1. James Hardie Industries Limited

2. James Hardie Industries Limited
Lecturer: Stephen Lim
Group members:
Shaun R. Stewart 12064681
Luke Rowles 10742029
Joshua Chhay 10276374
Xin Xiao 11870957
Raed Al-Bader 11669761
MD Feisul Kahir 11070226

3. Table of Content
• Introduction of James Hardie’s Activities,Strategies and Market Segment
• Key accounting policies of James Hardie
• Evaluate the flexibility management
• Evaluation of Accounting strategy employed
• Evaluate the quality of the disclosure
• Potential questionable accounting numbers
• Undo Accounting Distortions
• Financial press discussion
• Conclusion

4. 1.Company’s activities and strategies
• James Hardie Industries Public Limited
Company operates in the
construction and building materials
sector
• Founded in Melbourne, Australia in
1888 the company is now
incorporated in Ireland, however it is
listed on the ASX with stock code JHX
• Core to the strategy of James Hardie
has been to invest in high-return
organic growth with a focusing on
capacity expansion across the US
and Australian businesses

5. Market Segment
• Key profit driver: Manufacturing and
distributing fibre cement products
throughout Australia ,the Asian
Pacific region, the USA and Europe
• Competitive advantage:
Development of its research
capabilities to develop
differentiated, unique and superior
products.

6. 2. Key Accounting Polices

7. Related Accounting Standard and
Rules

8. 3. Management Flexibility

9. 4. Disclosure Strategy
DOCUMENT DETAIL
Amended & Restated Final Funding Agreement
This agreement is intended to ensure “JHISE Group's
commercial viability and success will provide the
basis for the long term funding of the claims which
are to be subject to those funding arrangements”
Valuation of Asbestos-Related Disease Liabilities of
former James Hardie entities (“the Liable Entities”) to
be met by the AICF Trust Prepared for Asbestos
Injuries Compensation Fund Limited (“AICFL”):
This actuarial estimation of the Asbestos Liability is
the detailed basis for the liability appearing on
balance sheet.
Asbestos Injuries Compensation Fund Limited
(“AICFL”) Statutory Financial Statements
The annual report for the Asbestos compensation
fund, which also forms part of the JHX consolidated
annual report. JHX is required to pay annually 35% of
Free Cash Flow as defined by the agreement as “net
cash provided by operating activities (as calculated
in accordance with US GAAP, paid to the AICF.

10. Management Remuneration Policy
STI
20%
Individual Performance Plan (STI): 1 -3 year performance targets set internally via matrix
dependent upon business stream
80%
Company Performance Plan: 1 -3 year performance targets set internally via matrix with
industry peer comparison.
 Revenue Growth
 EBIT (indexed to housing starts) excluding asbestos, asset impairments, ASIC expenses and
New Zealand product liability.
 Above the 75th percentile (top 25%) of peer group performance in Revenue and
Profitability.
LTI
40%
Return on Capital Employed (ROCE) RSUs – an indicator of growth in the value of the
Company’s capital efficiency over time;
30%
Relative Total Shareholder Return (TSR) RSUs – an indicator of the Company’s performance relative to its US
peers; Above the 75th percentile (top 25%) of peer group performance in Revenue and
Profitability.
30%
Internal Individual Scorecard LTI – an indicator of each senior executive’s contribution to
the Company achieving its long-term strategic goals.

11. Accounting Strategy
The AFFA allows a framework to partial quantification. The combined liability is
forecast annually by external KPMG Actuaries for a central estimate, then NPV
adjustments are disclosed for:
• Inflation (discounted for future inflation)
• Discounted (return on funds in escrow and operations owed but not yet paid)
• Net of anticipated Insurance Recoveries
The impact of such adjustments reduces the liability by almost half in 2014 from Gross
Amount $3,132m to $1,870m.
(US $billions) 2012 2013 2014
Central Estimate
$1.58 $1.69 $1.87
Management
Adopted Estimate
$1.66 $1.69 $1.71

12. Asbestos Offset Asset
ITEM INCOME TAX RECEIVABLE & INSURANCE RECEIVABLE
DESCRIPTION
The Tax Receivable estimate is clearly a theoretical asset dependent upon
future positive income.
Under US GAAP Tax Receivables are allowed to be recognised in full and
revalued over time.
Insurance Receivable is Audited under terms of the AFFA as it was seen as a
measure which could be manipulated to reduce the cash outflow to ACIF due
to a clause in the AFFA in which JHX must maintain capital acceptable to
undertake its business.
STRATEGY
Valuation of these items is not documented or implied in the notes to the
accounts as these items are complex to estimate due to their contingent
relationship with the Asbestos Liability estimate which itself is fraught with
complex assumptions regarding timing and value.
OUTCOME
These items offset the large Asbestos Liability held on balance sheet improving
the Equity Ratio and Current Ratio.

