 |
) |
Income from associates
|
|
|
38 |
|
|
|
(48.6 |
) |
|
|
74 |
|
INCOME BEFORE INCOME TAX
|
|
|
1,848 |
|
|
|
15.4 |
|
|
|
1,601 |
|
Income tax
|
|
|
(424 |
) |
|
|
58.8 |
|
|
|
(267 |
) |
NET INCOME
|
|
|
1,424 |
|
|
|
6.7 |
|
|
|
1,334 |
|
Out of which: Group share
|
|
|
1,096 |
|
|
|
4.8 |
|
|
|
1,046 |
|
|
Minority interests
|
|
|
328 |
|
|
|
13.9 |
|
|
|
288 |
|
Gains on disposals, net, represented a net gain of
37 million euros in 2005, compared to 91 million euros
in 2004. In 2005, the net gain was generated by several
transactions including the merger of our operations in China
with Shui On operations to form the new Lafarge Shui On Joint
Venture.
Other operating income (expenses), represented a net
expense of 157 million euros in 2005, compared to a net
expense of 218 million euros in 2004. In 2005, other
expenses included essentially 85 million euros of
exceptional asset amortization and depreciation, 53 million
euros of restructuring costs, and 27 million euros of
litigation expense. The main exceptional asset amortization and
depreciation was a goodwill impairment amounting to
65 million euros, arising from our annual impairment test
process and impacting, in particular, our cement reporting unit
in the Philippines. The most significant restructuring costs
were incurred in Germany in the roofing operations and in South
Korea in the cement operations. Litigation expenses include in
particular a 10 million euros fine paid to the Romanian
Competition Council by our subsidiary Lafarge Romcim. Other
income in 2005 included a 42 million euro gain as the
result of the partial refund of a penalty paid in 1999 to the
Greek State by Heracles, under a European Union judgment related
to excessive state aid received in the mid 1980s.
Operating income increased by 7.9% to 2,237 million
euros, from 2,074 million euros in 2004.
Finance (costs) income, decreased by 21.9% to
427 million euros from 547 million euros in 2004.
Financial expenses, net, are comprised of financial expenses on
net debt and other financial income and expenses. Financial
expenses on net debt decreased by 5.8% to 419 million euros
from 445 million euros in 2004, as the result of the
decrease of the average level of our net debt. The average
interest rate on our debt, including the swap effects, was 5.5%
on December 31, 2005, unchanged as compared to
December 31, 2004. Other financial income and expenses
amounted to a net loss in 2005 of 8 million euros compared
to a net loss of 102 million euros in 2004. This evolution
is mainly explained by foreign exchange losses which amounted to
3 million euros in 2005 compared to 40 million euros
in 2004 and by the changes in fair value of derivative
instruments which generated a 1 million euros gain in 2005
compared to a 34 million euros loss in 2004.
Income from associates decreased by 48.6% to
38 million euros in 2005, from 74 million euros in
2004 as the result of the disposal in 2004 of our stake in
Molins and in Carmeuse North America BV.
Income tax increased by 58.8% to 424 million euros
in 2005 from 267 million euros in 2004. The effective tax
rate for 2005 was 22.9% compared to the effective tax rate for
2004 of 16.7%. In 2005, our tax charge was negatively affected
by a 57 million euros non-recurring charge arising from the
repatriation by Lafarge North America Inc. of
1.1 billion U.S. dollars from Canada to the United
States. This tax charge was,
S-38
however, more than offset by the favorable impact of tax
efficient restructurings amounting to 155 million euros and
by the 50 million euro tax benefit from asset
re-evaluations in Greece. The combined effect of these
non-recurring items reduced our effective tax rate in 2005 by
8%. In 2004, our income tax benefited from 193 million
euros of non-recurring savings which represented a decrease of
our effective tax rate of approximately 13%.
Net income Group Share increased by 4.8% to
1,096 million euros in 2005 from 1,046 million euros
in 2004. Net income Group Share represented 6.9% of sales in
2005, compared to 7.2% in 2004.
Minority interests increased by 13.9% to 328 million
euros from 288 million euros in 2004. Minority interests
increased as the result of improved net results in Greece,
Nigeria, Serbia and Jordan and despite Lafarge North America
Inc.s weaker results in 2005 as a result of the one-off
tax charge already mentioned.
Basic earnings per share was up 2.2% for 2005 at 6.39
euros compared to 6.26 euros in 2004. The basic average number
of outstanding shares, excluding treasury shares outstanding
during the year was 171.5 million (174.2 million
shares at December 31, 2005), compared to
167.2 million in 2004 (169.1 million at
December 31, 2004). Between December 31, 2004 and
December 31, 2005 the increase in the number of shares
arose essentially from the 4.0 million shares issued to
shareholders opting to reinvest dividends distributed in June
2005 and from the employee share ownership scheme. Diluted
earnings per share was up 3.4% to 6.34 euros compared to 6.13
euros in 2004.
|
|
|
Discussion of differences in Operating income under IFRS
and U.S. GAAP |
We prepare our financial statements in accordance with IFRS,
which differs in certain significant respects from
U.S. GAAP. The individual differences are discussed in
Note 36 to the consolidated financial statements included
in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. The impact of these U.S. GAAP
reclassifications and adjustments are included in the condensed
U.S. GAAP financial statements presented in Note 37 to
the consolidated financial statements included in our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
After taking into account the adjustments noted below, our
operating income under U.S. GAAP totaled 2,052 million
euros (185 million euros lower than under IFRS) for the
year ended December 31, 2005.
Proportionately consolidated entities. We account for
various entities as proportionately consolidated for purposes of
IFRS and as equity method investees for U.S. GAAP. In 2005,
this change in consolidation method decreased our revenue and
our operating income under U.S. GAAP compared to IFRS by
865 million euros and by 166 million euros,
respectively.
Adjustments between IFRS and U.S. GAAP. Operating
income was 19 million euros less under U.S. GAAP than
under IFRS, apart from the effect of the proportionately
consolidated entities discussed above. This decrease is
primarily due to the following:
|
|
|
|
|
net reduction in impairment losses for U.S. GAAP purposes
of 53 million euros; |
|
|
|
increase in pension costs of 85 million euros; |
|
|
|
decrease in stock-based compensation of 14 million euros; |
|
|
|
increase in expense from other adjustments of 1 million
euros. |
After taking into account the adjustments noted below, our
operating income under U.S. GAAP totaled 1,811 million
euros (263 million euros lower than under IFRS) for the
year ended December 31, 2004.
S-39
Proportionately consolidated entities. We account for
various entities as proportionately consolidated for purposes of
IFRS and as equity method investees for U.S. GAAP. In 2004,
this change in consolidation method decreased our revenue and
our operating income under U.S. GAAP compared to IFRS by
1,065 million euros and by 171 million euros,
respectively.
Adjustments between IFRS and U.S. GAAP. Operating
income was 92 million euros less under U.S. GAAP than
under IFRS, apart from the effect of the proportionately
consolidated entities discussed above. The decrease is primarily
due to the following:
|
|
|
|
|
net increase in impairment losses for U.S. GAAP purposes of
7 million euros; |
|
|
|
increase in pension costs of 83 million euros; |
|
|
|
decrease in stock-based compensation of 13 million euros; |
|
|
|
increase in expense from other adjustments of 15 million
euros. |
Liquidity and capital resources
During the two-year period ended December 31, 2005, our
main sources of liquidity have been:
|
|
|
|
|
cash provided by operating activities; |
|
|
|
cash provided by the divestment of non-strategic assets; |
|
|
|
cash provided by the issuance of debt and of our share capital. |
These funds have been mainly used to finance a significant
investment program (capital expenditures and acquisitions).
|
|
|
|
|
|
|
|
|
Components of the Cash Flow |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
(in millions) |
CASH FLOW FROM OPERATIONS
|
|
|
2,238 |
|
|
|
2,148 |
|
Changes in operating working capital items excluding financial
expenses and income taxes
|
|
|
(352 |
) |
|
|
(271 |
) |
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
1,886 |
|
|
|
1,877 |
|
Net cash (used in) investing activities
|
|
|
(1,684 |
) |
|
|
(972 |
) |
Net cash (used in) financing activities
|
|
|
(185 |
) |
|
|
(854 |
) |
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
17 |
|
|
|
51 |
|
We believe, based on our current financial projections, that we
have sufficient resources for our ongoing operations in both the
near term and the long term.
|
|
|
Net cash provided by operating activities |
Net cash provided by operating activities totaled
1,886 million euros in 2005, essentially unchanged compared
to 2004. Cash flow from operations grew by 90 million euros
to 2,238 million euros. The increase in operating working
capital needs at 352 million euros resulted in particular
from higher inventories and trade receivables at year end due to
the strong level of activity in the last quarter. Trade
receivables, measured by a Days Sales Outstanding ratio,
recorded a slight improvement in 2005 compared to 2004.
|
|
|
Net cash (used in) investing activities |
Funds used in investing activities amounted to
1,684 million euros in 2005 compared to 972 million
euros in 2004. Investing activities are comprised of capital
expenditures, investment subsidies received, investment in
consolidated companies, investment in associates and in
available-for-sale securities, disposals, and the changes in
long-term receivables.
S-40
Capital expenditures totaled 1,454 million euros in 2005
compared to 1,133 million euros in 2004. Of this amount 57%
were for the Cement Division, 25% were for Aggregates &
Concrete, 9% were for Roofing, 7% were for Gypsum and 2% were
for holdings and other activities.
Our capital expenditures for the ongoing upgrading and
modernization of our existing facilities totaled
941 million euros in 2005, compared to 783 million
euros in 2004. In 2005, 55% of these capital expenditures were
in the Cement Division, 28% were for Aggregates &
Concrete, 8% were for Roofing, 6% were for Gypsum, with the rest
for holding companies and other activities.
In 2005, we also invested 513 million euros in capital
expenditures for additional production capacity, including major
projects such as:
|
|
|
|
|
the new cement plant in Tula, Mexico, for 62 million euros; |
|
|
|
the new cement plant in Bangladesh, for 33 million euros; |
|
|
|
the doubling of the Bouskoura cement plant capacity in Morocco
for 26 million euros; |
|
|
|
the second cement line in Dujiangyan for 14 million euros; |
|
|
|
the construction of a cement grinding station in Vietnam for
13 million euros; |
|
|
|
the modernization of the Buchanan, New York Gypsum drywall plant
for 26 million euros; |
|
|
|
the construction of a new clay tiles plant in Limoux, southern
France for 22 million euros; |
|
|
|
and a variety of smaller projects which amounted to
158 million euros in Cement, 92 million euros in
Aggregates & Concrete, 42 million euros in
Roofing, 20 million euros in Gypsum and 3 million
euros in other activities. |
Investment subsidies received amounted to 2 million euros
in 2005.
In 2005, investment in consolidated companies amounted to
384 million euros, including cash acquired. The most
significant acquisitions included (amounts are converted using
the average yearly exchange rates):
|
|
|
|
|
the purchase of the minority interests held by State of
Wisconsin Investment Board (SWIB) in our cement
activities in South Korea, India and Japan for 107 million
euros; |
|
|
|
the Lafarge North America Inc. common stock repurchase for
80 million euros; |
|
|
|
the acquisition of the assets of Ritchie Corporation in Kansas,
United States, for 47 million euros with operations in the
aggregates and ready mix activities; |
|
|
|
the acquisition of Cementos Esfera, a grinding station in Spain,
for 30 million euros; |
|
|
|
the increase in ownership from 50% to 100% of Betecna shares, a
Portuguese aggregates and concrete producer, for 30 million
euros as a consequence of the termination of the aggregates and
concrete joint venture between Lafarge and Cemex in Spain and
Portugal. |
Investment in associates and in available-for-sale securities
amounted to 20 million euros in 2005, and included several
small size acquisitions.
Disposals in 2005 amounted to 154 million euros and also
included several small size transactions.
Long-term receivables, which include, in particular, loans to
our equity affiliates and to proportionately consolidated
companies decreased by 18 million euros.
|
|
|
Net cash (used in) financing activities |
In general, we meet our long-term financing needs through bond
issuances and the use of long-term instruments such as our Euro
Medium-Term Notes program and bank loans. We currently have a
Euro Medium-Term Notes program with a maximum available amount
of 7,000 million euros, with approximately
S-41
3,512 million euros outstanding at December 31, 2005.
We issued the following debt securities in 2005 and 2004 under
this program:
|
|
|
|
|
on November 23, 2005, 500 million euros of bonds
bearing a fixed interest rate of 4.25% with a
10-year and
4 months maturity; |
|
|
|
on March 23, 2005, 500 million euros of bonds bearing
a fixed interest rate of 4.75% with a
15-year maturity; |
|
|
|
on July 16, 2004, 612 million euros of bonds in
partial exchange for outstanding bonds with 2008 maturity. The
new bonds bear a fixed interest rate of 5% with a
10-year maturity. |
In 2005, two bond issues totaling 327 million euros were
reimbursed at maturity (respectively 77 million euros in
February 2005 and 250 million euros in March 2005). A
50 million euros of EMTN (private placement issued in 2000)
was also reimbursed at maturity in October 2005.
In addition, in 2005 we repurchased 6,772,429 OCEANEs
(Obligations Convertibles en Actions Nouvelles ou
Échangeables) bearing a fixed interest rate of 1.5% and
representing a total face value of 860 million euros out of
the 1,300 million euros issued in June 2001. In addition,
590 OCEANEs were converted into 619 shares. Therefore,
3,463,202 OCEANEs were outstanding as at December 31, 2005,
representing a face value amount of 440 million euros. All
remaining OCEANEs were repaid on January 2, 2006, using
short-term financings.
Short-term needs are mainly met through the issuance of domestic
commercial paper as well as the use of credit lines.
We currently have two commercial paper programs:
|
|
|
|
|
a euro denominated Commercial Paper program, with a maximum
available amount of 3,000 million euros. At
December 31, 2005, 524 million euros of commercial
paper were outstanding under this program; |
|
|
|
a U.S. dollar denominated Commercial Paper program, set up
by our subsidiary Lafarge North America Inc., for a maximum
amount of 300 million dollars (254 million euros). At
December 31, 2005, there was no commercial paper issued
under this program. |
We also maintain committed long-and-medium-term credit lines
with various banks at the parent and subsidiary level to ensure
the availability of funding on an as-needed basis. At
December 31, 2005, these committed credit lines amounted to
3,740 million euros (compared to approximately
3,802 million euros at December 31, 2004). Of this
amount, 3,467 million euros were available at
December 31, 2005 (compared to approximately
3,682 million at December 31, 2004). The average
maturity of these credit facilities was approximately
4.1 years at the end of 2005 versus 3.5 years at the
end of 2004. The extension in the maturity of our credit
facilities reflects a July 2005 amendment, which extended our
1,850 million euros syndicated facility by 9 months
and the renegotiation and signing during 2005 of four credit
facilities totaling 425 million euros, having maturities
ranging from 2009 to 2012.
We have also increased our common stock over the last two years
by 518 million euros, through the issuance of
8,767,490 shares as a result of:
|
|
|
|
|
the exercise by shareholders of their option to receive their
dividends in shares rather than in cash; |
|
|
|
the 2005 employees stock purchase plan; and |
|
|
|
the exercise of options granted to employees. |
Because we use external sources to finance a significant portion
of our capital requirements, our access to global sources of
financing is important. The cost and availability of unsecured
financings are generally dependent on our short-term and
long-term credit rating. Factors that are significant in the
determination of our credit ratings or that otherwise could
affect our ability to raise short-term and long-term financing
include: our level and volatility of earnings, our relative
positions in the markets in which we operate, our global and
S-42
product diversification, our risk management policies and our
financial ratios such as net debt to total equity and cash flow
from operations to net debt. We expect credit rating agencies
will focus, in particular, on our ability to generate sufficient
operating cash flows to provide for the repayment of our debt. A
deterioration in any of the previously mentioned factors or
combination of these factors may lead rating agencies to
downgrade our credit ratings, thereby increasing our cost of
obtaining unsecured financing. Conversely, an improvement of
these factors may lead rating agencies to upgrade our credit
ratings.
|
|
|
Level of debt and financial ratios at December 31,
2005 |
For more information on debt, see Note 25 to our
consolidated financial statements included in our annual report
on Form 20-F for
the year ended December 31, 2005, which is incorporated
herein by reference.
Our senior management establishes our overall funding policies.
The intent of these policies is to ensure our ability to meet
our obligations by maintaining a strong financial structure.
This policy takes into consideration our expectations on the
required level of leverage, coverage ratios, the average
maturity of debt, interest rate exposure and the level of credit
facilities. These targets are monitored on a regular basis. As a
consequence of this policy, a significant portion of our debt is
issued on a long-term basis. Most of this debt has been raised
at fixed rates or has been converted into fixed rates using
interest rate derivatives. We constantly maintain a significant
amount of unused long-term committed credit lines.
We are subject to limited foreign exchange risks as a result of
our subsidiaries transactions in currencies other than
their operating currencies. Our general policy is for
subsidiaries to borrow and invest excess cash in the same
currency as their functional currency. We, however, promote the
investment of excess cash balances in U.S. dollars or euros
in emerging markets. Typically, a portion of our
subsidiaries debt funding is borrowed in euros at the
parent company level then converted into foreign currencies
through currency swaps.
|
|
|
Total debt, cash and cash equivalents |
At December 31, 2005, our total debt amounted to
8,742 million euros (compared to 8,346 million euros
in 2004). At the end of 2005, we reclassified 1,040 million
euros of short-term debt (600 million euros at the end of
2004) into long-term debt, on the basis of our ability to
refinance this obligation using the available funding provided
by medium and long-term committed credit lines.
Long-term debt (excluding current portion) totaled
6,856 million euros compared with 6,959 million euros
at year-end 2004. Approximately 52% of the 2005 long-term debt
(excluding current portion) will mature after 2010. Long-term
debt is largely comprised of fixed rate debt (after taking into
account interest rate swaps). Most of this debt is denominated
in euros, partially converted into foreign currencies through
currency swaps.
At December 31, 2005, our short-term debt (including the
current portion of long-term debt) amounted to
1,886 million euros. We are subject to fluctuations in our
short-term debt due to the significant seasonality of our
operations. We usually experience a slowdown in building
activity during the winter season in our principal markets in
Western Europe and North America, while working capital
requirements tend to increase during the first semester.
At December 31, 2005, the average interest rate on our
total debt was 5.5%, unchanged from December 31, 2004.
Our cash and cash equivalents amounted to 1,735 million
euros at year-end and are denominated in euros,
U.S. dollars and a number of other currencies.
For more information on our debt and financial instruments,
see Market risks below and Notes 25 and 26 to
our consolidated financial statements included in our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
S-43
|
|
|
Net debt and net debt ratios |
Our net debt, which includes put options on shares of
subsidiaries and financial instruments totaled
7,221 million euros at December 31, 2005
(6,958 million euros at December 31, 2004).
