Issy-les-Moulineaux, May 15, 2006
A ZODIAC GROUP COMMUNICATION
Consolidated Financial Statement for First Half of Fiscal Year 2005-2006 (February 28, 2006)
Zodiac S.A.
A société anonyme governed by a Supervisory Board and an Executive Board with authorized capital of €10,953,480.00.
Registered office: 2, rue Maurice Mallet, 92130 Issy-les-Moulineaux. 729 800 821 R.C.S. Nanterre. – APE: 741 J.
Fiscal year: from September 1until August 31.
Consolidated Financial Statements
I - Zodiac Group: Consolidated Balance Sheet for the Six Months Ended February 28, 2006
(in thousands of euros)
Assets 28 Feb. 2006 31 Aug. 2005 Non-current assets: Goodwill ... 1,331,544 1,301,370 Intangibles - Net ... 100,559 81,238 Property, plant and equipment - Net ... 253,540 251,517 Financial assets... 7,732 6,888 Deferred tax assets ... 27,258 35,260 1,720,633 1,676,273
Current assets:
Inventories and work in progress - Net ... 496,457 435,686 Current tax assets ... 21,936 12,280 Trade and other receivables - Net ... 589,715 476,055 Financial assets... 778 588 Cash and cash equivalents ... 57,618 61,201
Liabilities and shareholders' equity 28 Feb. 2006 31 Aug. 2005 Shareholders' equity: Capital stock ... 10,953 10,945 Share issue & merger premium ... 165,777 164,991 Consolidated reserves... 552,946 471,247 Translation adjustment ... 44,733 17,622 Restatement of financial instruments ... 56
Consolidated net income (Group share)... 66,994 121,742
Shareholders' equity (Group share) 841,459 786,547
Minority interests ... 3,156 3,641 Total shareholders' equity ... 844,615 790,188
Non-current liabilities: Provisions ... 41,330 40,259 Debt ... 1,088,933 1,006,464 Deferred taxes ... 14,282 18,280 1,144,545 1,065,003 Current liabilities: Provisions ... 48,761 41,090 Debt ... 455,637 402,241 Current tax liabilities ... 29,889 36,166 Trade and other payables ... 363,690 360,611
Held- for-sale operations ... 21,568
897,977 861,676
II - Zodiac Group: Consolidated Income Statement (in thousands of euros)
H1-2006 to 28 Feb. 2006 H1-2005 to 28 Feb. 2005 FY 2004/2005 to 31 Aug. 2005 Revenues ... 1,086,913 8,120,915 1,821,352 Other operating income ... 3,703 30,073 70,762 Total revenues ... 1,090,616 8,150,988 1,829,114
Purchases used in production... 437,132 3,500,753 7,590,471 Personnel costs ... 322,855 2,530,595 5,220,956 Outside expenses ... 175,747 1,210,743 2,580,509 Taxes other than income tax... 11,911 100,221 210,056 Depreciation and amortization... 29,468 230,957 490,291 Charges to provisions ... 2,377 40,356 80,886 Changes in inventories of finished goods
III - Statement of Changes in Consolidated Shareholders' Equity
(in thousands of euros)
Capital stock Additional paid-in capital Reserves and net income Translation adjustments Treasury stock Restatement of financial instruments Shareholders' equity (Group share) Change in minority interests Change in shareholders' equity Balance at September 1, 2004 10,763 142,113 493,313 (14,756) 631,433 2,868 630,4301 Capital increase 182 22,878 23,060 23,060 Purchase or sale of treasury stock
10,964 14,756 25,720 25,720
Net income
for the year 121,742 121,742 773 1220,515
Currency conversion adjustments (1) 17,622 17,622 13 170,635 Dividends (34,442) (34,442) (179) (34,621) Other 1,412 1,412 1,412 Change in scope of consolidation and capital increase for
minority interests 166 166 Balance at August 31, 2005 10,945 164,991 592,989 17,622 0 0 786,547 3,641 790,188 Capital increase 8 858 866 866 Net income
for the year 66,994 66,994 297 670,291
Currency conversion adjustments 27,111 27,111 68 270,179 Dividends (41,045) (41,045) (325) (41,370) Restatement of financial instruments 56 56 56 Other (72) 1,002 930 930 Change in scope of consolidation and capital increase for
minority interests (525) (525)
Balance at
February 28, 2006 10,953 165,777 619,940 44,733 0 56 841,459 3,156 840,4615
(1) Foreign exchange difference on IFRS transition document: €26,943,000 - €9,321,000 reclassified as reserves.
IV - Consolidated Cash Flow Statement (in thousands of euros)
H1-2006 to 28 Feb. 06 FY 2004/2005 to 31 Aug. 05 Operating activities: Net income 67,290 122,514
Depreciation, amortization and provisions 29,120 56,431
Capital gains on asset disposals 955 3,169
Subsidies and deferred taxes (1,795) 17,393
Stock options 1,003 1,427
Cash flow 96,573 200,934
Net change in inventories (46,964) (56,504)
Net change in operating assets (108,966) (10,605)
Net change in liabilities 17,515 21,317
Cash generated from operations (41,842) 155,142
Investing activities:
Purchases of fixed assets
Intangible assets (18,934) (17,863)
Property, plant and equipment (20,685) (47,697)
Other (595) (1,005)
Proceeds from disposals of non-current assets 536 4,744 Change in receivables and payables relating to non-current
assets (2,501) (1,152)
Acquisitions/disposals of entities, net of cash acquired (1) (5,854) (793,959) Cash generated from financing activities (48,033) (856,932)
Financing activities:
Change in long-term debt 110,471 7,090,199
Increase in shareholders' equity 867 230,060
Gross proceeds from sales of treasury stock 310,578
Dividends paid to parent company (41,045) (34,442)
Dividends paid to minority interests (325) (181)
Cash generated from financing activities 69,968 7,290,214 Currency conversion adjustments, beginning of period 649 (1,542) Net change in cash from held- for-sale operations 1,498 (1,498)
Net change in cash (17,760) 240,384
Cash at beginning of period 39,356 140,972
Cash at end of period 21,596 390,356
I.- Applied accounting principles
A.- Basis for preparation of financial statements
To comply with the European Regulation dated July 19, 2002 on International Financial Reporting Standards (IFRS), the Zodiac Group's consolidated financial statements for the fiscal year ended on August 31, 2006 will be prepared in accordance with IAS/IFRS as adopted by the European Union at that date. Comparative accounts for the previous year will be prepared in accordance with the same standards, with the exception of IAS 32 and IAS 39, which the Group has opted to apply as from September 1, 2005.
