Saint-Gobain regularly analyzes its contracts in order to separately identify financial instruments that may be classified as embedded derivatives under IFRS.
At December 31, 2005, no embedded derivatives deemed to be material at Group level were identified.
Note 21
Investment-related liabilitiesl
Due to the acquisition of BPB, for the first time the Group has recorded a separate line in the balance sheet for investment- related liabilities. At December 31, 2005, the short- and long- term portions of these liabilities totaled €263 million and €130 million respectively. Of the overall amount, €243 million of the short-term portion related to BPB, with the balance corresponding to additional purchase consideration and commitments to purchase minority interests recorded in 2005.
Note 22
Business income and expensel
In 2005, research and development costs recorded under operating expense amounted to €305 million, compared with €312 million the previous year.
Gains on disposals of assets totaled €81 million, compared with €41 million in 2004. The increase in this item in 2005 reflects the sales of Saint-Gobain Stradal, Ibiden France, Saint-Gobain Oberland's glass brick business, and Saint-Gobain TM KK's ceramic fiber operations.
Restructuring costs mainly consisted of employee termination benefits, representing €108 million, versus €105 million in 2004.
As in 2004, provisions and expenses relating to claims and litigation primarily included the asbestos-related litigation charge explained in Notes 15 and 27.
Impairment of assets primarily included €36 million in impairment of goodwill,€37 million in impairment of property, plant and equipment, and €11 million in impairment of other intangible assets, compared with €47 million, €33 million and €13 million, respectively, in 2004. The balance corresponds
to impairment of financial and current assets.
Notes
to
the c
onsolida
ted financial sta
temen
ts
149
(in € millions) 2005 2004
Personnel costs:
Salaries and payroll taxes (7,038) (6,681)
Share-based payment(a) (41) (32)
Pensions and other
post-employment benefits (177) (171)
Depreciation and amortization (1,339) (1,287)
Other(b) (23,655) (21,258)
Operating expense (32,250) (29,429)
Gains on disposals of assets 81 41
Recognition of negative goodwill
in the income statement 3 6
Other business income 84 47
Restructuring costs (184) (153)
Provisions and expenses relating
to claims and litigation (106) (112)
Impairment of assets (105) (104)
Other 5 (3)
Other business expense (390) (372)
(a) Including share-based compensation under the Group Savings Plan, amounting to €11 million in 2005 and €14 million in 2004.
(b) Mainly relating to the costs of goods sold by the Distribution Sector (€11,833 million in 2005 and €10,510 million in 2004), as well as transport costs, the costs of raw materials and other production costs in the other sectors.
Note 23
Financial income and expensel
(in € millions) 2005 2004
Net income attributable
to equity holders of the parent 1,264 1,239
Less
Gains on disposals of assets 81 41
Impairment of property, plant
and equipment and intangible assets (102) (95)
Tax impact 5 4
Impact of minority interests (4) 0
NET INCOME EXCLUDING CAPITAL GAINS 1,284 1,289
In 2005, total interest paid and received came to €383 million. Net translation losses recognized in cost of sales came to €4 million in 2005, compared with €20 million in 2004.
Note 24
Net income excluding capital gainsl
Net income excluding capital gains totaled €1,284 million in 2005, compared with €1,289 million in 2004. Based on the 345,256,270 shares outstanding at December 31, 2005 (2004: 340,988,000), earnings per share (EPS) excluding capital gains amounted to €3.72 in 2005, versus €3.78 in 2004. The difference between net income and net income excluding capital gains can be analyzed as follows:
(in € millions) 2005 2004
Interest expense on borrowings – gross (465) (450)
Income from cash and cash equivalents 52 64
Interest expense on borrowings – net (413) (386)
Interest cost relating to pensions – gross (367) (327)
Return on plan assets 277 232
Interest cost relating to pensions – net (90) (95)
Other financial income and expense (66) (54)
NET FINANCIAL EXPENSE (569) (535)
Note 25
Earnings per share (EPS)l
The calculation of EPS is shown below.
150
Net income Cancellation Adjustment Adjusted net Number of shares EPS
attributable to of interest of the tax income (in €)
equity holders paid on impact attributable to
of the parent Océane bonds equity holders
(in € millions) of the parent
2005
Weighted average number of shares in issue 1,264 1,264 336,330,568 3.76
Weighted average number
of shares assuming full dilution 1,264 45 (16) 1,293 357,338,208 3.62
Number of shares in issue at December 31 1,264 1,264 345,256,270 3.66
2004
Weighted average number of shares in issue 1,239 1,239 337,253,298 3.67
Weighted average number
of shares assuming full dilution 1,239 45 (16) 1,268 356,825,103 3.55
Number of shares in issue at December 31 1,239 1,239 340,988,000 3.63
The weighted average number of shares is issue is calculated by deducting treasury stock (8,383,161 shares at December 31, 2005) from the average number of shares in issue during the year.
The weighted average number of shares assuming full dilution is calculated based on the weighted average number of shares in issue, assuming conversion of all dilutive instruments. The Group’s dilutive instruments include stock options – corresponding to a weighted average number of 3,483,828 shares in 2005 – and Océane bonds, convertible into 17,523,812 shares.
(in € millions) 2005 Minimum future lease payments
Within one year 31
Between one and five years 95
Beyond five years 51
Total 177
Less estimated executory costs included
in capitalized finance leases (5)
Total minimum future lease payments 172
Less interest costs (24)
PRESENT VALUE OF MINIMUM FUTURE LEASE PAYMENTS 148 Obligations under operating leases
The Group leases equipment and office, manufacturing and warehouse space under various operating leases. Lease terms generally range from 1 to 9 years. Certain contracts contain renewal options for various periods of time as well as clauses for payment of real estate taxes and insurance. In most cases, management expects that in the normal course of business, these leases will be renewed or replaced by other leases.
Total Payments due Total
2005 Within Between Beyond 2004
one year 1 and 5 years
(in € millions) 5 years
Operating leases
Rental expense 2,126 383 893 850 1,885
Subletting revenue (61) (13) (21) (27) (110)
TOTAL 2,065 370 872 823 1,775
Other contractual obligations
Non-cancelable purchase commitments include commitments to purchase raw materials and services including vehicle leasing commitments, as well as non-cancelable orders for non-current assets.
Total Payments due Total
2005 Within Between Beyond 2004
one year 1 and 5 years
(in € millions) 5 years
Non-cancelable purchase commitments Non-current assets 112 106 3 3 44 Raw materials 187 130 56 1 222 Services 133 57 62 14 137 Other purchases 98 65 29 4 82 TOTAL 530 358 150 22 485
The Group grants seller’s warranties in relation to the sale of certain subsidiaries. A provision is set aside whenever a risk is identified and the related cost can be estimated reliably. The Group has also received guarantees, amounting to €40 million at December 31, 2005, compared with €53 million the previous year.
Note 26
Commitmentsl
The Group’s contractual obligations and commercial commitments are described below, except for commitments related to debt and financial instruments, which are discussed in Notes 19 and 20, respectively.
The Group has no other material commitments.