Our net-debt-to-equity
ratio stood at 59% at December 31, 2005 (compared to 70% at
December 31, 2004).
Our cash flow from operations to net debt ratio was 31% at
December 31, 2005 (unchanged from December 31, 2004).
For more details on these ratios, see
Overview Reconciliation of our non-GAAP
financial measures above.
Some of our loan agreements contain restrictions on the ability
of subsidiaries to transfer funds to the parent company in
certain specific situations. The nature of these restrictions
can be either regulatory, when the transfers of funds are
subject to approval of local authorities, or contractual, when
the loan agreements include restrictive provisions such as
negative covenants on the payment of dividends. However, we do
not believe that any of these covenants or restrictions will
have any material impact on our ability to meet our obligations.
See Section 2.11 (Transfer of income and dividends from
our subsidiaries) of our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
As of December 31, 2005, certain of our subsidiaries had
financing contracts with provisions requiring on-going
compliance with financial covenants. These subsidiaries are
located in Bangladesh, Brazil, Chile, China, India, Malaysia,
Philippines, Great Britain and the United States. The debt
associated with such covenants represented approximately 9% of
the Groups total debt. Given the dispersion of these
contracts among various subsidiaries and the quality of the
Groups liquidity protection through its access to
committed credit facilities, we believe that such covenants will
not have a material impact on the Group financial situation.
See Note 25(e) to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
In order to ensure that cash surpluses are used efficiently we
have adopted, in a number of cases, cash pooling structures on a
country-by-country basis. With the introduction of the euro, we
have established a centralized cash management process for most
of the euro-zone countries and we also have extended the
centralization of cash management to significant European
non-euro countries (such as the
United Kingdom and Switzerland). Local cash pools
have also been set-up
in other parts of the Group.
Due to legal or regulatory constraints or national regulations,
we do not operate a full worldwide centralized cash management
program. However, the policies set by senior management tend to
maximize cash recycling within the Group. When cash cannot be
internally recycled, cash surpluses are to be invested in
liquid, short-term instruments with at least two-thirds of any
cash surplus being invested in instruments with a maturity of
less than 3 months.
|
|
|
Effect of currency fluctuations on our results and balance
sheet |
The assets, liabilities, income and expenses of our operating
entities are denominated in various currencies. Our consolidated
financial statements are presented in euros. Thus, assets,
liabilities, income and expenses denominated in currencies other
than the euro must be translated into euros at the applicable
exchange rate to be included in our consolidated financial
statements.
If the euro increases in value against a currency, the value in
euros of assets, liabilities, income and expenses originally
recorded in that other currency will decrease. Conversely, if
the euro decreases in value
S-44
against a currency, the value in euros of assets, liabilities,
income and expenses originally recorded in that other currency
will increase. Thus, increases and decreases in the value of the
euro can have an impact on the value in euros of our non-euro
assets, liabilities, income and expenses, even if the value of
these items has not changed in their original currency.
In 2005 we earned approximately 70% of our revenues in
currencies other than the euro, with approximately 30%
denominated in U.S. dollars or Canadian dollars.
Approximately 15% of our net income Group share was contributed
by subsidiaries which prepare their financial statements in
U.S. dollars or Canadian dollars. As a result, a 10% change
in the U.S. dollar euro exchange rate and in the Canadian
dollar/euro exchange rate would have an impact on our net income
Group share of approximately 16 million euros, all other
things being equal.
In addition, at the end of 2005, approximately 73% of our
capital employed were located outside the member states of the
European Monetary Union, with approximately 24% denominated in
U.S. dollars or Canadian dollars.
Contractual and contingent commitments
The following table sets forth an estimate of our exposure to
significant contractual obligations with respect to repayment of
debt, payments under finance lease obligations and operating
leases, exercisable purchase obligations held by third party
shareholders and other purchase obligations and payments under
other commitments.
The estimate of our exposure to significant contractual
obligations is as follows:
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|
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Payment Due per Period |
|
At December 31, |
|
|
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|
|
|
|
Less Than |
|
1-5 |
|
More Than |
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|
1 Year |
|
Years |
|
5 Years |
|
2005 |
|
2004 |
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|
(in millions ) |
DEBT(1)
|
|
|
1,886 |
|
|
|
3,281 |
|
|
|
3,575 |
|
|
|
8,742 |
|
|
|
8,346 |
|
Of which finance lease obligations
|
|
|
5 |
|
|
|
14 |
|
|
|
16 |
|
|
|
35 |
|
|
|
34 |
|
Scheduled interest payments(2)
|
|
|
404 |
|
|
|
997 |
|
|
|
859 |
|
|
|
2,260 |
|
|
|
1,928 |
|
Net scheduled obligations on interest rate swaps(3)
|
|
|
(3 |
) |
|
|
(45 |
) |
|
|
(44 |
) |
|
|
(92 |
) |
|
|
(114 |
) |
Operating leases
|
|
|
207 |
|
|
|
405 |
|
|
|
251 |
|
|
|
863 |
|
|
|
724 |
|
Capital expenditures and other purchase obligations
|
|
|
1,037 |
|
|
|
571 |
|
|
|
294 |
|
|
|
1,902 |
|
|
|
978 |
|
Other commitments
|
|
|
75 |
|
|
|
56 |
|
|
|
46 |
|
|
|
177 |
|
|
|
219 |
|
TOTAL
|
|
|
3,606 |
|
|
|
5,265 |
|
|
|
4,981 |
|
|
|
13,852 |
|
|
|
12,081 |
|
|
|
(1) |
See Note 25(b) to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. |
|
(2) |
Scheduled interest payments associated with variable rates of
interest are computed on the basis of the rates in effect at
December 31. |
|
(3) |
Scheduled interest payments of the variable leg of the swaps are
computed on the rates in effect at December 31. |
We expect to have the ability to refinance our debt obligations
as they come due. Our short-term debt commitments due in 2006
amounted to 1,886 million euros at December 31, 2005
(including the current portion of long-term debt).
Future expected funding requirements of benefit payments related
to our pension and postretirement benefit plans are not included
in the above table, because future long term cash flows in this
area are uncertain.
S-45
For further information on the amount reported under the
current portion of pension and other employee
benefits provisions in the balance sheet, see Note 23 to
our consolidated financial statements included in our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
Put options on shares of associates and joint ventures (not
included in the above schedule)
As part of the acquisition process of certain entities, we have
granted third party shareholders the option to require us to
purchase their shares at a predetermined price, according to
fair market value. These shareholders are either international
institutions, such as the European Bank for Reconstruction and
Development, or private investors, which are essentially
financial or industrial investors or the former shareholders of
the relevant companies. In the event these shareholders exercise
these options, our percentage ownership interest in the relevant
company would increase. Assuming that all of these options were
exercised, the purchase price to be paid by the Group, including
net debt acquired, would amount to 305 million euros as of
December 31, 2005. Based upon the terms of these
agreements, a portion of the total amount could be exercised in
2006 and 2007 for 205 million euros and 38 million
euros, respectively. The residual 62 million euros can be
exercised starting in 2008.
We do not expect all of these options to be exercised as soon as
they become exercisable. Some of these options have expiry
dates. It is likely that those options will be exercised by such
dates.
At December 31, 2005, we had outstanding collateral and
other guarantees amounting to 751 million euros, comprised
of 5 million euros of securities and pledged assets,
475 million euros of property collateralizing debt and
271 million euros of guarantees given.
Finally, the Group has granted indemnification commitments in
relation to disposals of assets. Its exposure under these
commitments is considered remote. The total amount of capped
indemnification commitments still in force at December 31,
2005 was 412 million euros.
Market risks
We are exposed to foreign currency risk and interest rate risk.
Other market risk exposures are generated by our equity
investments, commodity prices changes, in particular on energy
commodities, and counterparty risk.
We have defined strict policies and procedures to measure,
manage and monitor our market risk exposures. Our policies do
not permit any speculative market position. We have instituted
management rules based on a segregation of operations, financial
and administrative control and risk measurement. We have also
instituted, for all operations managed at the corporate level,
an integrated system that permits real time monitoring of
hedging strategies.
Our policy is to use derivative instruments to hedge against our
exposure to exchange rate and interest rate risks. However, to
manage our exposure to commodity risks we enter into long-term
contracts and, from time to time, we also use derivative
instruments. With the prior authorization of our senior
management, we have occasionally entered into agreements to
limit our or another partys exposure to equity risk.
We are subject to commodity risk with respect to price changes
principally in the electricity, fuel, diesel and freight
markets. We attempt to limit our exposure to changes in
commodity prices by entering into long-term contracts and
increasing our use of alternative fuels. From time to time, we
use forward contracts to manage our exposure to these commodity
risks.
At December 31, 2005, our commitments were mostly limited
to forward purchase contracts and swaps, and were not
significant.
For more information on financial instruments, see
Note 26(e) to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
S-46
We are subject to equity risk with respect to our minority
holdings in certain public companies. We occasionally enter into
transactions with respect to our equity investments with
financial institutions. We account for such instruments by
taking the fair value at period end in accordance with
applicable valuation rules. For the year ended December 31,
2005, the variation was positive in the amount of
14 million euros with respect to contracts limiting our
exposure to equity risk. We believe we had no additional
material exposure to such contracts. In addition, in regard to
certain joint ventures and other acquisitions, we have entered
into shareholders agreements, which have written call and put
options with respect to our and our partners interests.
For more information on equity risk and on our exposure to
these options, see Contractual and Contingent
Commitments above, as well as Notes 26(g) and 27 to
our consolidated financial statements included in our annual
report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
In order to reduce our exposure to the risks of currency and
interest rate fluctuations, we manage our exposure both on a
central basis through our treasury department and in conjunction
with some of our subsidiaries. We use various standard
derivative financial instruments, such as forward exchange
contracts, interest rate and currency swaps and forward rate
agreements to hedge currency and interest rate fluctuations on
assets, liabilities and future commitments, in accordance with
guidelines established by our senior management.
We use financial instruments only to hedge existing or
anticipated financial and commercial exposures. We undertake
this hedging in the
over-the-counter market
with a limited number of highly rated counterparties. Our
positions in derivative financial instruments are monitored
using various techniques, including the fair value approach.
See Liquidity and Capital Resources Effect
of currency fluctuations on our results and balance sheet
above.
We are subject to foreign exchange risks as a result of our
subsidiaries purchase and sale transactions in currencies other
than their operating currencies.
With regard to transactional foreign currency exposures, our
policy is to hedge all material foreign currency exposures
through derivative instruments at the later of when a firm
commitment is entered into or known. These derivative
instruments are generally limited to forward contracts and
standard foreign currency options, with terms generally less
than one year. We also, from time to time, hedge future cash
flows in foreign currencies when such flows are highly probable.
We do not enter into foreign currency exchange contracts for
other than hedging purposes.
Each subsidiary is responsible for managing the foreign exchange
positions arising as a result of commercial and financial
transactions performed in currencies other than its domestic
currency. Exposures are hedged with banks using foreign currency
forward contracts and occasionally foreign currency options.
However, our corporate treasury department attempts, when
possible, to act as a direct counterparty of the Group
subsidiaries and immediately return its position in the market.
It also attempts to reduce our overall exposure by netting
purchases and sales in each currency on a global basis when
feasible.
As far as financing is concerned, our general policy is for
subsidiaries to borrow and invest excess cash in the same
currency as their functional currency, except for subsidiaries
operating in growing markets, where cash surpluses are invested,
whenever it is possible, in U.S. dollars or in euros. A
significant portion of our financing is in U.S. dollars,
British pounds and U.S. dollars related currencies,
reflecting our significant operations in these countries. Part
of this debt was initially borrowed in euros at the parent
company level then
S-47
converted into foreign currencies through currency swaps. At
December 31, 2005, before these currency swaps, 10% of our
total debt was denominated in U.S. dollars and 16% was
denominated in British pounds. After taking into account the
swaps, our U.S. dollar denominated debt amounted to 25% of
our total debt, while our British pound denominated debt
represented 19%.
For more information on debt and financial instruments, see
Notes 25 and 26 to our consolidated financial statements
included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
We are exposed to interest rate risk through our debt and cash.
Our interest rate exposure can be sub-divided into the following
risks:
|
|
|
|
|
price risk for fixed-rate financial assets and
liabilities. |
|
|
|
By contracting a fixed-rate liability, for example, we are
exposed to an opportunity cost in the event of a fall in
interest rates. Changes in interest rates impact the market
value of fixed-rate assets and liabilities, leaving the
associated financial income or expense unchanged. |
|
|
|
|
|
cash-flow risk for floating rate assets and liabilities. |
|
|
|
Changes in interest rates have little impact on the market
value of floating-rate assets and liabilities, but directly
influence the future income or expense flows of the Company. |
In accordance with the general policy established by our senior
management we seek to manage these two types of risks, including
the use of interest rate swaps and forward rate agreements. Our
corporate treasury department manages our financing and hedges
interest rate risk exposure in accordance with rules defined by
our senior management in order to keep a balance between fixed
rate and floating rate exposure.
Before taking into account the interest rate swaps, at
December 31, 2005, 74% of our total debt was fixed rate.
After taking into account these swaps, the portion of fixed debt
in our total debt amounted to 66%.
For more information on our debt and financial instruments,
see Notes 25 and 26 to our consolidated financial
statements included in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
S-48
|
|
|
Interest Rate Sensitivity |
The table below provides information about our interest rate
swaps and debt obligations that are sensitive to changes in
interest rates.
For debt obligations, the table presents principal cash flows by
expected maturity dates and related weighted average interest
rates before swaps.
For interest rate swaps, the table presents notional amounts by
contractual maturity dates and related weighted average interest
rates. Notional amounts are used to calculate the contractual
payments to be exchanged under the contract. Weighted average
floating rates are based on effective rates at year-end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 |
|
|
|
|
|
Average |
|
|
Maturities of Notional Contract Values |
|
Rate (%) |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
> 5 Years |
|
Total |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt*
|
|
|
5.2 |
|
|
|
1,554 |
|
|
|
1,005 |
|
|
|
891 |
|
|
|
89 |
|
|
|
1,296 |
|
|
|
3,575 |
|
|
|
8,410 |
|
|
|
8,673 |
|
|
Fixed rate portion
|
|
|
5.6 |
|
|
|
1,123 |
|
|
|
780 |
|
|
|
745 |
|
|
|
64 |
|
|
|
330 |
|
|
|
3,416 |
|
|
|
6,458 |
|
|
|
6,718 |
|
|
Floating rate portion
|
|
|
3.7 |
|
|
|
431 |
|
|
|
225 |
|
|
|
146 |
|
|
|
25 |
|
|
|
966 |
|
|
|
159 |
|
|
|
1,952 |
|
|
|
1,955 |
|
Short-term bank borrowings
|
|
|
5.7 |
|
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332 |
|
|
|
332 |
|
INTEREST RATE DERIVATIVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
6.1 |
|
|
|
100 |
|
|
|
151 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321 |
|
|
|
(10 |
) |
|
Other currencies
|
|
|
4.8 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
0 |
|
Pay Floating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
600 |
|
|
|
41 |
|
|
Other currencies
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292 |
|
|
|
170 |
|
|
|
462 |
|
|
|
(5 |
) |
|
|
* |
Including the current portion of long-term debt. |
|
|
|
Exchange Rate Sensitivity |
The table below provides information about our debt and foreign
exchange derivative financial instruments that are sensitive to
exchange rates. For debt obligations, the table presents
principal cash flows in foreign currencies by expected maturity
dates. For foreign exchange forward agreements, the table
presents
S-49
the notional amounts by contractual maturity dates. These
notional amounts are generally used to calculate the contractual
payments to be exchanged under the contract.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 |
|
|
|
Maturities of Notional Contract Values |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
> 5 Years |
|
Total |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
DEBT IN FOREIGN CURRENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar
|
|
|
93 |
|
|
|
46 |
|
|
|
203 |
|
|
|
31 |
|
|
|
267 |
|
|
|
245 |
|
|
|
885 |
|
|
|
905 |
|
British pound
|
|
|
40 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
300 |
|
|
|
1,043 |
|
|
|
1,409 |
|
|
|
1,500 |
|
Other currencies
|
|
|
470 |
|
|
|
104 |
|
|
|
66 |
|
|
|
34 |
|
|
|
293 |
|
|
|
61 |
|
|
|
1,028 |
|
|
|
1,035 |
|
TOTAL
|
|
|
603 |
|
|
|
159 |
|
|
|
278 |
|
|
|
73 |
|
|
|
860 |
|
|
|
1,349 |
|
|
|
3,322 |
|
|
|
3,440 |
|
FOREIGN EXCHANGE DERIVATIVES: FORWARD CONTRACT PURCHASES
AND CURRENCY SWAPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
2 |
|
British pound
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491 |
|
|
|
(6 |
) |
Other currencies
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
0 |
|
TOTAL
|
|
|
1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,115 |
|
|
|
(4 |
) |
FORWARD CONTRACT SALES AND CURRENCY SWAPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar
|
|
|
1,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,716 |
|
|
|
(30 |
) |
British pound
|
|
|
726 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
3 |
|
Other currencies
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
|
|
|
(2 |
) |
TOTAL
|
|
|
2,730 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,733 |
|
|
|
(29 |
) |
|
|
|
Assumptions related to the sensitivity schedules above |
The fair values of long-term debt were determined by estimating
future cash flows on a borrowing-by-borrowing basis, and
discounting these future cash flows using an interest rate which
takes into consideration the Companys incremental
borrowing rate at year-end for similar types of debt
arrangements. Market price is used to determine the fair value
of publicly traded instruments.
The fair values of forward exchange contracts and interest and
currency swaps have been calculated using market prices that the
Company would pay or receive to settle the related agreements.
We are exposed to credit risk in the event of a
counterpartys default. We attempt to limit our exposure to
counterparty risk by rigorously selecting the counterparties
with which we trade, by regularly monitoring the ratings
assigned by credit rating agencies and by taking into account
the nature and maturity of our exposed transactions. We
establish counterparty limits which are regularly reviewed. We
believe we have no material concentration of risk with any
counterparty. We do not anticipate any third party default that
might have a significant impact on our financial condition and
results of operations.
Research and development
2005 was a particularly productive year for our research center,
Lafarge Centre de Recherche (LCR), in terms of research and
product development. Three prototypes of new innovative products
are among some of LCRs achievements that were positively
tested on English, French and American markets in the Concrete
and Aggregates portfolio, and positive results were registered
in research done for the Gypsum and Cement Divisions. The
dynamism generated by these recent years of success has made it
possible to radically redirect
S-50
the research portfolios towards the needs of our customers in
the Divisions and the business units. The projects being
developed for innovative products represent close to two-thirds
of LCRs overall portfolio compared to one-third ten years
ago.
The number of patents filed during the same period increased in
2005. This is proof that we are more inventive and more aware of
protecting and adding value to our intellectual property.