To comply with the AMF recommendation on financ ial reporting during the transition period, the Zodiac Group has opted to publish consolidated financial statements for the six months to 28 February 2006 presented in accordance with national accounting rules, but prepared based on the IAS/IFRS recognition and measurement rules adopted by the European Union as of February 28, 2006. Consequently, the financial information provided in the financial statements for the six months to 28 February 2006 include the notes deemed to be the most appropriate. Because of the hybrid system that the Group has selected, the notes to the financial statements do not include all information required by IFRS as adopted by the European Union.
The IFRS accounting information applied (standards and interpretations) is liable to change between now and August 31, 2006. Moreover, the options and exemptions that the Group has adopted, as described below in Note B, are those that the Group is likely to apply in preparing its first consolidated financial statements under IFRS for the year ended August 31, 2006. For these reasons, there is a possibility that the opening balance sheet at September 1, 2004 from which the consolidated financial statements for the year ended August 31, 2006 will effectively be prepared and that the 2004/2005 half- year and full- year results and 2005/2006 half- year results under IFRS as well as the balance sheet to August 31, 2005 as presented herein will be modified during FY 2006.
B.- Options adopted by Zodiac for preparing financial information under IFRS for the first time
1.- Options adopted by the Group for preparing the opening balance sheet at September 1, 2004.
IFRS 1 (First Time Adoption of International Financial Reporting Standards) allows certain exemptions to the principle of retrospective application as of the transition date.
Of these exemptions, in preparing its opening balance sheet, Zodiac has elected to apply the following options:
§ translation adjustments arising from the conversion of foreign subsidiaries' accounts have been reduced to zero as of September 1, 2004 in opening equity under IFRS;
§ Cumulative actuarial gains and losses applicable on September 1, 2004 and unrecognized in commitments for employee benefits have been fully recognized with an offsetting entry in opening equity under IFRS;
§ IFRS 2 has been applied to stock option plans that were granted to Group employees and senior managers after November 7, 2002 with an exercise date beyond January 1, 2005;
§ IAS 32 and IAS 39 have been applied as from September 1,
2005 with no restatement for FY 2004/2005. The impact of first-time application as of September 1 is presented in Note AA.
The other options and exemptions allowed by IFRS 1 were not applied by or are not applicable to the accounts of the Zodiac Group. In particular, after analysis, no non-current assets were revalued in the IFRS opening balance sheet.
2 .- Options adopted by the Group when the standards allow for recognition and valuation options.
Certain International Accounting Standards allow for optional treatment for the measurement and recognition of assets and liabilities.
In this respect, at this stage, the Group has opted:
- to use the amortized historical cost method for valuing its non-current assets and property, plant and equipment, and therefore not to revalue its non-current assets and property, plant and equipment at each balance sheet date (IAS 16);
- not to capitalize interest expense incurred during the period of construction of intangible assets and property, plant and equipment (IAS 23);
- to continue to apply the method of accounting for inventories at their initial cost, as determined by the "first in, first out" method (IAS 2). The impact of the transition from French GAAP to IFRS on the income statement for the year ended 31 August 2005, on the balance sheet at September 1, 2004 and on the balance sheet at 31 August 2005 is presented in the report entitled "Transition to IFRS", which was published and filed with the AMF on 24 April 2006.
The impact on net income for the six months ended February 28, 2005 is shown in Part II of the Notes.
C.- Principles used to prepare the first-half accounts
Income tax
The tax charge (including the current and deferred portions) is calculated by applying the estimated annual average tax rate for the current fiscal year to the accounting income for the period, company by company.
Seasonal nature of business
The Marine Segment is active in a seasonal business and generates the bulk of its sales during the second half of the year. As a result, the interim results are not representative of the results that this segment could be expected to generate over the full year.
The accounting principles and policies are the same as those used to prepare the year-end financial statements.
Amounts are expressed in thousands of euros unless otherwise indicated. D.- Use of estimates and assumptions
The preparation of financial statements requires the Group to make estimates and use assumptions that affect the value of assets and liabilities on the consolidated balance sheet and the amount of income and expenses on the income statement. Management revises its estimates and assumptions on an ongoing basis, as a function of all factors on which it bases its assessment. Actual future results may differ significantly from these estimates as a result of different assumptions or conditions.
E.- Consolidation methods
Companies over which Zodiac exercises exclusive control, whether directly or indirectly, are fully consolidated.
Companies over which Zodiac exercises joint control, whether directly or indirectly, are consolidated on the proportional method.
Companies over which Zodiac exercises material influence are accounted for by the equity method. Material influence is presumed to exist when the Group holds more than 20% of the voting rights.
In the case of consolidated companies, intra-Group balance sheet items and transactions are eliminated in full.
Acquisitions and disposals of companies during the fiscal year are recorded in the consolidated financial statements as from the date of the acquisition or loss of effective control.