13. Asbestos Expense
ITEM ASBESTOS ADJUSTMENTS
DESCRIPTION
Actuarial estimates of the Asbestos liability are reassessed each year and
changes in the liability estimate are expensed each year.
STRATEGY
1. The Asbestos Liability is re-estimated annually by KPMG Actuaries.
2. The company uses the ‘Asset and Liability method’ to assess deferred
Tax Assets and Liabilities allowing the accrual of Tax Assets
OUTCOME
1. Increases in the Actuarial Estimate of Asbestos Liability are expensed
each year.
2. This decreases Net Profit creating a Tax Shield, and regularly
originates a deferred Tax Asset to offset against Tax Expenses in
current and future trading years.

14. 5. Quality of the Disclosure
 Financial Information
• All relevant statements have been provided.
• Prepared in accordance with US GAAP. Management is required
to make assumptions that affect the amount of assets and
liabilities.
• The assets, liabilities, revenues and expense are stated in US Dollar.
 Non-Financial information
• All related reports have been provided including the auditor’s
report by Ernst & Young.

15. 5. Quality of the Disclosure
 Other Information
• Operation scope
• Production
• Asbestos Injuries Compensation.
 Supplementary Material
• Amended & Restated Final Funding Agreement (AFFA).
• Valuation of Asbestos-Related Disease Liabilities of former James Hardie
entities.
• AICF Annual Financial Statements

16. 6.Potential Questionable Accounting
Numbers
1. Management discretion presenting the Asbestos Liability
2. US GAAP requirements when recognising provisions are comparatively more aggressive
when compared to IFRS when realising a provision:
- The realisation must have 75% or greater probability –(IFRS uses a 50% probability)
- Amount of loss can be reasonably estimated
- Use best estimate, or Lowest Range – (IFRS requires a Mid-Range if no best estimate)
3. The Asbestos liability is offset against related assets Insurance Receivable and Unrealized
Tax Assets that are heavily contingent on the liability itself and other future events such as
Net Profit and Compensation Claims.
(US $billions) 2012 2013 2014 Assumptions
Central Estimate by
Actuary
$1.5
8
$1.6
9
$1.87
Inflated
Discounted
Post-Insurance
Recovery
Management
Adopted Estimate
$1.6
6
$1.6
9
$1.71
Uninflated
Undiscounted
Pre-Insurance
Recovery

17. 7. Undoing Distortions
The inclusion of such adjustments reduces the liability by almost
half in 2014 from Gross Amount $3,132m to $1,870m.
CURRENT ASBESTOS ASSETS 109.1 CURRENT ASBESTOS LIABILITIES 185.8 CORRECTION
Restricted Cash & Equivalents -
Asbestos
60.2 Current Portion of Long Term Debt-
Asbestos
47.0 47.0
Restricted Short Term Investments -
Asbestos
0.1 Asbestos Liability 134.5 134.5
Insurance Receivable - Asbestos 28.0 Workers Compensation - Asbestos 4.3 4.3
Workers Compensation - Asbestos 4.3
Deferred Income Taxes - Asbestos 16.5
NON-CURRENT ASBESTOS ASSETS 700.9 NON - CURRENT ASBESTOS
LIABILITIES
1,619.3
Insurance Receivable - Asbestos 198.1 Asbestos Liability 1,571.7 2,950.5
Workers Compensation - Asbestos 47.6 Workers Compensation - Asbestos 47.6 47.6
Deferred Income Taxes 455.2
TOTAL ASBESTOS ASSETS 810.0 TOTAL ASBESTOS LIABILITIES 1,805.1 3,183.9
NET ASBESTOS LIABILITIES 995.1 2,373.9

18. 7. Undoing Distortions
P&L $,000 CORRECTION
Net Sales 1,493.8 1,493.8
COGS -987.4 -987.4
GROSS PROFIT 506.4 506.4
General Admin Expenses -224.4 -224.4
Research Expenses -33.1 -33.1
Asset impairments -
Asbestos Adjustments -195.8 0
Net Interest -1.1 -1.1
Other Income 2.6 2.6
Income before Taxes 54.6 250.4
Income Tax Benefit 44.9 0*
Net Profit 99.5 250.4
*Tax benefit treatment incalculable due to non-disclosure in the financials

19. 8.Financial Press Discussion
 Binsted (2015a) in the Sydney Morning Herald highlights the
11% rise in third-quarter adjusted profit to $US48.6m, even in
light of an underwhelming United States housing recovery.
 Binsted (2015b) in a further article in the Sydney Morning
Herald illustrates that taxpayers may need to cover any
asbestos related payouts if contributions from James Hardie
were insufficient to cover claims.
 Towards the end of 2014 there was much discussion around
James Hardie’s tax minimisation efforts, with Aston (2014)
highlighting in the Sydney Morning Herald that James Hardie
has “paid an average of $0 in corporate tax over the past
decade”.

20. Conclusion