In the long term, LCR is decidedly committed to pursuing this
dynamism by continuing to follow promising and reassuring
directions. Prospective research topics are greatly influenced
by sustainable construction requirements focusing particularly
on reducing the level of
CO2
emissions, developing less expensive energy solutions, offering
more comfort to the users, and at the same time saving natural
resources.
The aim to reduce the level of
CO2
emissions in cement by 20% has channeled research towards cement
substitution products (the Cementitious materials).
These have been pursued and have given good results in terms of
available raw material characterization and optimization of
mixes made with these materials and cement.
The matrix organization by projects and Competency
Poles has now proved to be completely effective. Project
management has drawn research scientists closer to their
customers in the Divisions and in the business units. It is now
easier to better identify the most pertinent topics and
significantly reduce the industrialization delays for the
research results. On another hand, our organization in
Competency Poles reinforces the depth of our
scientific knowledge and ensures optimum capitalization.
Our Research Center employs approximately 220 people
(December 31, 2005), 70 of which are
PhD-engineers from ten
different countries. About 15 application and development
laboratories in the Divisions and subsidiaries throughout the
world work very closely with the LCR teams. Total expenses for
the Groups research and development budget was
55 million euros in 2005 compared to 54 million euros
in 2004.
LCR has developed more partnerships with the best universities
and world-renowned research centers. Among these are MIT
(Massachusetts Institute of Technology) and Princeton University
in the USA, the Laval and Sherbrooke Universities in Canada, as
well as the École Polytechnique and the CNRS (Centre
National de la Recherche Scientifique) in France.
The results obtained in 2005 are described below:
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Cement Division: research was pursued to find solutions
for reduction of
CO2
emissions as a means of ensuring long life to our activity, and
to better use our various sources of cementitious materials,
particularly pozzolans. Emphasis was made to develop potential
market added value from differentiated products meeting our
customers requirements (functionalized
cements), and a tool capable of forecasting the behavior
of our cement in ready mix concrete applications; |
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Aggregates & Concrete Division: three promising
prototypes were validated after undergoing tests on various
worksites: innovative concrete accelerating systems, producing
slabs in large dimensions without joints and optimizing the use
of sand from quarries in concrete applications. The range of
self-placing
Agilia®
concretes was pursued with the assistance of our research teams; |
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Gypsum Division: innovative products aimed at improving
the usage properties of the boards in such fields as aesthetics,
durability in wet atmospheres and acoustic performance. Efforts
in research have been focused also on making jointing compounds
which accelerate worksite implementation. A second area of
research pertains to improving the industrial performances of
our plants in terms of reducing energy requirements for the
drying process and fundamental understanding of the calcium
sulfate. There is a permanent emphasis put on the quality of the
products made; |
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Roofing Division: Research has focused its efforts on
developing a tile made with a concrete base which provides high
levels of performance in terms of durability. This requires
perfectly controlling the phenomena leading to surface
degradations and developing new facings with better performance. |
S-51
Trend information
Overall, based on recent trends, markets are expected to remain
favorable in 2006.
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In Cement, price increases are expected to be above cost
inflation. Overall we anticipate strong demand and solid price
increases, with a few exceptions. |
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For Aggregates & Concrete, we expect overall modest
growth in 2006 in the Aggregates business, with, however, solid
growth in growing markets. Concrete markets should remain
favorable on the whole. |
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In Roofing, we expect Western European markets to improve, with
the exception of Germany where pricing will remain under
pressure. |
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In Gypsum, 2006 should be favorable. Price increases should
continue, though at a lower pace in North America compared to
2005. |
As far as costs are concerned, after the record increases of the
last two years, we expect energy and logistics costs to further
increase in 2006. As in previous years, risk management policies
and performance programs should help to mitigate the impact of
these increases.
This trend information contains forward-looking statements
regarding, among other matters, our expectations for future
volume and pricing trends, demand for our products, energy costs
and other market developments. These forward-looking statements
reflect managements estimates and beliefs based on
currently available information and historical trends. However,
actual results may differ significantly from the expectations
expressed. Our business and financial results are exposed to
cyclical activity of the construction sector, the effects of the
weather and other climatic conditions, competition, developments
in growing markets and other risks and uncertainties described
under Risk factors in the accompanying prospectus.
S-52
DESCRIPTION OF NOTES
The following description of the particular terms of the notes
supplements the description of the general terms set forth in
the accompanying prospectus under the heading Description
of Debt Securities. It is important for you to consider
the information contained in the accompanying prospectus and
this prospectus supplement before making your decision to invest
in the notes. If any specific information regarding the notes in
this prospectus supplement is inconsistent with the more general
terms of the notes described in the prospectus, you should rely
on the information contained in this prospectus supplement.
General
We will offer the notes under an indenture among our company and
Law Debenture Trust Company of New York, as trustee, to be dated
as of July 18, 2006. The notes will be issued only in fully
registered form without coupons in denominations of US$1,000.
The notes will be unsecured and will rank equally with all of
our other existing and future unsecured and unsubordinated debt.
The notes are governed by and construed in accordance with the
laws of the State of New York.
Principal and Interest
We will issue US$600,000,000 principal amount of
6.15% Notes due July 15, 2011 (the
Tranche 1 Notes), US$800,000,000 principal
amount of 6.50% Notes due July 15, 2016 (the
Tranche 2 Notes) and US$600,000,000 principal
amount of 7.125% Notes due July 15, 2036 (the
Tranche 3 Notes).
Each tranche of notes will bear interest at the rate per annum
indicated on the cover page of this prospectus from
July 18, 2006. Interest on the notes will be payable on
January 15 and July 15 of each year, commencing
January 15, 2007, to the holders in whose name the notes
are registered at the close of business on January 1 and
July 1, as applicable, immediately preceding the related
interest payment date.
We will pay interest on the notes on the interest payment dates
stated above and at maturity. Each payment of interest due on an
interest payment date or at maturity will include interest
accrued from and including the last date to which interest has
been paid or made available for payment, or from the issue date,
if none has been paid or made available for payment, to but
excluding the relevant payment date. We will compute interest on
the notes on the basis of a
360-day year of twelve
30-day months.
If any payment is due on the notes on a day that is not a
business day, we will make the payment on the day that is the
next business day. Payments postponed to the next business day
in this situation will be treated under the indenture as if they
were made on the original due date. Postponement of this kind
will not result in a default under the notes or the indenture,
and no interest will accrue on the postponed amount from the
original due date to the next day that is a business day.
Business day means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking or trust institutions
in the location of the paying agent are authorized generally or
obligated by law, regulation or executive order to close.
Payment of Additional Amounts
We will make payments on the notes without withholding any taxes
unless otherwise required to do so by law. If the Republic of
France or any tax authority therein requires us to withhold or
deduct amounts from payment on a note or any amounts to be paid
as additional amounts for or on account of taxes or any other
governmental charges, or any other jurisdiction requires such
withholding or deduction as a result of a merger or similar
event, we will pay you an additional amount so that the net
amount you receive will be the amount specified in the note to
which you are entitled, subject to certain exceptions set forth
under Description of Debt Securities Special
Situations Payment of Additional Amounts in
the accompanying prospectus.
S-53
Redemption
As explained below, we may redeem the notes before they mature.
This means we may repay them early. You have no right to require
us to redeem the notes. Notes will stop bearing interest on the
redemption date, even if you do not collect your money. We will
give you between 30 and 60 days notice before the
redemption date.
We may redeem the notes, in whole or in part, at any time and
from time to time at a redemption price equal to the greater of
(1) 100% of the principal amount of the notes plus accrued
interest to the date of redemption and (2) as determined by
the quotation agent, the sum of the present values of the
remaining scheduled payments of principal and interest on the
notes (excluding any portion of such payments of interest
accrued as of the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a
360-day year of twelve
30-day months) at the
adjusted treasury rate, plus 20 basis points in the case of
the Tranche 1 Notes, 25 basis points in the case of
the Tranche 2 Notes and 30 basis points in the case of
the Tranche 3 Notes. In connection with such optional
redemption, the following defined terms apply:
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Adjusted treasury rate means, with respect to any
redemption date, the rate per year equal to the semi-annual
equivalent yield to maturity of the comparable treasury issue,
assuming a price for the comparable treasury issue (expressed as
a percentage of its principal amount) equal to the comparable
treasury price for such redemption date. |
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Comparable treasury issue means the
U.S. Treasury security selected by the quotation agent as
having a maturity comparable to the remaining term of the notes
to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity
in the remaining terms of such notes. |
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Comparable treasury price means, with respect to any
redemption date, the average of the reference treasury dealer
quotations for such redemption date. |
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Quotation agent means the reference treasury dealer
appointed by the trustee after consultation with us. |
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Reference treasury dealer means any primary
U.S. government securities dealer in the United States
selected by the trustee after consultation with us. Reference
treasury dealer quotations means with respect to each reference
treasury dealer and any redemption date, the average, as
determined by the trustee, of the bid and asked prices for the
comparable treasury issue (expressed as a percentage of its
principal amount) quoted in writing to the trustee by such
reference treasury dealer at 5:00 pm Eastern Standard Time on
the third business day preceding such redemption date. |
We have the option to redeem the notes prior to maturity if,
upon the occurrence of any Change in Law, as defined
below, of France occurring after the issuance date of the notes
(or Change in Law of any jurisdiction in which a successor to,
or substitute obligor of, our company is organized or resident
for tax purposes occurring after the date of such succession or
substitution), we would be required to pay additional amounts as
described under Description of Debt Securities
Special Situations Payment of Additional
Amounts in the accompanying prospectus, in which case we
may redeem the notes in whole but not in part at a redemption
price equal to 100% of the principal amount of the notes plus
accrued interest to the redemption date. Change in Law is
defined as any change in or amendment to the laws, or any
regulations or rulings promulgated under the laws of the
relevant jurisdiction or of any political subdivision or taxing
authority of or in the relevant jurisdiction affecting taxation
or any change in official position regarding the application or
interpretation of the laws, regulations or rulings referred to
above. This option applies only in the case of changes in such
tax treatment that occur on or after the issuance date of the
notes (or in the case of a successor entity, after the date of
succession). The redemption price for the notes will be equal to
the principal
S-54
amount of the notes being redeemed plus accrued interest.
Furthermore, we must give you between 30 and 60 days
notice before redeeming the notes.
The applicable redemption date will not be earlier than
30 days prior to the earliest date on which we would be
obligated to pay such additional amounts if a payment in respect
of the notes were actually due on such date, provided that such
obligation to pay such additional amounts remains in effect at
the time of the redemption notice.
Prior to giving the notice of a tax redemption, we will deliver
to the trustee
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a certificate signed by a duly authorized officer stating that
we are entitled to effect the redemption and setting forth a
statement of facts showing that the conditions precedent to our
right to so redeem have occurred; and |
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an opinion of legal counsel stating that we are or would be
obligated to pay additional amounts as a result of a Change in
Law, and based on the statement of facts. |
Covenants
Holders of the notes will benefit from certain covenants
contained in the indenture and affecting our ability to incur
liens and merge with other entities. You should read the
information under the heading Description of Debt
Securities Special Situations Negative
Pledge and Description of Debt
Securities Special Situations Mergers
and Similar Events in the accompanying prospectus.
Events of Default
Holders of the notes will have special rights if an event of
default occurs. You should read the information under the
heading Description of Debt Securities Default
and Related Matters Events of Default in the
accompanying prospectus.
Defeasance and Discharge
The following discussion of defeasance and discharge will be
applicable to the notes.
The indenture contains a provision that permits us to elect:
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To be discharged after 90 days from all our obligations
(subject to limited exceptions) with respect to any series of
debt securities then outstanding; and/or |
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To be released from our obligations under some of the covenants
and from the consequences of an event of default resulting from
a breach of such covenants. |
We can legally release ourselves from any payment or other
obligations on the notes under either of the above elections,
except for various obligations described below, if we, in
addition to other actions, put in place the following
arrangements for you to be repaid:
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We must deposit in trust for your benefit and the benefit of all
other direct holders of the notes a combination of money and
U.S. government or U.S. government agency notes or
bonds that will generate enough cash to make interest, principal
and any other payments on the notes on their various due dates.
In addition, on the date of such deposit, we must not be in
default. For purposes of this no-default test, a default would
include an event of default that has occurred and not been
cured, as described under Default and Related
Matters Events of Default What is An
Event of Default? in the accompanying prospectus. A
default for this purpose would also include any event that would
be an event of default if the requirements for giving us default
notice or our default having to continue for a specific period
of time were disregarded. |
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We must deliver to the trustee a legal opinion of our counsel
confirming that under current U.S. federal income tax law
we may make the above deposit without causing you to be taxed on
the notes any differently than if we did not make the deposit
and just repaid the notes ourselves in accordance with |
S-55
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their terms. In the case of notes being discharged, we must
deliver along with this opinion a private letter ruling from the
U.S. Internal Revenue Service to this effect or a revenue
ruling pertaining to a comparable form of transaction published
by the U.S. Internal Revenue Service to the same effect. |
However, even if we take these actions, a number of our
obligations relating to the notes will remain. These include the
following obligations:
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to register the transfer and exchange of notes; |
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to replace mutilated, destroyed, lost or stolen notes; |
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to maintain paying agencies; and |
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to hold money for payment in trust. |
Further Issuances
We reserve the right, from time to time, without the consent of
the holders of the notes, to issue additional notes on terms and
conditions identical to those of any tranche of notes, which
additional notes shall increase the aggregate principal amount
of, and shall be consolidated and form a single series with, the
relevant tranche of notes. We may also issue other securities
under the indenture that have different terms from the notes.
Form of Notes, Clearance and Settlement
Each tranche of notes will be issued as one or more global
securities. You should read Description of Debt
Securities Legal Ownership Global
Securities in the accompanying prospectus for more
information about global securities. We will not issue physical
certificates representing the notes except in the limited
circumstances we explain under Legal Ownership
Global Securities Special Situations When the Global
Security Will Be Terminated in the accompanying prospectus.
The notes will be issued in the form of global securities
deposited in DTC. Beneficial interests in the notes may be held
through DTC, Clearstream or Euroclear. For more information
about global securities held by DTC through DTC, Clearstream or
Euroclear, you should read Clearance and Settlement
in the accompanying prospectus.
It is expected that delivery of the notes will be made against
payment for them on or about, July 18, 2006.
The notes have been accepted for clearance through DTC,
Euroclear and Clearstream systems with the following codes:
Tranche 1 Notes: CUSIP 505861 AA 2; Common
Code 026185190; and ISIN US505861AA20; Tranche 2
Notes: CUSIP 505861 AB 0; Common Code 026185238;
and ISIN US505861AB03; and Tranche 3 Notes:
CUSIP 505861 AC 8; Common Code 026185343;
and ISIN US505861AC85.
Notices
As long as notes in global form are outstanding, notices to be
given to holders of the notes will be given to DTC, in
accordance with its applicable procedures from time to time.
Neither the failure to give any notice to a particular holder,
nor any defect in a notice given to a particular holder, will
affect the sufficiency of any notice given to another holder.
S-56
Series
For purposes of giving consents or other matters in respect of
which holders of our debt securities can vote or otherwise take
action, each tranche of notes will be considered a separate
series. See Description of Debt Securities
Special Situations Modification and Waiver and
Description of Debt Securities Default and
Related Matters Events of Default in the
attached prospectus.
Trustee
The trustee under our indenture is Law Debenture Trust Company
of New York. See Description of Debt
Securities Default and Related Matters in the
accompanying prospectus for a description of the trustees
procedures and remedies available in the event of default.
S-57
UNDERWRITING
We intend to offer the notes through Barclays Capital Inc., BNP
Paribas Securities Corp., Citigroup Global Markets Inc. and
J.P.Morgan Securities Inc. as Joint Book-Running Managers.
Deutsche Bank Securities Inc. and UBS Securities LLC, as
Senior Co-Lead Managers, and Calyon Securities (USA) Inc.,
Dresdner Kleinwort Wasserstein Securities, LLC, Greenwich
Capital Markets, Inc., HSBC Securities (USA) Inc. and
SG Americas Securities, LLC, as Co-Lead Managers. Subject
to the terms and conditions of the underwriting agreement with
us, dated the date of this prospectus supplement, each of the
underwriters has severally agreed to purchase, and we have
agreed to sell to each underwriter, the principal amount of
notes set forth opposite the name of each underwriter:
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Principal | |
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Principal | |
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Principal | |
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Amount of | |
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Amount of | |
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Amount of | |
Underwriters |
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Tranche 1 Notes | |
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Tranche 2 Notes | |
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Tranche 3 Notes | |
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Barclays Capital Inc.
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$ |
120,000,000 |
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$ |
160,000,000 |
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$ |
120,000,000 |
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BNP Paribas Securities Corp.
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$ |
120,000,000 |
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$ |
160,000,000 |
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$ |
120,000,000 |
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Citigroup Global Markets Inc.
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$ |
120,000,000 |
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$ |
160,000,000 |
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$ |
120,000,000 |
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J.P.Morgan Securities Inc.
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$ |
120,000,000 |
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$ |
160,000,000 |
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$ |
120,000,000 |
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Deutsche Bank Securities Inc.
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$ |
30,000,000 |
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$ |
40,000,000 |
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$ |
30,000,000 |
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UBS Securities LLC
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$ |
30,000,000 |
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$ |
40,000,000 |
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$ |
30,000,000 |
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Calyon Securities (USA) Inc.
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$ |
12,000,000 |
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$ |
16,000,000 |
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$ |
12,000,000 |
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Dresdner Kleinwort Wasserstein Securities, LLC
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$ |
12,000,000 |
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$ |
16,000,000 |
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$ |
12,000,000 |
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Greenwich Capital Markets, Inc.
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$ |
12,000,000 |
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$ |
16,000,000 |
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$ |
12,000,000 |
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HSBC Securities (USA) Inc.
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$ |
12,000,000 |
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$ |
16,000,000 |
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$ |
12,000,000 |
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SG Americas Securities, LLC
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$ |
12,000,000 |
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$ |
16,000,000 |
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$ |
12,000,000 |
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Total
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$ |
600,000,000 |
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$ |
800,000,000 |
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$ |
600,000,000 |
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The underwriting agreement provides that the underwriters are
obligated to purchase all of the notes if any are purchased. The
underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting
underwriters may be increased or the offering may be terminated.
The underwriters propose to offer the notes initially at the
offering price on the cover page of this prospectus.
The underwriters may offer such notes to selected dealers at the
public offering price minus a selling concession of up to 0.070%
of the principal amount of the Tranche 1 Notes, 0.090% of
the principal amount of the Tranche 2 Notes and 0.175% of
the principal amount of the Tranche 3 Notes. In addition,
the underwriters may allow, and those selected dealers may
reallow, a selling concession to certain other dealers of up to
0.0350% of the principal amount of the Tranche 1 Notes,
0.0450% of the principal amount of the Tranche 2 Notes and
0.0875% of the principal amount of the Tranche 3 Notes.
After the initial public offering, the underwriters may change
the public offering price and other selling terms.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make in respect of those liabilities.