F.- Translation of subsidiaries' financial statements expressed in foreign currencies
The financial statements of foreign subsidiaries that report in a currency other than the euro are translated as follows:
- assets and liabilities: into euros based on the exchange rate at the end of the period;
The resulting translation adjustments are recorded under shareholders' equity.
None of the Group's foreign subsidiaries reports in the currency of a hyperinflationary economy.
G.- Foreign currency transactions
The recognition and measurement of foreign currency transactions are defined by IAS 21 – Effects of Changes in Foreign Exchange Rates. In accordance with this standard, foreign currency transactions are converted into euros at the closing exchange rates and the resulting differences are recorded in the income statement.
H.- Property, plant and equipment and finance leases
Separately-acquired property, plant and equipment are recognized at cost, less accumulated depreciation and impairment losses.
The residual value of non-current assets is taken into account in determining the depreciable amount when this residual value is material.
Depreciation is calculated on a straight- line basis over the useful life of the asset determined on the basis of the consumption pattern of expected future economic benefits.
In most cases, these useful lives are the following:
- buildings and improvements: 10 to 40 years depending on the type of building;
- plant and equipment: 3 to 8 years depending on the use of the equipment; - IT equipment and furniture: 3 to 10 years depending on the use of the equipment.
Lease agreements that transfer to Zodiac the risks and rewards incident to ownership (finance lease agreements) are recorded under property, plant and equipment and the corresponding liability is recorded under debt.
After initial recognition, the amortized cost model is applied to property, plant and equipment. Impairment tests are carried out when there is an indication of impairment (Note W).
I.- Business combinations
Business combinations are accounted for by applying the purchase method, as required by IFRS 3, "Business Combinations".
The difference between the purchase cost plus incidental expenses and the Group's share in the fair value of the identifiable assets and liabilities of the acquired entity is accounted for as goodwill if the difference is positive and under income if it is negative.
Furthermore, goodwill arising from the acquisition of minority interests is determined based on the share of net assets acquired, with no revaluation of the assets and liabilities acquired.
J.- Intangibles
Intangible assets comprise mainly brands, patents, licenses and development costs.
Separately-acquired intangible assets and intangible assets acquired as part of a business combination
Separately-acquired intangible assets are recognized at cost and subsequently measured at amortized cost.
Intangible assets resulting from the valuation of assets of acquired entities (mainly brands) are recorded on the balance sheet at fair value, which is usually determined based on external valuations.
Intangible assets are amortized over a useful life not exceeding 20 years. Intangible assets are subject to impairment tests when there is an indication of impairment (Note W).
Unamortized intangible assets, which mainly include goodwill, are subject to impairment tests when there is an indication of impairment and at least once per year ( Note W).
Internally-generated intangible assets
These mainly consist of development expenditure.
Under IAS 38 – Intangible Assets, development expenditure must be capitalized when the enterprise can demonstrate the following:
- its intention and financial and technical ability to complete the development project;
- the probability that the future economic benefits that are attributable to the asset will flow to the enterprise; and
- the cost of the asset can be measured reliably.
Research and development costs that do not meet the above criteria are recognized as expenses during the year in which they are incurred.
These costs are amortized over the projected quantity of units to be sold as from when the relevant program begins to operate. If applicable, this allocation is supplemented in order to increase the expense to the equivalent of a minimum straight- line amount of amortization, which is applied as from the second fiscal year after the beginning of operation.
As of the balance sheet date, these intangible assets are subject to impairment tests if there is an indication that their carrying values may not be recoverable.
K.- Financial assets
Financial assets comprise non-consolidated investments, which are classified as available- for-sale financial assets, loans, deposits and guarantees.
As from September 1, 2005 (the date of first-time application of IAS 39), non-consolidated investments are initially recognized at acquisition cost, then measured at fair value when fair value can be measured reliably.
None of these non-consolidated investments is an investment in a listed company.
When fair value cannot be measured reliably, the recoverable amount is determined based on the Group's share of net assets, anticipated future profitability and growth prospects of the entity in which the investment is made .
Changes in fair value are included in equity, under a separate heading, until the shares are sold. When it has been concluded that the impairment loss is permanent, this loss is recorded in the income statement.
Deposits, guarantees and loans are recognized at amortized cost. Impairment losses are recognized if there is objective evidence of impairment.
L.- Inventories
The Group values its inventories at cost, calculated by the "first in, first out" method, in accordance with IAS 2 – Inventories. Inventories are valued at the lower of cost or net realizable value, which is the estimated selling price less estimated costs necessary to realize the sale.
M.- Trade and other receivables
Trade receivables are recognized at the initial invoice amount minus impairment provisions for unrecoverable amounts. A charge is booked to provisions when there is objective evidence indicating that the Zodiac Group will not be able to recover these receivables. Unrecoverable receivables are written off when identified as such.
N.- Cash and cash equivalents
Cash and short-term deposits shown on the balance sheet comprise cash in bank, cash on hand and sho rt-term deposits with an initial maturity of less than three months.
O.- Costs associated with capital increases
After-tax external costs directly related to a capital increase are deducted from additional paid-in capital when a tax savings is generated.
P.- Treasury stock
Purchases of treasury stock are recorded as a deduction from shareholders' equity, based on the acquisition cost of the shares. After-tax gains or losses on the sale of treasury stock are recorded under consolidated reserves.
Q.- Provisions
In accordance with IAS 37 – Provisions, Contingent Liabilities and
Contingent Assets, the Group recognizes a provision if it has an obligation
towards a third party that arises from a past event, if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and if the amount of the loss or liability can be measured reliably.
If this loss or liability is not probable and cannot be measured reliably but does remain possible, the Group records a commitment for a contingent liability.
Provisions are discounted whe n the effect is material.
The impact of this rule for the Group applies almost exclusively to provisions for employee benefits.
Provisions recorded by type in the normal operating cycle of the activities concerned are classified on the balance sheet in current provisions. This applies to provisions for guarantees and provisions for litigation.