The total expenses of the Offering, excluding underwriting
discounts and commissions, are estimated to amount to
approximately $900,000, a portion of which will be paid by the
Joint Book-Running Managers. We estimate that our share of the
total expenses of the offering, excluding underwriting discounts
and commissions, will be approximately
330 thousand.
The notes are a new issue of securities with no established
trading market. We have been advised by the underwriters that
they presently intend to make a market in the notes after
completion of the offering. However, they are under no
obligation to do so and may discontinue any market-making
activities at any time
S-58
without any notice. We cannot assure the liquidity of the
trading market for the notes or that an active public market for
the notes will develop. If an active public trading market for
the notes does not develop, the market price and liquidity of
the notes may be adversely affected.
In connection with this offering, the underwriters may, subject
to applicable laws and regulations, purchase and sell the notes
in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the
underwriters of a greater number of notes than they are required
to purchase in this offering. Stabilizing transactions consist
of certain bids or purchases made for the purpose of preventing
or retarding a decline in the market price of the notes while
the offering is in progress.
The underwriters also may, subject to applicable laws and
regulations, impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the
underwriting discount received by it because a representative of
the underwriters has repurchased notes sold by or for the
account of that underwriter in stabilizing or covering short
transactions.
These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of the notes. As a result, the
price of the notes may be higher than the price that otherwise
might exist in the open market. If these activities are
commenced, they may be discontinued by the underwriters at any
time.
EEA selling restriction
In relation to each member state of the European Economic Area
which has implemented the Prospectus Directive (each, a
relevant member state), each underwriter has
represented and agreed that it has not made and will not make an
offer of the notes to the public in that relevant member state,
except that it may make an offer of the notes to the public in
that relevant member state at any time under the following
exemptions under the Prospectus Directive (as defined below), if
they have been implemented in that relevant member state:
(i) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities; (ii) to any legal entity which has two or more
of (1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than
43,000,000 and
(3) an annual net turnover of more than
50,000,000, as
shown in its last annual or consolidated accounts; (iii) to
fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the Joint Book-Running Managers
for any such offer; or (iv) in any other circumstances
falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of notes shall result in a
requirement for the publication by the company or any
underwriter of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purposes of this section, the expression an offer
of the notes to the public in relation to any notes in any
relevant member state means the communication in any form and by
any means of sufficient information on the terms of the offer
and the notes to be offered so as to enable an investor to
decide to purchase or subscribe the notes, as the same may be
varied in that member state by any measure implementing the
Prospectus Directive in that member state, and references to the
Prospectus Directive means Directive 2003/71/ EC and
includes any relevant implementing measure in each relevant
member state.
French selling restriction
No prospectus (including any amendment, supplement or
replacement thereto) has been prepared in connection with the
offering of the notes that has been submitted to the approval of
the AMF. Each of the underwriters and our company has
represented and agreed that it has not offered or sold and will
not offer or sell, directly or indirectly, the notes to the
public in France (in French, appel public à
lépargne), and has not distributed or caused to
be distributed and will not distribute or cause to be
distributed to the public in France, the prospectus or any other
offering material relating to the notes, and that such offers,
sales and distributions have been and will only be made in
France through an international syndicate to qualified investors
(investisseurs qualifiés), as defined in, and in
accordance with,
Articles L.411-1,
L.411-2,
D. 411-1,
D.411-2,
D. 734-1,
D. 744-1,
D. 754-1 and
D. 764-1 of the
French Code monétaire et financier, except that
qualified investors shall not include individuals. The direct or
indirect distribution to the public in France of any notes
S-59
so acquired may be made only as provided by
Articles L. 411-1,
L. 411-2,
L. 412-1 and
L. 621-8 to
L. 621-8-3 of the
Code monétaire et financier and applicable
regulations thereunder.
Other relationships
BNP Paribas and J.P. Morgan plc are arrangers and each of
the Joint Book-Running Managers, Senior Co-Lead Managers, and
Co-Lead Managers (other than Greenwich Capital Markets, Inc.),
or an affiliate thereof, is a lender, under the US$2,800,000,000
credit facility described under Prospectus Supplement
Summary Recent Developments. Proceeds of this
offering are expected to be used to repay borrowings under this
credit facility and therefore the Joint Book-Running Managers
and/or their affiliates would receive the proceeds of this
offering as described under Use of Proceeds. In
addition, the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us.
They have received customary fees and commissions for these
transactions. Mr. Michel Pébereau, the chairman of BNP
Paribas, and Alain Joly and Hélène Ploix, members of
the board of directors of BNP Paribas, are members of our board
of directors.
S-60
VALIDITY OF THE NOTES
Cleary Gottlieb Steen & Hamilton LLP will pass upon the
validity of the notes for our company as to matters of French
law and as to matters of New York law. Davis Polk &
Wardwell will pass upon the validity of the notes for any
underwriters or agents.
S-61
PROSPECTUS
LAFARGE
Debt Securities
Lafarge S.A. may use this prospectus to offer debt securities
from time to time.
You should read this prospectus and the accompanying prospectus
supplement carefully before you invest. We may sell these
securities to or through underwriters, and also to other
purchasers or through agents. The names of the underwriters will
be set forth in the accompanying prospectus supplement.
Investing in these securities involves certain risks. See
Risk Factors beginning on page 2.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
Prospectus dated July 10, 2006.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the U.S. Securities and Exchange Commission,
which we refer to as the SEC, utilizing a shelf registration
process. Under this shelf process, we may sell the debt
securities described in this prospectus in one or more
offerings. This prospectus provides you with a general
description of the debt securities we may offer. Each time we
offer securities pursuant to this prospectus, we will attach a
prospectus supplement to the front of this prospectus that will
contain specific information about the terms of those securities
and their offering. We may also add, update or change
information contained in this prospectus by means of a
prospectus supplement or by incorporating by reference
information that we file or furnish to the SEC. The registration
statement that we filed with the SEC includes exhibits that
provide more detail on the matters discussed in this prospectus.
Before you invest in any securities offered by this prospectus,
you should read this prospectus, any related prospectus
supplements and the related exhibits filed with the SEC,
together with the additional information described under the
heading Where You Can Find More Information About Us.
In this prospectus, unless otherwise specified or the context
otherwise requires, references to Lafarge are to
Lafarge S.A. and its consolidated subsidiaries. Terms such as
we, us and our generally
refer to Lafarge.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Lafarge is a société anonyme incorporated under
the laws of France. Many of our directors and officers reside
outside the United States, principally in France. In addition, a
large portion of our assets and the assets of our directors and
officers is located outside of the United States. As a result,
U.S. investors may find it difficult in a lawsuit based on
the civil liability provisions of the U.S. federal
securities laws:
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to effect service within the United States upon us or our
directors and officers located outside the United States; |
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to enforce in U.S. courts or outside the United States
judgments obtained against us or those persons in the
U.S. courts; |
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to enforce in U.S. courts judgments obtained against us or
those persons in courts in jurisdictions outside the United
States; and |
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to enforce against us or those persons in France, whether in
original actions or in actions for the enforcement of judgments
of U.S. courts, civil liabilities based solely upon the
U.S. federal securities laws. |
1
RISK FACTORS
Investing in the debt securities offered using this prospectus
involves risk. You should consider carefully the risks relating
to our business and the debt securities being offered described
below, which are discussed in more detail in the documents
incorporated by reference into this prospectus, and any risk
factors included in the prospectus supplement, before you decide
to buy our debt securities. If any of these risks actually
occurs, our business, financial condition and results of
operations could suffer, and the trading price and liquidity of
the debt securities offered using this prospectus could decline,
in which case you may lose all or part of your investment.
Industry and company risks
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We depend heavily on construction sector activity levels,
which tend to be cyclical and which differ throughout the
countries in which we operate |
Our results depend heavily on residential, commercial and
infrastructure construction activity and spending levels.
Construction activity and spending levels vary across our many
markets, and the construction industry in a given market tends
to be cyclical, especially in mature economies. The construction
industry is sensitive to interest rates and economic and other
factors outside our control. Economic downturns may lead to
recessions in the construction industry, either in individual
markets or globally, and construction spending can fall even in
growing economies. While our geographic diversification
mitigates risks associated with downturns in construction
spending, we may be affected significantly by downturns globally
or in individually significant markets.
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Adverse weather lessens demand for our products, which is
seasonal in many of our markets |
Construction activity, and thus demand for our products,
decreases substantially during periods of cold weather, when it
snows or when heavy or sustained rains fall. Consequently,
demand for our products is significantly lower during the winter
in temperate countries and during the rainy season in tropical
countries. Our principal markets are located in Western Europe
and in North America, where winter weather significantly reduces
our first quarter sales, and to a lesser extent our fourth
quarter sales. Our operations in these and similar markets are
seasonal, with sales generally increasing during the second and
third quarters because of normally better weather conditions.
However, high levels of rainfall can adversely impact our
operations during these periods as well. Such adverse weather
conditions can materially and adversely affect our results of
operations and profitability if they occur with unusual
intensity, during abnormal periods, or last longer than usual in
our major markets, especially during peak construction periods.
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Competition in our industry could adversely affect our
results of operations |
We operate in many local or regional markets around the world,
and many factors affect the competitive environments we face in
any particular market. These factors include the number of
competitors in the market, the pricing policies and financial
strength of those competitors, the total production capacity
serving the market, the barriers to enter the market and the
proximity of natural resources, as well as general economic
conditions and demand for construction materials within the
market. These factors combine in varying ways in each of our
markets, and can adversely impact demand for our products and
our results of operations.
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We are exposed to risks inherent in the growing markets in
which we operate |
In 2005, we derived approximately 33% of our revenues from
growing markets, which we define as countries outside Western
Europe and North America other than Japan, Australia and New
Zealand. Our growth strategy focuses significantly on
opportunities in growing markets and we expect that an
increasing portion of our total revenues will continue to come
from such markets. Our presence in such markets exposes us to
risks such as volatility in gross domestic products, significant
and unstable currency fluctuations, political, financial and
social uncertainty and unrest, high rates of inflation, the
possible implementation of exchange controls, less certainty
regarding legal rights and enforcement mechanisms and potential
nationalization or expropriation of private assets, any of which
could damage or disrupt our operations in a given market.
2
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Increased energy and fuel costs may have a material
adverse effect on our results |
Our operations consume significant amounts of energy and fuel,
the cost of which in many parts of the world has increased
substantially in recent years.
We protect ourselves to some extent against rising energy and
fuel costs through long-term supply contracts and forward energy
agreements, and by outfitting many of our plants to switch among
several fuel sources, including many alternative fuels such as
used oil, recycled tires and other recycled materials or
industrial by-products. Despite these measures, energy and fuel
costs have been significantly affected, and may continue to
affect, our results of operations and profitability. See
Sections 3.3 (Business description) and 4.6 (Market
risks) of our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
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Exchange rate fluctuations could adversely affect our
results of operations and financial condition |
While we report our results in euros, in 2005 we earned
approximately 70% of our revenues in currencies other than the
euro, with approximately 30% being denominated in
U.S. dollars and Canadian dollars. In addition, at the end
of 2005, approximately 73% of our capital employed were located
outside the member states of the European Monetary Union.
Consequently, exchange rate fluctuations may significantly
affect our financial condition and results of operations. This
effect may be positive or negative depending on the actual
exchange rate movement as well as the nature of any currency
hedging instruments we may put in place from time to time.
See Sections 4.4 (Liquidity and capital resources) and
4.6 (Market risks) of our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
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We are subject to risks associated with the acquisition of
other businesses |
Our growth strategy involves, in part, the acquisition of new
operations and the integration of those operations with our own.
Our strategy may not be successful if we cannot identify
suitable acquisition targets or complete acquisitions at
appropriate prices. Also, synergies from acquisitions may prove
less than we originally expect. Further, acquisition candidates
may have liabilities or adverse operating issues that we fail to
discover prior to the acquisition. If we fail to implement a
successful acquisition strategy, we may not be able to grow in
the long term at an acceptable rate.
In connection with our growth strategy through external
acquisitions, we may announce potential or actual acquisitions
or investments at any time. Financing for these acquisitions may
be secured through the issuance of new shares or on an increase
in our debt. Such acquisitions and investments could dilute the
interests of our existing shareholders or increase our debt
burden and may cause our share price to fall.
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We do not control some of the businesses in which we have
invested |
We do not have a controlling interest in some of the businesses
in which we have invested and may make future investments in
which we will not have a controlling interest. Some key matters,
such as approval of business plans and the timing and amount of
cash distributions, may require the consent of our partners or
may be approved without our consent. These and other limitations
arising from our investments in companies we do not control may
prevent us from achieving our objectives for these investments.
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We are restricted by the rights of minority investors in
some of our subsidiaries |
We conduct our operations through many subsidiaries, some of
which have one or more minority investors.
The interests of such minority investors are not always aligned
with ours. Restrictions arising from minority interests may
adversely impact our operating and financial strategies and
results by, among other things, impeding our ability to
implement organizational efficiencies through transferring cash
and other assets from one subsidiary to another to allocate
assets most effectively.
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An increase in our indebtedness could limit our operating
and financial flexibility |
We have significant indebtedness outstanding, which may increase
in the future. Our indebtedness includes, for example, debt
incurred as a result of our recent purchase of the outstanding
shares of Lafarge North America Inc. that we did not already
own. If our total debt increases materially a) we could
face increased financial charges, b) we may need to
allocate a greater portion of our operating cash flow to cover
debt service payments, c) our credit ratings may be
downgraded, with resultant increases in our borrowing costs and
a possible decrease in the availability of adequate financing
sources, d) our exposure to interest and exchange rate
fluctuations may increase substantially, and e) lenders may
impose significant restrictions on our capital resources and/or
operations. Some of our debt agreements contain and some of our
future debt agreements may contain financial, operating and
other covenants and obligations that could limit our operating
and financial flexibility. Our ability to comply with these
obligations depends on the future performance of our businesses.
Our failure to abide by these obligations or to meet these
covenants may impair our ability to finance operations,
distribute dividends, finance acquisitions and expansions and
maintain flexibility in managing our operations.
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Changes in the cost or availability of raw materials
supplied by third parties may adversely affect our operating and
financial performance |
We generally maintain our own reserves of limestone, gypsum,
aggregates and other materials that we use to manufacture our
products. Increasingly, however, we obtain certain raw materials
from third parties who produce such materials as by-products of
industrial processes, such as synthetic gypsum, slag and fly
ash. While we try to secure our needed supply of such materials
through long-term renewable contracts, we have not always been,
and may not in the future be, able to do so. Should our existing
suppliers cease operations or reduce or eliminate production of
these by-products, our costs to procure these materials may
increase significantly or we may be obliged to procure
alternatives to replace these materials which may affect our
results of operations.
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Governmental policies and laws, particularly those
relating to protection of the environment, significantly impact
our operations |
Our operations are regulated extensively by national and local
governments, particularly in the areas of land use and
protection of the environment (e.g. regulations relating to
greenhouse gases). Our operations require numerous governmental
approvals and permits, which often require us to make
significant capital and maintenance expenditures to comply with
zoning and environmental laws and regulations. In addition,
future developments, such as the discovery of new facts or
conditions, stricter laws and regulations, or stricter
interpretation of existing laws or regulations, may impose new
liabilities on us, require additional investments by us, or
prevent us from opening or expanding plants or facilities that
could have a material adverse effect on our financial condition
or results of operations.
While we are not currently aware of any environmental
liabilities or of any non-compliance with environmental
regulations that we expect will have a material adverse effect
on our financial condition or results of operations,
environmental matters cannot be predicted with certainty and
there can be no assurance that the amounts we have budgeted and
reserved will be adequate. See Section 3.5 (Environment)
of our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference.
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You may not be able to effect claims or enforce judgments
against us or our directors or officers for violations of the
U.S. securities laws |
We are a société anonyme organized under the
laws of France. A majority of our directors and officers are
non-U.S. residents.
A substantial portion of our assets and the assets of our
directors and officers are, and we expect will continue to be,
located outside the United States. Consequently, you may not be
able to effect service of process within the United States upon
us or most of these persons, enforce judgments against us or
them in United States courts or enforce or obtain judgments in
French courts against us or these persons predicated upon the
securities laws of the United States.
4
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If we fail to maintain proper and effective internal
control, our ability to produce accurate financial statements
could be impaired |
Our business organization is complex in scope. Ensuring that we
have adequate internal financial and accounting controls and
procedures in place to help ensure that we produce accurate
financial statements on a timely basis is a costly and
time-consuming effort. In connection with Section 404 of
the Sarbanes-Oxley Act, we have instituted an annual assessment
of the effectiveness of our internal control over financial
reporting and our independent auditor issues an attestation
report on managements assessment of such internal control.
During this process, we may identify material weaknesses or
significant deficiencies in our internal control over financial
reporting, or areas for further attention or improvement.
Implementing any appropriate changes to our internal control may
require specific compliance training of our directors, officers
and employees, entail substantial costs in order to modify our
existing accounting systems, or take a significant period of
time to complete. Such changes may not be effective in
maintaining the adequacy of our internal control.
Any failure to maintain that adequacy or our ability to produce
accurate financial statements on a timely basis could increase
our operating costs and materially impair our ability to operate
our business. In addition, investors perceptions that our
internal controls are inadequate or subject to material
weaknesses or significant deficiencies or are otherwise
perfectible, or that we are unable to produce accurate financial
statements may adversely affect the trading price of our
securities.
Risks related to the offering and owning the debt
securities
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Since we conduct our operations through subsidiaries, your
right to receive payments on the debt securities is subordinated
to the other liabilities of our subsidiaries |
We carry on a significant portion of our operations through
subsidiaries. Our subsidiaries are not guarantors of the debt
securities we may offer. Moreover, these subsidiaries are not
required and may not be able to pay dividends to us. Claims of
the creditors of our subsidiaries have priority as to the assets
of such subsidiaries over the claims of our creditors.
Consequently, holders of our debt securities are in effect
structurally subordinated, on our insolvency, to the prior
claims of the creditors of our subsidiaries.
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Our ability to make debt service payments depends on our
ability to transfer income and dividends from our
subsidiaries |
We are a holding company with no significant assets other than
direct and indirect interests in the many subsidiaries through
which we conduct operations. A number of our subsidiaries are
located in countries that may impose regulations restricting the
payment of dividends outside of the country through exchange
control regulations. To our knowledge, there are currently no
countries in which we operate that restrict payment of
dividends. However, there is no assurance that such risk may not
exist in the future.
Furthermore, the continued transfer to us of dividends and other
income from our subsidiaries may be limited by various credit or
other contractual arrangements and/or tax constraints, which
could make such payments difficult or costly. We do not believe
that any of these covenants or restrictions will have any
material impact on our ability to meet our financial
obligations. However, if in the future these restrictions are
increased and we are unable to ensure the continued transfer of
dividends and other income to us from these subsidiaries, our
ability to pay dividends and make debt payments will be impaired.
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Since the debt securities are unsecured, your right to
receive payments may be adversely affected |
The debt securities that we are offering will be unsecured. The
debt securities are not subordinated to any of our other debt
obligations, and therefore they will rank equally with all our
other unsecured and unsubordinated indebtedness. As of
December 31, 2005, our total debt amounted to
8,742 million,
and we had
475 million
of property collateralizing debt. We recently incurred
US$3.5 billion of debt to purchase the minority interests
in Lafarge North America Inc. and
447 million
of debt in connection with our dividend payment. If we default
on the debt securities, or after bankruptcy, liquidation or
reorganization, then, to the
5
extent the relevant obligor has granted security over its
assets, the assets that secure the obligors debts will be
used to satisfy the obligations under that secured debt before
the obligor can make payment on the debt securities. As a
result, there may only be limited assets available to make
payments on the debt securities in the event of an acceleration
of the debt securities. If there are not enough assets to
satisfy the obligations of the secured debt, then the remaining
amounts on the secured debt would share equally in the remaining
assets with all unsubordinated unsecured indebtedness.
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At any point in time there may or may not be an active
trading market for our debt securities |
At any point in time there may or may not be an active trading
market for our debt securities. If any of the debt securities
are traded after their initial issuance, they may trade at a
discount from their initial offering price. We may decide to
list a particular series of debt securities on one or more stock
exchanges. Factors that could cause the debt securities to trade
at a discount rate are:
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an increase in prevailing interest rates; |
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a decline in our credit worthiness; |
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a weakness in the market for similar securities; and |
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declining general economic conditions. |
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We are not restricted in our ability to dispose of our
assets by the terms of the debt securities |
The indenture governing our debt securities contains a negative
pledge that prohibits us and our principal subsidiaries from
pledging assets to secure other bonds or similar debt
instruments, unless we make a similar pledge to secure the debt
securities offered by this prospectus. However, we are generally
permitted to sell or otherwise dispose of substantially all of
our assets to another corporation or other entity under the
terms of the debt securities. If we decide to dispose of a large
amount of our assets, you will not be entitled to declare an
acceleration of the maturity of the debt securities, and those
assets will no longer be available to support our debt
securities.
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents incorporated by
reference herein, and the related prospectus supplement contain
forward-looking statements regarding prices and demand for our
products, our financial results, our plans for investments,
divestitures and geographic expansion, expected cost increases,
including with respect to energy, and other matters. When used
in this prospectus, the documents incorporated by reference and
the related prospectus supplement, the words aim(s),
expect(s), intend(s), will,
may, believe(s),
anticipate(s), seek(s) and similar
expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
projected. Specifically, statements herein regarding the future,
including our strategy, plans, product and process developments,
facility expansion and improvements, synergies, acquisitions,
our ability to manage rising energy costs, partnerships and
general business prospects are subject to uncertainty arising
from numerous factors outside our control, including market
conditions, raw material prices, currency fluctuations, customer
demand, the actions of competitors and regulators, technological
developments and other factors, as more fully set forth in
Risk Factors above. You are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date they are made. We do not undertake, except
as required by law, to update any forward-looking statements set
forth in this prospectus, the documents incorporated by
reference herein and any related prospectus supplement to
reflect new information or subsequent events or circumstances.
7
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual reports and other reports and information with
the SEC. You may read and copy any document we file at the
SECs public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for
further information on the public reference room. In addition,
our SEC filings are available to the public at the SECs
web site at http://www.sec.gov.
Our American depositary shares are listed on the New York Stock
Exchange. The principal trading market for our shares is the
Eurolist of Euronext Paris. You can consult reports and other
information about our Company that we file pursuant to the rules
of the New York Stock Exchange at such exchange.
The SEC allows us to incorporate by reference into
this prospectus the information in documents filed with the SEC.
This means that we can disclose important information to you by
referring you to those documents. Each document incorporated by
reference is current only as of the date of such document, and
the incorporation by reference of such documents shall not
create any implication that there has been no change in our
affairs since the date thereof or that the information contained
therein is current as of any time subsequent to its date. The
information incorporated by reference is considered to be a part
of this prospectus and should be read with the same care. When
we update the information contained in documents that have been
incorporated by reference by making future filings with the SEC,
the information incorporated by reference in this prospectus is
considered to be automatically updated and superseded. In other
words, in the case of a conflict or inconsistency between
information contained in this prospectus and information
incorporated by reference into this prospectus, you should rely
on the information contained in the document that was filed
later. This means that you should look at all of the SEC filings
that we incorporate by reference to determine if any of the
statements in this prospectus or in any documents previously
incorporated by reference have been modified or superseded.
We incorporate by reference the documents listed below and any
documents we file with the SEC in the future under
Section 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 (the Exchange Act) until the
offerings made under this prospectus are completed:
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our annual report on
Form 20-F for the
year ended December 31, 2005, filed with the SEC on
March 24, 2006; |
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any future annual reports on
Form 20-F filed
with the SEC after the date of this prospectus and prior to the
termination of the offering of the debt securities offered by
this prospectus; |
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our reports on
Form 6-K,
furnished to the SEC on May 2, 2006, May 15, 2006 and
July 10, 2006; |
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any future reports on
Form 6-K that we
furnish to the SEC after the date of this prospectus that are
identified in such reports as being incorporated by reference in
this prospectus. |
You may request a copy of these filings, other than an exhibit
to a filing unless that exhibit is specifically incorporated by
reference into that filing, at no cost, by writing to or
telephoning Lafarge at the following address: 61, rue des Belles
Feuilles, 75116 Paris, France, +33 1 44 34 11 11.
You should rely only on the information that we incorporate by
reference or provide in this prospectus or the prospectus
supplement. We have not authorized anyone to provide you with
different information. We are not making an offer of these
securities in any jurisdiction where the offer is not permitted.
You should not assume that the information in this prospectus or
the prospectus supplement is accurate as of any date other than
the date on the front of those documents.
8
LAFARGE
Lafarge S.A. is a limited liability company incorporated in
France and governed by French law (société
anonyme). We produce and sell construction
materials cement, aggregates, concrete, roofing
products, gypsum wallboard, and related products
worldwide, primarily under the commercial name
Lafarge.
Based on sales, we are the world leader in construction
materials. Our products are used for residential, commercial and
public works construction projects throughout the world, whether
for new construction or renovation. Based on both internal and
external analyses, we believe that we are co-leader of the
cement industry, the second largest producer of aggregates and
concrete worldwide, the largest producer of concrete and clay
roofing tiles worldwide and the third-largest manufacturer of
gypsum wallboard worldwide.
Our financial reporting currency is the euro
(). In fiscal
2005, we generated
16.0 billion
in sales and we earned current operating income of
2.4 billion
and net income-Group share of
1.1 billion.
At year-end 2005, our assets totaled
27.9 billion.
We currently employ approximately 80,000 people throughout the
76 countries in which we operate.
We began operations in the early 1800s and were incorporated in
1884 under the name J. et A. Pavin de Lafarge. Our
shares are a component of the French CAC-40 market index (and
have been since its inception) and are included in the SBF 250
index and the Dow Jones Eurostoxx 50 index. Our shares also
trade on the New York Stock Exchange (NYSE) under
the symbol LR in the form of American Depositary
Shares (ADS). Each ADS represents one-fourth of one
share. Our market capitalization totaled
17.3 billion
at the close of the market on June 30, 2006 including
164 million
attributable to our treasury shares.
9
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
The following table shows the ratios of earnings to fixed
charges for Lafarge, computed in accordance with International
Financial Reporting Standards (IFRS) for the fiscal years ended
December 31, 2005 and 2004 and in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP) for the fiscal years ended
December 31, 2005, 2004, 2003, 2002 and 2001. As a
first-time adopter of IFRS in 2005 and in accordance with
General Instruction G to
Form 20-F, we are
providing the ratio of earnings to fixed charges for 2005 and
2004 in accordance with IFRS and for 2005, 2004, 2003, 2002 and
2001 in accordance with U.S. GAAP.
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Year Ended December 31, |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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For Lafarge
(IFRS)(1)
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4.62 |
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3.95 |
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For Lafarge in accordance with U.S. GAAP
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4.30 |
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3.54 |
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3.29 |
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2.67 |
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2.84 |
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(1) |
2004 IFRS ratio is based on figures that are restated from
French GAAP, as set forth in our consolidated financial
statements for the year ended December 31, 2005. |
In calculating the ratio of earnings to fixed charges, we used
the following definitions:
The term fixed charges means the sum of the
following: (a) interest expensed and capitalized,
(b) amortized premiums, discounts and capitalized expenses
related to indebtedness, (c) an estimate of the interest
within rental expense and (d) preference security dividend
requirements of consolidated subsidiaries.
The term earnings is the amount resulting from
adding and subtracting the following items. Add the following:
(a) Pre-tax income from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees, (b) fixed charges,
(c) distributed income of equity investees, and
(d) our share of pre-tax losses of equity investees for
which charges arising from guarantees are included in fixed
charges. Amortization of capitalized interest would normally be
added as well, but has not been taken into account for the
purpose of this calculation as the amounts are immaterial. From
the total of the added items, subtract the following:
(a) interest capitalized, (b) preference security
dividend requirements of consolidated subsidiaries, and
(c) the minority interest in pre-tax income of subsidiaries
that have not incurred fixed charges. Equity investees are
investments that we account for using the equity method of
accounting.
10
CAPITALIZATION AND INDEBTEDNESS OF LAFARGE
(Unaudited)
The following table sets out the consolidated capitalization and
long-term indebtedness, as well as short-term indebtedness, of
Lafarge at December 31, 2005, prepared on the basis of
IFRS. You should read this table together with our consolidated
financial statements and the other financial data appearing
elsewhere, or incorporated by reference, in this prospectus.
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(in millions) | |
Short-term borrowings, including current portion of long-term
debt
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Current portion of long-term debt
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1,555 |
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Short-term borrowings and Bank overdrafts
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331 |
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Total short-term indebtedness
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1,886 |
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Long-term borrowings
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6,856 |
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Minority interests
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2,571 |
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Shareholders equity parent company
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Common shares
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704 |
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Additional paid in capital
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6,316 |
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Retained earnings
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2,025 |
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Foreign currency translation adjustment
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741 |
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Treasury shares
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(98 |
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Other reserves
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70 |
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Total shareholders equity parent company
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9,758 |
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Total capitalization and long-term indebtedness
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19,185 |
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As of December 31, 2005, we had an issued share capital of
175,985,303 ordinary fully-paid shares (including 1,785,074
treasury shares from shareholders equity), with a nominal
value of
4 per
share, and securities with rights to up to
6,938,951 shares. From December 31, 2005 to
June 30, 2006, we issued 184,384 shares in connection
with the exercise of stock options by employees.
As of December 31, 2005, property collateralizing debt
amounted to
475 million.
As of December 31, 2005, we had
271 million
of outstanding guarantees to third parties. For more information
about our commitments and contingencies, put options on shares
of subsidiaries and derivative instruments, see Notes 29,
26 and 27 of the notes to our audited consolidated financial
statements in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference. Since December 31, 2005, we have incurred
US$3.5 billion of debt in connection with our purchase of
the minority interests in Lafarge North America Inc. and
447 million
of debt in connection with our dividend payment.
Except as disclosed herein or in the prospectus supplement,
there have been no material changes in the consolidated
capitalization, indebtedness and contingent liabilities of
Lafarge since December 31, 2005.
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USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus
supplement, the net proceeds from the sale of securities will be
used for our general corporate purposes. These purposes include
working capital for our company or other companies in our group
and the repayment of existing borrowings of our company and our
subsidiaries.
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DESCRIPTION OF DEBT SECURITIES
General
We may issue debt securities using this prospectus. As required
by U.S. federal law for all bonds and notes of companies
that are publicly offered, the debt securities that we may issue
are governed by a contract between us and Law Debenture Trust
Company of New York, as trustee, called an indenture.
The trustee under the indenture has two main roles:
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first, it can enforce your rights against us if we default.
There are some limitations on the extent to which the trustee
acts on your behalf, described under Default and Related
Matters Events of Default Remedies If an
Event of Default Occurs below; and |
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second, the trustee performs administrative duties for us, such
as sending you interest payments, transferring your debt
securities to a new buyer if you sell your debt securities and
sending you notices. |
The indenture and its associated documents contain the full
legal text governing the matters described in this section. The
indenture and the debt securities are governed by New York law.
A form of the indenture is an exhibit to our registration
statement. See Where You Can Find More Information About
Us for information on how to obtain a copy.
This section summarizes the material provisions of the indenture
and the debt securities. However, because it is a summary, it
does not describe every aspect of the indenture or the debt
securities. This summary is subject to and qualified in its
entirety by reference to all the provisions of the indenture,
including some of the terms used in the indenture. We describe
the meaning for only the more important terms. We also include
references in parentheses to some sections of the indenture.
Whenever we refer to particular sections or defined terms of the
indenture in this prospectus or in the prospectus supplement,
those sections or defined terms are incorporated by reference
herein or in the prospectus supplement. This summary also is
subject to and qualified by reference to the description of the
particular terms of your series described in the prospectus
supplement.
We may issue as many distinct series of debt securities under
the indenture as we wish. This section summarizes all material
terms of the debt securities that are common to all series,
unless otherwise indicated in the prospectus supplement relating
to a particular series.
We may issue the debt securities as original issue discount
securities, which are debt securities that are offered and sold
at a substantial discount to their stated principal amount.
(Section 101) Special U.S. federal income tax,
accounting and other considerations may apply to original issue
discount securities. These considerations are discussed below
under Tax Considerations United States Tax
Considerations. The debt securities may also be issued as
indexed securities or securities denominated in foreign
currencies or currency units, as described in more detail in the
prospectus supplement relating to any such debt securities.
Unless otherwise specified in a prospectus supplement, we may
issue debt securities of the same series as an outstanding
series of debt securities without the consent of holders of
securities in the outstanding series. Any additional debt
securities so issued will have the same terms as the existing
debt securities of the same series in all respects (except for
the first interest payment on the new series, if any), so that
such additional debt securities will be consolidated and form a
single series with the existing debt securities of the same
series.
In addition, the specific financial, legal and other terms
particular to a series of debt securities are described in the
prospectus supplement and the underwriting agreement relating to
the series. Those terms may vary from the terms described here.
Accordingly, this summary also is subject to and qualified by
reference to the description of the terms of the series
described in the prospectus supplement.
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The prospectus supplement relating to a series of debt
securities will describe the following terms of the series:
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the title of the series of debt securities; |
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any limit on the aggregate principal amount of the series of
debt securities; |
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any stock exchange on which we list the series of debt
securities; |
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whether the debt securities are subject to subordination to our
other indebtedness and if so, the terms of such subordination; |
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the date or dates on which we will pay the principal of the
series of debt securities; |
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any provisions for the conversion or exchange of the debt
securities into or for other debt securities; |
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the rate or rates, which may be fixed or variable, per annum at
which the series of debt securities will bear interest, if any,
and the date or dates from which that interest, if any, will
accrue; |
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the dates on which interest, if any, on the series of debt
securities will be payable and the regular record dates for the
interest payment dates; |
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any mandatory or optional sinking funds or analogous provisions
or provisions for redemption at the option of the holder; |
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the date, if any, after which and the price or prices at which
the series of debt securities may, in accordance with any
optional or mandatory redemption provisions that are not
described in this prospectus, be redeemed and the other detailed
terms and provisions of those optional or mandatory redemption
provisions, if any; |
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the denominations in which the series of debt securities will be
issuable; |
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the currency of payment of principal of, premium, if any, and
interest on the series of debt securities and the manner of
determining the equivalent amount in the currency of the United
States of America, if applicable; |
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any index used to determine the amount of payment of principal
of, premium, if any, and interest on the series of debt
securities; |
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whether we will be required to pay additional amounts for
withholding taxes or other governmental charges and, if
applicable, a related right to an optional tax redemption for
such a series; |
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any additional Events of Default or negative covenants
applicable to the series of debt securities; |
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whether the series of debt securities will be issuable in whole
or in part in the form of a global security as described under
Legal Ownership Global Securities, and
the depositary or its nominee with respect to the series of debt
securities, and any special circumstances under which the global
security may be registered for transfer or exchange in the name
of a person other than the depositary or its nominee; |
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if applicable, a discussion of material U.S. federal income tax
considerations not described under Tax
Considerations United States Tax
Considerations; and |
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any other special features of the series of debt securities. |
The debt securities will be issued only in fully registered form
without interest coupons.
Legal Ownership
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Street Name and Other Indirect Holders |
We generally will not recognize investors who hold securities in
accounts at banks or brokers as legal holders of securities.
When we refer to the holders of securities, we mean only the
actual legal and (if
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applicable) record holder of those securities. Holding
securities in accounts at banks or brokers is called holding in
street name. If you hold securities in street name, we will
recognize only the bank or broker or the financial institution
the bank or broker uses to hold its securities. These
intermediary banks, brokers and other financial institutions
pass along principal, interest and other payments on the debt
securities, either because they agree to do so in their customer
agreements or because they are legally required to do so. If you
hold securities in street name, you should check with your own
institution to find out:
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how it handles securities payments and notices; |
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whether it imposes fees or charges; |
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how it would handle voting if it were ever required to vote; |
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how and when you should notify it to exercise on your behalf
exercisable rights and options that may exist under the debt
securities; |
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whether and how you can instruct it to send you securities
registered in your own name so you can be a direct holder as
described below; and |
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how it would pursue rights under the debt securities if there
were a default or other event triggering the need for holders to
act to protect their interests. |
Our obligations, as well as the obligations of the trustee and
those of any third parties employed by us or the trustee, under
the debt securities run only to persons who are registered as
holders of securities. As noted above, we do not have
obligations to you if you hold in street name or other indirect
means, either because you choose to hold securities in that
manner or because the debt securities are issued in the form of
global securities as described below. For example, once we make
payment to the registered holder, we have no further
responsibility for the payment even if that holder is legally
required to pass the payment along to you as a street name
customer but does not do so.
What is a Global Security? A global security is a special
type of indirectly held security, as described above under
Street Name and Other Indirect Holders.
If we choose to issue debt securities in the form of global
securities, the ultimate beneficial owners can only be indirect
holders.
The financial institution that acts as the sole direct holder of
the global security is called the depositary. We require that
the debt securities included in the global security not be
transferred to the name of any other direct holder unless the
special circumstances described below occur. Any person wishing
to own a security must do so indirectly by virtue of an account
with a broker, bank or other financial institution that in turn
has an account with the depositary. The prospectus supplement
relating to an offering of a series of securities will indicate
whether the series will be issued only in the form of global
securities.
Special Investor Considerations for Global Securities. As
an indirect holder, your rights relating to a global security
will be governed by the account rules of the investors
financial institution and of the depositary, as well as general
laws relating to securities transfers. We do not recognize this
type of investor as a holder of securities and instead deal only
with the depositary that holds the global security.