R.- Deferred taxes
Deferred taxes are recognized using the balance sheet liability method for all temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet and their tax base as of the closing date. Deferred tax assets for all temporary differences or deductible losses are recognized to the extent that it is probable that taxable profit will be available against which the deductible items can be utilized, unless the deferred tax asset arises from differences between the carrying amount of an asset or liability and its tax value resulting from the initial recognition of an asset or liability as part of a transaction that is not a business combination or which, as of the transaction date, does not affect taxable income.
Deferred tax liabilities are recognized, except if they are the result of difference between the carrying amount of an asset or liability resulting from the initial recognition of an asset or liability as part of a transaction that is not a business combination or which, as of the transaction date, does not affect taxable income, except if they result from impairment of goodwill that is not deductible for tax purposes.
In accordance with IAS 12, deferred taxes are not discounted. S.- Financial liabilities and derivative financial instruments Financial liabilities:
As from September 1 2005, financial liabilities primarily consisted of bonds and current and non-current financial liabilities to financial institutions. These liabilities are initially recognized at fair value, including any directly related transaction costs. They are then measured at amortized cost, based on the effective interest rate.
Derivative financial instruments:
The Group uses derivative financial instruments mainly to manage and hedge the effect of exchange rate fluctuations on its foreign-currency revenues. The Group does not use derivative financial instruments for speculative purposes. Depending on the type of risk to be covered, the Group uses contracts such as swaps, options or forward transactions.
The items underlying certain hedging transactions consist of trade receivables and/or payables recorded on the balance sheet of Group companies. At the balance sheet date, hedging transactions are estimated at fair value (marked to market). Any currency gains or losses representing the effective part of these hedges are recognized as operating income. Such gains or losses arising from changes in fair value offset any currency gains or losses arising from the conversion of foreign-currency receivables at the year-end exchange rate, as required by IAS 21 – Effects of Changes in
Foreign Exchange Rates. The ineffective part of the hedge is included in
financial income.
The Group may also hedge projected cash flows, including for recurring operating cash flow or for acquisitions or disposals of equity investments. As required by IAS 39, these hedges are treated as cash flow hedges. At the balance sheet date, the financial instruments corresponding to these hedges are recorded on the balance sheet at fair value. The change in fair value representing the effective portion of such hedges is recorded in equity under a separate heading until the hedged cash flow is effectively realized, then is taken to the income statement when the underlying item is recorded in income. The ineffective part of the hedges is included in financial income. The Group has no hedging policy for the balance sheets of its foreign entities.
Most of the Group's foreign currency exposure arises from transactions generated by its French entities and intended for customers that buy in US dollars.
T.- Pension benefits and similar obligations 1.- Defined-benefit plans
For defined-benefit retirement plans or related medical insurance, the Group uses the Projected Unit Credit Method to determine the cost of benefits and carries out actuarial valuations at each balance sheet date. Actuarial gains and losses on these plans are recognized using the following method:
- the portion of actuarial gains and losses up to 10% of the higher of the present value of the pension obligation and the fair value of plan assets is not recognized;
- the portion of actuarial gains and losses in excess of this 10% corridor is apportioned on a straight- line basis over the residual period of employment to be completed by the relevant employees. The past service cost is recognized immediately to the extent that the employee benefits have become definitely vested. Otherwise, it is amortized over the remaining period of employment to be completed by the relevant employees for their corresponding rights to become vested. The cost of post-employment benefits is recognized in the income statement as follows:
- the cost for current services (i.e. of the period) and the past service cost (portion amortized over the period) is presented in personnel costs;
- the difference between the expected return on plan assets and the pension obligation’s accretion expense is presented in financial income or expenses;
- amortization of possible actuarial gains or losses in application of the above corridor rule is recognized in "Other operating revenues and expenses."
Provisions for post-employment benefits appear on the balance sheet under "Non-current provisions" in their full amount.
2.- Defined-benefit plans
The sums payable for these plans are recorded under expenses for the period.
U.- Share -based payments
As required by IFRS 2, stock warrants or option granted after November 7, 2002 for which the rights were not vested on January 1, 2005 are measured at the fair value calculated on the date of their allocation.
The application of this rule affects expenses for the period, but has no effect on consolidated equity, since the amount of the expense is offset by an increase in equity in an identical amount.
V.- Revenues
As required by IAS 18, sales of finished goods and merchandise are recognized when the risks and rewards incident to ownership are transferred to the buyer, i.e. in most cases, when the goods are shipped.
Sales of services are recorded in accordance with the duration and terms of the contract. Revenues derived from the rendering of services are recognized when the outcome of the transaction can be determined reliably, and based on the stage of completion of the services rendered by the Group. Revenue from the performance of long-term contracts is recognized using the percentage of completion method and determined either as a percentage of actual costs incurred in projected total spending up to completion, or using contractually defined technical stages and, in particular, the essential phases in performance of the contract (proof of installation or delivery of equipment).
Sales are recorded net of all discounts and rebates. In addition, the cost of commercial activities correlated with sales, mainly in the Marine Segment, is deducted from revenues.
W.- Impairment of assets
Goodwill and intangible assets with an indefinite life are not amortized but are subject to impairment tests when there is an indication of an impairment loss, and at least once a year.
Other non-current assets (intangible assets amortized and property, plant and equipment depreciated) are subject to impairment tests whenever there is an indication that their carrying amounts may not be recoverable.
The impairment test consists of comparing the carrying amount of an asset to its recoverable amount, wherein such recoverable amount is the higher of the fair value less costs to sell and the value in use.
Impairment tests are conducted for each asset ind ividually, unless the specific asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In this case, as in the case of goodwill items that in principle do not generate independent cash inflows, the recoverable amount is determined by cash- generating unit, which is the smallest group of assets that generates cash inflows that are largely independent of those from other assets.