You should be aware that if the debt securities are issued only
in the form of global securities that:
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You cannot have securities registered in your own name. |
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You cannot receive physical certificates for your interest in
the debt securities. |
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You will be a street name holder and must look to your own bank
or broker for payments on the debt securities and protection of
your legal rights relating to the debt securities, as explained
above under Street Name and Other Indirect
Holders. |
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You may not be able to sell interests in the debt securities to
some insurance companies and other institutions that are
required by law to own their securities in the form of physical
certificates. |
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The depositarys policies will govern payments, transfers,
exchange and other matters relating to your interest in the
global security. We, the trustee and the registrar have no
responsibility for any aspect of the depositarys actions
or for its records of ownership interests in the global
security. We, the trustee and the registrar also do not
supervise the depositary in any way. |
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The depositary will require that interests in a global security
be purchased or sold within its system using same-day funds for
settlement. |
Special Situations When the Global Security Will Be
Terminated. In a few special situations described below, the
global security will terminate and interests in it will be
exchanged for physical certificates representing securities.
After that exchange, the choice of whether to hold securities
directly or in street name will be up to you. You must consult
your own bank or broker to find out how to have your interests
in securities transferred to your own name so that you will be a
direct holder. The rights of street name investors and direct
holders in the debt securities have been previously described
above under Street Name and Other Indirect
Holders and Direct Holders.
The special situations for termination of a global security
representing our debt securities are:
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When the depositary notifies us that it is unwilling, unable or
no longer qualified to continue as depositary, and a new
depositary does not take the old depositarys place. |
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When an event of default on the debt securities has occurred and
has not been cured. Defaults on debt securities are discussed
below under Description of Debt Securities
Default and Related Matters Events of Default. |
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When we notify the trustee that the global security is
exchangeable for physical certificates. |
The prospectus supplement may also list additional situations
for terminating a global security that would apply only to the
particular series of debt securities covered by the prospectus
supplement. When a global security terminates, the depositary,
and not we or the trustee, is responsible for deciding the names
of the institutions that will be the initial direct holders.
In the remainder of this description of debt securities
you means direct holders and not street name or
other indirect holders of securities. Indirect holders should
read the previous subsection entitled Street
Name and Other Indirect Holders.
Additional Mechanics
The debt securities will be issued:
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Only in fully registered form; |
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Without interest coupons; and |
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In denominations that are indicated in the prospectus supplement. |
You may have your debt securities of any series broken into more
debt securities of smaller denominations of the same series or
combined into fewer debt securities of larger denominations of
the same series, as long as the total principal amount is not
changed. (Section 305) This is called an exchange.
You may exchange or transfer registered debt securities at the
corporate trust office of the trustee. The trustee acts as our
agent for registering debt securities in the names of holders
and transferring registered debt securities. We may change this
appointment to another entity or perform the service ourselves.
The entity
16
performing the role of maintaining the list of registered
holders is called the security registrar. It will also register
transfers of the registered debt securities.
(Section 305)
You will not be required to pay a service charge to transfer or
exchange debt securities, but you may be required to pay for any
tax or other governmental charge associated with the exchange or
transfer. The transfer or exchange of a registered debt security
will only be made if the security registrar is satisfied with
your proof of ownership. (Section 305)
If we have designated additional transfer agents, they are named
in the prospectus supplement. We may cancel the designation of
any particular transfer agent. We may also approve a change in
the office through which any transfer agent acts.
(Section 1002)
If the debt securities are redeemable and we redeem less than
all of the debt securities of a particular series, we may block
the transfer or exchange of debt securities during a specified
period of time in order to freeze the list of holders to prepare
the mailing. The period begins 15 days before the day we
mail the notice of redemption and ends on the day of that
mailing. We may also refuse to register transfers or exchanges
of debt securities selected for redemption. However, we will
continue to permit transfers and exchanges of the unredeemed
portion of any security being partially redeemed.
(Section 305)
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Payment and Paying Agents |
We will pay interest to you if you are a direct holder listed in
the trustees records at the close of business on a
particular day in advance of each due date for interest, even if
you no longer own the security on the interest due date. That
particular day, usually about two weeks in advance of the
interest due date, is called the regular record date and is
stated in the prospectus supplement. (Section 307)
We will pay interest, principal and any other money due on the
registered debt securities at the office of Citibank N.A.,
London branch, located at 21st Floor, Citigroup Centre,
Canada Square, Canada Wharf, London E14 5LB, United
Kingdom. You must make arrangements to have your payments picked
up at or wired from that office. We may also choose to pay
interest by mailing checks. Interest on global securities will
be paid to the holder thereof by wire transfer.
We may also arrange for additional payment offices, use the
trustees corporate trust office and may cancel or change
these offices. These offices are called paying agents. We may
also choose to act as our own paying agent. We must notify you
through the trustee of changes in the paying agents for any
particular series of debt securities. (Section 1002)
Street name and other indirect holders should consult
their banks or brokers for information on how they will receive
payments.
Regardless of who acts as paying agent, all money that we pay to
a paying agent that remains unclaimed at the end of two years
after the amount is due to direct holders will be repaid to us.
After that two-year period, you may look only to us for payment
and not to the trustee, any other paying agent or anyone else.
(Section 1003)
We and the trustee will send notices only to direct holders,
using their addresses as listed in the trustees records.
(Section 106)
Special Situations
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Mergers and Similar Events |
We are generally permitted to consolidate or merge with another
company or firm. We are also permitted to sell or lease
substantially all of our assets to another corporation or other
entity or to buy or lease
17
substantially all of the assets of another corporation or other
entity. In addition, we are permitted to transfer our
obligations, as issuer of the debt securities, to any
majority-owned subsidiary of our company, so long as the
obligations of that subsidiary are guaranteed by us.
(Section 802)
No vote by holders of debt securities approving any of these
actions is required, unless as part of the transaction we make
changes to the applicable indenture requiring your approval, as
described below under Modification and
Waiver. We may take these actions as part of a transaction
involving outside third parties or as part of an internal
corporate reorganization. We may take these actions even if they
result in:
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a lower credit rating being assigned to the debt
securities; or |
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additional amounts becoming payable in respect of withholding
tax. |
Except as provided below, we have no obligation under the
indenture to seek to avoid these results, or any other legal or
financial effects that are disadvantageous to you, in connection
with a merger, consolidation or sale or lease of assets that is
permitted under the indenture. However, we may not take any of
these actions unless all the following conditions are met:
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Where we merge out of existence or sell or lease substantially
all of our assets, or transfer our obligations to a substitute
obligor, the other entity must be duly organized and validly
existing under the laws of the relevant jurisdiction. |
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The merger, sale or lease of assets or other transaction, or the
transfer of obligations to a substitute obligor, must not cause
a default on the debt securities, and we must not already be in
default. For purposes of this no-default test, a default would
include an event of default that has occurred and not been
cured, as described below under Default and Related
Matters Events of Default What is An
Event of Default? A default for this purpose would also
include any event that would be an event of default if the
requirements for giving us default notice or our default having
to continue for a specific period of time were disregarded. |
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If we merge out of existence or sell or lease substantially all
of our assets, or transfer our obligations to a substitute
obligor, the other entity must assume our obligations under the
applicable indenture and debt securities, including our
obligation to pay additional amounts described below under
Payment of Additional Amounts. In the
event the jurisdiction of incorporation or tax residence of the
successor or substitute obligor is not the Republic of France,
such successor or substitute obligor will also agree to be bound
to the obligations described below under
Payment of Additional Amounts and
Optional Tax Redemption but shall
substitute the successors or substitute obligors
jurisdiction of incorporation or tax residence for the Republic
of France. (Section 801) |
It is possible that the U.S. Internal Revenue Service may
deem a merger or other similar transaction to cause an exchange
for U.S. federal income tax purposes of debt securities for
new securities by the holders of the debt securities. This could
result in the recognition of taxable gain or loss for
U.S. federal income tax purposes and possible other adverse
tax consequences.
There are three types of changes we can make to the indenture
and the debt securities.
Changes Requiring Your Approval. First, there are changes
that cannot be made to your debt securities without your
specific approval, for example, by calling a meeting of holders
and seeking a 100% quorum and unanimous consent, or, more
likely, by obtaining written consents from each holder. We must
obtain your specified approval in order to:
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change the stated maturity of the principal or interest on a
debt security; |
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reduce any amounts due on a debt security; |
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reduce the amount of principal payable upon acceleration of the
maturity of a debt security following a default; |
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change the place or currency of payment on a debt security; |
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impair your right to sue for payment; |
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reduce the percentage of holders of debt securities whose
consent is needed to modify or amend the applicable indenture; |
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reduce the percentage of holders of debt securities whose
consent is needed to waive compliance with various provisions of
the applicable indenture or to waive various defaults; and |
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modify any other aspect of the provisions dealing with
modification and waiver of the applicable indenture.
(Section 902) |
Changes Requiring a Majority Vote. The second type of
change to the indenture and the debt securities is the kind that
requires a vote in favor by holders of debt securities owning a
majority of the principal amount of the particular series
affected. Most changes fall into this category, except for
clarifying changes and other changes that would not adversely
affect holders of the debt securities in any material respect.
(Section 901) The same vote would be required for us
to obtain a waiver of all or part of the covenants described
below, or a waiver of a past default. However, we cannot obtain
a waiver of a payment default or any other aspect of the
indenture or the debt securities described above under
Changes Requiring Your Approval unless
we obtain your individual consent, for example, by calling a
meeting of holders and seeking a 100% quorum and unanimous
consent, or, more likely, by obtaining written consents from
each holder, to the waiver. (Section 513)
Changes Not Requiring Approval. The third type of change
does not require any vote by holders of debt securities. This
type is limited to clarifications and other changes that would
not adversely affect holders of the debt securities in any
material respect. (Section 901)
Further Details Concerning Voting. When taking a vote, we
will use the following rules to decide how much principal amount
to attribute to a security:
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For original issue discount securities, we will use the
principal amount that would be due and payable on the voting
date if the maturity of the debt securities were accelerated to
that date because of a default. |
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For debt securities whose principal amount is not known (for
example, because it is based on an index), we will use a special
rule for that security described in the prospectus supplement. |
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For debt securities denominated in one or more foreign
currencies or currency units, we will use the U.S. dollar
equivalent as of the date of original issuance. |
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Debt securities will not be considered outstanding, and
therefore not eligible to vote, if we have deposited or set
aside in trust for you money for their payment or redemption.
Debt securities will also not be eligible to vote if they have
been fully defeased pursuant to any applicable defeasance
provisions described in the prospectus supplement. |
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We will generally be entitled to set any day as a record date
for the purpose of determining the holders of outstanding debt
securities that are entitled to vote or take other action under
the applicable indenture (or failing us in certain
circumstances, the trustee). If we set a record date for a vote
or other action to be taken by holders of a particular series,
that vote or action may be taken only by persons who are holders
of outstanding debt securities of that series on the record date
and must be taken within 90 days following the record date
or another period that we may specify (or as the trustee may
specify, if it set the record date). We may shorten or lengthen
(but not beyond 90 days) this period from time to time.
(Sections 101, 501, 502, 512, 513 and 902) |
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Street name and other indirect holders should consult
their banks or brokers for information on how approval may be
granted or denied if we seek to change the indenture or the debt
securities or request a waiver.
The prospectus supplement will state whether the debt securities
are redeemable by us or subject to repayment at the
holders option, other than as described below under
Optional Tax Redemption.
We or our affiliates may purchase debt securities from investors
who are willing to sell from time to time, either in the open
market at prevailing prices or in private transactions at
negotiated prices. Debt securities that we or they purchase will
be canceled.
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Payment of Additional Amounts |
We will make payments on the debt securities without withholding
any taxes unless otherwise required to do so by law. If the
Republic of France or any tax authority therein requires us to
withhold or deduct amounts from payment on a debt security or
any amounts to be paid as additional amounts for or on account
of taxes or any other governmental charges, or any other
jurisdiction requires such withholding or deduction as a result
of a merger or similar event (the jurisdiction imposing the tax,
the taxing jurisdiction), we may be required to pay
you an additional amount so that the net amount you receive will
be the amount specified in the debt security to which you are
entitled.
We will not have to pay additional amounts under any of the
following circumstances:
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The holder of the debt securities (or a third party holding on
behalf of the holder) is subject to such tax or governmental
charge by reason of having some connection to the taxing
jurisdiction requiring such withholding or deduction, other than
the mere holding of the debt security. |
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The tax or governmental charge is imposed due to the
presentation of a debt security, if presentation is required,
for payment on a date more than 30 days after the security
became due or after the payment was provided for, whichever
occurs later. |
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The tax or governmental charge is on account of an estate,
inheritance, gift, sale, transfer, personal property or similar
tax or other governmental charge. |
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The tax or governmental charge is for a tax or governmental
charge that is payable in a manner that does not involve
withholding or deduction. |
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The tax or governmental charge is imposed or withheld because
the holder or beneficial owner failed: |
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to provide information about the nationality, residence or
identity of the holder or beneficial owner; or |
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to make a declaration or satisfy any information requirements |
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that the statutes, treaties, regulations or administrative
practices of the taxing jurisdiction require as a precondition
to exemption from all or part of such tax or governmental charge. |
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The withholding or deduction is imposed pursuant to the European
Union Directive 2003/48/ EC regarding the taxation of savings
income, or any law implementing such directive. |
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The withholding or deduction is imposed on a holder or
beneficial owner who could have avoided such withholding or
deduction by presenting its debt securities to another paying
agent. |
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The holder is a fiduciary or partnership or an entity that is
not the sole beneficial owner of the payment of the principal
of, or any interest on, any debt security, and the laws of the
taxing jurisdiction require the payment to be included in the
income of a beneficiary or settlor for tax purposes with respect
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such fiduciary or a member of such partnership or a beneficial
owner who would not have been entitled to such additional
amounts had it been the holder of such security. |
The prospectus supplement will describe the terms of any option
we may have to redeem the debt securities of a given series if,
as a result of any change in French tax treatment (or treatment
of any jurisdiction in which a successor to, or substitute
obligor of, our company is organized or resident for tax
purposes), we would be required to pay additional amounts as
described above under Payment of Additional
Amounts.
As long as any debt security issued under the indenture is
outstanding, we will not, and will ensure that none of our
Principal Subsidiaries will, create or permit to subsist any
mortgage, lien, charge, pledge or other form of security
interest upon any of our or their respective assets or revenues,
present or future, to secure any Relevant Indebtedness or any
guarantee or indemnity in respect of any Relevant Indebtedness
unless, at the same time or prior thereto, our obligations under
the debt securities are equally and ratably secured.
(Section 1008)
For the purpose of this covenant, Relevant
Indebtedness means any present or future indebtedness for
borrowed money in the form of, or represented by, bonds (which
are called obligations under French law), notes or other
securities (including securities that take the form of titres
de créances négociables under French law) which
are for the time being, or are capable of being, quoted, listed
or ordinarily dealt in on any stock exchange,
over-the-counter or
other securities market.
For the purpose of this covenant and the Events of
Default described below,
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Principal Subsidiary means at any relevant time a
Subsidiary of our company: |
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whose total revenues (or, where the Subsidiary in question
prepares consolidated financial statements, whose total
consolidated revenues) attributable to our group represent not
less than 5 percent of the total consolidated revenues of
our group, all as calculated by reference to the then latest
audited financial statements (or consolidated financial
statements, as the case may be) of such Subsidiary and the then
latest consolidated financial statements of our group; or |
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to which is transferred all or substantially all the assets and
undertakings of a Subsidiary which immediately prior to such
transfer is a Principal Subsidiary. |
Subsidiary means, in relation to any person or
entity at any time, any other person or entity (whether or not
now existing) meeting the definition of Article L.
233-1 of the French
Commercial Code or any other person or entity controlled
directly or indirectly by such person or entity within the
meaning of Article L.
233-3 of the French
Commercial Code. These articles:
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define a subsidiary as an entity for which a majority of the
share capital is owned by another entity (Article L.
233-1); and |
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provide a list of the circumstances under which an entity is
considered to control another ((i) shareholding with majority
voting rights of an entity; (ii) majority voting rights of
an entity by virtue of an agreement with other shareholders that
is not contrary to the interests of the entity;
(iii) ability, given voting rights, to determine whether
resolutions are adopted at general shareholder meetings of an
entity; (iv) shareholding and ability to appoint or to
revoke the majority of the members of the board of directors or
the members of the supervisory board of an entity. An entity is
also deemed to exert this control if it directly or indirectly
holds more than 40% of the voting rights of another entity and
no other shareholder holds a greater shareholding. In addition,
two or more entities acting together are considered as jointly
controlling another when they are able to determine whether
resolutions are adopted at general shareholder meetings of
another entity.)(Article L.
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The prospectus supplement will state if any defeasance
provisions apply to the debt securities.
Default and Related Matters
The debt securities are not secured by any of our property or
assets. Accordingly, your ownership of debt securities means you
are one of our unsecured creditors. The debt securities are not
subordinated to any of our other debt obligations and therefore
they rank equally with all our other unsecured and
unsubordinated indebtedness.
You will have special rights if an event of default occurs and
is not cured, as described later in this subsection.
What Is an Event of Default? The term event of
default means any of the following:
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Any amount of principal of, or interest on, or any premium on,
the debt security is not paid on the due date thereof and such
default is not remedied within a period of 15 days from
such due date. |
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Any other obligation of our company under the indenture or the
debt security is not complied with or performed within a period
of 30 days after we receive a notice of default stating we
are in breach. The notice must be sent by either the trustee or
holders of 25% of the principal amount of debt securities of the
affected series. |
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Any other present or future indebtedness of our company or any
of our Principal Subsidiaries for borrowed monies in excess of
50,000,000 (or
its equivalent in any other currency), whether individually or
in the aggregate, becomes due and payable prior to its stated
maturity as a result of a default thereunder, or if any such
indebtedness shall not be paid when due or, as the case may be,
within any applicable grace period therefore, or if any steps
shall be taken to enforce any security in respect of such
indebtedness or any guarantee or indemnity given by our company
or any of our Principal Subsidiaries for, or in respect of, any
such indebtedness of others shall not be honored when due and
called upon. |
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If the company or any of its Principal Subsidiaries becomes
subject to certain insolvency-related events. This means that
the relevant entity (i.e., we or the Principal Subsidiary) makes
any proposal for a general moratorium in relation to its debt or
applies for the appointment of a conciliator
(conciliateur) or enters into an amicable settlement
(accord amiable) with its creditors or a judgment is
issued for the judicial liquidation (liquidation
judiciaire) or for a judicial transfer of the whole of its
business (cession totale de lentreprise) or, to the
extent permitted by applicable law, if the relevant entity makes
any conveyance, assignment or other arrangement for the benefit
of its creditors or enters into a composition with its creditors. |
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It is or will become unlawful for us to perform or comply with
any one or more of our obligations under the debt securities
issued under the indenture. |
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Any other event of default described in the prospectus
supplement occurs. (Section 501) |
Remedies If an Event of Default Occurs. If an event of
default has occurred and has not been cured, the trustee or the
holders of 25% in principal amount of the debt securities of the
affected series may declare the entire principal amount of all
the debt securities of that series to be due and immediately
payable. This is called a declaration of acceleration of
maturity. A declaration of acceleration of maturity may be
canceled by the holders of at least a majority in principal
amount of the debt securities of the affected series if certain
conditions are met. (Section 502)
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Except in cases of default, where the trustee has some special
duties, the trustee is not required to take any action under the
indenture at the request of any holders unless the holders offer
the trustee reasonable protection from expenses and liability.