The Group has mapped the cash-generating units of which it consists, within the meaning of IAS 36 – Impairment of Assets. In respect of goodwill items, the identified cash-generating units and groups of cash-generating units correspond to the Group's functional organization by segment, and, in certain cases, by product line.
A non-current asset or a group of assets and liabilities is held for sale when most of its value will be recovered through its disposal rather than from its continuing use.
For this to be the case, the asset should be available for immediate disposal and its sale must be highly probable.
Y.- IFRS financial information presentation principles
The Group has elected to separate material non-recurring items in its operating results.
The non-recurring part is shown after the subtotal "Ordinary operating income " under the heading "Other non-recurring operating revenues and expenses"; the resulting subtotal is "Operating income".
The total debt figure that the Group uses for disclosure purposes is the sum of the "Current and non-current debt" figures minus "Cash and cash equivalents".
The presentation of the balance sheet and income statement has been revised in accordance with IAS 1 – Presentation of Financial Statements.
On the balance sheet, assets and liabilities relating to the Group's operating cycle are classified as current.
All other assets and liabilities are classified as non-current. Z.- Earnings per share
Earnings per share as presented with respect to IFRS net profit IFRS is calculated in accordance with IAS 33 – Earnings Per Share.
Basic earnings per share is calculated by dividing the net income attributable to the entity's shareholders by the weighted average number of shares outstanding over the period. Treasury shares are deducted from the average number of shares outstanding.
AA.- Recognition of financial instruments before September 1, 2005 As the Group has opted to apply IAS 39 on recognition of financial assets and liabilities prospectively as from September 1, 2005, financial assets and liabilities as at August 31, 2005 and February 28, 2005 have been recognized in accordance with the accounting principles previously applied by the Group:
- Financial assets are recognized at cost and impairment is recorded when their carrying amount is higher than their market value on the balance sheet date.
- Financial liabilities are recognized at their net received value. - Derivative instruments are not recorded on the balance sheet,
unless a premium has been collected or disbursed. A provision is recorded when the fair value of the derivative implies a liability for the company.
The impact of the first-time application of IAS 39 on the Group's equity at September 1, 2005 is €15,000.
AB.- Change in scope of consolidation
1.- Acquisitions and disposals completed before February 28, 2006
Through its subsidiary Précilec, the Group acquired the assets of the Safran Group’s actuator business for approximately €18 million.
These assets have been consolidated as from January 1, 2006.
On November 2, 2005, the Group disposed of Ferma, a subsidiary of Intertechnique, effective retroactively to September 1, 2005, for €36.5 million (Group share), together with payment of an extraordinary dividend of €5.9 million.
The impact of this transaction on net income was recognized in the Group's FY 2004/2005 accounts.
2.- Acquisitions and disposals completed after February 28, 2006
The Group acquired the military assets of Aerodyne Systems in South Africa for €2 million.
These assets will be consolidated in Parachutes Industries of South Africa, a company created for this purpose.
Carlyle and Zodiac completed the acquisition of Water Pik Technologies of the US through a consortium headed by the Carlyle investment fund. Zodiac's investment is approximately €26 million. Water Pik Technologies (excluding management) is 80% owned by Carlyle and 20% owned by Zodiac.
Two-thirds of Water Pik's sales are generated by its Pool Equipment business.
On April 4, 2006, the Group acquired the aerospace and defense businesses of Enertec from the French group LP2C for €10.5 million.
The company will be attached to IN-SNEC.
Consolidated income statement - February 2005 Transition from French GAAP to IFRS
(in thousands of euros)
Balo Publication format Feb. 05
Amount - GAAP*
Breakdown -
IFRS format IFRS adjustments IFRS reclassificati ons Total changes IFRS IFRS format
Net revenues 815,728 0 (2,813) (2,813) 812,915 Revenues
Other income 65,854 (54,483) (1) (778) a) (7,520) (8,298) 3,073
Other revenues from operations Purchases used in production, raw
materials, changes in inventories
and other outside expenses 483,178 (130,647) (3) (1,775) (1,781) 350,753
Cost of materials Wages and salaries, personnel
costs, profit -sharing 258,355 692 b) (5,452) (4,760) 253,595 Personnel costs
131,471 (2) (93) (9,635) (9,728) 121,743
Outside expenses
Taxes other than income tax 10,221 0 0 10,221
Taxes other than income tax
Depreciation and amortization 23,684 (3) 24 254 278 23,957
Depreciation and amortization Provisions 9,586 (10,996) (3) 806 c) 4,960 5,766 4,356 Provisions 44,311 0 (763) (764) 43,547 Changes in inventories, finished products and work in progress
Other non-recurring operating
income and expenses 209 3 0 3 212
Other revenues and expenses from operations Operating income 96,349 (2,204) 552 (1,654) 94,698 Ordinary operating income Extraordinary items (886) 0 0 0 (886) Other operating revenues and expenses 95,463 (2,204) 552 (1,654) 93,812 Operating income 239 230 0 230 469 Income from cash and cash equivalents
13,401 27 0 27 13,428
Gross cost of debt
Net interest and similar income
(expense) (13,162) 203 0 203 (12,958) Net cost of debt
0 (835) (835) (835) Other financial income and expenses Income tax 29,552 86 (28) 58 29,610 Income tax charge
Income before goodwill 52,749 (2,087) (254) (2,341) 50,409 Net income
Goodwill amortization (17,599) 17,345 d) 254 17,599
Goodwill allocation
Consolidated net income 35,150 15,258 0 15,258 50,409 Net income
Minorities' share 311 3 3 314 Minorities' share
Group share 34,839 15,255 0 15,255 50,095 Group share
*French GAAP
(1) Including -4,288 reversed from a provision for inventories and doubtful debt (French GAAP) allocated to "Outside expenses" (IFRS). Including -5,884 reversed from a provision for contingencies and losses (French GAAP) deducted from provisions (IFRS).