This protection is called an indemnity.
(Section 603) If reasonable indemnity is provided,
the holders of a majority in principal amount of the outstanding
debt securities of the relevant series may direct the time,
method and place of conducting any lawsuit or other proceeding
seeking any remedy available to the trustee. These majority
holders may also direct the trustee in performing any other
action under the indenture. (Section 512)
Before you bypass the trustee and bring your own lawsuit or
other formal legal action or take other steps to enforce your
rights or protect your interests relating to the debt
securities, the following must occur:
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You must give the trustee written notice that an event of
default has occurred and remains uncured. |
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The holders of 25% in principal amount of all outstanding debt
securities of the relevant series must make a written request
that the trustee take action because of the default, and must
offer reasonable indemnity to the trustee against the cost and
other liabilities of taking that action. |
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The trustee must have not taken action for 60 days after
receipt of the above notice, request and offer of indemnity. |
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No direction inconsistent with such written request must have
been given to the trustee during such
60-day period by
holders of a majority in principal amount of all outstanding
debt securities of that series. (Section 507) |
Nothing, however, will prevent an individual holder from
bringing suit to enforce payment. (Section 508)
Street name and other indirect holders should consult
their banks or brokers for information on how to give notice or
direction to or make a request of the trustee and to make or
cancel a declaration of acceleration.
We will furnish to the trustee every year a written statement of
certain of our officers certifying that, to their knowledge, we
are in compliance with the indenture and the debt securities, or
else specifying any default. (Section 1005)
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CLEARANCE AND SETTLEMENT
Securities we issue may be held through one or more
international and domestic clearing systems. The principal
clearing systems we will use are the book-entry systems operated
by the Depository Trust Company (DTC) in the United
States, Clearstream Banking, société anonyme,
in Luxembourg (Clearstream) and the Euroclear
System, in Belgium (Euroclear). These systems have
established electronic securities and payment, transfer,
processing, depositary and custodial links among themselves and
others, either directly or through custodians and depositaries.
These links allow securities to be issued, held and transferred
among the clearing systems without the physical transfer of
certificates.
Special procedures to facilitate clearance and settlement have
been established among these clearing systems to trade
securities across borders in the secondary market. Where
payments for securities we issue in global form will be made in
U.S. dollars, these procedures can be used for cross-market
transfers and the debt securities will be cleared and settled on
a delivery against payment basis.
If we issue debt securities to you outside of the United States,
its territories and possessions, you must initially hold your
interests through Euroclear, Clearstream or the clearance system
that is described in the applicable prospectus supplement.
Cross-market transfers of securities that are not in global form
may be cleared and settled in accordance with other procedures
that may be established among the clearing systems for these
securities.
The policies of DTC, Clearstream and Euroclear will govern
payments, transfers, exchanges and other matters relating to
your interest in securities held by them. This is also true for
any other clearance system that may be named in a prospectus
supplement.
We have no responsibility for any aspect of the actions of DTC,
Clearstream or Euroclear or any of their direct or indirect
participants. We have no responsibility for any aspect of the
records kept by DTC, Clearstream or Euroclear or any of their
direct or indirect participants. We also do not supervise these
systems in any way. This is also true for any other clearing
system indicated in a prospectus supplement.
DTC, Clearstream, Euroclear and their participants perform these
clearance and settlement functions under agreements they have
made with one another or with their customers. You should be
aware that they are not obligated to perform these procedures
and may modify them or discontinue them at any time.
The description of the clearing systems in this section reflects
our understanding of the rules and procedures of DTC,
Clearstream and Euroclear as they are currently in effect. Those
systems could change their rules and procedures at any time.
DTC
DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds
securities deposited with it by its participants and facilitates
the settlement of transactions among its participants in such
securities through electronic computerized book-entry changes in
accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTCs
participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own
DTC. Access to DTCs book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a
participant, either directly or indirectly. According to DTC,
the foregoing information with respect to DTC has been provided
to the financial community for informational purposes only and
is not intended to serve as a representation, warranty or
contract modification of any kind.
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Clearstream
Clearstream Banking, société anonyme
(Clearstream), was incorporated as a limited
liability company under Luxembourg law. Clearstream is owned by
Cedel International, société anonyme, and Deutsche
Börse AG. The shareholders of these two entities are banks,
securities dealers and financial institutions.
Clearstream holds securities for its customers and facilitates
the clearance and settlement of securities transactions between
Clearstream customers through electronic book-entry changes in
accounts of Clearstream customers, thus eliminating the need for
physical movement of certificates. Clearstream provides to its
customers, among other things, services for safekeeping,
administration, clearance and settlement of internationally
traded securities, securities lending and borrowing and
collateral management. Clearstream interfaces with domestic
markets in a number of countries. Clearstream has established an
electronic bridge with Euroclear Bank S.A./ N.V., the operator
of the Euroclear System, to facilitate settlement of trades
between Clearstream and Euroclear.
As a registered bank in Luxembourg, Clearstream is subject to
regulation by the Luxembourg Commission for the Supervision of
the Financial Sector. Clearstream customers are recognized
financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies and
clearing corporations. In the United States, Clearstream
customers are limited to securities brokers and dealers and
banks, and may include the underwriters for the debt securities.
Other institutions that maintain a custodial relationship with a
Clearstream customer may obtain indirect access to Clearstream.
Clearstream is an indirect participant in DTC.
Distributions with respect to the debt securities held
beneficially through Clearstream will be credited to cash
accounts of Clearstream customers in accordance with its rules
and procedures, to the extent received by Clearstream.
The Euroclear System
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle
transactions between Euroclear participants through simultaneous
electronic book-entry delivery against payment, thus eliminating
the need for physical movement of certificates and risk from
lack of simultaneous transfers of securities and cash.
Transactions may now be settled in many currencies, including
United States dollars and Japanese Yen. The Euroclear System
provides various other services, including securities lending
and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market
transfers with DTC described below.
The Euroclear System is operated by Euroclear Bank S.A./ N.V.
(the Euroclear Operator), under contract with
Euroclear Clearance System plc, a U.K. corporation (the
Euroclear Clearance System). The Euroclear Operator
conducts all operations, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Euroclear Clearance System. The
Euroclear Clearance System establishes policy for the Euroclear
System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities
brokers and dealers and other professional financial
intermediaries and may include the underwriters. Indirect access
to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly. Euroclear
is an indirect participant in DTC.
The Euroclear Operator is a Belgian bank. The Belgian Banking
Commission and the National Bank of Belgium regulate and examine
the Euroclear Operator.
The Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and
applicable Belgian law govern securities clearance accounts and
cash accounts with the Euroclear Operator. Specifically, these
terms and conditions govern:
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transfers of securities and cash within the Euroclear System; |
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withdrawal of securities and cash from the Euroclear
System; and |
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receipts of payments with respect to securities in the Euroclear
System. |
All securities in the Euroclear System are held on a fungible
basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under
the terms and conditions only on behalf of Euroclear
participants and has no record of or relationship with persons
holding securities through Euroclear participants.
Distributions with respect to debt securities held beneficially
through Euroclear will be credited to the cash accounts of
Euroclear participants in accordance with the Euroclear Terms
and Conditions, to the extent received by the Euroclear Operator
and by Euroclear.
Settlement
You will be required to make your initial payment for the debt
securities in immediately available funds. Secondary market
trading between DTC participants will occur in the ordinary way
in accordance with DTC rules and will be settled in immediately
available funds using DTCs Same-Day Funds Settlement
System. Secondary market trading between Clearstream customers
and/or Euroclear participants will occur in the ordinary way in
accordance with the applicable rules and operating procedures of
Clearstream and Euroclear and will be settled using the
procedures applicable to conventional eurobonds in immediately
available funds.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or
indirectly through Clearstream customers or Euroclear
participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European
international clearing system by the U.S. depositary;
however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (based
on European time). The relevant European international clearing
system will, if the transaction meets its settlement
requirements, deliver instructions to the U.S. depositary
to take action to effect final settlement on its behalf by
delivering or receiving debt securities in DTC, and making or
receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Clearstream
customers and Euroclear participants may not deliver
instructions directly to their respective U.S. depositaries.
Because of time-zone differences, credits of debt securities
received in Clearstream or Euroclear as a result of a
transaction with a DTC participant will be made during
subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or
any transactions in such debt securities settled during such
processing will be reported to the relevant Clearstream
customers or Euroclear participants on such business day. Cash
received in Clearstream or Euroclear as a result of sales of
debt securities by or through a Clearstream customer or a
Euroclear participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the
relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC.
Although DTC, Clearstream and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of debt
securities among participants of DTC, Clearstream and Euroclear,
they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any
time.
Other Clearing Systems
We may choose any other clearing system for a particular series
of securities. The clearance and settlement procedures for the
clearing system we choose will be described in the applicable
prospectus supplement.
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TAX CONSIDERATIONS
French Taxation
The following generally summarizes the material French tax
consequences of purchasing, owning and disposing of the debt
securities described in this prospectus. The statements related
to French tax laws set forth below are based on the laws in
force as of the date hereof, and are subject to any changes in
applicable laws and tax treaties after such date.
This discussion is intended only as a descriptive summary and
does not purport to be a complete analysis or listing of all
potential effects of the purchase, ownership or disposition of
the debt securities described in this prospectus.
The following summary does not address the treatment of debt
securities that are held by a resident of France or in
connection with a permanent establishment or fixed base through
which a holder carries on business or performs personal services
in France.
Investors should consult their own tax advisers regarding the
tax consequences of the purchase, ownership and disposition of
debt securities in the light of their particular circumstances.
French Taxation. Payments in respect of the debt
securities will be made without withholding or deduction for, or
on account of taxes imposed by or on behalf of France, as
provided by article 131 quater of the French Tax Code (Code
général des impôts), provided that the debt
securities are issued or deemed to be issued outside the
Republic of France in accordance with French tax law.
Since the debt securities will constitute obligations
under French law, they will be issued (or deemed to be
issued) outside France (i) in the case of syndicated or
non-syndicated issues of debt securities, if such debt
securities are denominated in euro, (ii) in the case of
syndicated issues of debt securities denominated in currencies
other than euro, if, inter alia, we and the relevant
dealers agree not to offer the debt securities to the public in
the Republic of France in connection with their initial
distribution and such debt securities are offered in the
Republic of France only through an international syndicate to
qualified investors (investisseurs qualifiés) as
described in Article L. 411-2 of the French Code
monétaire et financier (other than individuals) and the
issue of debt securities is not subject to the Autorité
des marchés financiers (other than a submission to the
Autorité des marchés financiers for the sole
purpose of listing such debt securities on Euronext
Paris S.A.) or (iii) in the case of non-syndicated
issues of debt securities denominated in currencies other than
euro, if each of the subscribers of the debt securities is
domiciled or resident for tax purposes outside the Republic of
France and does not act through a permanent establishment or
fixed base therein, in each case as more fully set out in the
Circular 5 I-11-98 of the Direction Générale des
Impôts dated September 30, 1998.
EU Taxation. On June 3, 2003, the European Council
of Economics and Finance Ministers adopted a Directive (in this
section Tax Considerations, the
Directive) on the taxation of savings income under
which EU Member States are required from July 1, 2005, to
provide to the tax authorities of another Member State details
of payments of interest (or similar income) paid by a person
within its jurisdiction to an individual resident in that other
Member State, except that, for a transitional period, Belgium,
Luxembourg and Austria are instead required (unless during that
period they elect otherwise) to operate a withholding system in
relation to such payments, provided however that the relevant
beneficial owner of the payment may instead elect for the
disclosure of information method or for the tax certificate
procedure, as applicable. The rate of such withholding tax
equals 15% for the first three years after the date of
implementation of the Directive, this rate being increased to
20% for the subsequent three years and 35% thereafter. The
ending of the transitional period is dependent upon the
conclusion of certain other agreements relating to information
exchange with certain other countries.
In relation to French taxation, the Directive has been
implemented in French law under Article 242 ter of the
Code général des impôts and
Articles 49 I ter to 49 I sexies of the Schedule III
to the Code général des impôts.
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Additional amounts. If the French tax laws or regulations
applicable to us (or to any of our successors) change and
payments in respect of the debt securities become subject to
withholding or deduction, we may be required to pay you
additional amounts to offset such withholding except as provided
above in Description of the Debt Securities
Special Situations Payment of Additional
Amounts or in any applicable prospectus supplement.
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Taxation on Sale, Disposal or Redemption of Debt
Securities |
Non-French resident holders of debt securities who do not hold
the debt securities in connection with a business or profession
conducted in France will not be subject to any French income tax
or capital gains tax on the sale, disposal or redemption of debt
securities. Transfers of debt securities made outside France
will not be subject to any stamp duty or other transfer taxes
imposed in France.
France imposes estate and gift tax on securities of a French
company that are acquired by inheritance or gift. The tax
applies without regard to the residence of the transferor.
However, France has entered into estate and gift tax treaties
with a number of countries pursuant to which, assuming certain
conditions are met, residents of the treaty country may be
exempted from such tax or obtain a tax credit.
Under the estate and gift tax convention between the United
States and France, a transfer of debt securities by gift or by
reason of the death of a U.S. holder entitled to benefits
under that convention will not be subject to French gift or
inheritance tax, so long as the donor or decedent was not
domiciled in France at the time of the transfer and the debt
securities were not used or held for use in the conduct of a
business or profession through a permanent establishment or
fixed base in France.
French wealth tax (impôt de solidarité sur la
fortune) generally does not apply to debt securities owned
by non-French residents.
United States Tax Considerations
The following discussion summarizes certain U.S. federal
income tax considerations that may be relevant to you if you
invest in debt securities and are a U.S. holder. You will
be a U.S. holder if you are an individual who is a citizen
or resident of the United States, a U.S. domestic
corporation, or any other person that is subject to
U.S. federal income tax on a net income basis in respect of
an investment in the debt securities. This summary deals only
with U.S. holders that hold debt securities as capital
assets. It does not address considerations that may be relevant
to you if you are an investor that is subject to special tax
rules, such as a bank, thrift, real estate investment trust,
regulated investment company, insurance company, dealer in
securities or currencies, trader in securities or commodities
that elects mark to market treatment, person that will hold debt
securities as a hedge against currency risk or as a position in
a straddle or conversion transaction, tax-exempt
organization partnership or other entity classified as a
partnership for U.S. federal income tax purposes, person subject
to the alternative minimum tax or a person whose
functional currency is not the U.S. dollar.
This summary is based on laws, regulations, rulings and
decisions as of the date hereof, all of which may change. Any
change could apply retroactively and could affect the continued
validity of this summary.
You should consult your tax adviser about the tax consequences
of holding debt securities, including the relevance to your
particular situation of the considerations discussed below, as
well as the relevance to your particular situation of state,
local or other tax laws.
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Payments or Accruals of Interest |
Payments or accruals of qualified stated interest
(as defined below) on a debt security will be taxable to you as
ordinary interest income at the time that you receive or accrue
such amounts (in accordance with your regular method of tax
accounting). If you use the cash method of tax accounting and
you receive payments of interest pursuant to the terms of a debt
security in a currency other than U.S. dollars (a
foreign currency), the amount of interest income you
will realize will be the U.S. dollar value of the foreign
currency
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payment based on the exchange rate in effect on the date you
receive the payment, regardless of whether you convert the
payment into U.S. dollars. If you are an accrual-basis
U.S. holder, the amount of interest income you will realize
will be based on the average exchange rate in effect during the
interest accrual period (or with respect to an interest accrual
period that spans two taxable years, at the average exchange
rate for the partial period within the taxable year).
Alternatively, as an accrual-basis U.S. holder, you may
elect to translate all interest income on foreign
currency-denominated debt securities at the spot rate on the
last day of the accrual period (or the last day of the taxable
year, in the case of an accrual period that spans more than one
taxable year) or on the date that you receive the interest
payment if that date is within five business days of the end of
the accrual period. If you make this election, you must apply it
consistently to all debt instruments from year to year and you
cannot change the election without the consent of the Internal
Revenue Service. If you use the accrual method of accounting for
tax purposes, you will recognize foreign currency gain or loss
on the receipt of a foreign currency interest payment if the
exchange rate in effect on the date the payment is received
differs from the rate applicable to a previous accrual of that
interest income. This foreign currency gain or loss will be
treated as ordinary income or loss, but generally will not be
treated as an adjustment to interest income received on the debt
security.
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Purchase, Sale and Retirement of Debt Securities |
Initially, your tax basis in a debt security generally will
equal the cost of the debt security to you. Your basis will
increase by any amounts that you are required to include in
income under the rules governing original issue discount and
market discount, and will decrease by the amount of any
amortized premium and any payments other than qualified stated
interest made on the debt security. (The rules for determining
these amounts are discussed below.) If you purchase a debt
security that is denominated in a foreign currency, the cost to
you (and therefore generally your initial tax basis) will be the
U.S. dollar value of the foreign currency purchase price on
the date of purchase calculated at the exchange rate in effect
on that date. If the foreign currency debt security is traded on
an established securities market and you are a cash-basis
taxpayer (or if you are an accrual-basis taxpayer that makes a
special election), you will determine the U.S. dollar value
of the cost of the debt security by translating the amount of
the foreign currency that you paid for the debt security at the
spot rate of exchange on the settlement date of your purchase.
The amount of any subsequent adjustments to your tax basis in a
debt security in respect of foreign currency-denominated
original issue discount, market discount and premium will be
determined in the manner described below. If you convert
U.S. dollars into a foreign currency and then immediately
use that foreign currency to purchase a debt security, you
generally will not have any taxable gain or loss as a result of
the conversion or purchase.
When you sell or exchange a debt security, or if a debt security
that you hold is retired, you generally will recognize gain or
loss equal to the difference between the amount you realize on
the transaction (less any accrued qualified stated interest,
which will be subject to tax in the manner described above under
Payments or Accruals of Interest) and
your tax basis in the debt security. If you sell or exchange a
debt security for a foreign currency, or receive foreign
currency on the retirement of a debt security, the amount you
will realize for U.S. tax purposes generally will be the
dollar value of the foreign currency that you receive calculated
at the exchange rate in effect on the date the foreign currency
debt security is disposed of or retired. If you dispose of a
foreign currency debt security that is traded on an established
securities market and you are a cash-basis U.S. holder (or
if you are an accrual-basis holder that makes a special
election), you will determine the U.S. dollar value of the
amount realized by translating the amount at the spot rate of
exchange on the settlement date of the sale, exchange or
retirement.
The special election available to you if you are an
accrual-basis taxpayer in respect of the purchase and sale of
foreign currency debt securities traded on an established
securities market, which is discussed in the two preceding
paragraphs, must be applied consistently to all debt instruments
from year to year and cannot be changed without the consent of
the Internal Revenue Service.
Except as discussed below with respect to market discount and
foreign currency gain or loss, the gain or loss that you
recognize on the sale, exchange or retirement of a debt security
generally will be capital gain or loss. The gain or loss on the
sale, exchange or retirement of a debt security will be
long-term capital gain or loss if you have held the debt
security for more than one year on the date of disposition. Net
long-term capital gain recognized by an individual
U.S. holder generally will be subject to tax at a lower
rate than net short-term
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capital gain or ordinary income. The ability of
U.S. holders to offset capital losses against ordinary
income is limited.
Despite the foregoing, the gain or loss that you recognize on
the sale, exchange or retirement of a foreign currency debt
security generally will be treated as ordinary income or loss to
the extent that the gain or loss is attributable to changes in
exchange rates during the period in which you held the debt
security. This foreign currency gain or loss will not be treated
as an adjustment to interest income that you receive on the debt
security.
If we issue debt securities at a discount from their stated
redemption price at maturity, and the discount is equal to or
more than the product of one-fourth of one percent (0.25%) of
the stated redemption price at maturity of the debt securities
multiplied by the number of full years to their maturity, the
debt securities will be Original Issue Discount Debt
Securities. The difference between the issue price and the
stated redemption price at maturity of the debt securities will
be the original issue discount. The issue
price of the debt securities will be the first price at
which a substantial amount of the debt securities are sold to
the public (i.e., excluding sales of debt securities to
underwriters, placement agents, wholesalers, or similar
persons). The stated redemption price at maturity
will include all payments under the debt securities other than
payments of qualified stated interest. The term qualified
stated interest generally means stated interest that is
unconditionally payable in cash or property (other than debt
instruments issued by the Company) at least annually during the
entire term of a debt security at a single fixed interest rate
or, subject to certain conditions, based on one or more interest
indices.
If you invest in an Original Issue Discount Debt Security, you
generally will be subject to the special tax accounting rules
for original issue discount obligations provided by the Internal
Revenue Code and certain U.S. Treasury regulations. You
should be aware that, as described in greater detail below, if
you invest in an Original Issue Discount Debt Security, you
generally will be required to include original issue discount in
ordinary gross income for U.S. federal income tax purposes
as it accrues, although you may not yet have received the cash
attributable to that income.
In general, and regardless of whether you use the cash or the
accrual method of tax accounting, if you are the holder of an
Original Issue Discount Debt Security with a maturity greater
than one year, you will be required to include in ordinary gross
income the sum of the daily portions of original
issue discount on that debt security for all days during the
taxable year that you own the debt security. The daily portions
of original issue discount on an Original Issue Discount Debt
Security are determined by allocating to each day in any accrual
period a ratable portion of the original issue discount
allocable to that period. Accrual periods may be any length and
may vary in length over the term of an Original Issue Discount
Debt Security, so long as no accrual period is longer than one
year and each scheduled payment of principal or interest occurs
on the first or last day of an accrual period. If you are the
initial holder of the debt security, the amount of original
issue discount on an Original Issue Discount Debt Security
allocable to each accrual period is determined by:
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(i) multiplying the adjusted issue price (as
defined below) of the debt security at the beginning of the
accrual period by a fraction, the numerator of which is the
annual yield to maturity (defined below) of the debt security
and the denominator of which is the number of accrual periods in
a year; and |
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(ii) subtracting from that product the amount (if any)
payable as qualified stated interest allocable to that accrual
period. |
In the case of an Original Issue Discount Debt Security that is
a floating rate debt security, both the annual yield to
maturity and the qualified stated interest will be
determined for these purposes as though the debt security will
bear interest in all periods at a fixed rate generally equal to
the rate that would be applicable to interest payments on the
debt security on its date of issue or, in the case of some
floating rate debt securities, the rate that reflects the yield
that is reasonably expected for the debt security. (Additional
rules may apply if interest on a floating rate debt security is
based on more than one interest index.) The adjusted issue
price of an Original Issue Discount Debt Security at the
beginning of any accrual period will generally be the sum of its
issue price (including any accrued interest) and the amount of
original issue discount allocable to all prior accrual periods,
reduced by the amount of all payments other than any qualified
stated
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interest payments on the debt security in all prior accrual
periods. All payments on an Original Issue Discount Debt
Security (other than qualified stated interest) will generally
be viewed first as payments of previously accrued original issue
discount (to the extent of the previously accrued discount),
with payments considered made from the earliest accrual periods
first, and then as a payment of principal. The annual
yield to maturity of a debt security is the discount rate
(appropriately adjusted to reflect the length of accrual
periods) that causes the present value on the issue date of all
payments on the debt security to equal the issue price. As a
result of this constant yield method of including
original issue discount income, the amounts you will be required
to include in your gross income if you invest in an Original
Issue Discount Debt Security denominated in U.S. dollars
generally will be lesser in the early years and greater in the
later years than amounts that would be includible on a
straight-line basis.
You generally may make an irrevocable election to include in
income your entire return on a debt security (i.e., the excess
of all remaining payments to be received on the debt security,
including payments of qualified stated interest, over the amount
you paid for the debt security) under the constant yield method
described above. If you purchase debt securities at a premium or
market discount and if you make this election, you will also be
deemed to have made the election (discussed below under the
Premium and Market Discount) to amortize
premium or to accrue market discount currently on a constant
yield basis in respect of all other premium or market discount
bonds that you hold.
In the case of an Original Issue Discount Debt Security that is
also a foreign currency debt security, you should determine the
U.S. dollar amount includible as original issue discount
for each accrual period by (i) calculating the amount of
original issue discount allocable to each accrual period in the
foreign currency using the constant yield method described above
and (ii) translating that foreign currency amount at the
average exchange rate in effect during that accrual period (or,
with respect to an interest accrual period that spans two
taxable years, at the average exchange rate for each partial
period). Alternatively, you may translate the foreign currency
amount at the spot rate of exchange on the last day of the
accrual period (or the last day of the taxable year, for an
accrual period that spans two taxable years) or at the spot rate
of exchange on the date of receipt, if that date is within five
business days of the last day of the accrual period, provided
that you have made the election described above under
Payments or Accruals of Interest. Because exchange
rates may fluctuate, if you are the holder of an Original Issue
Discount Debt Security that is also a foreign currency debt
security, you may recognize a different amount of original issue
discount income in each accrual period than would be the case if
you were the holder of an otherwise similar Original Issue
Discount Debt Security denominated in U.S. dollars. Upon
the receipt of an amount attributable to original issue discount
(whether in connection with a payment of an amount that is not
qualified stated interest or the sale or retirement of the
Original Issue Discount Debt Security), you will recognize
ordinary income or loss measured by the difference between the
amount received (translated into U.S. dollars at the
exchange rate in effect on the date of receipt or on the date of
disposition of the Original Issue Discount Debt Security, as the
case may be) and the amount accrued (using the exchange rate
applicable to such previous accrual).
If you purchase an Original Issue Discount Debt Security outside
of the initial offering at a cost less than its remaining
redemption amount (i.e., the total of all future payments
to be made on the debt security other than payments of qualified
stated interest), or if you purchase an Original Issue Discount
Debt Security in the initial offering at a price other than the
debt securitys issue price, you generally will also be
required to include in gross income the daily portions of
original issue discount, calculated as described above. However,
if you acquire an Original Issue Discount Debt Security at a
price greater than its adjusted issue price, you will be
required to reduce your periodic inclusions of original issue
discount to reflect the premium paid over the adjusted issue
price.
Floating rate debt securities generally will be treated as
variable rate debt instruments under the OID
Regulations. Accordingly, the stated interest on a Floating Rate
Debt Security generally will be treated as qualified
stated interest and such a debt security will not have OID
solely as a result of the fact that it provides for interest at
a variable rate. If a floating rate debt security does not
qualify as a variable rate debt instrument, the debt
security will be subject to special rules that govern the tax
treatment of debt obligations that provide for contingent
payments. We will provide a detailed description of the tax
considerations relevant to U.S. holders of any such debt
securities in the prospectus supplement.
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Certain Original Issue Discount Debt Securities may be redeemed
prior to maturity, either at the option of the Company or at the
option of the holder, or may have special repayment or interest
rate reset features as indicated in the prospectus supplement.
Original Issue Discount Debt Securities containing these
features may be subject to rules that differ from the general
rules discussed above. If you purchase Original Issue Discount
Debt Securities with these features, you should carefully
examine the prospectus supplement and consult your tax adviser
about their treatment since the tax consequences of original
issue discount will depend, in part, on the particular terms and
features of the debt securities.
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Short-Term Debt Securities |
The rules described above will also generally apply to Original
Issue Discount Debt Securities with maturities of one year or
less (short-term debt securities), but with some
modifications.
First, the original issue discount rules treat none of the
interest on a short-term debt security as qualified stated
interest, but treat a short-term debt security as having
original issue discount. Thus, all short-term debt securities
will be Original Issue Discount Debt Securities. Except as noted
below, if you are a cash-basis holder of a short-term debt
security and you do not identify the short-term debt security as
part of a hedging transaction you will generally not be required
to accrue original issue discount currently, but you will be
required to treat any gain realized on a sale, exchange or
retirement of the debt security as ordinary income to the extent
such gain does not exceed the original issue discount accrued
with respect to the debt security during the period you held the
debt security. You may not be allowed to deduct all of the
interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a short-term debt security until
the maturity of the debt security or its earlier disposition in
a taxable transaction. Notwithstanding the foregoing, if you are
a cash-basis U.S. holder of a short-term debt security, you
may elect to accrue original issue discount on a current basis
(in which case the limitation on the deductibility of interest
described above will not apply). A U.S. holder using the
accrual method of tax accounting and some cash method holders
(including banks, securities dealers, regulated investment
companies and certain trust funds) generally will be required to
include original issue discount on a short-term debt security in
gross income on a current basis. Original issue discount will be
treated as accruing for these purposes on a ratable basis or, at
the election of the holder, on a constant yield basis based on
daily compounding.
Second, regardless of whether you are a cash-basis or
accrual-basis holder, if you are the holder of a short-term debt
security you may elect to accrue any acquisition
discount with respect to the debt security on a current
basis. Acquisition discount is the excess of the remaining
redemption amount of the debt security at the time of
acquisition over the purchase price. Acquisition discount will
be treated as accruing ratably or, at the election of the
holder, under a constant yield method based on daily
compounding. If you elect to accrue acquisition discount, the
original issue discount rules will not apply.
Finally, the market discount rules described below will not
apply to short-term debt securities.
If you purchase a debt security at a cost greater than the debt
securitys remaining redemption amount, you will be
considered to have purchased the debt security at a premium, and
you may elect to amortize the premium as an offset to interest
income, using a constant yield method, over the remaining term
of the debt security. If you make this election, it generally
will apply to all debt instruments that you hold at the time of
the election, as well as any debt instruments that you
subsequently acquire. In addition, you may not revoke the
election without the consent of the Internal Revenue Service. If
you elect to amortize the premium, you will be required to
reduce your tax basis in the debt security by the amount of the
premium amortized during your holding period. Original Issue
Discount Debt Securities purchased at a premium will not be
subject to the original issue discount rules described above. In
the case of premium on a foreign currency debt security, you
should calculate the amortization of the premium in the foreign
currency. Premium amortization deductions attributable to a
period reduce interest income in respect of that period, and
therefore are translated into U.S. dollars at the rate that
you use for interest payments in respect of that period.
Exchange gain or loss will be realized with respect to amortized
premium on a foreign currency debt security based on the
difference between the exchange rate computed on the date or
dates the premium is amortized against interest payments on the
debt security and the exchange rate on the date the holder
acquired the debt security.
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If you do not elect to amortize premium, the amount of premium
will be included in your tax basis in the debt security.
Therefore, if you do not elect to amortize premium and you hold
the debt security to maturity, you generally will be required to
treat the premium as capital loss when the debt security matures.
If you purchase a debt security at a price that is lower than
the debt securitys remaining redemption amount (or in the
case of an Original Issue Discount Debt Security, the debt
securitys adjusted issue price), by 0.25% or more of the
remaining redemption amount (or adjusted issue price),
multiplied by the number of remaining whole years to maturity,
the debt security will be considered to bear market
discount in your hands. In this case, any gain that you
realize on the disposition of the debt security generally will
be treated as ordinary interest income to the extent of the
market discount that accrued on the debt security during your
holding period. In addition, you may be required to defer the
deduction of a portion of the interest paid on any indebtedness
that you incurred or continued to purchase or carry the debt
security. In general, market discount will be treated as
accruing ratably over the term of the debt security, or, at your
election, under a constant yield method. You must accrue market
discount on a foreign currency debt security in the specified
currency. The amount that you will be required to include in
income in respect of accrued market discount will be the
U.S. dollar value of the accrued amount, generally
calculated at the exchange rate in effect on the date that you
dispose of the note.
You may elect to include market discount in gross income
currently as it accrues (on either a ratable or constant yield
basis), in lieu of treating a portion of any gain realized on a
sale of the debt security as ordinary income. If you elect to
include market discount on a current basis, the interest
deduction deferral rule described above will not apply. If you
do make such an election, it will apply to all market discount
debt instruments that you acquire on or after the first day of
the first taxable year to which the election applies. The
election may not be revoked without the consent of the Internal
Revenue Service. Any accrued market discount on a foreign
currency debt security that is currently includible in income
will be translated into U.S. dollars at the average
exchange rate for the accrual period (or portion thereof within
the holders taxable year).
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Indexed Debt Securities and Other Debt Securities
Providing for Contingent Payments |
Special rules govern the tax treatment of debt obligations that
provide for contingent payments (contingent debt
obligations). These rules generally require accrual of
interest income on a constant yield basis in respect of
contingent debt obligations at a yield determined at the time of
issuance of the obligation, and may require adjustments to these
accruals when any contingent payments are made. We will provide
a detailed description of the tax considerations relevant to
U.S. holders of any contingent debt obligations in the
prospectus supplement.
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Information Reporting and Backup Withholding |
The paying agent must file information returns with the United
States Internal Revenue Service in connection with debt security
payments made to certain United States persons. If you are a
United States person, you generally will not be subject to
United States backup withholding tax on such payments if you
provide your taxpayer identification number to the paying agent.
You may also be subject to information reporting and backup
withholding tax requirements with respect to the proceeds from a
sale of the debt securities. If you are not a United States
person, you may have to comply with certification procedures to
establish that you are not a United States person in order to
avoid information reporting and backup withholding tax.
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PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus:
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through underwriters; |
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through dealers; |
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through agents; or |
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directly to purchasers. |
The prospectus supplement relating to any offering will identify
or describe:
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any underwriter, dealers or agents; |
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their compensation; |
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the net proceeds to us; |
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the purchase price of the securities; |
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the initial public offering price of the securities; and |
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any exchange on which the securities will be listed, if
applicable. |
Underwriters
If we use underwriters in the sale, they will acquire securities
for their own account and may resell the securities from time to
time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Unless we otherwise state
in the prospectus supplement, various conditions to the
underwriters obligation to purchase securities apply, and
the underwriters will be obligated to purchase all of the
securities contemplated in an offering if they purchase any of
such securities. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
Dealers
If we use dealers in the sale, unless we otherwise indicate in
the prospectus supplement, we will sell securities to the
dealers as principals. The dealers may then resell the
securities to the public at varying prices that the dealers may
determine at the time of resale.
Agents and Direct Sales
We may sell securities directly or through agents that we
designate. The prospectus supplement will name any agent
involved in the offering and sale and state any commissions we
will pay to that agent. Unless we indicate otherwise in the
prospectus supplement, any agent is acting on a best efforts
basis for the period of its appointment.
Contracts with Institutional Investors for Delayed
Delivery
If we indicate in the prospectus supplement, we will authorize
underwriters, dealers or agents to solicit offers from various
institutional investors to purchase securities. In this case,
payment and delivery will be made on a future date that the
prospectus supplement specifies. The underwriters, dealers or
agents may impose limitations on the minimum amount that the
institutional investor can purchase. They may also
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impose limitations on the portion of the aggregate amount of the
securities that they may sell. These institutional investors
include:
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commercial and savings banks; |
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insurance companies; |
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pension funds; |
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investment companies; |
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educational and charitable institutions; and |
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other similar institutions as we may approve. |
The obligations of any of these purchasers pursuant to delayed
delivery and payment arrangements will not be subject to any
conditions. However, one exception applies. An
institutions purchase of the particular securities cannot
at the time of delivery be prohibited under the laws of any
jurisdiction that governs:
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the validity of the arrangements; or |
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the performance by us or the institutional investor. |
Indemnification
Agreements that we will enter into with underwriters, dealers or
agents may entitle them to indemnification by us against various
civil liabilities. These include liabilities under the
Securities Act of 1933. The agreements may also entitle them to
contribution for payments which they may be required to make as
a result of these liabilities. Underwriters, dealers and agents
may be customers of, engage in transactions with, or perform
services for, us in the ordinary course of business.
Market Making
In the event that we do not list securities of any series on a
U.S. national securities exchange, various broker-dealers
may make a market in the securities, but will have no obligation
to do so, and may discontinue any market making at any time
without notice. Consequently, it may be the case that no
broker-dealer will make a market in securities of any series or
that the liquidity of the trading market for the securities will
be limited.
Expenses
The expenses of any offering of debt securities will be detailed
in the relevant prospectus supplement.
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VALIDITY OF DEBT SECURITIES
Unless otherwise specified in the applicable prospectus
supplement, Cleary Gottlieb Steen & Hamilton LLP
will pass upon the validity of the debt securities as to matters
of French law and as to matters of New York law for our
company. Davis Polk & Wardwell or any other law firm
named in the applicable prospectus supplement will pass upon the
validity of the debt securities as to French law and New York
law for any underwriters or agents.
EXPERTS
The consolidated financial statements of Lafarge S.A., as of and
for the years ended December 31, 2005 and 2004, and Lafarge
S.A. managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2005, appearing in our annual report on
Form 20-F for the
year ended December 31, 2005, which is incorporated herein
by reference, have been audited by Deloitte &
Associés, independent registered public accounting firm, as
set forth in its reports thereon included therein and
incorporated herein by reference, which is based in part on the
reports of Ernst & Young LLP, independent registered
public accounting firm, with respect to the consolidated
financial statements of Lafarge North America Inc. for the years
ended December 31, 2005 and 2004 and Lafarge North America
Inc. managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2005. Such consolidated financial statements
and managements assessments are incorporated herein by
reference in reliance upon such reports given on the authority
of said firms as experts in accounting and auditing.
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