Including -44,311 in changes in finished goods and work in progress (French GAAP) allocated to changes in finished goods and work in progress (IFRS).
Including -130,648 reallocated from "Raw materials and other outside expenses” (French GAAP) to "Outside expenses" (IFRS). Including -5,112 in charges to a provision for inventories and doubtful debt (French GAAP).
(3) Including -5,112 in charges to a provision for inventories and doubtful debt (French GAAP).
Including -5,884 reversed from provisions for contingencies and losses (French GAAP) deducted from provisions (IFRS).
a) Capitalization of development expenditure
b) Mostly impact from stock options c) Changes in liabilities to employees
List of consolidated companies at February 28, 2006
Company name Country Group ownership
interest (%)
Fully-consolidated companies:
Zodiac S.A France Parent company
Immobilière Galli France 100.00
Zodiac US Corporation U.S.A. 100.00
AeroSafety Systems Segment:
Aérazur (excluding "Airbag" Division ) France 100.00
Parachutes de France and subsidiary France 100.00
Plastiremo France 100.00
Air Cruisers U.S.A. 100.00
Pioneer U.S.A. 100.00
Amfuel U.S.A. 100.00
Engineered Arresting Systems Corp U.S.A. 100.00
Befab Safeland Limited UK 100.00
Icore UK LTD UK 100.00
Icore International GMBH Germany 100.00
Icore International Inc U.S.A. 100.00
Zodiac Equipments Tunisia SARL Tunisia 100.00
Cabin Interiors Segment:
Sicma Aéro Seat France 100.00
Someco France 100.00
Sicma Aéro Seat Services U.S.A. 100.00
Weber Aircraft U.S.A. 100.00
Monogram Aerospace Industries U.S.A. 100.00
Sicma Aero Seat España Spain 100.00
Sicma Middle East
United Arab
Emirates 100.00
Evac GMBH Germany 100.00
Evac LTDA Brazil 100.00
Evac AB Sweden 100.00
Aircraft Systems Segment:
Intertechnique France 100.00
ECE France 100.00
ECE GmbH Germany 100.00
Intertechnique Services Americas LLC U.S.A. 100.00
IDD Aerospace Corp U.S.A. 100.00
IN-Flex France 100.00
Intertechnique Aerospace Ltd UK 100.00
IN-LHC France 100.00
Précilec France 100.00
Avox Eros Services U.S.A. 100.00
INS Asia Hong Kong 48.75
Emirates
Avox Systems U.S.A. 100.00
Air Actuators Singapore Singapore 100.00
Technology Segment:
Aérazur ("Airbag" Division) France 100.00
Zodiac Automotive España SL Spain 100.00
IN Snec France 100.00
Heim Data Systems Inc U.S.A. 100.00
Heim Systems GmbH Germany 100.00
Zodiac Automotive Division France 100.00
Zodiac Airbags Tunisie Tunisia 100.00
Zodiac Automotive UK UK 100.00
Zodiac Automotive US U.S.A. 100.00
Marine Segment :
Zodiac Marine Holding France France 100.00
Marine Division:
Zodiac International France 100.00
Zodiac Italia Italy 100.00
Zodiac of North America U.S.A. 100.00
Zodiac Española Spain 100.00
Zodiac Hurricane Technologies Canada 100.00
Avon UK 100.00
Zodiac Hungary Hungary 100.00
Evac OY Finland 100.00
Evac SARL France 100.00
Evac LTD UK 100.00
Evac Vacuum Systems China 100.00
Evac International OY Finland 100.00
Evac North America U.S.A. 100.00
Pool Division:
Zodiac European pools France 100.00
Zodiac Pool care Europe France 100.00
Zodiac Kern Germany 100.00
Debes und Wunder Germany 100.00
Europool Italy 89.50
Zodiac Group Australia Australia 100.00
Zodiac American pools U.S.A. 100.00
Zodiac Pool Iberica Spain 100.00
Zodiac Pool Care Inc U.S.A. 100.00
Zodiac Pool Care South Africa PTY South Africa 100.00
Zodiac Pool Care Canada Canada 100.00
Vogue Pool Products Canada 100.00
Vogue Europe France 100.00
P.S.A France 100.00
Zodiac Pool Heating Inc Canada 100.00
Polaris Pool Systems Inc U.S.A. 100.00
Polaris Pool Systems Australia PTY Australia 100.00
Main exchange rates used in consolidation Balance sheet Income statement U.S. dollar 1.1875 1.1992 Canadian dollar 1.3532 1.4012 Australian dollar 1.6051 1.6035
South African rand 7.3520 7.6318
British pound 0.6796 0.6811
Property, plant and equipment by segment and geographical area (in thousands of
euros) Europe America
Rest of world Total AeroSafety Systems 19,661 23,286 1,182 44,129 Aircraft Systems 50,852 10,512 594 61,958 Cabin Interiors 14,268 45,988 11 60,267 Technology 10,992 1,513 3,609 16,114 Marine 26,455 22,243 2,220 50,918 Zodiac SA 20,154 20,154 142,382 103,542 7,616 253,540
Goodwill and intangible assets by segment and geographical area (in thousands of
euros) Europe America
Borrowings and other debt (in thousands of euros) At 28 Feb 2006 At 31 Aug 2005 A. Non-current debt Confirmed syndicated loans (euros) 670,000 650,000 Confirmed syndicated loan (USD) 377,396 325,404
Cash (in thousands of euros) At 28 Feb 2006 At 31 Aug 2005 Cash and cash
equivalents 57,618 61,201 Marketable securities 415 332 Current financial liabilities 455,637 402,241 Commercial paper (418,000) (379,000) Current portion of
long-term loans and reimbursable
advances (1,200) (1,064)
Banks 36,437 22,177
Provisions
Income tax
Balance sheet: Deferred taxes
(in thousands of euros) At 28 Feb. 06 At 31 Aug. 05
Deferred tax liabilities 27,258 35,260
Deferred tax credits 14,282 18,280
Net deferred taxes 12,976 16,980
Breakdown of net amount by category:
Deferred tax credits on transactions 32,226 43,694
Tax credits booked 1,314 1,314
Intercompany inventory sales 7,634 5,531
Adjustments for regulated provisions (4,734) (5,214)
Development costs (19,590) (24,111)
Other (3,874) (4,234)
Total 12,976 16,980
Income statement: Breakdown by deferred taxes and taxes due
(in thousands of euros) At 28 Feb 06 At 28 Feb 05
Deferred taxes (1,792) (1,528)
Income tax payable 37,513 28,082
(in thousands of euros) At 28 Feb 06
Income before tax 103,011
Tax rate 34.43%
Theoretical tax 35,467
Incidence of reduced-rate tax (258)
Impact of tax rates in countries other
than France 688
Tax credit for research and training 0
Other (including audits) (176)
Consolidated income tax 35,721
Effective tax rate 34.68%
Off-balance sheet commitments
(in thousands of euros) At 28 Feb 06
At 31 Aug 05
Commitments given
Long-term rentals 91,389 89,062
Actuarial gains or losses on pension
obligations (net of deferred taxes) 1,878 1,878
Other guarantees given 5,332 5,244
Pledges 535,673 535,673
Commitments received through
Breakdown of held-for-sale operations Assets 31 Aug. 2005 31 Aug. 2005
Non-current assets: Non-current liabilities:
Goodwill 24,931 Provisions 537
Net intangible assets 114 Deferred taxes 4,765
Net property, plant and equipment 1,115
Financial assets 401
Deferred tax assets 293
26,854 5,302
Current assets: Current liabilities:
Net inventories and work in progress 3,097
Current tax assets 1,622 Provisions 892
Net trade and other receivables 21,713 Current tax liabilities 580
Cash and cash equivalents 1,498 Trade and other payables 14,794
27,930 16,266
Consolidated sales by segment as of February 28, 2006 (1)
(in thousands of euros) Europe
North America Asia Rest of world Total AeroSafety Systems 72,815 65,366 7,037 9,735 154,953 Aircraft Systems 159,033 77,675 15,563 6,908 259,179 Cabin Interiors 104,076 222,143 36,922 42,331 405,472 Technology 61,452 9,943 5,205 349 76,949 Marine 75,590 79,134 5,141 30,495 190,360 Total 472,966 454,261 69,868 89,818 1.086,913
Consolidated sales by segment as of February 28, 2005 (1)
(in thousands of euros) Europe
North America Asia Rest of world Total AeroSafety Systems 64,717 61,349 8,936 8,631 143,633 Aircraft Systems 123,685 74,744 12,571 6,023 217,023 Cabin Interiors 70,898 74,540 24,460 19,310 189,208 Technology 68,601 7,615 10,661 11,764 98,641 Marine 75,876 54,851 3,843 29,840 164,410 Total 403,777 273,099 60,471 75,568 812,915
Ordinary operating income as of 28 February 2006 by segment and geographical area (2)
(in thousands of euros) Europe North America Rest of world Total AeroSafety Systems 10,239 12,692 132 23,063 Aircraft Systems 34,136 5,797 706 40,639 Cabin Interiors 14,234 33,721 (253) 47,702 Technology 5,897 (282) (74) 5,541 Marine 567 8,276 7,081 15,924 Zodiac S.A (528) (528) 64,545 60,204 7,592 132,341
Ordinary operating income as of 28 February 2005 by segment and geographical area (2)
(in thousands of euros)
Europe North America Rest of world Total AeroSafety Systems 9,842 11,519 (62) 21,299 Aircraft Systems 21,448 5,420 545 27,413 Cabin Interiors 7,291 16,475 (124) 23,642 Technology 7,545 (394) (415) 6,736 Marine 2,693 6,320 7,287 16,300 Zodiac S.A (692) (692) 48,127 39,340 7,231 94,698
Review of operations - first half of FY 2005/2006
Revenues expanded appreciably in the first half, driven by: - persistently robust organic growth;
- the impact of the change in scope of consolidation, with the inclusion of C&D;
- a favorable dollar impact compared with the same year-ago period On the whole, our results were as follows:
- revenues on a like-for-like basis and at constant exchange rates were up 9.2%; (organic growth);
- revenues including the currency impact and changes in the scope of consolidation rose 33.7%.
In addition:
- ordinary operating income was sharply higher, up 39.8%;
- IFRS net income after financial expenses and income tax increased by 33.3%.
The weak dollar once again adversely affected the Group’s results. However, the situation did not deteriorate further and the dollar remained at a comparable level year-over-year.
Operating income was driven up mainly by organic growth and, to a lesser extent, by the change in scope of consolidation.
Significant acquisitions
The Group did not make any significant acquisitions during the first half. The last significant acquisition was C&D in July-August 2005. This company was
consolidated for the first time as of August 31, 2005.
Another acquisition – the Safran Group’s "Actuators" unit – was completed in December 2005. This business has some 100 employees and generates revenues of $20 million.
In November 2005, the Group disposed of Ferma for €36.5 million.
AERONAUTICAL BUSINESSES
Business in the commercial aviation market was healthy in a generally favorable climate and was buoyed by a build-up in production in the OEM segment. Business momentum was slacker in regional aviation but was solid in the corporate aviation and helicopter markets. After-sales business was stronger than expected.
Ordinary operating income for the aeronautical businesses jumped 54%.
AeroSafety Systems Segment
The segment posted a good performance overall, even though the civilian and defense components turned in mixed results. The segment delivered organic growth of 2.7% and overall growth of 7.9%.
Ordinary operating income advanced 8.3% and the ordinary operating margin edged up to 14.9%.
Aircraft Systems Segment
The segment posted handsome results in the first half, with organic growth of 14.2% and overall growth of 19.4%.
Ordinary operating income rose appreciably and the ordinary operating margin moved up to 15.7%.
These good first half results are mainly attributable to a volume effect generated by the build-up in aircraft production coupled with a product mix effect due to strong after-sales business.
Cabin Interiors Segment
The segment reported an excellent first half with organic growth of 20.2%. Overall, revenues more than doubled owing to the consolidation of C&D.
Ordinary operating income also doubled.
The Seats business reported substantial growth in a persistently healthy market. C&D's sales were in line with projections but its earnings fell short of the budget. This situation is expected to improve in the second half.
OTHER BUSINESSES
Marine
Business for this segment was mixed during the first half, yielding modest organic growth of 0.6%. The segment's revenues moved up 15.8%.
Ordinary operating income was slightly lower than in the same year-ago period. Because of the seasonal nature of the segment's business, first-half results are not very meaningful.
The Marine and Pool Care businesses registered growth, while above-ground pools posted a substantial decline.
Technology
Organic growth in this segment dipped slightly. This was due mainly to the fall-off in sales for the Airbag division, which is undergoing industrial restructuring. The Telemetering business is expanding, especially outside France.
The segment's operating margin edged up.
Growth prospects for the next two years remain satisfactory
General conditions in our main business lines remain satisfactory and should enable the Group to sustain solid organic growth in FY 2005/2006 and 2006/2007, even on the heels of 9% organic growth in 2004/2005. Growth is expected to be in the 8%-9% range in 2005/2006 and 5%-6% in 2006/2007.
We are looking for per-share earnings growth of some 25% in 2005/2006 and further expansion in 2006/2007.
Zodiac S.A.
Six months from September 1, 2005 to February 28, 2006
Statutory Auditors' report on the financial information for the first half of FY 2005/2006
(Articles L. 232-7 of the Code de Commerce and Article 297-1 of the decree of March 23, 1967)
EURAAUDIT
EURAAUDIT FIDEURAF
135, boulevard Haussmann 75008 Paris
S.A. with authorized capital of €160.000
Statutory Auditors Memb er, Compagnie
Régionale de Paris
ERNST & YOUNG Audit
Faubourg de l'Arche 11, allée de l'Arche 92037 Paris -La Défense Cedex
S.A.S. with variable capital
Statutory Auditors Member, Compagnie Régionale de Versailles Zodiac S.A.
Six months from September 1, 2005 to February 28, 2006
Statutory Auditors' report on the financial information for the first half of FY 2005/2006
(Articles L. 232-7 of the Code de Commerce and Article 297-1 of the decree of March 23, 1967)
To the Shareholders:
In our capacity as Statutory Auditors and in compliance with Article L. 232-7 of the Code de Commerce: • We conducted a partial audit of the consolidated statement of operations and income presented in the
form of consolidated first-half accounts for Zodiac, S.A., for the six months from September 1, 2005 until February 28, 2006, as appended to this report;
• We reviewed the information provided in the management report for the first half.
The consolidated financial statements for the first half have been prepared under the Executive Board’s responsibility. Our role is to express an opinion on these consolidated financial statements, based on our audit.
In view of the transition to IFRS as adopted by the European Union, which will be used to prepare the consolidated financial statements for the fiscal year ending August 31, 2006, for the first time, the first-half consolidated financial statements have been prepared by applying the recognition and measurement principles set out in IFRS as adopted by the European Union, as described in the notes to the financial statements, and the rules of presentation and information applicable to interim accounts as defined by the AMF General Regulations. For purposes of comparison, they include data for the fiscal year ended August 31, 2005 and for the first half of FY 2004/2005 (six months from September 1, 2004 until February 28, 2005), which have been restated in accordance with the same rules, with the exception of IAS 32 and
Zodiac S.A. 2 We conducted our partial audit in accordance with French auditing standards. Those standards require that we plan and perform the partial audit so as to obtain a degree of assurance, which is not as high as that obtained through a full audit, that the consolidated first-half accounts are free of material misstatements. An audit of this type does not include performing all the examinations required for a full audit, but is confined to conducting the analyses and obtaining the information we deemed to be necessary from the management and the appropriate persons.
Based on our partial audit, we have identified no material misstatements that raise questions over the fairness and accuracy of the consolidated accounts for the first half, which were prepared in accordance with the recognition and measurement principles set out by IFRS as adopted by the European Union, as described in the notes to the financial statements, and the rules of presentation and information applicable to interim accounts as defined by the AMF General Regulations.
Without qualifying our opinion, we draw your attention to Note A to the financial statements, which describes:
• the options adopted for the presentation of the consolidated financial statements for the first half, which do not include all information in the notes required by IFRS as adopted by the European Union and which, in accordance with these standards, fairly reflect the assets, financial position and results of operations for the entity consisting of the companies included in the scope of consolidation.
• The reasons why the comparative information to be presented in the consolidated financial statements for the year ending August 31, 2006 and in the consolidated financial statements for the six months ending February 28, 2007 may differ from the accounts appended to this report;
• the option allowed by IFRS 1, which your Company has adopted, not to restate the comparative information on financial instruments in accordance with IAS 32 and IAS 39, which have been applied since September 1, 2005.
We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements for the first half.
Paris and Paris-La Défense, May 9, 2006
The Statutory Auditors EURAAUDIT FIDEURAF
Yves Blaise
ERNST & YOUNG Audit
Zodiac S.A.